Gravity Defying Tariffs

First the good news. City Gas announced on Tuesday (Oct 28) that gas prices will be reduced from November 1 till the end of January next year. The gas tariff will be revised downwards, from 21.06 cents per kilowatt hour (kWh) to 20.83 cents per kWh for the three-month period – a difference of 0.23 cents per kWh. City Gas said the lower tariff was due to a drop in fuel costs compared with the August-October quarter, during which gas prices fell by 0.1 per cent or 0.02 cents.

Gas prices are reviewed by City Gas based on guidelines set by the Energy Market Authority, the gas industry regulator. However, the Energy Market Authority seems to be awfully quiet about the tariff for electricity.

In June of 2014 the Brent Crude Oil Price hit US$115 per barrel and many oil market insiders were predicting higher prices. Other analysts however, called a peak, and their predictions proved to be correct. The market closed at US$80.70 on October 31, 2015, 5:14pm, and Goldman Sachs forecasted that U.S. benchmark crude prices will fall further to US$70 per barrel next year.

Three significant factors clearly visible a year ago pointed to lower prices because of greater supply of oil. The end of the US-led embargo on Iran automatically presaged a glut in oil supply. Secondly, the damage to Libya's oil infrastructure during the overthrow of Gadaffi three years ago has been repaired and now the country is back in business. Fracking in the US is the third element that has increased oil supply.

When oil price was high, transport charges kept ratcheting up - bus fare, train fare, taxi fare, etc - and with it, prices of all manner of goods that need to be shipped in. The bad news is that affected prices, in particular the electricity tariff, won't be adjusted down anywhere near the 20 percent drop in oil price. Transport operator SMRT reported on Friday (Oct 31) its profit after tax and minority interests for the second quarter of the current financial year rose 75.5 per cent year-on-year to $25.3 million. Its operating profit from train operations increased by $6.6 million on the back of higher revenue and lower electricity costs. Dream on, if you expect them to pass the cost savings down to the suffering commuters.