CNA Explains: How the Russia-Ukraine war drove up LNG prices and what this means for Singapore

How will Singapore be affected?

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

Traditionally, most of Singapore’s natural gas supply has been piped in from Indonesia and Malaysia. However, LNG began to play a bigger role in power generation from 2013 when Singapore’s LNG terminal began operations.

The cost of LNG can therefore affect the cost of electricity here.

“Naturally, energy pricing trickles down. As such, nations will have to contend with rising prices to support the cost of generation fuels,” said Mr Copson.

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

“Generally, Singapore gas demand is fulfilled through long-term contracts, whether it’s pipe gas or LNG,” he said.

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

Different power producers might have different LNG or gas purchasing strategies, however, which might open them up to more spot exposure.

“Spot LNG exposure is very expensive at the moment,” Mr Siow noted.

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

“This would translate to higher gas (and) LNG prices as well, as long-term contract prices (are) usually oil-linked. When gas prices (are) higher, Singapore’s electricity price will go up as it is almost entirely generated by gas (and) LNG.”

Ms Asti shared the same view and highlighted other circumstances under which turning to the spot market may be required.

“The majority of (the) gas supply to Singapore is under long-term contract, either through pipeline imports or LNG. This should help shelter the Singapore market from high spot LNG prices,” she said.

“However, there may be a need to purchase the higher-priced spot LNG if gas demand increases beyond contracted supply or if there are disruptions in pipeline supply from either Indonesia or Malaysia. We saw this happen previously in Q4 2021.”

Beyond electricity prices, the industrial sector will also be hit by rising LNG prices, as will any company that uses gas or LNG, Mr Siow said.

“Petchems as well, though its percentage in Singapore’s gas sectoral consumption is pretty low,” he added.

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

She added that, going forward, Singapore will have to manage its exposure to prices as LNG demand increases. 

“Commodity price shocks have happened in the past, but Singapore’s LNG demand … only started in 2013 with its first LNG imports,” she said.

“By 2030, we expect 90 per cent of Singapore’s gas demand will be met by LNG, so it will need to manage that growing exposure to LNG prices.”