Impact of Lower Oil Prices on Electricity and Gas Tariffs

Mr Gan Thiam Poh asked the Minister for Trade and Industry what is the projected reduction of electricity and gas tariffs in the next six to 12 months in view of the lower price of fuel oil.

The Second Minister for Trade and Industry (Mr S Iswaran) (for the Minister for Trade and Industry): Mdm Speaker, the Ministry of Trade and Industry and the Energy Market Authority (EMA) do not project electricity and town gas tariffs. Both the electricity and town gas tariffs are reviewed by EMA on a quarterly basis to ensure that the tariffs fairly reflect the underlying costs of production, and that includes fuel costs.

The fuel cost component of the electricity tariff is based on the average forward fuel oil and dated Brent prices in the first two and a half months in the preceding quarter, and makes up approximately half of the electricity tariff. For town gas, the fuel cost component is based on the average forward fuel oil and naphtha prices for the quarter, and makes up about 40% of the tariff.

The price of natural gas, which is the main fuel used to produce electricity and town gas in Singapore, has fallen in tandem with global oil prices. This is because our natural gas contracts are indexed to oil prices, which is the market practice in Asia.

In the recent tariff revisions, the electricity tariff for January to March 2015 decreased by 7.9% to 23.29 cents/kWh, and that is compared to a decrease in fuel cost of 16.4%. As I have mentioned, fuel cost is about approximately half the cost of generating electricity. The town gas tariff for February to April 2015 decreased by 8.7% to 19.02 cents/kWh, compared to a decrease in fuel cost of 23.1%.