Close watch on energy costs as oil prices rise: Iswaran

Ronnie Lim Business Times 2 Mar 11;

(SINGAPORE) Singapore is monitoring closely the cost of energy here as world oil prices rise following the turmoil in Libya, said S Iswaran, Senior Minister of State (Trade & Industry and Education).

'The issue is more of energy cost,' he told BT when asked if MTI was concerned about security of energy supplies here given the crisis in North Africa. This is because Singapore gets most of its energy supplies from this region, Mr Iswaran said, citing natural gas piped from neighbouring Indonesia and Malaysia for use by power stations here.

The stations currently generate 80 per cent of electricity using piped gas feedstock, and Singapore is also building a $1.7 billion liquefied natural gas (LNG) terminal to help diversify gas supply sources.

Mr Iswaran spoke to BT on the sidelines of the LNGA conference here, where he earlier said in his keynote address that the political uncertainty in Egypt, Tunisia and other parts of the Middle East has pushed crude prices well past US$100. This has a 'significant impact on the Asian LNG market, where the price of LNG is typically linked to oil prices'.

'Like many countries, Singapore continues to keep a keen eye on global energy market trends. Governments and businesses alike are mindful of the need to tack our sails according to the prevailing political and economic winds that buffet energy prices,' he stressed.

Crude prices were mixed in Asian trade yesterday as Opec kingpin Saudi Arabia's pledge to ensure sufficient supplies partially eased investor concerns. West Texas Intermediate for April delivery fell eight US cents to US$96.89 while Brent crude for April delivery was up 32 US cents to US$112.12. This is however, still down from Brent's spike to almost US$120 last week.

Electricity tariffs for households here are already up this first quarter, and look set to rise further in Q2, as the price of Singapore's piped gas supplies is pegged to fuel oil prices. But the government is helping by providing utility rebates to some 800,000 households in HDB flats.

During a Q&A session at the conference, Mr Iswaran explained that Singapore's move into LNG started on the premise that it was to be part of the fuel mix for the country. 'Then being pragmatic, we asked ourselves whether we could leverage on this to do more' - like LNG trading - he said. LNG can tap on 'the entire energy eco-system here, as Singapore has a long history in oil, so we have depth', he added.

'But it's too early to tell if Singapore can actually develop into a regional LNG hub and pricing centre,' Mr Iswaran acknowledged.

In the meantime, Singapore is ramping up for this with the LNG terminal 'on track to commence commercial operations by mid-2012'. Developer Singapore LNG is also building a third tank to allow traders to store and arbitrage LNG cargoes, with this aimed at encouraging trading, he said.

Besides buying LNG from aggregator BG Group, 'there are provisions within BG's franchise for Singapore gas buyers to gain access to the spot LNG market. This means that once the terminal is in operation, gas users can take advantage of movements in spot prices, should these move in their favour', Mr Iswaran added.

Refineries' supplies not affected by Gulf unrest
But rising crude prices biting into refinery margins
Ronnie Lim Business Times 2 Mar 11;

OIL supplies to refineries in Singapore - the world's third largest oil refining/ trading hub - have so far not been impacted by supply disruptions caused by the turmoil in Libya, oil officials here say.

But rising crude prices are starting to bite into refinery margins here, as product prices have not kept pace, they add.

'There's been no force majeure on supplies and no crude shortages, and everything's smooth so far,' one refinery official told BT. Force majeure refers to a clause in contracts which frees for example, an oil supplier from complying with contractual obligations in the event of say, a war.

'Besides, Libyan crude doesn't come this way and goes mainly to Europe. It's other countries like Abu Dhabi, Kuwait and Qatar which supply to Singapore. The Saudis too want to step up production, so supply-wise, the unrest in the Gulf doesn't really affect Asia,' he added.

When contacted, an ExxonMobil spokesperson also said that 'the recent events in Libya have had no impact on supply of crude oil to ExxonMobil's Singapore refinery.'

Supply issues aside, the refinery official added however, that 'crude prices are rising too fast and is affecting refining margins, as product prices are lagging behind the crude spikes'.

'Still, Singapore refinery margins remain relatively healthy at around US$5 a barrel, down US$1 a barrel since the political crisis in Libya,' he said.

Aside from speculative trades, one cause of the run-up in oil prices is buyers of Libyan crude having to scramble for alternative supplies.

Jurgen Hambrecht, chairman of BASF, whose Wintershall unit was among those which stopped oil production in Libya last week, told a press conference last Thursday that 'at the moment, it is uncertain when we can restart production.... There is too much speculation at the moment. The situation is serious, but it is hard to assess properly.'

In early Asian trade yesterday, Brent crude was up 32 US cents to US$112.12, but still far from last Thursday's high of US$119.79, the highest since August, 2008.

An oil trader with an international trading house here also stressed that the political turmoil that started in Tunisia, and which has spread to Egypt and Libya is mainly a North African problem so far. 'The contagion hasn't spread to the Middle East, except for some stirrings in Bahrain and Yemen,' he said.

'Libyan crude however, is a light-sweet, low-sulphur crude, whereas crude from Saudi Arabia, which is planning to increase production in the face of the crisis, is a high-sulphur crude. That is why the price spread between Brent and Dubai has risen, as it is a spread between sweet and sour crude,' the trader explained.

'While Libya has imposed force majeure on some oil product exports with this causing some price tightening in Europe, it has not had as much as an impact here,' he said, adding however, that it has led to some support in product prices here.

This has affected mainly the lighter products like motor gasoline, jet fuel and diesel, with kerosene or jet fuel prices up by around 15-20 per cent, the trader said.

Traders here also are not building up stocks in anticipation of supply disruptions, he reckons, as the market is in 'backwardation' currently, meaning spot prices of oil products are at a premium to future prices.

Oil supplies are also not an issue for Singapore's power companies which generate 80 per cent of their electricity using natural gas feedstock from Indonesia and Malaysia. But because the price of their piped gas supplies is pegged to fuel oil prices, consumers are likely to see some increase in electricity tariffs soon.

Latest available data from BP's Statistical Review of World Energy 2010 showed that Singapore imported 930,000 barrels per day (bpd) of crude oil and 1.67 million bpd of oil products in 2009.

Practically all the imported crude was processed at the three refineries here of ExxonMobil, Shell and Singapore Refining Company with just 47,000 bpd re-exported. Total Singapore exports of oil products - from refineries and oil traders here - amounted to 1.5 million bpd that year.