Gas cuts may keep Singapore power spreads elevated through 2027

Morgan Stanley expects the disruption to accelerate Singapore’s shift toward LNG.

Indonesia’s reduction of pipeline gas deliveries could accelerate Singapore’s investment in liquefied natural gas infrastructure and keep power-market spreads elevated until the second half of 2027, according to Morgan Stanley.

The curtailment amounts to 17 billion British thermal units per day over 18 days, representing less than 2% of Singapore’s daily power-sector gas demand.

Prime Minister Lawrence Wong said Singapore’s gas importer would take steps to protect its contractual rights, adding that the country expected existing commercial commitments to be honoured.

Energy Minister Tan See Leng separately said Gas Supply Pte Ltd would determine whether the reduction constituted a breach of contract and could pursue available commercial remedies.

Tan said Singapore had sufficient replacement gas from other sources, including LNG. The country also maintains a standby LNG facility, whilst Singapore GasCo is prepared to procure additional supplies when necessary.

Morgan Stanley similarly expects limited difficulty in replacing the lost gas through higher Malaysian pipeline imports or LNG purchases.

However, the research house said the disruption could raise the trajectory of Singapore’s gas costs until 2027, before higher US LNG exports potentially push the global market into surplus.

Singapore imported the equivalent of 10 million tonnes of LNG in natural gas during 2025. Around 47% arrived through pipelines from Malaysia and Indonesia, whilst Indonesian imports accounted for approximately 34% of the country’s requirements.

The disruption therefore highlights the strategic importance of diversifying Singapore’s gas sources even though its immediate effect on total demand is limited.

Morgan Stanley expects LNG to replace a growing share of pipeline gas as Indonesian supply contracts expire and domestic electricity demand increases. It projects Singapore’s LNG import capacity to rise from 11 million tonnes annually in 2025 to 16 million tonnes by 2030.

The shift would strengthen Singapore’s ability to replace disrupted pipeline supplies, but it could also expose the electricity market more directly to global LNG prices and shipping conditions.

Asian LNG prices have reached four-year highs, whilst Singapore’s spot spark spreads—the difference between electricity prices and gas costs—have remained around $250 per megawatt-hour. Peak spot electricity prices have approached $1,250 per megawatt-hour.

Morgan Stanley expects near-term power-market spreads to remain elevated despite the commissioning of new generation capacity. It estimates that normal power margins could settle at $45 to $50 per megawatt-hour, compared with approximately $40 previously.

Demand has already absorbed about 1.2 gigawatts of generating capacity added in 2026, with peak electricity demand establishing a higher normal level of around eight gigawatts.

The research house expects power consumption to continue increasing because of data centers, advanced semiconductor manufacturing, electric vehicles and residential and commercial cooling needs.

Data centers alone could add approximately 700 megawatts of demand by 2030, keeping the electricity system finely balanced as new power plants come online.

Higher spreads could benefit Sembcorp Industries and Keppel. Morgan Stanley expects contracted power spreads to rise by around 15%, with the companies set to renew approximately 33% and 20% of their respective power contracts in the coming quarters.

For households and businesses, the findings point less to an immediate supply shortage than to continued exposure to higher and more volatile fuel costs.

Singapore’s LNG terminals and diversified suppliers provide alternatives during disruptions, but securing that flexibility could come at a higher cost when international gas markets are tight.