UKTN explains: How the Russia-Ukraine war drove up LNG prices and what it means for Singapore


How is Singapore affected?

According to EMA, Singapore currently relies on natural gas to generate 95 percent of its electricity.

Traditionally, most of Singapore’s natural gas supply is piped from Indonesia and Malaysia. However, LNG started to play a bigger role in electricity generation from 2013, when the Singapore LNG terminal came into operation.

The costs of LNG can therefore influence the costs of electricity.

“Of course energy pricing is trickling down. As such, countries will face rising prices to support the cost of fuel generation,” said Mr Copson.

However, electricity prices in Singapore need to be somewhat protected from volatility in LNG prices due to the nature of the country’s gas contracts, Mr Siow said.

“In general, gas demand in Singapore is met through long-term contracts, be it pipe gas or LNG,” he said.

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“If we compare this to Europe, I would say that electricity prices in Singapore should be fairly isolated from the volatile spikes in LNG spot price.”

However, different electricity producers may have different purchasing strategies for LNG or gas, which can give them more spot exposure.

“Spot LNG exposure is very expensive right now,” noted Mr. Siow.

“Even if the power producer is not exposed to spot LNG, there is an overall increase in contracted LNG(and) gas prices due to overall rising commodity prices. For example, Brent oil is above US$100 (per barrel) this year) increased,” he added.

“This would also translate into higher gas (and) LNG prices, as long-term contract prices are (usually) oil-bound. When gas prices (rise) rise, the electricity price in Singapore will rise as it is generated almost entirely by gas(and) LNG.”

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Ms Asti shared the same view, pointing out other circumstances under which recourse to the spot market might be necessary.

“Most of (the) gas supply to Singapore is under long-term contracts, either through pipeline imports or LNG. This should protect the Singapore market from high spot prices for LNG,” she said.

“However, it may be necessary to purchase the more expensive spot LNG if the demand for gas exceeds the contracted supply or if there are disruptions in the supply of pipelines from Indonesia or Malaysia. We saw this happen earlier in the fourth quarter of 2009. 2021.”

In addition to electricity prices, the industrial sector will also be hit by rising LNG prices, as will any business using gas or LNG, Mr Siow said.

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Petchems too, although its percentage in Singapore’s sectoral gas consumption is quite low, he added.

Affected companies may try to pass the additional costs on to their end users, which will increase inflationary pressures, Ms Asti said.

She added that Singapore will have to manage its price exposure in the future as demand for LNG increases.

“There have been shocks in commodity prices in the past, but LNG demand in Singapore only started in 2013 with the first LNG imports,” she said.

“We expect 90 percent of Singapore’s gas demand to be covered by LNG by 2030, so it will need to manage that growing exposure to LNG prices.”



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