Asia, Mideast utilities turn to dirtier fuel as LNG prices bite

SINGAPORE: Surging liquefied natural gas (LNG) prices are prompting utilities across Asia and the Middle East to burn more high-sulfur fuel oil (HSFO) than usual to meet increased power demand during summer, analysts and traders said.
The move toward the cheaper but more polluting HSFO highlights the problems faced by developing countries which have to grapple with the economics of lower costs versus meeting emission-cutting standards.
The strong demand for the residual fuel oil could last beyond the summer as the global economic recovery from the coronavirus gathers momentum and global LNG prices hold firm at more than twice where they averaged in 2020, the analysts said.
“With (spot) LNG prices surpassing HSFO, power generation plants are switching from gas to oil where possible,” said Serena Huang, Vortexa’s Asia lead analyst, highlighting strong power demand in the Middle East, Pakistan and Bangladesh.
“Fuel oil imports are likely to rise further as LNG prices continue to head north amid tight supply-demand fundamentals,” said Huang.
Asian spot liquefied natural gas (LNG) prices

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Fuel oil supplies have already been constrained after Middle East producers cut heavy sour crude oil production to meet supply targets set by the Organization of the Petroleum Exporting Countries, and as refineries reduced crude throughput.
A fire at a heavy crude Mexican offshore platform in late-August is also expected to curtail fuel oil output, Energy Aspects said.
Global fuel oil inventories across key storage and trading hubs are at, or near, multi-month lows as a result.
Combined with the brisk demand, the tight inventories helped propel the 180-cst HSFO cash premium