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

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 supplydemand fundamentals,” said Huang.

Asian spot liquefied natural gas prices are currently at their highest since January and also at their highest for this time of the year since at least 2010.

They are expected to climb further during the northern hemisphere winter when demand for LNG for heating typically surges.

“LNG (imported) into Pakistan is now equivalent to about $250 per ton more expensive than 180-cst (centistoke) HSFO,” a senior Singapore-based fuel oil trader said.