SINGAPORE: Electricity prices in Singapore are rising as global energy markets react to attacks on Qatar's Ras Laffan gas facility.
The complex is the world's largest liquefied natural gas (LNG) export hub, accounting for roughly a fifth of global supply. News of Iran's strikes on Wednesday sent European gas prices surging by as much as 35 per cent, while oil prices also spiked on fears of wider disruption to energy flows.
The impact is not limited to Europe. LNG is traded globally, and supply disruptions can quickly ripple across regions, including Asia, as buyers compete for limited cargoes.
This matters for Singapore, where 95 per cent of its electricity is generated using imported natural gas, comprising LNG and pipeline gas from neighbouring countries.
So how exactly is the disruption feeding through to electricity prices here, and what happens next?
Qatar is one of the world's top LNG producers, alongside the United States, Australia and Russia.
Ras Laffan sits at the centre of Qatar’s LNG exports, meaning any disruption there can quickly tighten global supply.
The CEO of state-run QatarEnergy said on Thursday that the latest attacks would slash Qatar's LNG export capacity by 17 per cent for up to five years, costing an estimated loss of US$20 billion in annual revenue.
"This means that we will be compelled to declare force majeure for up to five years on some long-term LNG contracts," the minister added, using the legal term for events beyond a supplier's control that prevent it from fulfilling contracts.
Iran's attack on Qatar’s Ras Laffan facility has pushed up gas prices in both Europe and Asia, even for countries that do not import LNG directly from Qatar, said Mr Tom Marzec-Manser, director of Europe Gas & LNG at energy consultancy Wood Mackenzie.
"While we are currently in an LNG supply wave, the market is now 12mt (million tonnes) shorter than anticipated for the next few years due to the damage that has been sustained at the plant," he told CNA.
Both Europe and Asia rely heavily on LNG imports, and when supply tightens, buyers in both regions compete for available cargoes, pushing prices higher.
That competition is driven by price signals. LNG is shipped globally, and some cargoes, especially those sold on short-term or spot contracts, can be redirected to markets offering higher prices.
Mr Cox told CNA's Asia Tonight that he has already seen cargoes being diverted from Europe to Asia, where spot prices are currently higher.
"As a result, particularly cargoes from the United States, which is the biggest producer in the world of LNG - they are diverted away from Europe to the Asian market. It's really a function of price signals," he said.
He added that around 10 such diversions have taken place so far, with more to come.
Qatar is Singapore's second-largest LNG trading partner, importing 1,685 million kilogrammes of the gas in 2024 - 25 per per cent of total LNG imports - according to data compiled by the World Bank.
The price of Singapore's gas is linked to both international oil and gas prices, as the country imports all of its natural gas requirements, said Mr Joshua Ngu, vice chairman for Wood Mackenzie Asia Pacific.
Long-term contracts are linked to oil, and with the force majeure on volumes supplied from Qatar to Singapore, Singapore is now actively sourcing replacements, thereby increasing its exposure to the spot market, Mr Ngu told CNA.
Under long-term contracts, price changes for both piped gas and LNG will have a lag time of three to six months, depending on the contract terms, he said. This means a cargo will have a delivery price that is indexed to the average oil price three or six months before the delivery date.
On the other hand, getting replacement cargoes sourced from the spot market - in which cargoes are bought and sold at current market prices - will have an immediate price impact, said Mr Ngu.
While Singapore has the option to source cargoes from other markets such as Australia or the US - its largest and fourth-biggest LNG trading partners in 2024 - these are likely to come at a premium, said Mr David Chew, a senior consultant at energy research company Rystad Energy.
"With global hub prices already elevated, that pricing pressure will flow through to contracted LNG as well, meaning any replacement volumes are likely to be more expensive."
Singapore is already seeing the impact on fuel costs in its power market, said Mr Ngu.
He noted that the Uniform Singapore Energy Price - the half-hourly energy price in the wholesale electricity market - has increased from about S$120/MWh earlier this year to S$170/MWh over the past few days.
However, Singapore also has a Temporary Price Cap (TPC), introduced in 2023, in place to avoid high and sustained volatilities in the wholesale market, he added.
"Impact to residential customers in Singapore will be delayed as (prices) are regulated and set every quarter primarily based on fuel costs," said Mr Ngu.
He added that the retail tariff review - which is revised quarterly by the Energy Market Authority to reflect actual electricity cost - for the period from April to June will most likely be set higher to reflect fuel costs.
Mr Ngu said tariffs are likely to remain elevated through the year if market tightness persists, particularly if the conflict drags on or further damage is done to LNG infrastructure in the Middle East.
