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Why electricity should not be so expensive here
Published on Apr 20, 2012
SINGAPORE'S power tariff is pegged to oil prices, but oil is not used to generate the electricity that we use - natural gas is ('Power tariff increases in line with fuel prices: EMA'; April 7).
The reason electricity is so expensive is because the contracts with the regional offshore gas suppliers are weighted very much in their favour.
The power generation companies are money machines for their owners but they are not responsible for the 80 per cent increase in the tariff's fuel component from January 2007.
The increase in the tariff's fuel component is due to Singapore's supply contracts which generally equate 6 mcf (6,000 cubic feet of natural gas) to one barrel of oil - a ratio of 6:1.
This, however, is deeply flawed because oil is a transportation fuel priced on a global basis and subject to major price swings while natural gas is more localised and primarily used to generate electricity.
Their pricing has diverged dramatically over the recent decade.
In the United States right now, due to an oversupply of gas, the ratio is in the region of 48:1, making natural gas extraordinarily cheap relative to oil, and this price decline is likely to continue.
Current Singapore contracts are very expensive and passed right on to the consumers, resulting in very high electricity costs subject to world oil prices impacted by events unrelated to local market conditions.
Liquefied natural gas imports are expensive, inefficient and have serious safety issues. There are more innovative and cheaper methods coming online which should be explored aggressively.
Singapore has not developed sufficiency in its primary electricity fuel, which is a strategic weakness.
What is needed is an urgent review of our sources of gas - otherwise inflation will continue to rise, consumers will be hurt, prices will be too volatile and Singapore will become uncompetitive.
Michael Dee
The reason electricity is so expensive is because the contracts with the regional offshore gas suppliers are weighted very much in their favour.
The power generation companies are money machines for their owners but they are not responsible for the 80 per cent increase in the tariff's fuel component from January 2007.
The increase in the tariff's fuel component is due to Singapore's supply contracts which generally equate 6 mcf (6,000 cubic feet of natural gas) to one barrel of oil - a ratio of 6:1.
This, however, is deeply flawed because oil is a transportation fuel priced on a global basis and subject to major price swings while natural gas is more localised and primarily used to generate electricity.
Their pricing has diverged dramatically over the recent decade.
In the United States right now, due to an oversupply of gas, the ratio is in the region of 48:1, making natural gas extraordinarily cheap relative to oil, and this price decline is likely to continue.
Current Singapore contracts are very expensive and passed right on to the consumers, resulting in very high electricity costs subject to world oil prices impacted by events unrelated to local market conditions.
Liquefied natural gas imports are expensive, inefficient and have serious safety issues. There are more innovative and cheaper methods coming online which should be explored aggressively.
Singapore has not developed sufficiency in its primary electricity fuel, which is a strategic weakness.
What is needed is an urgent review of our sources of gas - otherwise inflation will continue to rise, consumers will be hurt, prices will be too volatile and Singapore will become uncompetitive.
Michael Dee
