The emergence of a serious threat to global fuel security

Increasing temperatures from Texas to Tokyo this summer is the latest reminiscent of the growing problem for the energy system, as severe heat becomes a threat to fuel supply.

The intense hot weather has led to a wave of disorders in petroleum refineries, in addition to increasing the consumption of cooling devices and increasing the demand for electricity. This has kept the price of gasoline high and has led to the rise in diesel prices even higher than crude oil prices. This summer was very overwhelming, and after the hottest June, July was announced as the hottest month recorded in the world.

According to the Macquarie group, the intense heat has resulted in a decrease in at least two percent of the petroleum refining rate by refineries worldwide over the past two months.

Although this amount may not seem too much, the disorders came as the refining system had been affected by years of low investment and limited supply due to war in Ukraine.

Ben Luckock, co-head of oil trading at Trafigura, said in an interview in Singapore: “The harsh weather conditions we have seen this year are really a big problem. The intense heat has caused major problems for refineries in Europe and the United States that are more difficult to resolve.”

According to the FGE consulting institute, Europe’s petroleum refining has fallen by 6,000 barrels a day compared to last year. According to statistics in the British Petroleum Global Energy Review, this figure is about six percent of regional production.

According to Steve Sawyer, Director of Refining and Head of Downstream Oil of the FGE, more than half of the decline in production was due to severe heat.

In addition to supply limitations, the rise in temperature has increased demand for furnace oil, which is commonly used to generate electricity in the Middle East and South Asia. It has also added to transportation costs by drying important waterways such as the Rhine River and the Panama Canal.

The intense heat has been more problematic for power grids than petroleum refineries, but its impact on fuel markets has increased due to reduced reserves. US Distillate fuel reserves, including diesel, are close to the lowest seasonal level in the last five years.

It is not just the increase in mercury that threatens refinery operations and fuel prices. Henning Gloystein, Director for Energy, Climate, and Natural Resources at Eurasia Group, says: “Climate change has caused extremely cold winter in the northern hemisphere because the warmer Pacific Ocean can move north and drag the polar storm to the south, causing cold waves to the north of Asia, Europe and North America.”

The frost in the US in late December was an example of this situation. The capacity of refineries has decreased by about two million barrels a day, said Parsley Ong, head of Asia energy and chemicals research at JPMorgan Chase.

According to Bloomberg, increasing refinery disorders caused by climate change reflect a set of growing challenges, when the world is trying to abandon the use of fossil fuels and at the same time confront their impact on the climate.