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The complex is the world's largest liquefied natural gas (LNG) export hub, accounting for roughly a fifth of global supply. News of Iran's strikes on Wednesday sent European gas prices surging by as much as 35 per cent, while oil prices also spiked on fears of wider disruption to energy flows.
The impact is not limited to Europe. LNG is traded globally, and supply disruptions can quickly ripple across regions, including Asia, as buyers compete for limited cargoes.
This matters for Singapore, where 95 per cent of its electricity is generated using imported natural gas, comprising LNG and pipeline gas from neighbouring countries.
So how exactly is the disruption feeding through to electricity prices here, and what happens next?
Why is Qatar's Ras Laffan hub significant?
Qatar is one of the world's top LNG producers, alongside the United States, Australia and Russia.
Ras Laffan sits at the centre of Qatar’s LNG exports, meaning any disruption there can quickly tighten global supply.
The CEO of state-run QatarEnergy said on Thursday that the latest attacks would slash Qatar's LNG export capacity by 17 per cent for up to five years, costing an estimated loss of US$20 billion in annual revenue.
"This means that we will be compelled to declare force majeure for up to five years on some long-term LNG contracts," the minister added, using the legal term for events beyond a supplier's control that prevent it from fulfilling contracts.
Iran's attack on Qatar’s Ras Laffan facility has pushed up gas prices in both Europe and Asia, even for countries that do not import LNG directly from Qatar, said Mr Tom Marzec-Manser, director of Europe Gas & LNG at energy consultancy Wood Mackenzie.
"While we are currently in an LNG supply wave, the market is now 12mt (million tonnes) shorter than anticipated for the next few years due to the damage that has been sustained at the plant," he told CNA.
Related:
How is competition between Asia and Europe for limited LNG cargoes playing out?
Both Europe and Asia rely heavily on LNG imports, and when supply tightens, buyers in both regions compete for available cargoes, pushing prices higher.
That competition is driven by price signals. LNG is shipped globally, and some cargoes, especially those sold on short-term or spot contracts, can be redirected to markets offering higher prices.
Mr Cox told CNA's Asia Tonight that he has already seen cargoes being diverted from Europe to Asia, where spot prices are currently higher.
"As a result, particularly cargoes from the United States, which is the biggest producer in the world of LNG - they are diverted away from Europe to the Asian market. It's really a function of price signals," he said.
He added that around 10 such diversions have taken place so far, with more to come.
Related:
Why is Singapore particularly exposed?
Qatar is Singapore's second-largest LNG trading partner, importing 1,685 million kilogrammes of the gas in 2024 - 25 per per cent of total LNG imports - according to data compiled by the World Bank.
The price of Singapore's gas is linked to both international oil and gas prices, as the country imports all of its natural gas requirements, said Mr Joshua Ngu, vice chairman for Wood Mackenzie Asia Pacific.
Long-term contracts are linked to oil, and with the force majeure on volumes supplied from Qatar to Singapore, Singapore is now actively sourcing replacements, thereby increasing its exposure to the spot market, Mr Ngu told CNA.
Under long-term contracts, price changes for both piped gas and LNG will have a lag time of three to six months, depending on the contract terms, he said. This means a cargo will have a delivery price that is indexed to the average oil price three or six months before the delivery date.
On the other hand, getting replacement cargoes sourced from the spot market - in which cargoes are bought and sold at current market prices - will have an immediate price impact, said Mr Ngu.
While Singapore has the option to source cargoes from other markets such as Australia or the US - its largest and fourth-biggest LNG trading partners in 2024 - these are likely to come at a premium, said Mr David Chew, a senior consultant at energy research company Rystad Energy.
"With global hub prices already elevated, that pricing pressure will flow through to contracted LNG as well, meaning any replacement volumes are likely to be more expensive."
How are higher gas prices affecting electricity costs in Singapore, and what comes next?
Singapore is already seeing the impact on fuel costs in its power market, said Mr Ngu.
He noted that the Uniform Singapore Energy Price - the half-hourly energy price in the wholesale electricity market - has increased from about S$120/MWh earlier this year to S$170/MWh over the past few days.
However, Singapore also has a Temporary Price Cap (TPC), introduced in 2023, in place to avoid high and sustained volatilities in the wholesale market, he added.
"Impact to residential customers in Singapore will be delayed as (prices) are regulated and set every quarter primarily based on fuel costs," said Mr Ngu.
He added that the retail tariff review - which is revised quarterly by the Energy Market Authority to reflect actual electricity cost - for the period from April to June will most likely be set higher to reflect fuel costs.
Mr Ngu said tariffs are likely to remain elevated through the year if market tightness persists, particularly if the conflict drags on or further damage is done to LNG infrastructure in the Middle East.
Related:
Continue reading...