The Ministry of Trade and Industry (MTI) and the Energy Market Authority(EMA) will be introducing changes to the gas procurement framework for Singapore’spower sector.
2. The Minster for Trade and Industry Gan Kim Yong announced in October 2022a set of guardrails to strengthen Singapore’s energy market structure and ensure thatthe nation is well-positioned to navigate the energy transition. The guardrails include(i) a centralised process to coordinate the entry and exit of generation capacity; (ii)enhancing regulatory requirements on electricity retailers to strengthen consumerprotection; and (iii) a Temporary Price Cap mechanism to guard against extreme pricevolatility in the wholesale electricity market. These measures have all beenimplemented in 2023.
Review of Gas Procurement Framework
3. MTI and EMA have also reviewed the current gas procurement framework toensure that Singapore has sufficient gas from diverse sources for our powergeneration needs and create a more stable and secure power system. Having secureand reliable supplies of natural gas is existential for Singapore as 95% of Singapore’selectricity is currently generated using natural gas. Today, power generationcompanies (gencos) individually decide on the volume and tenure of gas to procurebased on their own commercial considerations.
4. Developments in recent years have shown that the current gas procurementframework does not provide assurance that we will always have enough gas to meetour needs, especially during a crisis when market conditions are volatile.
5. When each genco seeks to optimise for itself, it can inadvertently lead to suboptimalsystem-level outcomes. For example, during the 2021/2022 global energycrisis, the gencos reduced the volume of their gas contracts when gas prices werehigh, which led to large swings in wholesale electricity prices. Gencos have also been reluctant to enter into long-term gas contracts which typically offer a greater certaintyof delivery and price stability. This is because gencos do not want to be exposed togas market volatility and uncertainties in the long term. In addition, globaldevelopments and the energy transition are likely to lead to more volatile oil and gasmarkets, which may further reduce the risk appetites of generation companies.
6. Given the global gas market conditions and Singapore’s relatively smalldemand, MTI and EMA have therefore assessed that a more deliberate andcoordinated approach to gas procurement is needed.
Centralised Gas Procurement Framework
7. Moving forward, MTI and EMA will establish an entity (Gasco) that willcentralise the procurement and supply of gas for the power sector by aggregating gasdemand from the gencos. Should the overall electricity demand exceeds that indicatedby the gencos, the Gasco will procure the additional gas volumes that are needed.
8. When implemented, this centralised procurement approach will apply to allfuture gas demand from the power sector, including gas contract renewals. Gencoswill be allowed to continue with the existing gas supply contracts they have with theirrespective gas suppliers. Other industrial gas customers can continue to procure gasthrough licensed gas importers and will not be subject to this central procurementframework.
9. The new gas procurement framework will have a number of benefits:
- First, as the sole procurer of upstream gas for the power sector, the Gascowill have stronger negotiating lever, and be in a better position to negotiatefor more favourable contracting terms and optimise system needs;
- Second, with greater economies of scale, Gasco can procure gas fromdiversified source countries to reduce concentration risk; and
- Third, Gasco can also enter into longer term gas contracts which can helpto provide more stable prices and supply.
Conclusion
10. The centralised gas procurement framework will complement the otherguardrails which EMA have introduced and improve the security and resilience of thepower sector’s natural gas supplies.
11. EMA intends to set up Gasco in 2024 and will consult the industry on the detailsof the centralised gas procurement framework in the coming months.
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About the Energy Market Authority
The Energy Market Authority (EMA) is a statutory board under the Singapore Ministry of Trade and Industry. Through our work, we seek to build a clean energy future that is resilient, sustainable, and competitive. We aim to ensure a reliable and secure energy supply, promote effective competition in the energy market and develop a dynamic energy sector in Singapore. Visit www.ema.gov.sg for more information.
For media enquiries, please contact:
Ms Vanessa Lim
Manager, Corporate Communications
Energy Market Authority
Tel: (65) 8189 7936
Email: vanessa_lim@ema.gov.sg
Ms Pei Ling Chua
Manager, Corporate Communications
Energy Market Authority
Tel: (65) 9382 3158
Email: chua_pei_ling@ema.gov.sg
Mr Kenneth Low
Senior Assistant Director, Communications & Engagement
Ministry of Trade and Industry
Tel : (65) 6332 7315
Email: kenneth_low@mti.gov.sg
