By Eveline How, Senior Manager, Energy & Sustainability – C&W Services Singapore
Energy expense forms a large part of the cost of running a business in Singapore. With the recent recovery in oil commodity prices, 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.
Industrial and Commercial customers with large electricity consumption in Singapore are eligible to buy electricity from licensed electricity retailers under a variety of energy plans with competitive rates and terms. The fuel-component portion of these energy plans form about 80% to 90% of the energy costs. The final electricity energy rate achievable is therefore invariably affected, directly or indirectly, by the underlying fuel oil price volatility.
Energy prices fluctuate constantly, which can significantly affect your energy bill and performance against budget. Hence, timing to market for energy purchase to coincide with favourable low global oil market conditions is critical in achieving competitive energy costs for running a business.
Due to the recent increase in the volatility of the energy markets, a consumer must be kept informed and be regularly updated on global oil market development such as supply-demand fundamentals, major oil price–affecting events, geopolitical tensions and investor sentiments. He must also have access to market intelligence in the energy market to monitor for competitive oil price opportunities to take advantage of significant dips in oil prices before such favourable opportunities disappear.
Providing the intelligence and helping organizations to design, develop and execute customized energy plans have been the forte of C&W Services in the last 15 years. The adoption of technology in our energy and sustainability practice has also helped to improve the accuracy and effectiveness of our deliverables. This combination of experience, technology and proactive partnership with our customers have resulted in cost savings of about 30% on average per customer and better energy management.
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 30%. 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.
In conclusion, instead of waiting for energy supply contract expiry as the indicator to start the next energy procurement exercise, a proactive approach for an organisation is to constantly monitor the supply demand market dynamics of global oil market conditions. This will provide the organisation with visibility to decide on the best time to enter the energy procurement market to lock in favourable energy rates to meet its energy needs and cost objectives.
Eveline How is a Senior Manager in Cushman & Wakefield’s Energy & Sustainability, C&W Services team based in Singapore.