EMA to set up standby fuel facilities as part of measures to boost energy security amid global fuel crunch

About 95 per cent of Singapore's energy mix comes from natural gas, all of which is imported into the country. PHOTO: ST FILE

SINGAPORE - Singapore is taking steps to boost the country's energy security amid the global fuel crunch, including establishing standby fuel facilities which generation companies here can draw upon.

The Energy Market Authority (EMA), which regulates the country's energy supply, on Tuesday (Oct 19) said it is working with all generation companies - or gencos - to track their fuel supply levels and generating capacity.

"EMA will provide the standby fuel to them if gas supplies are affected or there is a need to ensure reliable electricity supply to consumers in Singapore," said the authority in a statement.

EMA also said it has also informed the gencos to contract sufficient fuel to meet the demands of customers of their retail arms.

The measures, which the authority described as "extraordinary", could also help to tamper skyrocketing energy prices by reducing their volatility.

"To help gencos who have not contracted enough gas, EMA has informed gencos which are looking to sell their excess natural gas supply to provide other gencos and EMA with the first right of refusal, before they can divert or onsell the excess gas to other parties," it said.

EMA added: "These pre-emptive measures are extraordinary but necessary to secure our fuel and electricity supply."

There are seven gencos in Singapore. Electricity generated at these plants flow into the SP Group-operated national grid, which delivers the electricity to consumers.

About 95 per cent of Singapore's energy mix comes from natural gas, all of which is imported into the country.

While Singapore previously relied on piped natural gas from its neighbours, the country has built a liquefied natural gas terminal to boost its energy security, allowing it to import the liquefied form of the gas from all over the world. This terminal started commercial operations in 2013.

Earlier this year, EMA appointed two new LNG importers, on top of the existing two, to provide gas users in Singapore with more options.

But the global gas crunch - which is brought about by a confluence of factors, including pandemic-recovery economic activity and countries entering the cooler seasons - are nudging up demand for fuel, prompting EMA to take the pre-emptive measures.

The authority said it will also direct gencos to generate electricity using fuel from the standby facilities if needed to keep the system stable. "EMA is monitoring the Singapore Wholesale Electricity Market closely and will intervene if necessary," it added.

EMA said it will review if these measures are still needed by March 31, 2022.

"During this period, we urge consumers to conserve energy where possible. EMA will continue to monitor developments in the global and domestic energy sector closely and will introduce further measures if necessary."

These latest measures come after three independent retailers, iSwitch and Ohm Energy and Best Electricty, exited the open electricity market (OEM) within days of each other, citing volatile market conditions and unsustainable price plans. iSwitch and Ohm announced their departures last week, while Best Electricity did so via a Facebook post on Tuesday.

On Monday, Union Power said it will scaling down its operations by closing some retail accounts. About 850 of its customers - all of which are commercial customers - will be affected.

EMA on Tuesday (Oct 19) said retailers will not be allowed to charge an early termination fee, and households will have their security deposits returned to them after outstanding charges are offset.

The authority also gave the assurance that the electricity supply for all customers will not be affected as retailers look to suspend or cease operations.

This is because the open electricity market - which was launched in 2018 - did not change the flow of electricity from the gencos to the national grid to consumers.

The market liberalisation merely changed the flow of money.

Before the electricity market was opened up, people paid SP Group for electricity.

After the liberalisation, households had the option of signing up for plans with other retailers.

Similar to how travel agents buy hotel stays and flight tickets at agent rates and then bundle these into attractive packages for customers, electricity retailers also do the same - they buy electricity from the wholesale electricity market and then bundle these with other perks to entice the consumer.

In the wholesale electricity market, gencos compete to sell their electricity there every half hour. To manage the volatility of cost and earnings, retailers can purchase future contracts at fixed prices.

But Mr Howie Lee, an economist at OCBC Bank, had earlier told The Straits Times that it will be costly for a company to hedge fully, and that small power retailers are typically under-hedged compared with larger players.

He said then: "Once wholesale prices soar through the roof, they normally find themselves deep in the red. In the case of Singapore, I recall many power providers urging consumers to lock in two-year fixed prices and at levels much lower than what the current tariff is. I can imagine how painful it must be for them now and am not surprised some have exited."

Mr Tan Tsiat Siong, a lecturer at the Singapore University of Social Sciences' School of Business, said the steps taken by EMA would provide reassurance to people that the Government was stepping in and prioritising the energy security that Singapore has always enjoyed.

Establishing standby fuel facilities and stocking up natural gas during these times will be costly, he said, but added that they are feasible and necessary.

"The economic cost of power outages cannot be underestimated and is almost certainly larger than the price we pay for procuring and storing LNG even when gas is scarce," he said.

These efforts, Mr Tan noted, are primarily aimed at maintaining the stability of Singapore's power network.

But the impact of such measures on wholesale and retail prices would depend on spot prices and the price movements in the coming months, he said. "The chief goal here is really to ensure energy security, not so much as minimising gas costs."

EMA urged consumers to conserve energy where possible during this period.

"EMA will continue to monitor developments in the global and domestic energy sector closely and will introduce further measures if necessary," the authority added.

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