The stage is set for Singapore to embark on LNG (liquefied natural gas) bunkering after the Maritime and Port Authority of Singapore (MPA) handed out the first pair of licences to Pavilion Gas and a joint venture between Keppel Offshore & Marine and BG.

The duo were declared winners of the LNG bunkering licences following the evaluation of 12 bids received in response to a request for proposal, which closed on Sept 30.

MPA will work with the two licence holders to develop the necessary infrastructure for them to begin supplying LNG bunker to vessels in the Port of Singapore by early 2017.

The pilot LNG bunkering operations were part of MPA's efforts to align the port with "growing international regulatory requirements and stricter standards for emissions", its chief executive Andrew Tan said.

The use of the cleaner burning fossil fuel alternative is among the options being explored by ports and vessel owners looking to comply with International Maritime Organisation's cap on sulphur emissions due to kick in by 2020.

Mr Tan views LNG as "likely to (form) part of the fuel mix for global shipping" as it "becomes more cost-competitive" and the necessary supply chain and infrastructure are developed.

MPA is concurrently looking to fund up to S$12 million for the building of six LNG-fuelled vessels in a move to stimulate demand for LNG as a bunker fuel. Evaluation is underway on five applications for the LNG-fuelled vessel incentives. The awards will be announced by March.

MPA is also in dialogue with towage service providers in Singapore, to encourage them to switch to LNG fuel when they commission new tug boats.

Pavilion Energy Group chief executive Seah Moon Ming said: "It is exciting to see the growth of the LNG bunkering industry as it supports Singapore's efforts to be an Asian LNG Hub." Pavilion was involved along with the Singapore Exchange and IE Singapore in developing Singapore's LNG index SLInG, which is touted as a transparent and fair benchmark in Asia going forward for trading of LNG cargoes.

The development of an Asian benchmark will also go towards encouraging spot trading of LNG cargoes, deemed essential for the increased use of the commodity beyond power generation.

Pavilion and Trafigura have performed the first SLInG LNG swap following the launch of the SGX FOB Singapore SLInG LNG derivatives contract two days ago, Mr Seah noted in his acceptance speech for the APAC Innovation of the Year Award conferred by the Oil & Gas Council.

The partners named for the second LNG bunkering licence, Keppel O&M and BG, will form a 50:50 joint venture aimed to tap BG's diversified portfolio to source LNG supplies and leverage on Keppel O&M's expertise in LNG vessel servicing in delivering an end-to-end bunkering solution.

BG, as the exclusive gas aggregator for the first three million tonne per annum of LNG imports into Singapore, has already delivered 72 cargoes into Singapore from its global LNG portfolio.

BG's executive vice-president for global energy marketing and shipping, Steve Hill, said LNG "can significantly reduce a vessel's environmental impact" given its "considerably lower emissions" compared to conventional marine fuel.

Keppel O&M chief executive Chow Yew Yuen said: "Together with Keppel's years of experience and expertise in servicing vessels including gas carriers, (the joint venture) will be able to provide strong support to MPA in its goal to develop Singapore into a key LNG bunkering hub in Asia."

Keppel O&M is a potential contender for MPA's LNG-fuelled vessel incentives. The leading O&M player set up a new design and technology arm, Gas Technology Development, in 2015 to channel its efforts towards developing solutions for the LNG market. Its marine technology development unit has already developed a range of designs for LNG vessels including barges, carriers, and dual-fuel tugs that can run on diesel and LNG.

Singapore is the world's top bunkering port. Total bunker sales at the Port of Singapore reached 45.2 million tonnes in 2015.