Asia desperate for energy as Gulf disruption spreads

Across Asia, motorists are joining long lines at petrol stations as prices climb and governments across the region come to the realisation that with reliable supplies of oil and LNG facing disruption because of the ongoing conflict in the Middle East, they could be left struggling to meet the energy demands of some of the world’s most populated countries.

India, heavily dependent on oil and gas imports from the Persian Gulf, is among the economies hardest hit by the escalating disruption to Middle Eastern energy supplies.

At least one Indian refiner has halted product exports in order to conserve fuel for the domestic market, while gas suppliers have invoked force majeure clauses to restrict deliveries to industrial users and fertiliser producers.

But the strain is being felt across the wider region.

Pakistan, which obtains 99% of its LNG from Qatar and in recent months even asked to stop receiving shipments for financial reasons, is seeing fertiliser plants shut as suppliers are unable to provide feed gas. The country is also starting to see a rise in fuel prices, with Bloomberg reporting a 20% increase in the country which has led to queues forming at petrol stations.

Other industries across Asia are warning of similar rising input costs linked to higher oil and gas prices brought on by the war in the Middle East that has already begun to trigger energy shortages across the continent after US and Israeli strikes on Iran prompted retaliation that shut oil and gas exports and effectively closed the Strait of Hormuz. Pakistan has raised retail fuel prices by 20%, with queues forming at petrol stations.

Pakistan is also understood to have asked Saudi Arabia to help secure crude oil shipments through the Red Sea Sport of Yanbu as the closure of Hormuz threatens the country's energy supply chain.

In Thailand too, farmers are now waiting in long lines for hours on end to secure diesel amid fears of not having enough fuel to power the upcoming rice harvest.

Singapore is another country affected, and one which in knock-on effect will affect regional and global shipping. As a major marine fuel hub, Bloomberg reports that Singapore has now begun rationing supplies. With fuel oil shipments from the Middle East having dropped off by about 90%, thereby sharply reducing available bunker fuel feedstock, this has triggered subsequent price spike with Reuters saying that high-sulphur bunker fuel prices in the island state have now risen by over 40% in the last week. According to Lloyds list, this is compounded by regional developments in which Vietnam and Thailand have stopped selling bunker fuel to traders and bunker suppliers, while China has halted exports of oil products, reducing flows into the wider Asian market.

The Philippines has said it will shorten the working week for government offices to conserve energy. A number of private companies may follow suit. President Marcos has also told government agencies to limit electricity and petrol use, ordering a 10 to 20% cut in both to help with wider energy-saving efforts, The Daily Tribune reports.

Bangladesh, still debating its future energy policy just weeks after a general election and while awaiting the final linking to the grid of a Russian built nuclear power station, has taken the unusual decision to limit illuminated street decorations during the holy month of Ramadan while at the same time halting fertiliser production. A recognition of limited LNG supplies has been made though and the crisis emerged after QatarEnergy invoked a force majeure clause on its long-term supply agreement with the state-owned energy company Petrobangla. The declaration has raised concerns about disruptions to Bangladesh’s gas supply, which plays a crucial role in electricity generation and industrial production. Power plants, factories and export-oriented industries rely heavily on imported LNG to supplement declining domestic gas reserves.

Japan some utilities are suspending power plant units to conserve fuel and Japanese utilities have increased LNG inventories by about 10%, reaching roughly 2.19mn tonnes, according to the Ministry of Economy, Trade and Industry. This level could potentially cover about 12 days of domestic consumption, Reuters says.

Authorities in Tokyo say there have not yet been any requests for emergency LNG supplies, but companies have been asked to secure additional cargoes to hedge against potential disruptions to shipments from the Middle East. As Japan is the world’s second-largest LNG importer, making gas supply security of paramount importance during any conflict.

China has instructed refiners to curb exports in order to safeguard domestic inventories according to Reuters with larger refiners ordered to cease exports of petrol and diesel. A number of Chinese refineries have begun reducing processing rates as a result while a large refinery operated by Zhejiang Petrochemical is using the time to start maintenance on a 200,000 barrels-per-day (bpd) unit, cutting overall throughput by about 20%. Fuel prices have also climbed sharply across China with the tightening supplies and rising global crude prices.

Over the past week, diesel prices have gone up about 13.5% and gasoline about 11%, Reuters adds, reflecting the rapid tightening in regional fuel markets.

Taiwan, a global semiconductor manufacturing centre that relies heavily on seaborne imports, was seen scrambling to secure energy supplies in the last week and has also moved to secure alternative LNG cargoes for next month. Petrol prices for the week ahead are typically released on Sunday, but according to local news in the country it has already been revealed that petrol is likely to go up by around TWD$3 per litre to between $0.98 and $1.10 with diesel also climbing about TWD$1.1 per litre to around $0.89 – one of the sharpest single week price increases in over a decade

There is also talk in Taiwan of a switch back to coal use if need be but the government in Taipei has said Taiwan holds sufficient crude oil reserves to cover more than 100 days of demand and natural gas stocks that would last for over 11 days.

South Korea is also understood to be preparing to take similar steps on the petrol front but may benefit from a recent push to increase its nuclear output in energy provision.

Arguably the biggest news in Asia in recent days on the gas supply front though was the US offering limited relief by granting India a 30-day waiver allowing purchases of Russian oil, a shift from months of pressure on New Delhi to reduce imports from Moscow. Indian refiners have rushed to take advantage, securing millions of barrels already in transit and within reach despite elevated prices.

The Mangalore Refinery and Petrochemicals was forced to suspend product exports and shut a crude processing unit because of low inventories, while the government had been considering contingency measures for several days. Reliance Industries, which operates the world’s largest refining complex, has established a monitoring centre to track developments in the Middle East and identify procurement opportunities elsewhere, with senior executives working overnight, according to a person familiar with the situation. And while the US concession has been widely welcomed in India it is viewed by many as only a partial solution. It does little to address immediate shortages of LNG and LPG – and with India the world’s second-largest LPG buyer, purchasing more than 90% of its supply from the Middle East, more problems are expected.