Singapore's Energy Infrastructure Expansion: Potential Gains for Sembcorp and Keppel
Sembcorp and Keppel are positioned to benefit from Singapore's enhanced energy infrastructure investments as demand rises.
SINGAPORE – With plans to bolster its energy infrastructure over the next five years, Singapore looks set to create favorable conditions for both Sembcorp Industries and Keppel. Heightened electricity demand and fuel security concerns are keeping the power sector competitive, prompting significant investments.
Five-Year Energy Infrastructure Strategy
On October 26, the Energy Market Authority (EMA) unveiled a comprehensive five-year strategy aimed at improving electricity generation, natural gas supply management, power grid capabilities, solar energy deployment, energy storage solutions, and electricity imports.
Growing Electricity Demand
Singapore's electricity consumption is on the rise, hitting a peak of 8.6 gigawatts (GW) in August. Projections suggest that by 2031, this demand could escalate to between 9.9GW and 13GW, driven by sectors such as data centers, semiconductor manufacturing, and the electric vehicle market.
Analysts at Morgan Stanley anticipate that the tightening power market will improve profit margins for Sembcorp and Keppel, especially as a third of Sembcorp's power contracts and 20% of Keppel's are set for renewal soon.
Revenue Projections and Market Dynamics
The analysts predict a 15% increase in contract power spreads, which could lead to an uplift in earnings for both companies by 15% to 20% during the latter half of 2026 and throughout 2027.
Power spreads represent the difference between the revenue generators earn for electricity and the cost of the fuel required for production. Although wider spreads typically enhance margins, actual profit levels remain influenced by plant efficiency, operating expenses, and specific contract terms.
Morgan Stanley projects that power margins will stabilize around $45 to $50 per megawatt-hour, an updated estimate from their earlier figure of $40, due to persistent market tightness despite the introduction of new generation capacity.
Expansion of Natural Gas Sources
As part of the EMA's roadmap, five natural gas-fired power plants are scheduled to commence operations between 2026 and 2031. This expansion is expected to increase Singapore's electricity generation capability by approximately 26%, raising it from the current level of about 12GW.
The EMA is also assessing additional proposals for gas-fired plants that may start functioning by 2032 and could open the door for more proposals within the next five years if demand shows robust growth.
Currently, natural gas supplies make up about 95% of Singapore's electricity generation. To enhance supply reliability, the nation plans to augment its liquefied natural gas (LNG) regasification capacity from 10 million tonnes to 15 million tonnes once a second LNG terminal at Jurong Port begins operations by 2030.
Addressing Supply Interruptions
This initiative arises amid worries about the consistency of piped gas supplies from Indonesia, which recently cut its exports to Singapore by 31 billion British thermal units daily since October 24. Indonesia accounts for roughly 70% of Singapore’s piped natural gas and 30% of its total gas imports, though the current reductions impact less than 2% of Singapore's daily gas requirement.
Experts highlight that Singapore is not likely to face significant shortages, thanks to options for importing gas from Malaysia or sourcing more LNG from the spot market. Market observers note that Singapore is better equipped to handle the current situation than during previous curtailments in 2021, despite ongoing global gas supply challenges.
Economic Outlook and Impact on Sembcorp and Keppel
Morgan Stanley suggests that gas prices are expected to ascend until 2027, after which increased U.S. exports might lead to an oversupply, triggering a drop in prices. Rising import costs could also translate to domestic inflation, prompting scrutiny from economists regarding the potential impact on local inflation rates.
Sembcorp relies on Indonesia for approximately two-thirds of its gas needs, and recent supply cuts could affect up to 5% of its gas consumption, as estimated by Morgan Stanley. In contrast, Keppel is less reliant on Indonesian gas, sourcing most of its supply from Malaysia and LNG imports, according to JPMorgan analysts.
When the market opened on October 26, Sembcorp’s shares experienced a drop of over 4%, closing 2.8% lower, while Keppel’s shares saw a modest rise of 1% and ultimately closed 0.9% higher.
In addition to power generation and gas supply enhancements, Singapore plans to invest up to $5.3 billion from 2025 to 2029 to upgrade its power grid. This investment exceeds the total laid out in the previous five-year period by a staggering eleven times.
The expansive infrastructure initiative could yield opportunities for companies engaged in energy projects, grid technologies, and storage solutions. However, success will hinge on which entities secure the necessary contracts, according to analyst predictions.