The crippling heat increases Asia’s dependence on Russian energy Ship’s crew

By Yongchang Chin

(Bloomberg) – The extreme heat that has ravaged Asia in recent weeks has produced a clear beneficiary – Russia.

As countries across the region struggle to ensure they have enough coal, gas and heating oil to keep their lights on and air conditioning running, Russian energy, shunned by the West, looks increasingly appealing.

What began as a push by the Kremlin to fund its invasion of Ukraine has now turned into a rush by Asian economies anxious to ensure their power generators are fueled in what could be the hottest year on record.

“The worst place to be in these scorching temperatures right now is South Asia, particularly poorer countries like Pakistan or Bangladesh,” said John Driscoll, director of JTD Energy Services Pte in Singapore.

“When you can’t even take care of the basic needs of your people, it’s very difficult to care too much about international affairs.”

Russian exports of thermal coal and natural gas to Asia, the two most commonly used fuels for power generation, have increased significantly this year, figures from data analysis firm Kpler show.

Coal volumes rose sharply in April to 7.46 million tons, about a third more than a year earlier. LNG shipments to Asia have also picked up in recent months after prices fell from record highs that had made the fuel unaffordable for many poorer countries.

Meanwhile, Asian imports of Russian heating oil, a dirtier and cheaper alternative to power generation, posted their two highest months on record in March and April, according to Kpler.

The region’s incentive to buy more Russian energy is likely to increase due to the emerging El Niño weather phenomenon, which has already pushed up mercury levels in parts of the region. Vietnam’s prime minister this month warned of power shortages as Myanmar grapples with mounting blackouts.

Carbon dioxide emissions from burning fossil fuels store heat in the atmosphere. This is causing the planet to warm and is the main cause of more extreme weather events, including heat waves.

In India, heat-driven electricity demand is likely to be met primarily by coal, said Aniket Autade, energy fundamentals analyst at Rystad Energy.

China and India — the most enthusiastic buyers of discounted Russian oil — also buy the most coal, gas and fuel oil. They took more than two-thirds of Russian coal sent to Asia last month, according to Bloomberg calculations based on Kpler data. However, South Korea accounted for 15% of shipments, while Vietnam, Malaysia and Sri Lanka were also significant customers.

In the case of heating oil, China and India were again the largest buyers from Russia, and Saudi Arabia and the United Arab Emirates were also important importers, as the Kpler figures show.

Bangladesh, Pakistan and Sri Lanka are likely to import more Russian fuel oil for power generation, according to Vortexa analyst Emma Li. The Middle East has also recently increased its imports and this is likely to remain so in the summer, she said.

Pakistan said this month that it is interested in using the Chinese yuan to pay for Russian oil imports. The country has ordered a single shipment of crude oil but is interested in a long-term purchase deal in Chinese currency, its energy minister said.

Even Japan, a close US ally and therefore reluctant to increase imports from Russia, could expand its purchases within the contract limits, according to Chris Wilkinson, Rystad’s senior renewable energy analyst.

“Japan may consider buying more LNG from Russia under its existing long-term contracts as it is cheaper than buying it on the spot market,” he said.

For JTD Energy’s Driscoll, the increasing purchases of Russian energy by many Asian countries highlight both the waning influence of the White House and the dangerous situation many nations find themselves in.

“(They) ask themselves: Would I rather risk getting in trouble with the US or forgo big discounts on energy?” he said. “How can poorer countries afford to say no when there is a good deal on the table?”

–Assisted by Aaron Clark.

© 2023 Bloomberg LP

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