Utilities bill to fall by next year?

Zhen Ming, New Paper 3 Nov 08;

I'M staring at my SP Services bill for October and it's not good.

Below the total current charges (inclusive of GST), I am reminded, with effect from 1Oct, electricity tariff is 30.45 cents/ kWh - up 21.5 per cent from previously.

My only consolation is that this electricity tariff rate rise is not permanent.

In fact, it's quite likely that my monthly utilities bill will fall back by 2009.

That's because the outlook for oil is weak.

Oil fell again on Halloween (freaky Friday?) - the last trading day of October - as the global economic crisis put crude on track for the biggest monthly drop ever.

US crude fell US$1.82 ($2.70), or almost 3per cent, to US$64.14 a barrel by mid-day Friday. It is now down by around 35 per cent for October - its steepest monthly decline to date as demand worldwide slows. This, despite an OPEC output cut.

Simply put, oil prices are now at well below half the level of their July all-time high of US$147.27.

What's more, oil prices could soon test the US$50 level again.

Quite amazing, I'm sure you'll agree, when you look back at 2007 when oil prices rose from just above US$50 in January to near US$100 at year's end. (Back then, the crude oil spot price in the US actually averaged US$72 for the whole year.)

Good news

Good news, I suppose, for all heads of household who have to pick up the tab for the monthly utilities bill. And don't forget the Singapore motorist, too.

If I'm not sounding overly enthusiastic about this financial reprieve, it's because I'm also worried about the longer-term implications.

While it's good news to know that global demand for oil is shrinking (85.7 million barrels a day in 2007), it's bad news to learn that the world is having a hard time expanding oil supply fast enough to keep up with this demand.

Energy companies must therefore continue to invest despite the downturn to avoid another spike in oil prices once the economy recovers, the chief executive of the French oil company Total said Wednesday.

'Supply will remain short, and if we don't pay attention, the recovery will come and supply will be less and the price will climb again,' Christophe de Margerie said during a speech at last week's Oil & Money 2008 conference in London.

Mr de Margerie's comments echo warnings by others that the tightening of credit might lead energy companies to abandon or postpone necessary oil projects, which could threaten supply in the future.

Output from the world's oilfields is already declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency (IEA) says in a draft of its forthcoming annual report, the World Energy Outlook.

More investments needed

Further investments are therefore needed to make up for the natural decline of output at existing oil fields, including those in the North Sea, Russia and Alaska.

'The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand,' the IEA says.

Simply put, the oil industry is now running faster and faster, just to stand still.

The good news? This decline will not necessarily be felt in the next few years because demand is slowing down. But with the expected slowdown in investment, the eventual effect will be magnified in later years, oil executives warn.

The bad news? The IEA expects oil consumption in 2030 to reach 106.4 million barrels a day. All this increase in oil demand will come from emerging countries.

All in all, the world will need US$45 trillion - roughly three times the size of the US economy - in new energy investments.

Take it from me, one way or another, we'll all have to pay for this global effort.

# Zhen Ming, a Harvard-trained economist based in Singapore, is a freelance contributor.