Freezing conditions prompt fuel oil frenzy in power-starved Asia
SINGAPORE (Jan 13): Asian utilities are snapping up prompt supplies of fuel oil — an emergency backstop for natural gas — as power demand surges across the region due to a winter freeze.
Power generators in Japan such as Tohoku Electric Power Co recently bought several cargoes of low-sulfur fuel oil for the purpose of direct burning, said traders who asked not to be identified. These supplies can be used in oil-fired power plants, which are typically left in an idled state and utilized only when gas-fed facilities have been maximized.
Several other companies including Japanese utilities and trading houses were also seeking cargoes in the spot market this week, they said. LSFO and crude oil used for power generation in Japan need to have an ultra-low sulfur content, in order to meet environmental standards.
Goldman Sachs Group Inc estimates the unexpected boost in oil demand from wintry conditions will lift global consumption by at least one million barrels a day in the coming weeks, with the potential for demand to hit 1.5 million barrels should Dutch gas prices rise beyond US$10 per million British thermal units.
Power prices in Japan, meanwhile, have extended a record-breaking rally this week amid calls for consumers to curb energy use. The 24-hour average spot electricity price for next-day delivery was at 128 yen per kilowatt-hour on Wednesday, according to the Japan Electric Power Exchange, more than triple that at the start of 2021.
Japan’s Ministry of Economy, Trade and Industry, which overlooks the country’s oil, gas and power sector, has begun speaking to refiners and urging them to help supply local utilities with LSFO supplies, according to Shunichi Kito, the president of Idemitsu Kosan Co.
“We are in talks with power companies. They are saying they plan to restart oil-fired plants, as many as possible,” Kito said in an interview in Tokyo. “We are in discussions to mainly supply LSFO to Chugoku Electric, Shikoku Electric and Kyushu Electric.”
Idemitsu is assessing its situation to figure out how much fuel oil it can provide. Aichi refinery, for example, could offer 300,000 kiloliters of LSFO, which is usually upgraded into lighter, more value-added products in secondary units, Kito said.
