Asia’s Big Winter Power Switch Averted as Inventories Expand

(Bloomberg) -- Weeks of anxiety around a power squeeze in Asia this winter have been offset by mild weather and the restocking of coal and natural gas inventories, providing some respite ahead of the colder months.

Asia had been grappling with coal and natural gas shortages since the previous winter, but the crisis became more acute globally around October. That led to a raft of forecasts for additional oil demand on the grounds more crude and oil products would be used for power generation. The squeeze also led to surging coal and gas prices, making alternatives such as fuel oil more attractive.

China’s coal stockpiles have swelled to a two-year high, while Japan’s utilities are currently sitting on the highest gas inventories for this time of the year since at least 2016. In Europe, cold weather has led to some oil-powered units being utilized, but overall use across six key economies has recently been low.

It’s early in the winter and Asia and northwest Europe are yet to experience the coldest months -- typically January and February -- which could lead to spiking energy demand and quickly draining inventories.

The so-called gas-to-oil switching has been “underwhelming” so far, Energy Aspects Ltd. said in a report at the end of last month. The consultant trimmed an earlier forecast for Asia by 25,000 barrels a day to 95,000 barrels a day, largely due to lower expected consumption in Japan.

Japan is still set to increase its fuel oil purchases this month to about 227,000 tons, an almost eightfold gain from October, according to Kpler, while Pakistan and Bangladesh boosted buying earlier this year after gas prices skyrocketed. China has also averted a potential diesel supply crisis after raising output.

Asia is also facing the possibility of below-normal temperatures after the formation of La Nina. The powerful climate pattern that originates in the Pacific Ocean will likely increase in strength over the coming months before fading sometime in 2022, the U.S. Climate Prediction Center said in November.

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