This is a repost of Ng Weng Hoong’s (Editor of www.EnergyAsia.com) letter to the Straits Times on our recent decision to build an LNG terminal here. I got to know Weng Hoong over the Internet. He’s been writing on energy for 20 years and I certainly look forward to picking his brains a lot more in the months to come.

Dear Sir,

Singapore’s search for energy security and diversification is leading it to commit deeper to fossil fuels for our energy supply. We should remember that natural gas, like oil, is a depletable resource, and an increasingly expensive one as it is linked to oil pricing. As oil prices continue to climb, there will be no escaping higher gas and power prices down the road.

Two weeks ago, the Trade and Industry Minister, Mr Lim Hng Kiang, announced Singapore’s decision to build an LNG terminal in 2012 based on a study by a Tokyo Gas Engineering-led consortium. The consortium made rosy assumptions about the availability and cost of LNG in the coming years. Yet, oil and gas producers have been warning and continue to warn that the cost of finding, extracting, delivering, storing and processing fossil fuels will continue to rise. There’s also the extra cost brought on by geopolitical conflicts and terrorism, which won’t go away any time soon.

Qatar and Australia, among those cited by Singapore as potential suppliers, are straining to meet demand by much large consumers around the world with whom Singapore will have to compete if we chose the LNG path. At the opening of China’s first LNG terminal in Dapeng, Guangdong in late June, Australia’s Prime Minister John Howard told his Chinese hosts including Premier Wen Jiabao to expect to pay alot more for future LNG supplies from his country. There were even calls among Australian companies to revise upwards the cost of the LNG signed under their 2002 contract. Qatar has also made it clear that most of its production capacity has been sold out, while Russia’s energy supply, which Singapore is also courting, is not stable or reliable as a result of its internal politics.

According to Mr Lim, we need to import LNG as an alternative to piped natural gas supply from Indonesia and Malaysia. LNG is being touted as a viable and necessary alternative to ensure feedstock for our power plants.

In pursuing the LNG option, the interest of the power companies is being equated to that of national energy security. If energy security is the bigger concern, we should take a deeper and wider view on energy supply and demand issues. I believe energy security will be one of Singapore’s biggest challenges in the coming years.

The oil markets are sending a clear and unmistakable message that we’ve moved into an era of high energy prices. World demand continues to set new record highs each year as many countries are pursuing the US consumer lifestyle and model of economic development, both based largely on cheap fossil fuels. The world’s ‘easy oil’ have all been uncovered, forcing countries and governments now to go after reserves in places that are harder to access, both geologically and politically. There is now a worldwide scramble for fossil fuels, coal and uranium, leading to further conflict among nations. When cheap energy is no longer available, what happens to our way of life and the economy that we’re used to? Our assumption is that we need and — somehow — will continue to find the additional energy supply at whatever cost to maintain an increasingly unsustainable lifestyle.

We need to start planning for scenarios if and when oil hits US$100 or US$150 a barrel. The decision to go with the LNG terminal was based purely on a comparison of choices between competing fossil fuels. The conclusions reached by the TGE study failed to take into account the growing debate in the oil industry of a possible peaking of global oil reserves, and that we’re living in a more dangerous and unpredictable world.

A more comprehensive study would examine the impact of US$100-150-a-barrel oil on Singapore’s economy, and which sectors will not survive the onslaught of high energy prices. Should we be even promoting the development of cheap airlines? How will tourism be impacted? How will the proposed integrated resort be affected? It is interesting to note that all the studies and debate on the integrated resort have failed to address the issue of the impact of high oil prices. The integrated resort project is founded on the assumption of cheap energy. Its sustainability could be called into question with higher energy prices.

What is the role and future of our power companies in an era of high oil and gas prices? The EMA projects further growth in electricity demand into the future. My quesion is: do we necessarily need to use more electricity?

Can we reduce or at least maintain our power and energy demand with better urban and transportation planning and building design, enforcing tough efficiency, conservation and recycling measures, and getting rid of sectors that could not survive in an era of high energy cost? Can our buildings be planned and built in a way to reduce the need for air conditioning? Can power consumption in lighting be reduced? Can we plan for the demise of energy-intensive sectors that won’t survive high oil prices? Is it possible to forgo the construction of the LNG terminal by making these collective changes?

If a Republican President from oil-rich Texas recognises that his country is addicted to oil and that they should be doing something about it, shouldn’t Singapore be concerned too?

Instead of spending US$500 million on a small LNG terminal — and this excludes the rising cost of LNG supply contracts — would we better off now preparing to reduce energy use, and introduce solar and other alternative energy sources into Singapore? Would the country be better served if electricity generation was decentralised? There are enough tall buildings in Singapore to take on solar panels and films to lessen the load on the power grid. What other viable energy sources are available? Would the LNG terminal and the slow-moving vessels that deliver natural gas to the terminal make for attractive terrorist targets, thereby weakening, not strengthening, our energy security?

We need to subject our every economic decision, every project to the question: “How will this project cope with oil at US$100 a barrel, US$150 and US$200?” If it fails the test, we should drop it or find new ways around it.

On a broader note, we will need to look at the impact of rising energy costs on our food supply, medical care and our basic needs. Do we know how US$100-150 oil will affect our food costs and supply? This will be worthy of a detailed study.

What is Singapore’s energy policy? We have several ministries and agencies looking at various aspects of energy issues, but not a coherent, broadbased policy needed to deal with energy security. Would a carefully thought out energy policy endorse the LNG terminal?

There are enough warning signs that we are headed into an energy crisis. We should consider these warnings and start preparing now.