Saturday, May 18, 2024
HomebusinessExtreme heat is fast becoming a threat to global fuel security

Extreme heat is fast becoming a threat to global fuel security

Searing temperatures from Texas to Tokyo over the summer are the latest reminder of a growing headache for the energy system, as extreme heat becomes a threat to fuel supply.

In addition to causing spikes in electricity demand as people fire up air-conditioners, the scorching temperatures have led to a spate of disruptions at oil refineries.

That’s helped keep US petrol prices elevated and saw diesel cost increases easily outpace those for crude.

This summer was particularly gruelling: July was the world’s hottest month on record, following the hottest June.

The searing heat led to refiners cut oil processing by at least 2 per cent globally over those two months, according to Macquarie Group.

While that might not seem that much, the outages have hit a refining system that has been stretched by years of under-investment and oil product markets that were already tight due to the war in Ukraine.

“The extreme weather conditions we have seen this year really are a big deal,” said Mr Ben Luckock, the co-head of oil trading at commodities behemoth Trafigura Group.

“The heat has created huge problems for refineries in Europe and America, with more outages and problems that are harder to fix,” he said in an interview in Singapore last week.

European crude processing dropped by 700,000 barrels a day over the summer from a year earlier, according to an estimate from industry consultant FGE.

That is around 6 per cent of regional throughput, based on figures from BP’s latest Statistical Review of World Energy.

More than half of the drop was due to the heat, said Mr Steve Sawyer, FGE’s director of refining and head of downstream. 

As well as constraining supply, the rising temperatures are boosting demand for fuel oil that is commonly used to generate electricity in the Middle East and South Asia.

They are also adding to transport costs by drying up vital waterways like the Rhine River and the Panama Canal.

“Rising ambient temperatures are limiting operating efficiencies of refinery units” and there are also more outages due to ageing plants, said Ms Serena Huang, lead Asia-Pacific analyst at Vortexa.

“Disruptions to refinery supply or shipping operations are almost certain to amplify uncertainty and price volatility in the market,” she added.

Extreme heat is still much more of a problem for stretched electricity grids than fuel refiners.

But its impact on fuel markets has been magnified by dwindling stockpiles, with US inventories of middle distillates, including diesel, near a five-year seasonal low.

And it is not just the rising mercury threatening refinery operations and fuel prices.

“Climate change is also causing more extreme winter weather across the Northern Hemisphere as a warming Pacific can move northwards and push south the polar vortex, causing cold spikes in North Asia, Europe, and North America,” said Mr Henning Gloystein, director of energy climate and resources at Eurasia Group.

The freeze in the United States in late December was an example of that.

Refinery throughput dropped by about two million barrels a day over the period, said Ms Parsley Ong, the head of Asia energy and chemicals research at JPMorgan Chase & Co.  

The increase in weather-driven refinery disruptions highlights the growing array of challenges as the world attempts to wean itself off fossil fuels, while at the same time trying to cope with their impact on the climate.  

“The market is overly sensitive to any unexpected supply disruption anywhere,” said Mr Frederic Lasserre, global head of research and analysis at Gunvor Group. “Everyone knows there’s no plan B. We have no stocks, and we have no excess capacity anywhere.” BLOOMBERG

More On This Topic

An overheating planet requires extreme climate solutions

Gas is here to stay for decades, say fossil fuel heavyweights

Join ST’s Telegram channel and get the latest breaking news delivered to you.

p.st_telegram_boilerplate:before {
display: inline-block;
content: ” “;
border-radius: 6px;
height: 6px;
width: 6px;
background-color: #12239a;
margin-left: 0px;
margin-right: 13px;
}

a.st_boilerplate {
font-family: “SelaneWebSTForty”, Georgia, “Times New Roman”, Times, serif;
}

RELATED ARTICLES
- Advertisment -

Most Popular