Page 4 - AsiaElec Week 37

AsiaElec COMMENTARY AsiaElec
Asian power sector waits for
fallout from Saudi drone strikes
Generators are watching nervously for oil price turbulence and shipping problems in the Gulf
ASIA
WHAT:
Asian gas consumers will be watching for price ripples
WHY:
Any oil price shock
will take time to move downstream to the power sector
WHAT NEXT:
Utilities and governments will pay closer attention to renewables and the Energy Transition
ANY effects from the drone strikes on the Abqaiq petroleum processing plant and the Khurais oilfield in Saudi Arabia are unlikely to be felt quickly downstream in the power sector in Asia.
Importers of LNG from the Middle East, where Qatar is the biggest exporter, will be wor- ried about upward price movements for gener- ating fuel and about any shipping difficulties in the Straits of Hormuz.
With China and India amongst the biggest importers of the Gulf ’s oil, refined products and LNG, industries in those countries stand to feel any supply curtailments deeply in the medium and long term.
Japan’s Minister of Economy, Trade and Industry (METI) Isshu Sugawara confirmed on September 17 that the government would co-ordinate the release of oil reserves and other measures if needed in order to ensure sufficient fuel supplies.
The Gulf supplies 80% of Japan’s entire oil supply (and Saudi Arabia 50%), while 20% of Tokyo’s natural gas arrives from the Gulf as LNG.
The attacks on the Abqaiq petroleum pro- cessing plant and the Khurais oilfield cut Saudi Arabia’s crude oil supply by around 5.7mn bpd, equivalent to 50% of national output, or 5% of total global supply.
LNG prices will also be exposed to any spike in oil prices, as many Asian long-term contracts are index-linked to crude prices. On September 16, Asian spot LNG prices jumped, with the S&P Global Platts JKM contract for November rising to $6.183 per mmBtu, up from $5.925 on Sep- tember 13.
The biggest worry for power generators is any blockage of the Straits of Hormuz, which could affect LNG being shipped from Qatar, which produced a record 82mn tonnes in 2019, to buy- ers in Asia, especially India and China.
Other potential fallout affecting power in Asia and Africa could be a quickening of efforts to replace heavy fuel oil and naphtha with natu- ral gas at various thermal power plants (TPPs) across the region. But again, any changes will be minimal when compared to the oil sector.
Wider impact
In wider geopolitical terms, the attack strength- ens Saudi reliance on the US, and creates stronger international opposition to Iran, which
Moscow is keen to support.
US Secretary of State Mike Pompeo was quick
to blame Iran for the drone attacks.
“Amid all the calls for de-escalation, Iran has
now launched an unprecedented attack on the world’s energy supply,” Pompeo posted on Twit- ter on September 14. “There is no evidence the attacks came from Yemen.” He was responding to the claims by Yemen’s Iranian-backed Houthi rebels that they had carried out the attack.
In Asia, it could strengthen Russia’s role as a supplier of oil to China via pipeline and of LNG from Vladivostok, and in the future from LNG export projects in the Arctic.
China, for example, currently imports up to 1.8mn bpd from Saudi Arabia. The crisis could increase Moscow’s role in supplying Beijing with crude, although China could also look to diver- sify its supply routes.
Power utilities in Japan, China and India will be carefully assessing what Russia can offer them in future to hedge against any pricing instability or supply disruption from the Middle East.
For the power sector, it is very much a ques- tion of wait and see, and keep a close eye on any ripples in the price of oil and LNG in the com- ing weeks and even months, as well as shipping movements in the Straits of Hormuz.
As well as a recovery in oil output, Saudi Ara- bia could also strengthen its focus on LNG.
Saudi Aramco has the long-term strategy of becoming a leading global LNG player, and sold its first two LNG cargoes at the start of September.
It is buying a 25% stake in Sempra Energy’s planned Port Arthur LNG project in Texas and has agreed to buy 5mn tonnes per year (tpy) of LNG from the plant over a 20-year period.
As such, Aramco could intensify its efforts to learn about the LNG industry and to create a more diversified asset portfolio.
Utilities and governments will be waiting to see if Aramco can meet its contractual commit- ments to oil buyers in the coming weeks. For Asian governments, the disruption to fossil fuel supplies will again focus minds on promoting renewables and combating climate change.
The threat to generating fuel supplies will again lead to calls from both industry and the public for greater investment and policy commitment to pushing forward the Energy Transition.™
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w w w . N E W S B A S E . c o m Week 37 17•September•2019