Heat fast becoming threat to 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 U.S. gasoline 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 refiners to cut oil processing by at least two 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’s been stretched by years of underinvestment 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 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 this 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’s around six per cent of regional throughput, based on figures from BP PLC’S latest Statistical Review of World Energy.

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

As well as constraining supply, the rising temperatures are boosting demand for fuel oil commonly used to generate electricity in the Middle East and South Asia. They’re 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 aging plants, said Serena Huang, lead Asia analyst at Vortexa Ltd. “Disruptions to refinery supply or shipping operations is almost certain to amplify uncertainty and price volatility in the market.”

Extreme heat’s impact on fuel markets has been magnified by dwindling stockpiles, with U.S. inventories of middle distillates, including diesel, near a fiveyear seasonal low.

The increase in weather-driven refinery disruptions highlights the growing array of challenges as the world attempts to wean itself off fossil fuels.