Singapore to centralize gas procurement to ensure energy security, stable pricing

SINGAPORE: Amid projections that natural gas will fuel more than half of Singapore’s power generation needs by 2035, the Energy Market Authority (EMA) announced a strategic shift towards centralizing the procurement and supply of gas. This move aims to maintain sufficient, reliable, and competitively-priced gas supplies, critical to Singapore’s energy security as it gradually scales up low-carbon energy sources.

The new strategy was unveiled at the Singapore International Energy Week at the Marina Bay Sands. Minister for Trade and Industry Gan Kim Yong described the establishment of a central gas company, Gasco, as a fundamental shift. By aggregating demand from generation companies (gencos), the initiative will create a more stable and secure power system to benefit both consumers and gencos.

This robust strategy provides a firm foundation for Singapore’s energy transition, essential for meeting its ambitious target of net zero emissions by 2050. Natural gas, the least carbon-intensive fossil fuel, currently powers 95% of the nation’s electricity. Tackling emissions from this sector, which contributes around 40% of Singapore’s carbon emissions, is a priority.

The decision follows concerns over individual gencos’ procurement strategies, which prioritize short-term commercial considerations over long-term energy security. This approach proved particularly problematic during the 2021-2022 global energy crisis, where reduced contract volumes amidst high prices led to significant wholesale electricity price fluctuations.

The reluctance of many gencos to enter into more stable, long-term contracts exposes Singapore to vulnerabilities, especially during crises. The centralization under Gasco seeks to rectify this, ensuring additional volumes are procured as needed, contributing to overall energy security and price stability.

Singapore currently sources its natural gas from Indonesia and Malaysia, as well as liquefied natural gas (LNG) from various countries, through four licensed importers: ExxonMobil LNG Asia Pacific, Pavilion Energy Singapore, Sembcorp Fuels (Singapore), and Shell Eastern Trading. Global market volatility and the energy transition could deter gencos from riskier procurement, necessitating the government’s intervention.

The centralized approach will be applied to all incremental gas demand, including contract renewals, although gencos can maintain existing arrangements. Industrial gas customers, however, will remain outside this framework, continuing to procure gas through licensed importers.

EMA plans to operationalize Gasco in 2024, with upcoming consultations set to detail the framework. This centralization is expected to enable larger economies of scale, allowing Singapore to negotiate better contract terms, diversify sources, and secure more stable prices and supplies.

In response to parliamentary questions last November about the restructuring’s impact on energy price volatility and consumer benefits, the Minister of State for Trade and Industry, Ms Low Yen Ling, highlighted measures to aggregate gas procurement and secure longer-term contracts. These steps are crucial to bolstering the resilience and security of Singapore’s natural gas supply, she affirmed on behalf of the Minister for Trade and Industry.

In September, SP Group, a Temasek-owned utility, revealed an upcoming 3.7 per cent increase in electricity tariffs for the year’s final quarter, attributing the hike to higher energy costs from the previous quarter. This adjustment translates to an additional cost of 0.98 cents per kWh, not including Goods and Services Tax (GST).

Households will see their electricity tariffs rise from 27.74 cents to 28.70 cents per kWh before GST, potentially increasing the average monthly electricity bill for families in Housing Board’s four-room flats by around S$3.57 (US$2.60).

The tariff comprises various elements, including energy costs from generation companies, network costs, market support service fees for the SP Group, and administration fees for market companies and system operators. The energy cost component, adjusted quarterly, mirrors the fuel and power generation expenses, directly linked to the prices of imported natural gas, which are contractually bound to oil prices.