Energy expense forms a large part of the cost of running a business in Singapore. With the recent oil price recovery, as well as the introduction of new regulatory charges by the Energy Market Authority, it is increasingly important that the energy procurement process is managed carefully to achieve competitive energy rates.
Electricity in Singapore is produced by power generation companies using imported natural gas whose prices are pegged to fuel oil price. This pricing dynamic is reflected in the pricing of electricity to end users, seen in Singapore’s regulated electricity tariffs that are adjusted quarterly to reflect the underlying fuel oil price volatility.
Energy prices fluctuate constantly, which can significantly affect a company’s energy bill and performance against budget.
What can companies do then to keep energy costs at a competitive rate? Here’s how:
- Companies must be kept informed and be regularly updated on global oil and energy market development such as supply-demand fundamentals, major economic events, geopolitical tensions and investor sentiments.
- Companies must input resources to monitor for market opportunities to take advantage of significant price dips before such favourable opportunities disappear.
- Companies must have a clear understanding on transparency of the electricity rates and the ability to identify the fair market rate.
Currently, oil prices are largely supported by the OPEC-Russia agreement to cut global oil supply by 1.8 million barrels per day until end of 2018. The oil cut agreement is aimed at reducing the huge oil surplus that had been previously built up by the increased oil supply prior to the cut in oil supply. Since the November 2016 oil supply cut, oil prices has recovered by over 40%. This has attracted more shale oil drilling and production from the US; which has now exceeded more than 10 million barrels per day of output to offset the effect of the oil output cuts. Oil prices trends going forward would largely be dependent on the supply dynamics and development between the major oil producers namely OPEC, Russia and the US.
So instead of waiting for energy supply contract expiry as the indicator to start the next energy procurement exercise, a proactive approach by organisations will provide them with visibility to decide on the best time to enter the energy procurement market to lock in favourable energy rates to meet their energy needs and cost objectives.
The above is written by Eveline How, Senior Manager, Energy & Sustainability – C&W Services Singapore.