Middle East conflict likely to raise global energy and Singapore electricity prices: EMA

[SINGAPORE] Singapore electricity prices could rise if global gas prices remain elevated amid Middle East tensions, the Republic’s energy regulator told The Business Times.

Singapore relies on imported liquefied natural gas (LNG) to generate 95 per cent of its electricity – including supply from Qatar shipped through the Strait of Hormuz.

“The situation in the Middle East is likely to increase global energy prices and lead to higher domestic electricity prices,” said a spokesperson for the Energy Market Authority (EMA), in response to queries from BT.

Gas prices have surged as much as 50 per cent in European and Asian markets, after the world’s largest LNG producer, QatarEnergy, was forced to shut down production in the wake of drone attacks.

Most electricity consumers are “cushioned” from immediate price volatility as they are purchasing electricity either through a fixed-price retail contract from retailers or the regulated tariff from SP Group, the spokesperson said.

However, some consumers on retail contracts may see an increase in electricity prices at the point of contract renewal, if fuel costs remain elevated at that point, the spokesperson noted.

Likewise, households on the regulated tariff may see a rise in prices in coming quarters, if fuel costs stay high. Regulated tariffs are adjusted every quarter based on average fuel costs in the first two-and-a-half month period of the preceding quarter.

“EMA will continue to closely monitor global developments and work with industry partners to safeguard Singapore’s energy security,” said the EMA spokesperson.

Prepared since 2021 Global Energy Crisis

The Republic’s electricity market was previously hit by the global energy crisis between 2021 and 2022, with large swings in wholesale electricity prices.

The market was rocked by Russia’s invasion of Ukraine, which led to the energy crisis, coupled with strong post-pandemic energy demand and an unplanned gas curtailment from Indonesia.

The volatility hit Singapore’s electricity retailers, especially those that did not sufficiently hedge their exposure. Five players exited the market in late-2021 – a development seen as a setback for the liberalisation of the power sector.

EMA has since taken measures to strengthen the market’s resilience.

Since 2021, the energy regulator has established a standby LNG facility, which power generation companies, or gencos, can draw from to generate electricity if their natural gas supplies are disrupted.

It also requires gencos to maintain sufficient fuel for power generation based on their available generation capacity.

In 2023, EMA introduced the temporary price cap mechanism to act as a “circuit breaker” that is activated during periods of high and sustained volatility in the Singapore Wholesale Electricity Market.

It also set up a new centralised gas buyer, GasCo, to procure natural gas from diverse sources and enter into longer-term gas contracts for price stability.

“These measures help secure our fuel and electricity supply and mitigate price volatility,” said the EMA spokesperson.

GasCo declined to comment on BT’s queries on Singapore’s exposure to the Middle East gas market and actions it has taken or may take to stabilise the market.