Published October 10, 2008

City Gas to retain monopoly for some years

Full liberalisation of market comes only after major changes to infrastructure

By RONNIE LIM

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A DECISION to liberalise Singapore's town gas market - worth up to $300 million annually - is not expected until 2009/2010.

Following that, it will need another six to seven years - to convert the existing town gas supply network into natural gas use - before the market is fully open to competition.

City Gas president and CEO Ng Yong Hwee said this when asked about the implications of last month's gas market liberalisation - starting with the freeing of natural gas supplies here - on the monopoly town gas supplier.

But it will take a while before competition filters down to the town gas market where City Gas - owned by listed CitySpring Infrastructure Trust - directly pipes town gas to some 560,000 households, as well as to commercial and industrial establishments.

Its only (non-pipeline) competition right now comes from suppliers of bottled liquefied petroleum gas, or LPG.

To produce its town gas, City Gas buys Indonesian natural gas from importer Gas Supply Pte Ltd to use as feedstock for its Senoko Gasworks plants.

There, the gas is reformed and then piped to customers for heating, cooking and use for other gas-fired appliances.

As part of market liberalisation, the Energy Market Authority (EMA) is evaluating the conversion of this town gas pipeline network to carry natural gas which can be piped directly to customers without requiring production plants, like City Gas's.

But to do this, modifications, including to the gas nozzles or burner heads of the various domestic and industrial gas appliances, will be needed.

As such, both City Gas and PowerGas (owner and operator of the islandwide gas pipeline grid) in September 2004 asked the EMA for a five-year deferment of this town gas network conversion - due to its high cost of an estimated $200 million and also its long cost-recovery period of up to 15 years.

Even after the market regulator's approval, preparation of the conversion project alone is expected to take one-and-a-half years, followed by a further five years for project implementation.

Still, despite the lead time it has, City Gas is not sitting still but is preparing for any eventual competition - whether from generating companies or bottled gas companies which may want to enter the town gas market, Mr Ng stressed.

But one challenge the latter may face will be their lack of economies of scale in buying natural gas.

City Gas's retail strength also comes from the diversity of customers it has built up, Mr Ng said, adding that it also has 'a strong pipeline of new ones coming onstream'.

Apart from supplying to HDB towns and new private condominiums, its commercial customers range from hospitals to crematoriums.

City Gas has also been promoting gas use for companies with central kitchens, such as Singapore Airport Terminal Services, and central laundries serving hotels.

It has also been developing and selling new gas-fired appliances such as water heaters and clothes dryers.

Mr Ng said that the town gas market here has been growing by 6-7 per cent annually, with CityGas selling 1.57 billion kilowatt hours of gas in FY07/08, up 15 per cent from 1.36 billion kWh in FY04/05.

Among the macro drivers will be population growth; tourism growth, which means more hotels and restaurants; the start- up of the integrated resorts; and new applications for gas-use, including for lifestyle/beauty products, he added.