Sembcorp, Keppel stand to benefit as Singapore steps up energy infrastructure investments

Singapore expects electricity demand to rise sharply, driven partly by data centres, semiconductor manufacturing and electric transport. It is responding with new gas-fired plants, more LNG capacity and major grid investment. These projects can support a larger and more secure power system.

The key opportunity for Sembcorp and Keppel is contract renewal. Morgan Stanley expects tighter supply and demand to lift power spreads by 15%. Wider spreads could raise earnings estimates for both companies by 15% to 20% in the second half of 2026 and throughout 2027.

The benefit is not guaranteed. Fuel availability, gas costs, plant efficiency and contract terms will still determine profits. Sembcorp is more exposed to Indonesian gas, while Keppel relies more on Malaysian supplies and LNG. Singapore’s infrastructure spending could therefore create growth opportunities while also highlighting differences in fuel exposure.

A power spread measures the difference between a generator’s electricity revenue and the fuel cost required to produce that electricity. It is a simple way to view the margin available before other costs, such as operations and maintenance, are deducted.

For example, if a plant receives a higher electricity price while its gas cost rises less quickly, its spread widens. That gives the generator more room to cover plant expenses and earn profit. The actual result still depends on efficiency, operating costs and contract terms.

Morgan Stanley expects Singapore’s power spreads to rise 15% as the market remains tight. It estimates power margins of about $45 to $50 per megawatt-hour, up from its previous $40 estimate. The analysts said wider spreads could lift Sembcorp’s and Keppel’s earnings estimates by 15% to 20%.

Singapore’s peak electricity demand reached 8.6 gigawatts in August. The Energy Market Authority expects it to reach between 9.9GW and 13GW by 2031. That represents an increase of 1.3GW to 4.4GW, driven partly by data centres, semiconductor manufacturing and electric transport.

To meet that demand, five natural gas-fired power plants are expected to operate between 2026 and 2031. They should increase generation capacity by about 26%, from around 12GW today. Singapore is also evaluating more plants that could start by 2032.

The grid expansion is similarly large. Singapore plans to invest up to $5.3 billion from 2025 to 2029, or 11 times the previous five-year investment. It also plans to raise LNG regasification capacity from 10 million to 15 million tonnes a year by 2030.

Fuel costs are central to Singapore’s power market because natural gas supplies about 95% of its electricity. If gas becomes scarcer or more expensive, generators may face higher production costs. Those costs can contribute to higher electricity prices and wider imported inflation.

The outcome for companies depends on the power spread. If electricity prices rise more than fuel costs, generators such as Sembcorp and Keppel could see stronger margins. Morgan Stanley expects power margins of about $45 to $50 per megawatt-hour and has forecast higher earnings for both companies.

If fuel costs rise faster than electricity prices, the benefit could shrink. Morgan Stanley expects gas costs to rise until 2027. Standard Chartered said economists were watching underlying inflation, while the Monetary Authority of Singapore could tighten policy if inflation broadens and growth remains firm.

Singapore is especially concerned about gas security because natural gas accounts for about 95% of its electricity needs. A disruption therefore matters beyond one supplier or one power plant. It can affect fuel availability, generation costs and the reliability of the wider electricity system.

Indonesia supplies about 70% of Singapore’s piped natural gas and around 30% of its total natural gas imports. Since October 24, Indonesia has cut pipeline exports by 31 billion British thermal units a day. The cut affects less than 2% of Singapore’s daily gas needs, but it highlights concentration risk.

Singapore is better prepared than during earlier curtailments in 2021. It can use Malaysian gas or spot-market LNG, and plans to expand LNG regasification capacity to 15 million tonnes a year by 2030. Global gas prices and supply conditions remain important risks.

Singapore has two immediate alternatives to the Indonesian pipeline gas that was cut: import more gas from Malaysia or buy additional LNG on the spot market. Analysts do not expect the country to struggle to replace the shortfall because the reduction affects less than 2% of daily gas needs.

Malaysian gas can provide another pipeline source, reducing reliance on Indonesia. LNG offers wider sourcing flexibility and can be regasified for use in the power system. Singapore is also expanding planned LNG regasification capacity from 10 million to 15 million tonnes a year by 2030.

The trade-off is cost. Global gas supplies remain tight, and Morgan Stanley expects gas costs to rise until 2027. More expensive imports could raise electricity costs and feed domestic inflation. They could also affect monetary policy if underlying inflation broadens while growth remains firm.

A gas-fired power plant converts the energy in natural gas into electricity. In a conventional plant, the gas is burned to create heat, which produces steam. The steam spins a turbine connected to a generator. Many modern plants also use gas turbines directly, with hot exhaust helping produce additional power.

The basic cost link is straightforward: natural gas is the plant’s fuel. More expensive gas raises the cost of producing each megawatt-hour. A generator can preserve its margin only if electricity prices rise enough to cover that higher fuel bill. This is the basis of the power spread described in the article.

Singapore depends heavily on this process because gas supplies about 95% of its electricity. Indonesia’s cuts, Malaysian gas and LNG therefore matter directly. New gas plants can add capacity, but fuel prices and supply security will continue influencing electricity costs and company earnings.