In the light of higher government expenditure, rising taxes, and carbon tax, Singaporeans and businesses should not worry about rising energy cost – yet.
A month has passed since the government revealed Budget 2018 in February and we have had a month to cool-down and observe the reactions from all actors. Households remain concerned about how these regressive taxes will affect their lives, and the government has responded with rebates like GST Voucher U-Save scheme. Others are turned off by the GST implementation on digital imported services like video and music, apps, and online subscription, especially businesses that are using marketing and accounting services from overseas vendors and subscribing to productivity tools.
Many agree that the overall stance of the government is to build on its good fiscal position through taxation so as to meet likely challenges in the future. Like most major policy announcements in recent years, the government has taken a politically prudent approach – a series of announcement about its intentions, debates in parliament, and public consultations, many months before formalising it into a budget. By the announcement, most Singaporeans would have expected the GST hike and implementation of the carbon tax, heard the arguments from both sides, and the likelihood of a negative visceral reaction was reduced.
Still, an aching worry remains for all Singaporeans; While experts can make predictions on the likely impacts of these policies, the actual impacts to the daily lives of citizens and businesses will only be known in the long run. Moreover, the rate at which GST would increase remains to be seen. Moreover, it is also uncertain whether 2% is overly conservative when it comes to building up Singapore’s fiscal position to sustain unforeseen shocks to the global market, especially in the light of a shift of economic weight towards Asia, emergence of new technologies, and ageing population. Hence, we do not know whether this 2% will be revised by the next budget and if the cost of living or running businesses will go up.
In addition, the introduction of the carbon tax of $5 per tonne (perhaps even $10 and $15 per tonne of emissions by 2030) of greenhouse gas emitted may also affect all consumers of energy. This tax will likely be levied on 30 to 40 large emitters that contribute up to 80% of Singapore’s greenhouse gas emissions, but we can also expect a trickle-down effect because these firms will pass the burden onto the end consumers. This means price increase on our daily essentials and utility bills. Already announced in 2017, electricity tariffs are to increase by 6.3% in the first quarter of 2018. A household in a 4-room flat will see an average increase. Businesses are worried that this tax will hurt our competitiveness.
As such, the Budget 2018 created uncertainty amongst all citizens.
While no one can effectively predict how this will affect every aspect of our lives, the impact of these changes on energy prices will be minimal because of strong supply-side measures have been taken to cushion and price changes in the long run.
Singapore’s energy prices will be largely determined by macro-level factors
95% of Singapore’s electricity is generated by natural gas. Liquefied Natural Gas (LNG) balances the security of supply cost-effectiveness and environmental friendliness. Judging from global LNG prices, barring fluctuations from global shocks, LNG prices have fallen in the last 7 years because of good supply. With the establishment of our LNG terminal, Singapore is able to import natural gas from anywhere in the world, diversifying its suppliers of LNG. Before the LNG terminal, Singapore had to import natural gas from Malaysia and Indonesia. Moreover, as the world largest LNG bunkering hub, Singapore’s storage of LNG will cushion any fluctuation in prices, enabling greater price stability and investor confidence. As such, we have seen a steady decline of electricity tariff and energy cost since mid-2012 (See EMA, Page 90).
Nevertheless, LNG prices will inevitably rise because natural gas is a fossil fuel, which is limited in quantity. The world bank forecast between 2018 to 2030 when demand slowly catches up with the supply of natural gas. Domestic energy prices will gradually increase at a rate depending on how gas-dependent the country is.
Micro-level forces present a positive outlook for Singaporeans
Liberalisation of the energy market is perhaps the best thing to happen for consumers. With greater number of electricity and gas retailer, consumers have more vendors to choose from. The competition drives companies, like us, to innovate, increase our service standards and price competitively in order to meet the needs of the market. At this point, there are about 30 retailers and GasHub Utility is one of them.
Each firm offers something unique for a specific type of consumer, enabling greater savings, sustainability, or both.
For us, GasHub offers greater cost savings for industrial customers by switching them to natural gas. We can power large facilities with Combined Heat and Power generators that take natural gas as feedstock, then cater to the heating, cooling and electricity needs of the business with an increase in energy efficiency of 30%. This translates to a cost saving of 30% and a tremendous boost to our customer’s profits. As an integrated energy provider, we will also deliver natural gas through a virtual pipeline (delivery) and piped natural gas, allowing a hassle-free experience.
The Open Electricity Market will roll out in Jurong in April 2018 and other parts of Singapore in phases. With the greater diversification of energy sources and innovation led by the private sector, I am positive that we will enjoy price stability in energy prices. Hence, Singaporeans and businesses need not worry about rising energy costs yet.