Minister Lim Hng Kiang at the EMA Forum

SPEECH BYMR LIM HNG KIANG MINISTER FOR TRADE AND INDUSTRY  AT THE ENERGY MARKET AUTHORITY (EMA) FORUM “PLUGGING INTO SINGAPORE” MONDAY, 7 AUGUST 2006, 2.40 PM AT THE MANDARIN COURT, MERITUS MANDARIN HOTEL 

Distinguished Guests

Ladies and Gentlemen

Good Afternoon

Introduction

It gives me great pleasure to be here with you this afternoon at the inaugural EMA forum, “Plugging into Singapore”. This is the first time that EMA is organizing this forum, which provides a platform to share with all of you, the trends and investment opportunities in Singapore’s energy sector.

Singapore’s Dependency On Energy

All of us are dependent on energy. Energy drives almost all that we do today, from our homes to our workplace. For Singapore, all our energy comes from fuel which we buy from international markets.

With no natural fuel resources of our own, we are exposed to the ups and downs of the global fuel market. We have no choice but to buy all the fuel that we need. In short, we are a price taker for energy.

Today, there is no shortage of fuel under the Earth. But the capacity of oil and gas production facilities to extract and bring the fuel to the markets has not fully kept pace with growing demand, especially with rapidly expanding economies such as China and India. The rising energy demand of these expanding economies has mopped up surplus capacity.

This tight global demand-supply situation, coupled with natural disasters and political uncertainty in fuel-producing countries, has led to near-record fuel prices over the last year. For instance, in August last year, Hurricane Katrina caused significant damage to US oil production facilities in the Gulf of Mexico. More recently, concerns over production cuts in Nigeria have also created uncertainty in the continued ability of such production facilities to operate. In a tight supply market, any concern over production capacity would cause fuel prices to rise.

Towards an Efficient Electricity Market

Benefits of Competition

Singapore has had to mitigate the impact of higher fuel costs by being competitive in supply and consumption. On the supply side, we have endeavored to up our efficiency levels in electricity production and extract as much energy as we possibly can from the fuel we use. Subjecting the energy sector to competition is one way, as competition provides strong economic impetus for companies to stay efficient.

Singapore first restructured its electricity and gas industries a decade ago. The first step was taken in 1995 when the electricity and gas operations were carved out of the former Public Utilities Board and corporatized as vertically integrated companies under Singapore Power.

 In 2000, the natural electricity grid monopoly, Power Grid, was separated from the companies that compete in the market. This removes vested interests and ensures that Power Grid will keep the infrastructure open to access.

By 2001, the electricity market reforms were completed and the National Electricity Market of Singapore (or NEMS) was launched in 2003 to further enhance competition and market efficiency. A performance review on the NEMS showed that there was greater efficiency in the electricity market. Price signals better reflected demand and supply conditions. In addition, the NEMS achieved net benefits of S$128.6m during the first 2 years of operation.

Introduction of Gas

Competition has also accelerated the entry of more efficient and competitive technology in power generation. Take the use of gas as an example. Gas-fired power plants, which are cleaner and 15% more efficient than fuel-oil steam plants, are gradually displacing the latter. Today, about 80% of Singapore’s electricity is generated from natural gas, with the remaining 20% coming from oil. As a result, the system gross efficiency has increased by about 5% between 2003 and 2005. 

Even for the oil-fired steam power plants, the introduction of competition has incentivized companies to look for ways to improve the efficiency of these more traditional plants, in order to avoid being displaced. A case in point is Power Seraya, which is using orimulsion, a bitumen-based fuel, to keep its existing steam plants competitive in the market.

The most tangible result we have reaped from introducing competition has been the downward pressure on our electricity prices. I am pleased to share with you that Singapore’s ranking for electricity price competitiveness has improved 13 places, from 42nd out of 48 countries in 2001 to 29th out of 47 countries in 2005, based on the International Price Competitiveness Ranking by the Institute for Management Development in Switzerland. In addition, whilst fuel oil prices have increased by about 100% over the last three years, electricity tariffs in Singapore have risen by only about 27% over the same period. This is largely possible due to the efficiency gains from greater competition in our electricity market.

We can, and will continue to strive to keep our electricity prices affordable. But we are faced with the constant challenge of rising fuel costs, which account for more than half of our electricity costs. Singaporeans and Singapore-based companies must thus be efficient in how we use energy. For this reason, the Government has taken a position not to subsidize electricity as it distorts market price signals. By allowing price signals to pass through and prevail, consumers will respond to higher prices by learning to use energy more efficiently.

Statement of Opportunities

To give our energy sector a further boost, the Energy Market Authority of Singapore (or EMA) is launching its ‘Statement of Opportunities’ at today’s forum. This ‘Statement of Opportunities’ will keep investors informed of the latest forecasts, needs and developments in our energy market. EMA has, over the past few months, consulted many industries, and collated information which potential investors can use to plan ahead for investment opportunities in our energy sector.

I am confident that EMA’s ‘Statement of Opportunities’ will become a useful reference tool for our power industry, and offer key inputs to investment decisions crucial to maintain the long-term reliability of Singapore’s electricity supply. To this end, I encourage industry players to share your perspectives with EMA so that hand-in-hand, we can create a vibrant and reliable electricity market.

New LNG import

Singapore has natural limitations in energy but this does not mean that we cannot overcome them. We need to diversify our energy sources in order to ensure that we are not over-reliant on a single source for our energy needs. As such, the Government has decided to import Liquefied Natural Gas (or LNG) to meet future rising demand for energy as our economy expands and our population increases.

This decision follows from a feasibility study of LNG import into Singapore, where the assessment is that we can develop an LNG terminal of 3 million tones per annum to start flowing LNG around 2012. EMA will invite prospective investors to competitively bid to build and operate the terminal through a Request for Proposal (RFP) process sometime in the second half of 2007.

Although LNG is competitive, there is a need to reduce investment risks for the LNG terminal investors by giving clear signals that there will be demand for LNG. As such, we will control the import of gas to allow the build up of LNG, until the capacity of the 3mtpa (million ton per annum)LNG terminal is reached. More details will be provided by EMA at today’s forum.

Conclusion

19 We have made much progress over the last five years to allow for competition in our energy market. We will continue to strive for more efficiency gains so that ultimately, the consumers benefit.

20 A competitive energy sector provides multiplier effects for economic growth. Economic growth will fuel more demand for electricity and more opportunities for the electricity and gas sectors. This is the self-prospering cycle that Singapore hopes to achieve.

21 On this note, I am pleased to launch EMA’s “Statement of Opportunities for Electricity Industry”. Let me also wish all of you an enjoyable and useful forum.

Thank you.