At the Parliament sitting on Apr 4, 2022, Second Minister for Trade and Industry Tan See Leng explained to the House how Singapore gets its electricity and the various measures to hedge against supplies disruptions.
Of Piped Natural Gas and Liquefied Natural Gas
According to Minister Tan, around 95 per cent of Singapore’s electricity is generated from imported natural gas.
There are generally two types of long-term contracts – Piped Natural Gas (PNG) and Liquefied Natural Gas (LNG) – that electricity generation companies rely on.
These companies also use spot LNG on an opportunistic basis to supplement long-term contracts. Spot contracts are often used to take advantage of low prices.
This combination has allowed Singapore to keep electricity prices relatively stable and mitigate impact of global price shocks, he said.
Cannot fully insulate from volatilities
“However, we cannot fully insulate ourselves from the volatilities in the global energy market,” he added.
And this is evident.
Since Sep 2021, there were a confluence of factors that drive up oil and natural gas prices, spilling over into our domestic energy market.
These factors include:
– Increased oil and gas consumption as major economies emerged from pandemic. The seasonally-high energy consumption during winter in the northern hemisphere and unexpected gas product outages also contributed to a mismatch of supply and demand.
– Upstream production issues in Indonesia’s West Natuna gas field and gas pressure issues from South Sumatra in fourth quarter of 2021 also caused disruptions to Singapore’s PNG supples. This resulted in electricity generation companies having to purchase more spot LNG at elevated global prices to make up for the drop in PNG supplies.
– Currently, despite the end of the winter in the northern hemisphere and that the upstream gas production issues in Indonesian gas fields have been resolved, gas supply remains tight, exacerbated by the Ukraine War.
Measures to secure electricity supply
To hedge against such volatilities, there must be measures.
Thankfully, Minister Tan said that Ministry of Trade and Industry and Energy Market Authority have put in place measures to secure our electricity supply and maintain the orderly functioning of the wider energy sector.
He said that since October last year:
– A Standby LNG Facility (SLF) was established, which electricity generation companies can draw from to generate electricity in the event of disruptions to their natural gas supplies.
– Requirements for electricity generation companies were also put in place to contract sufficient fuel to meet demands.
– To maintain power system stability and reliability, market rules were modified to allow EMA to direct electricity generation companies to generate electricity using gas from the SLF, if there are potential temporary shortages in energy supply.
These measures bolster the companies’ existing stockpile and provide additional layers of fuel security to cope with the short-term shocks to global gas supply and ensure that we have sufficient fuel and electricity supply and stabilised the Uniform Singapore Energy Price (USEP).
The average USEP for the first quarter 2022 has stabilised to around $360/MWh – around the cost of electricity production – compared to an average of $460/MWh in the fourth quarter of last year, he added.
Finance Minister Lawrence Wong also said that he will bring forward the implementation of Budget 2022’s measures where possible.
Cover photo credit: Lily Banse on Unsplash and MCI Youtube page