Dark Times: How Asia is saving energy due to the war in Iran
Asian countries have found themselves at the forefront of the fuel crisis. The conflict in the Middle East is dragging on, and energy reserves in a number of states may last only for a month or two. The authorities are already resorting to pandemic-like measures: residents are advised to work from home, not use elevators, and even give up ties to reduce the strain on air conditioners. What steps are the governments taking and whether they are able to mitigate the economic blow — in the Izvestia article.
The new is the forgotten old
About 20% of the world's oil and liquefied natural gas supplies pass through the Strait of Hormuz. At the same time, up to 80% of these volumes are focused on the Asian market. For this reason, the consequences of the current crisis for Asia are not just an abstract increase in energy prices on the stock exchange, but a direct risk to the electric power industry, transport and petrochemicals, as well as a potential trigger for accelerating inflation, Evgeny Shatov, partner at Capital Lab, points out in an interview with Izvestia.
"The most vulnerable countries are those that are heavily dependent on oil and LNG imports from the Middle East and do not have large reserves or budget space for subsidies," he explains.
Anti-crisis measures are being introduced throughout the region. The authorities are trying to contain the demand for energy: they are reducing working weeks, limiting the use of air conditioners and transferring some employees to remote work. The International Energy Agency (IEA) explicitly recommends such steps as part of an emergency stabilization package.
For example, Bangladesh covers up to 95% of its energy needs through imports. Among the first steps taken by the authorities in times of crisis are restrictions on the purchase of fuel at gas stations. The government insists that there is no shortage of fuel, but the Association of Gas Station Owners warns of the risk of mass station closures. According to her, on March 23, gasoline could only be found at three gas stations in the capital.
The situation is developing most harshly in the Philippines, where a state of emergency has been declared. The country's energy ministry estimates that oil reserves will last for about 45 days. The authorities have already reduced the working week to four days, and the temperature of the air conditioners has been set at 24 degrees.
In India, one of the largest economies in the region, the emphasis is on systemic measures: the government is considering the possibility of transferring part of the generation from gas to coal, and is also looking for additional sources of oil imports.
In Thailand, in turn, they focus on household savings: it is recommended to raise the indoor temperature to 25 degrees. At the same time, officials were urged to cancel foreign business trips, and residents were advised to work from home, use stairs instead of elevators more often, and abandon business suits and ties.
Meanwhile, in Pakistan, where the share of Qatari LNG reached 99%, schools and universities were temporarily closed. Office workers have also been asked to switch to a remote location.
Even financially stable Singapore is strengthening its austerity regime: the authorities are urging people and businesses to reduce electricity consumption and switch to electric vehicles to save fuel.
There are also unexpected consequences of energy shortages. In countries where cremation is traditionally common, fuel supply disruptions have already led to the shutdown of individual crematoriums. According to local media reports, one of them, located in the Indian state of Maharashtra, was forced to temporarily stop working.
Temporary effect
Measures resembling the restrictions imposed during the coronavirus pandemic can only partially mitigate the effects of the crisis and gain time, experts interviewed by Izvestia believe.
— However, it is important to understand the scale: this is an effective tool for weeks, not a full-fledged solution for months if supply disruptions persist. The measures mitigate the impact on imports and budgets, but they do not replace the lost gas and oil," said Evgeny Shatov.
According to him, in the short term, the set of possible actions looks quite pragmatic. Among the steps taken are the use of strategic reserves, temporary subsidies to the most vulnerable consumers, the transfer of generation from gas to coal, fuel oil, nuclear or hydropower where possible, as well as the urgent search for alternative LNG suppliers.
— South Korea is already increasing its share of coal and nuclear generation to reduce dependence on unstable LNG imports, while Thailand is looking for additional gas volumes in the United States, Australia and even South Africa. For some countries, especially the poorest importers, this may mean not only diversification of supplies, but also a forced reduction in industrial consumption," the source explained.
However, the situation in the region is not uniform. According to experts, China is taking a more stable position. Andrey Kogan, Chairman of the Committee for work with China of the Association of Exporters and Importers, noted that the country has accumulated strategic oil reserves of about 1.4 billion barrels, which provides a margin of safety for 4-6 months.
In addition, Beijing has formed alternative supply channels, including through Russia, he recalled. The structure of the energy sector has become an additional factor of sustainability: the country is less dependent on oil and gas in the electric power industry due to the use of coal, as well as investments in nuclear and renewable generation.
— Against this background, the measures that are now being compared with covid measures look more like a tactical tool to smooth out peak demand. Remote work, restrictions on the use of infrastructure and reducing the load on the energy system can have a quick but limited effect. It's a way to buy time, not solve a problem. Long—term solutions, which, for example, are already being implemented in China, are much more important," the expert emphasized in a conversation with Izvestia.
It's going to be a long recovery.
The speed of normalization of the situation in the region will depend not only on the formal end of the conflict, but also on how quickly logistics chains are restored and associated costs are reduced, Andrei Kogan believes.
— Even under a favorable scenario, the effect will be stretched over time: markets will continue to take risks, insurance premiums will remain elevated, and supply chains will recover inertially. Countries that have diversified imports in advance and created a margin of safety will be in a more advantageous position. It will be much more difficult for states that depend on one source of supplies to go through this period," the expert suggested.
If the fighting in the Middle East ends soon, oil supplies can return to normal relatively quickly, Evgeny Shatov noted. The oil trade usually recovers earlier if the key export infrastructure — terminals, pipelines and ports - is not damaged. In this case, tankers return to the routes, insurance premiums gradually decrease, and physical flows of raw materials are restored. However, the situation with gas is more complicated.
— If the fighting begins to subside in the coming weeks and shipping through the Strait of Hormuz stabilizes, Asia may feel relief on oil within a few weeks. The effect on gas will be much weaker: with serious damage to the Qatari infrastructure, the LNG market will remain in short supply at least until the end of 2026, the expert warned.
Even the growth of supplies from the United States and other regions will not allow us to quickly replace the falling volumes. That is why the current crisis is most dangerous for Asia due to the likely prolonged shock in the LNG and electricity markets, he concluded.
Переведено сервисом «Яндекс Переводчик»
