Workers change the price label of fuel at a petrol station in Manila on Tuesday.TED ALJIBE/AFP/Getty Images
Twin strikes by Israel and Iran on natural gas facilities in the Gulf rocked global markets this week, with the shocks felt worse in Asia, where energy supplies have already been disrupted by the effective closure of the Strait of Hormuz.
Asia is heavily dependent on the Gulf for supplies of oil and gas, with some countries in the region sourcing as much as 90 per cent of their energy from countries including Saudi Arabia, the United Arab Emirates and Qatar.
The shutdown of shipping through the Strait of Hormuz, a key international waterway controlled by Iran, has already caused chaos in many Asian countries, with governments rationing fuel usage, limiting civil servants to a four-day week and encouraging others to work from home. Even China, better insulated than most countries in the region, is limiting exports of jet fuel, diesel and fertilizers.
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More extreme measures may have to be adopted in coming weeks after Israel bombed Iranian facilities on the South Pars natural gas field Wednesday, prompting retaliatory strikes by Tehran on a Qatari liquefied natural gas (LNG) plant, and threats of further attacks on energy infrastructure in Saudi Arabia and the UAE.
“The main question has now shifted from how long the Strait of Hormuz will be closed to how much LNG capacity has been damaged and how long it will take to bring it back online,” Anne-Sophie Corbeau, global research scholar at Columbia University’s Center on Global Energy Policy, wrote this week.
Nick Marro, principal economist for Asia at the Economist Intelligence Unit, said the region “is very exposed to both crude oil and LNG coming out of the Gulf.
“And while most economies in Asia have pretty strong strategic reserves of oil, the LNG coverage is much shallower,” he said.
Drivers queue for the distribution of a fuel subsidy in Manila on Tuesday.JAM STA ROSA/AFP/Getty Images
Research by the EIU found that while countries like Japan and South Korea have upwards of 200 days of oil reserves, their LNG supply will run out in less than 50. Others, including Vietnam, which sources almost all its energy from the Gulf, have only around a month of reserves, and will soon be facing major shortages.
Taiwan, too, has limited reserves, which could have ramifications for the global economy, given the island’s pivotal role in manufacturing advanced computer chips.
“Taiwan only has around 11 days of LNG reserves,” said Mr. Marro. “And a lot of this is used in chip production; it’s used in manufacturing processes that then fan out into global supply chains, which in Taiwan’s case feed the insatiable appetite of global AI demand.”
While Mr. Marro said it’s “still early days,” there is a “very high risk that it could disrupt both midstream and downstream production in ways that carry wider economic consequences, not just for Asia, but for the regions that Asia trades with.”
Aziz Khan, chairman of Bangladesh’s Summit Group, which owns an LNG regasification unit, said it is difficult for the sector to pass along higher power costs.
“You’re breaking the backbone of the economies of poorer countries,” he said.
Already, some Asian countries are increasing coal-fired power generation to cut costs and safeguard energy supply, reversing a gradual shift away from one of the worst-polluting fossil fuels.
Gabriele Ciminelli, an economist at the Manila-based Asian Development Bank, said, “Gas and oil are not easily substitutable in the short term.”
“Coal can be used to some extent to replace gas, for the production of electricity for instance,” he said, but this also requires that the capacity be there in the first place. Restarting coal plants takes time, as does installing solar panels at scale, another potential way to substitute for gas.
Fishermen in Hagonoy, Philippines, buy fuel at a riverside gas station on March 9.Ezra Acayan/Getty Images
China has offered to work with Southeast Asia to address energy shortages as oil markets reel from supply shocks, and the U.S. has eased sanctions on both Russian and Iranian crude. U.S., Canadian and Australian energy suppliers, already eyeing Asian markets, are also looking to increase shipments to the region.
Eleven tankers originally bound for Europe have rerouted to Asia, Gillian Boccara, senior director of gas and power at commodities intelligence provider Kpler, told Al-Jazeera this week. Asian refiners are paying a premium to send ships carrying medium-sized loads of U.S. crude through the Panama Canal, rather than the slower route around the Cape of Good Hope, the only option for much heavier, full-sized cargoes.
Speaking Thursday to Indian broadcaster CNBC-TV18, Sujata Sharma, an official with the Ministry of Petroleum and Natural Gas, said New Delhi is “trying to pick up cargoes from outside West Asia, we’re trying to diversify.”
But Mr. Marro warned that even if alternative suppliers can be found – and with production slowing in the Gulf, there is intense global competition for other LNG sources in particular – getting the product itself is another matter entirely.
“It takes time for these alternative supplies to get off the ground,” he said. “No matter what happens with prices, no matter your ability to find alternative supply, at the end of the day, that supply has to reach your shores.”
With reports from Reuters