Minister Lim Hng Kiang's reply to Parliament Question on implications of decline in oil prices on Singapore economy

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​Minister Lim Hng Kiang’s Reply to Parliament Question on implications of decline in oil prices on Singapore economy

Questions

Ms Foo Mee Har: To ask the Minister for Trade and Industry what is the impact of the decline in oil prices to Singapore's economy, businesses and consumers.

Mr Alvin Yeo: To ask the Minister for Trade and Industry what implications will a depressed oil price over a prolonged period have on our petrochemical sector and on Singapore's economy in general.

Mr David Ong Kim Huat: To ask the Minister for Trade and Industry (a) what impact will falling oil prices have on our economy; and (b) whether current adjusted prices on public utilities and at petrol pumps fairly reflect the fall in oil prices.

Oral Answer by Mr Lim Hng Kiang, Minister for Trade and Industry

1. Global oil prices have fallen sharply in recent months on the back of sluggish global demand and strong supply conditions. Since June 2014, the benchmark Brent oil price has declined from a peak of US$115 per barrel to around US$50 per barrel recently.

2. Ms Foo asked about the impact of the decline in oil prices on Singapore’s economy, businesses and consumers. As a net importer of oil, the Singapore economy will benefit from lower oil prices. In particular, a drop in oil prices will translate to lower electricity tariffs and fuel costs, which will directly benefit businesses and consumers.

3. For businesses, lower electricity tariffs and fuel costs will help to lower their input costs. This will help improve their margins, and could also dampen the pass-through of business costs to consumer prices. Consumers, on their part, will benefit from lower spending on electricity and other oil-related items such as petrol. Lower inflation in the economy could also increase their purchasing power, thereby stimulating consumption and further boosting the economy.

4. Mr Yeo asked about the impact of lower oil prices on the petrochemical sector. Overall, the sector will benefit from lower oil prices due to reduced input costs for oil-based feedstock and utilities. However, the upside of lower input costs may be limited, as prices of key petrochemical products have also fallen in tandem with oil prices.

5. Mr Ong asked if the current adjusted prices of public utilities and pump prices fairly reflect the fall in oil prices. EMA regulates the electricity tariff to ensure that the quarterly tariff revisions fairly reflect the underlying costs of production, including fuel costs. As the price of natural gas, which is the main fuel used for electricity generation in Singapore, has fallen in tandem with oil prices, the electricity tariff has likewise been adjusted downwards. For example, between July 2014 and January 2015, average gas prices fell by 19 per cent. As fuel costs make up around half the tariff, the electricity tariff between July 2014 and March 2015 accordingly fell by 9.3 per cent.

6. Pump prices fell by 15 per cent between July and December 2014, compared to a 41 per cent fall in crude oil prices over the same period. The fuel component of pump prices is not determined by the price of crude oil, but the price of refined products like petrol and diesel. In addition, petrol companies also have to take into account non-fuel costs such as land and labour costs when setting their prices. These are some reasons why pump prices fell by a smaller percentage compared to the drop in crude oil prices.