Asia-Pacific economies are facing an energy crisis that threatens to worsen in coming months and reach historic proportions if the Russia-Ukraine war continues. The magnitude of the crisis varies in different countries but broader trends are identical – high fuel prices, supply disruptions, domestic energy shortages, blackouts, involuntary demand destruction, calculated energy rationing, depleting forex reserves and market volatility, reports SP Global.
Prices
- Asian spot LNG prices for the summer of 2022 are at their highest level for this time of the year. The Platts JKM for August was assessed at $36.888/MMBtu June 24, S&P Global Commodity Insights data showed.
Trade flows
- European gas fundamentals are still largely dictating global spot LNG prices and as LNG continues to replace piped gas supply into the region, Asia will lose LNG cargoes to Europe and see lower inflows for the rest of this year compared to previous years.
- India and China have posted some of the largest declines in LNG imports as the spot LNG inflows have largely evaporated. China’s LNG imports in the first six months of 2022 are down more than 20% year on year, while India’s spot LNG imports are down around 14% year on year.
- Chinese demand in particular has been extremely weak and remains at significant risk given the recent uptick in spot prices despite a recent removal of lockdown restrictions and a government stimulus package meant to spur economic activity. The lack of buying from the largest spot purchaser in Asia has mitigated the need for any significant draw on volumes from outside the region, according to S&P Global Commodity Insights.
Infrastructure
- State Bank of Pakistan’s foreign exchange reserves fell by $11.088 billion to $8.985 billion, from Sept. 1, 2021, to June 10, 2022, enough to cover less than six weeks of imports. Pakistan’s total commodity imports including petroleum products and LNG amounted to $6.6 billion in May alone, according to official data.
- In June, Pakistan curbed electricity demand by limiting operating hours of commercial establishments and imposing a five-day work week, to cope with widening fuel shortages even as it cancels spot LNG import tenders.
- Bangladesh has imposed austerity measures to curb consumption of natural gas and to reduce its reliance on the LNG spot market, extending fuel rationing that was implemented earlier in the year due to sharp depletion in domestic gas production. S&P Global expects LNG imports at risk in second-half 2022 at spot prices above $30/MMBtu.
- Several provinces and cities in China have issued plans for “orderly” electricity consumption in 2022 to prepare for the risk of insufficient power supply in peak summer, and Chinese Premier Li Keqiang has repeatedly called for maximizing domestic coal production and energy supply from all sources.
- Northern Chinese power grids are seeing record high power loads since mid-June due to a heatwave and some resumption in economic activity, according to State Grid Corp. The Central Meteorological Observatory June 21 issued an alert for high temperatures for 12 provinces and regions across the country, with maximum temperatures in some provinces exceeding 40 degrees Celsius.
- China’s gas-fired power generation shrank to 897 hours in the January-May period, down 19% year on year, according to data released by China Electricity Council on June 17. Gas-fired plants in southern China have either idled their units, or lowered operating rates due to losses.
- India has been reeling from blackouts, coal shortages and high summer temperatures for several months. India restricted coal deliveries to industrial consumers to prioritize power plants in April, when average coal-fired power generation hit a new record even as high international prices caused a reduction in coal imports, according to S&P Global Commodity Insights.
- Japan warned on June 7 that the risk of Russian LNG supply disruption had risen to an unprecedented level, strengthening its tone on a potential fuel procurement risk for power generation, according to ministerial documents. Russia accounted for 9% of Japan’s total LNG imports of 74.32 million mt as the fifth largest supplier in 2021, according to data from Japan’s Ministry of Finance.
- Japan’s Organization for Cross-Regional Coordination of Transmission Operators issued orders June 27 for the TEPCO Power Grid to receive up to 912.1 MW of electricity from other regions to ensure sufficient supply after the Ministry of Economy, Trade and Industry June 26 issuing an electricity supply shortage advisory for the Tokyo area.
- The Australian Energy Market Operator lifted its suspension of the wholesale electricity day-ahead market in all regions due to improved supply on June 24, after suspending it on June 15 in response to rising electricity prices, coal-fired plant outages and high gas prices.
- Singapore has chartered vessels to be used as LNG floating storage to ensure fuel supply and hedge against disruptions, and its energy regulator Energy Market Authority on June 16 extended energy security and resilience measures launched in October 2021 to March 31, 2023.
- Sri Lanka is experiencing the most severe energy crisis in the region as fuel suppliers refuse to sell refined products like gasoline and diesel to the country due to concerns of fiscal default, in the backdrop of an economic collapse, social unrest and political turmoil.
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Source: SP Global
