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Asian buyers are paying top dollar for a variety of fuels that can be injected into steam boilers or electric turbines as they seek alternatives to increasingly expensive natural gas.
The electricity crisis is disrupting energy markets from Europe to Asia, with fuels that can be used for heating or power generation such as propane, diesel and fuel oil in high demand . Goldman Sachs Group Inc. predicts that the crisis will lead to greater consumption of crude later this year, as China has ordered state-owned companies to guarantee energy supplies for the winter at all costs.
In Asia, prices for propane, a petroleum product typically used for cooking or making plastics, hit their highest level since at least 2016, while fuel oil recently nearly doubled from the previous year. Refiners are getting a boost from the crisis, with profits from converting oil to diesel at their highest since January 2020, before the pandemic squeezed demand.
The electricity crisis was caused by soaring prices for electrical raw materials like coal and liquefied natural gas. The cost of super-refrigerated fuel in Asia has hit an all-time high, although that hasn’t discouraged China from buying in its quest for energy security. Saudi Aramco estimates that the gas crisis has already increased demand for oil by about 500,000 barrels per day, while Goldman sees consumption soar even higher.
Tighter supplies of liquefied petroleum gas, which includes propane and butane, contributed to the rise in prices. US shipments to Asia fell more than 30% in September, dropping a month earlier to their lowest level since February, said Serena Huang, senior analyst for Asia at Vortexa Ltd. The main supplier of LPG, Saudi Arabia, also raised prices to the highest in seven years.
“LPG purchases from Asian importers will likely resume before winter,” said Sam Sng, senior analyst at industry consultant FGE. Inventories in Japan are “quite low”, while demand for blending LPG and LNG will increase in South Korea in the coming months, he added.
Fuel oil stocks are also falling. Typically used to fuel ships or as an emergency shutdown device for natural gas, stocks at the Singapore storage facility fell to their lowest level in two years. Pakistan and Bangladesh have been key buyers in the region, sourcing supplies to replace the more expensive LNG, which has helped improve fuel oil manufacturing margins.
South Asia will generate around 85,000 to 90,000 barrels per day of additional fuel demand from October to March 2022, mostly from the power generation sector, according to Sandra Octavia, an analyst at Energy Aspects Ltd. Japan, the epicenter of a fuel oil-buying frenzy last winter — is, however, probably better prepared with its energy supplies this year.
Storage for heating in winter is also boosting kerosene demand, said Victor Shum, vice president of energy consulting for IHS Markit. The overall increase in demand could increase refining margins at the benchmark Singapore complex by about $ 3.10 per barrel in the fourth quarter, compared to the previous year, he added.
China’s diesel consumption spiked last winter as factories rushed to install portable generators to ensure factories stay open during power shortages, and that trend is expected to continue this year. Demand in Europe soared, widening the price differential with Asia, while Indian fuel exports hit their highest level in four months. Bloomberg News
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