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Last year was the warmest year since global records began in 1850. Extreme weather and prolonged heatwaves in many parts of the world meant temperatures were 1.18C above the 20th-century average. This year, heatwaves have already hit the Middle East and south-east Asia, starting in April. Power companies have a busy year ahead.
One immediate sign of extreme weather to come is falling levels of onshore fuel oil stockpiles. In Singapore, a key storage hub for fuel oil, those fell to a more than five-year low as of May. Supplies to Asia have already been hit as demand in the Middle East, experiencing higher temperatures, has been rising earlier than expected. South Asia has also been importing large amounts of fuel oil for power generation as temperatures rise.
Sharp declines in flows from the Middle East to Singapore explain falling fuel oil inventories. That also means tighter supplies for south-east Asia where record-high temperatures have led to school closures early last month.
The problem is that further north in Asia, the summer has not even started yet. In Japan, for example, peak summer season starts much later. Last year temperatures reached 40 degrees Celsius in August, with unusually hot weather continuing into November. In China, temperatures hit an all-time record of 52.2 degrees Celsius in July last year.
Shares of Japanese power companies have already surged on expectations of higher power demand. The prospect of some nuclear reactors restarting has also lifted shares of local utilities such as Tohoku Electric Power Co, which is up more than 50 per cent this year. It recently said it completed the required safety construction work for one of its reactors in Japan’s Miyagi prefecture, adding to hopes of margin improvement.
In China coal remains the main source of electricity generation, accounting for nearly 60 per cent of supply. But extreme temperatures in the past four years have resulted in an electricity crisis and a string of power outages, making it difficult to rely on the current system.
That would mean a significant boost to wind and solar power demand and production. This is expected to overtake coal power production this year as Beijing targets cutting carbon dioxide emissions of key industries by an amount equivalent to about 1 per cent of last year’s national total. Shares of renewable energy groups, which have already risen this year, stand to gain further.
june.yoon@ft.com
