SINGAPORE, July 2 (The Straits Times/ANN): Singaporeans must brace themselves for high electricity and petrol prices over a protracted period as the global supply of motor fuels such as petroleum and diesel remains tight due to limited production capacity, while Europe scrambles to replace energy imports from Russia.
Prices were already elevated due to increased economic activity amid the post-pandemic recovery before Russia invaded Ukraine on Feb 24.
But, since mid-March, fuel costs for end users around the world have spiked, following the deep rippling effects of the war.
Wide ranging sanctions targeting Russia's energy exports, including crude oil, diesel and piped gas, have forced European nations to scan the globe for alternatives, putting them in direct competition with other sovereign buyers - including Singapore.
With no end in sight for the war, Russia digging in for the long haul, and Russian President Vladimir Putin announcing on June 25 he would be supplying Belarus with missiles capable of carrying nuclear warheads, geopolitical and geo-economic tensions are now at a boiling point.
It is understandable, then, why the Energy Market Authority (EMA) - Singapore's regulator - announced on June 16 it was extending measures it had previously rolled out to secure Singapore's energy supply and stabilise energy prices to the end of March 2023.
At the time, EMA had also stressed that it would be unable to shield consumers from higher electricity prices. And the outlook for gas prices through 2023 is on the uptrend, according to industry sources.
Ciaran Roe, global director of LNG at S&P Global Commodity Insights, said according to forward curve prices for liquefied natural gas (LNG) and wholesale gas, market fundamentals look strong not just in the West but in Asia too, where prices have traditionally been linked to crude prices.
Benchmark Brent crude oil was trading close to US$116 a barrel on Thursday (June 30), while around the same time last year markets were dealing with prices around US$75-$76 a barrel.
This is a rise of around 52 per cent over a period of 12 months, according to data from traders and brokers.
Spot LNG prices in Asia, meanwhile, have been trading in the second half of June at round US$38 per million British thermal units (MMBtu), with the forward curve reflecting the anticipation that the market will easily cross US$40 per MMBtu as seasonal demand kicks in.
Roe said: "In short, the world is in a structurally higher energy price environment."
He added: "Looking at the causes of the stronger gas and LNG prices, which include Europe's policy shift away from Russian gas and towards LNG, the current pricing situation is unlikely to change to the downside until either demand is destroyed through high prices or there is a supply reaction. The supply reaction can take several years."
Dr David Broadstock, senior research fellow and head of the energy economics division at the National University of Singapore's Energy Studies Institute, said that competition for a limited pool of spot LNG cargoes in the market would only drive prices higher.
On Thursday, Singapore grid operator SP Group announced that it would be hiking the electricity tariff for the period of July 1 to Sept 30 to 30.17 cents per kilowatt-hour (kWh), excluding the goods and services tax (GST). This is up by around 8 per cent from the current rate of 27.94 cents per kWh.
The electricity tariff has been rising since the first quarter of last year.
Dr Broadstock also noted that the full demand picture remained uncertain, especially since LNG demand from China had been relatively muted for much of the year due to widespread Covid-19- related lockdowns throughout the country.
"Let's also remember that we have not yet factored in Chinese demand. But that could change very quickly. Over the past few days, they have been coming out with refreshed measures to show they are making moves to open up," he said, warning that the return of this demand could very quickly change price dynamics.
"We should also keep an eye open for high levels of seasonal demand, which have been impacting regional energy markets heavily in the past few years," he added.
Even as Singaporeans grapple with fast rising electricity prices, another aspect of daily life they have had to contend with is higher petrol prices.
In a media briefing here on Wednesday (June 29), global energy giant Shell's chief executive Ben van Beurden said petrol prices were rising because of a shortage of refining capacity.
A reason for this, he said, was that many companies had started to shut refineries partly to convert them into biofuel facilities, in an effort to lower their carbon footprint and produce cleaner fuels.
The views expressed by van Beurden are similar to those of many senior oil executives, who have bemoaned the confusion caused by the urgency to reduce carbon emissions.
In May, Mr Amin Nasser, chief executive of the world's largest oil producer, Saudi Aramco, said at the World Economic Forum in Davos that green energy pressures have led to companies not investing in expanding refining capacity.
The International Energy Agency (IEA) noted in a report in May that global refinery margins have surged to extraordinarily high levels due to depleted product inventories and constrained refinery activity. - The Straits Times/ANN