Singapore takes extraordinary steps to secure energy supplies

Singapore is taking extraordinary steps to secure energy supplies as rising fuel prices hit the import-reliant country's electricity market, with three retail suppliers announcing they will halt services in just over a week.

While the government insists that energy supplies remain sufficient, its moves come amid global concerns over tight electricity supplies that threaten both businesses and consumers.

On Tuesday, Singapore's Energy Market Authority said it would make government fuel reserves available to power companies in the event gas supplies are affected or there is a need to ensure reliable electricity supply. It also asked the companies to secure enough fuel to at least meet the demands of customers of their retail arms. These pre-emptive measures are necessary but extraordinary to secure our fuel and electricity supply, the authority explained in a statement.

While rising fuel prices have been seen worldwide, Singapore is in a unique position as about 95% of its electricity is generated from imported natural gas. Over the past months, spot liquified natural gas prices increased sharply due to increased demand from China and elsewhere, while gas and coal production decreased. Meanwhile, gas supplies via pipeline to Singapore have been affected by upstream production issues in an Indonesian gas field, the EMA said, with reduced output expected to last until the end of the year.

The Singapore power crunch is certainly alarming, said Wood Mackenzie, a senior analyst at energy research company Ken Lee, pointing out that wholesale power prices averaged $115 Singapore dollars $85 per megawatt-hour from January to September, but shot up to SG $635 this month as of Oct. 19.

Lee said that higher power demand has also contributed to the price spike, noting that Singapore consumed about 5% more electricity this year compared with the same period last year due to a rebound from slow economic activity last year.

Disruption in the local market is forcing some electricity retailers that had offered cheaper plans for households to pull out.

Earlier this week, Best Electricity Supply, which entered the market in 2015, announced it would exit the business on Thursday, citing unexpected volatile conditions in the energy market. The company became the third retailer to pull out of the local electricity market in just over a week.

Retailers, especially physical retailers who do not own power plants, have suffered the most, Wood Mackenzie's Lee explained. Such retailers were unable to manage power supply price risk as many of them entered into fixed-price retail contracts with end-users. One longer-term question is how the power crunch will affect local businesses. Singapore's core manufacturing sectors include chemicals and electronics, both of which consume large amounts of electricity.

We have not heard anything with regards to industries and manufacturing being impacted. However, industries that have not signed fixed-price retail contracts will very likely be affected as they won't be shielded from the current price spikes, Lee said.

Some businesses are already bracing for possible impacts.

Since July, Singapore medical equipment maker Racer Technology has seen its power consumption expenses creep up. CEO Willy Koh told Nikkei Asia that electricity costs have increased by about 30% across the company's factories in the city-state amid the current energy crunch.

Right now we have a labor shortage, then we have power costs going up, so we are very worried in the manufacturing line, he said, referring to a shortage of workers due to the COVID - 19 pandemic. The cost of production is getting higher and higher. Koh said he is looking to lock in energy contracts to secure power supplies at a fixed rate but only once electricity costs come down from their current highs.

Schneider Electric is advising its corporate clients in Singapore to use their power more efficiently.

Our customers are not spared the impact of the current energy crunch and their pain points are the potentially unstable supply, unpredictable and increasing energy costs, and how to increase their resilience in case of a power outage or reduction, Yoon Young Kim, Schneider's regional president for Singapore, Malaysia and Brunei, told Nikkei.

As far as households are concerned, electricity tariffs of state-owned Singapore Power are set at 24.11 Singapore cents per kilowatt-hour for the October-December quarter, up 12.5% from a year earlier.

The government has urged residents to conserve electricity over the coming months, but electricity consumption is crucial for air conditioning in the tropical nation, especially with more people working from home. Higher utility bills could potentially cool consumption sentiment, which in turn would weigh on the economy as it begins to recover from the COVID - 19 pandemic.