The Ministry of Trade & Industry (MTI) and Energy Market Authority (EMA) are planning sweeping changes to Singapore’s gas procurement framework.
Gan Kim Yong, the Minister for Trade & Industry, told SIEW 2023 in his keynote address: “While energy markets have somewhat stabilised this year, we have to brace ourselves from further disruptions amid volatilities arising from the conflict in the Middle East.
“I hope that our experience over the past few years has helped us better prepare for the turbulence that may be ahead of us.”
He said the MTI and EMA will establish an entity — Gasco — in 2024 that will centralise the procurement and supply of upstream gas for the power sector by aggregating gas.
“This will create greater economies of scale and allow us to negotiate more favourable gas contracting terms, procure gas from diverse sources to reduce the concentration risk and enter into longer-term gas contracts to provide more stable prices and supplies,” he said.
“This is a fundamental shift in our approach towards gas procurement.”
Should overall electricity demand exceed that indicated by the generating companies (gencos), Gasco will procure the additional gas volumes that are needed.
The EMA explained: “When implemented, this centralised procurement approach will apply to all future gas demand from the power sector, including gas contract renewals.”
Gencos will be allowed to continue with existing contracts with their suppliers.
The new framework will have a number of benefits, according to the EMA.
As the sole procurer of upstream gas for the power sector, Gasco will be in a better position to negotiate more favourable terms and optimise system needs.
With greater economies of scale, Gasco can procure gas from diversified countries to reduce concentration risk and can enter into longer-term contracts, which can help stabilise prices and supply.
Gan announced a set of “guardrails” in October last year to strengthen Singapore’s energy market structure and ensure that it is well-positioned to navigate the energy transition.
The measures include a centralised process to coordinate the entry and exit of generation capacity; enhancing regulatory requirements on electricity retailers to strengthen consumer protection; and a temporary price cap mechanism to guard against extreme price volatility in the wholesale electricity market.
These measures have all been implemented in 2023.
The MTI and EMA also reviewed the gas procurement framework to ensure that Singapore has sufficient gas from diverse sources for its power generation needs, and to create a more stable, secure power system.
Having secure and reliable supplies of natural gas is vital for Singapore, as 95% of its electricity is generated using natural gas.
Today, power gencos individually decide on the volume and tenure of gas to procure based on their own commercial considerations.
However, the EMA admitted on Monday that recent years have shown that the current procurement framework does not provide assurance that there will always be sufficient gas to meet Singapore’s needs, especially during a crisis when market conditions are volatile.
When each genco seeks to optimise for itself, it can inadvertently lead to suboptimal system-level outcomes. The EMA noted that, during the 2021-2022 global energy crisis, the gencos reduced the volume of their gas contracts when gas prices were high, which led to large swings in wholesale electricity prices.
“Gencos have also been reluctant to enter into long-term gas contracts, which typically offer a greater certainty of delivery and price stability. This is because gencos do not want to be exposed to gas market volatility and uncertainties in the long term,” the EMA said.
“In addition, global developments and the energy transition are likely to lead to more volatile oil and gas markets, which may further reduce the risk appetites of generation companies.
“Given the global gas market conditions and Singapore’s relatively small demand, MTI and EMA have therefore assessed that a more deliberate and coordinated approach to gas procurement is needed.”
Energy security key to energy transition
Power generation accounts for 40% of Singapore’s carbon emissions, and it will be a “complex endeavour” for the nation to achieve net zero, given its limited scope for renewable energies, according to Gan.
“As we embark on a journey towards net zero, we must first ensure that we have a stable and secure power system to provide for energy shortages and volatile electricity prices, as these can quickly undermine any decarbonisation efforts,” he said.
Gan highlighted the global energy crisis, when some countries had to resort to refiring coal plants to bring down electricity prices, while others — priced out of global LNG markets by high prices — burned other fossil fuels just to keep the lights on.
“That is why having secure and stable energy markets is integral to the energy transition efforts.”
Nuclear on the radar
One technology that Singapore has been closely monitoring of late is nuclear energy.
“We conducted a pre-feasibility study on nuclear energy more than 10 years ago, which concluded that nuclear energy technologies available [then] were not appropriate or suitable for deployment in Singapore,” Gan said.
“But we need to build capabilities to understand… [if] nuclear energy technologies are becoming safer and have the potential to be cost competitive.
“This way, you can study the options seriously when these new technologies have become viable.”
