Oil industry trips on spiralling power rates
With tariffs likely to rise further, cogeneration plants could be the answer
By RONNIE LIM
(SINGAPORE) What goes around, comes around. On the back of the hike in oil prices which almost touched US$124 yesterday, electricity tariffs in Singapore have climbed to uncomfortable heights. And ironically, the oil industry here - which uses a lot of electricity - is feeling the most pain.
BT has learnt that the worst may not be over as electricity rates are likely to face more upward pressure in the coming months.
This was disclosed by Energy Market Company (EMC) CEO Dave Carlson yesterday in response to queries from BT. He said that the rising crude prices had pushed up the price of high-sulphur fuel oil, which is used by some power stations here. But the bigger impact came through the hike in the price of natural gas - the main feedstock - which is pegged to the price of high-sulphur fuel oil.
The impact has been obvious. The average monthly electricity tariffs stood at just over $140 a megawatt hour last December, he said. They shot to $158 in January, before cooling to $149 in February and $147 in March. In April, the spike was the steepest as this rate climbed to $173.
‘With electricity demand in the second and third quarters traditionally higher, more upward pressure on tariffs is expected,’ Mr Carlson added. Last year’s surprise 6 per cent dip in tariffs is now just a distant memory.
Separately, an oil industry source later said ‘we are feeling the pain - it’s a significant increase’, when asked if the latest run-up in electricity tariffs was starting to hurt.
Oil refineries and petrochemical complexes are big power users, with electricity costs accounting for as much as 25-30 per cent of total operating costs, the source said. ‘So the 25 per cent jump in tariffs in the last few months is significant,’ he added.
‘But we have no control over electricity prices and have to manage our costs. One option, however, will be to build our own cogeneration plant, and this is something we are looking at,’ he added.
BT had earlier reported that oil companies here like ExxonMobil are already building additional cogen plants to supply power to their big expansion projects, including its US$5 billion-plus new petrochemical cracker. And this is clearly the industry’s answer to ever-rising electricity and other utility costs.
EMC’s Mr Carlson, who was giving a media briefing on the electricity market here, earlier indicated that average electricity prices dipped in 2007 to $124.57/MW hour - after climbing from $82.35 in 2004 to $109.90 in 2005 and $132.42 in 2006.
The 2007 dip was attributed to efficiency gains and increased competition among the generation companies, spurred by the entry of new player Keppel Merlimau Cogen with its 500 MW station.
He, however, declined to project how much electricity tariffs could go up by this year, as this depends on various factors, including whether oil prices will rise further.
Another factor is electricity demand growth, which tends to follow Singapore’s gross domestic product growth. Latest official indications are that Singapore’s GDP is expected to moderate this year to 4-6 per cent - lower than last year’s 7.5 per cent.
But this doesn’t mean that electricity demand growth is also going to slow down this year, Mr Carlson said. He added that a decision by a big investor - say, another oil refinery coming into Singapore - would affect demand as well.
Hopefully, increased competition in electricity generation, ‘with new investment entering the market’, will help temper electricity tariff increases, he said.
This includes the entry of new players - like China Huaneng Group, China’s largest power producer, which recently took over Tuas Power - as Temasek Holdings continues with the divestment of the two remaining big gencos, Senoko Power and PowerSeraya.
More players here, like Senoko Power, are also converting more of their older plants to more efficient cogeneration plants, while others like Sembcorp Cogen are also looking into cheaper alternatives like waste-derived fuels to stay competitive amid a high oil price environment.
Source : Business Times - 09 May 2008
Singapore Property - Buy , Sell , Rent , Invest
Mindy Yong
(+65)91002985
mindy@mindyyong.com
1 Tay Lian Teck Road@East Bay for sale »« 8 Mar Thoma Road@Beacon Heights for sale
