Singapore’s Electricity Prices Pegged to Crude Oil, not Natural Gas!?!?
Posted by: inspir3d in Economics, tags: Crude Oil, Electricity Prices, Energy, Inflation, Natural Gas, Singapore PowerThe key natural resource input that goes into the generation of electricity in Singapore is natural gas. All of Singapore’s power plants predominantly use natural gas to generate their electricity. Hence, one would think that it would be natural to peg to price of natural gas, to the price of natural gas. But in Singapore, the price of natural gas, alas, is pegged to oil!!! Is it no wonder, then, that our electricity prices have seen their greatest hike in recent times?
Just have a look at the chart of Natural Gas Futures traded on Nymex: the prices have fallen by half since June this year.
Can someone please explain to me the sense behind pegging natural gas prices to oil? Because I seriously don’t get it. And if this was a mistake by the energy authorities and the power plants, then why is the cost of this mistake being passed on to consumers?
Even if we do peg the prices of natural gas to the price of oil, then electricy prices should be coming DOWN. Just take a look at the price of crude oil:
While not as drastic a price collapse as in natural gas, oil prices have also made some headway back down to earth. Yet we’re having a 21% hike in electricity prices?
Someone please explain the sense in this to me!
ST Forum, 1 Oct
Tariff hike goes against common senseI REFER to the report yesterday, ‘Electricity bills to go up 21%’.
We import almost everything, so we are subject to the vagaries of supply and demand. While we are basking in the new limelight of Formula One races and world attention, only those with high net worth can continue to spend.
A reputed local pub reported earnings of $800,000 over the three-day weekend. Did anyone compute the amount spent on electric lights during the three days of F1 races?
How can the mathematics of the forward pricing of such a commoditised product as electricity be computed with such flawless accuracy that we now face a 21 per cent price hike from today – the highest one-time increase in seven to eight years – citing reasons of higher oil prices.
Associated Press reported that, as of Monday, oil prices sank by more than US$5 (S$7) to almost US$101 a barrel on concerns that economic growth will slow across the globe, despite a tentative agreement in Washington on a US$700-billion bailout package to stabilise the United States financial system.�
This information goes against common sense; no wonder a book called The 10 Commandments Of Common Sense is among the bestsellers in the non-fiction category in Singapore.
I urge the authorities to review the current mechanics and methodology used to price electricity tariffs.
We speak about the liberalisation of energy markets and being more market- oriented, yet we fail consumers on basic issues like this.
With this latest tariff revision, households in three-room flats will see their utilities bill go up by $14.
Families in five-room flats will pay about $23 more a month, on average, with the price of electricity going up from about 25 cents per kilowatt-hour to about 30 cents.
To the man in the street, in these difficult and challenging times, where even basic financial institutions are shaken, every dollar and cent counts.
Michael Leong
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[...] Singapore Natural Gas Prices Pegged to Crude Oil, not Natural Gas!!! By inspir3d All of Singapore?s power plants predominantly use natural gas to generate their electricity. Because, one would think that it would be natural to peg to price of natural gas, to the price of natural gas. But in Singapore, [...] Under The Willow Tree – http://www.intelligentsingaporean.com/utwt [...]
[...] A Singaporean Mind: Explaining the 21.5% Electricity Tariff Hike….. – Under The Willow Tree: Singapore’s Electricity Prices Pegged to Crude Oil, not Natural Gas!?!? – My Sketchbook: The electrifying electricity tariff [...]
if i may, my two cents…
i understand most prices for public services in singapore are pegged to the opportunity cost instead of the direct material cost (which may be more intuitive to most).
aside, this observation is also consistent with how our ministers are drawing multi-million dollar salaries, based on the opportunity cost for them to be in public office, as opposed to how much it might cost directly for someone to perform their job.
opportunity cost is a completely reasonable basis to consider how resources are distributed, except this notion is flawed (incomplete) in the singaporean context: whereas opportunity cost is primarily considered by the consumer to make economic decisions (be it factories consuming raw materials, or the general public consuming factory-produced goods), singaporean producers (govt-backed no less) have turned the tables to use opportunity cost to justify price hikes etc.
Sounds like a load of bull merde to me…
Someone at SP must not be doing their job right – don’t tell me that they can’t read the market correctly ah?
If spot prices are falling sharply and futures are still high, won’t it be logical to switch more of the requirements to spot…
But if they are not making any mistakes in resource allocation, then are they keeping the “windfall savings” and pushing on the “higher costs” to us?
Whatever it is, we definitely need more transparency…
[...] A Singaporean Mind: Explaining the 21.5% Electricity Tariff Hike….. – Under The Willow Tree: Singapore’s Electricity Prices Pegged to Crude Oil, not Natural Gas!?!? [Recommended] – My Sketchbook: The electrifying electricity tariff hike! – TOC: Greed run amok [...]
Hello Inspir3d
Why is electricity prices currently tied to the cost of oil / per barrel and not gas? I know this may sound strange but generation cost per unit i.e the fuel source that is used to generate actual electricity only forms a fraction of the total cost of power companies / that’s not unusual, because if you think about it generating electricity is really just the tip of the iceberg in the entire supply chain of the whole business process – you also need to be able to store, stage and cable power, so try to think about it like water, it helps as many people when they think about power firms don’t really consider the cost of delivery and so they fail to factor in fixed assets i.e infrastructural / capital goods / raw material etc / inventory – so my point is, its not completely realistic to believe you can run away from total fuel cost as there will always be stuff like repeaters, substations and cable laying cost + right down to perhaps the cost of a simple co-axial cable – that is why even wind powered power providers frequently peg their prices to total fuel and operative costs and not to specific fuel generation cost even if their wind happens to be FOC, but their fan blades, the preventive maintenance etc are directly affected by total fuel cost. My point is you can NEVER escape factoring all the stuff that is made by real fuel i.e oil.
I guess if you really want to understand why electricity is pegged to oil prices, it may be a better way to try to see it in terms of how the govt goes about balancing their budgetary deficits. I pretty dumb so when I use that analogy, it really helps me to visualize the problems they face on the long term. Here it is important not to get too fixated with generation cost otherwise you will get yourself so confused that you will lose your bearing and become disorientated / always bear in mind generation cost is only a fraction of the total cost. So coming back to our comparative with balancing budgetary deficits / why is model so pertinent to our discussion?
Consider this, if we go into recession, some people may lose their jobs / they will cut back on many things, one of them may be electricity / instead of turning on their air-con, they will make do with opening their windows or switching on their fan / their total electricity bill goes down / power firms earn less because of this. Bear in mind the same thing happens on a industrial scale with factories i.e less orders = less production runs = less electricity billings = lower profit / but bear in mind while all this is happening, these power firms still need to service their long term loans they need to upkeep the operational readiness of their infrastructural assets / so money is always going out always bear in mind what really accounts for the bulk cost of a power business isn’t the really the variable cost, but the fixed cost, i.e the stuff the needs to be replaced as a consequence of preventive maintenance and whenever a new power grid news to be laid out / these stuff sometimes needs to amortized through a 20 year period before any prospects of profitability can even be considered / so money is always going out and the trick is to make certain money is still coming in.
But I believe they overdid it this time. I hope I didn’t confuse you and myself in the process. I wrote this real fast, excuse the mistakes.
PS: Standby for com-sat from Harphoon next week, I am sorry we were not able to get an active line / many of our communication has been downed, we will try again next week, check regularly, thx.
SD (internet liaison officer of the brotherhood)