How severe is the energy crisis? Asian countries are beginning to try "barter trade"

As fighting in the Middle East flares up and triggers a new round of energy crisis, competition among countries across Asia for alternative energy has already reached a fever pitch. Against this tight backdrop, many Asian economies have even started a wave of fuel swaps……

Indonesian President Prabowo’s visit to Japan this week has been widely seen by many outsiders as part of Asia’s latest fuel swap attempt, aimed at offsetting severe shortages caused by the Middle East conflict. The Middle East is a key source of energy supply for the Asia-Pacific region.

For poorer countries, the situation is becoming desperate. The Philippines became the first country to announce a nationwide energy emergency last month. Sri Lanka shortened the workweek to four days, and Myanmar limited vehicle drivers from traveling on alternate days. The largest economy in Southeast Asia and the world’s fourth most populous country, Indonesia, has also announced a series of measures, including restricting fuel sales and urging people to work from home.

“Maintaining rational economic ties is crucial,” Indonesian President Prabowo said to Japanese business leaders on Monday after signing agreements covering long-term oil and gas as well as geothermal power generation projects in Tokyo, adding, “The geopolitical situation in the Middle East brings strategic uncertainty to our energy security.”

And the head of the oil and gas regulatory agency SKK Migas, Djoko Siswanto, said that a more direct measure might be that Indonesia could reach an agreement with Japan to increase LNG (liquefied natural gas) supplies to Tokyo in exchange for LPG (liquefied petroleum gas)—a necessary cooking fuel.

Although neither side’s leaders on Tuesday confirmed such a swap agreement, they agreed at that day’s meeting to strengthen energy security linkages.

According to an internal Japanese government document seen by industry insiders, Japan’s major energy company INPEX is also discussing similar barter deals with India, exchanging LPG for naphtha and crude oil.

In addition, the document shows that Vietnam is also seeking Japan’s help in supplying energy, while the Philippines said on Monday that it has received diesel from Japan.

Japan’s Minister of Economy, Trade and Industry emphasized the importance of maintaining fuel supplies to Southeast Asian countries, because Japan has supply-chain channels set up in these regions.

It is understood that Japan, which is short on resources, relies on the Middle East for about 95% of its oil imports and 11% of its LNG imports, even though its own energy reserves are among the best in the world.

Asia-Pacific economies look for alternatives

Energy analysts say that Australia’s position as a major energy producer and exporter should give it influence in negotiations with Asian partners over the supply of soon-to-be scarce aviation fuel. Australia’s foreign minister Penny Wong said this month that the government is reaching out to major suppliers such as China, Singapore, and South Korea.

Vietnam’s aviation regulator this month also urged authorities to seek additional aviation fuel supplies from Brunei, India, Japan, and South Korea.

Hiroshi Hashimoto, a senior researcher at the Institute of Energy Economics Japan, said that bilateral agreements with alternative suppliers should help ease shortages, but if the fighting in the Middle East lasts longer, coordinated efforts will be needed.

“ If the crisis lasts longer, Asian countries may need to develop a multilateral framework to help one another and engage in dialogue with alternative sources of supply.”

It is worth noting that after the United States issued a temporary sanctions exemption on Russian offshore oil, Russia has also become a supply source some Asian countries had not expected.

South Korea’s Ministry of Trade, Industry and Energy said that this week South Korea for the first time in many years imported Russian naphtha (a key input used to make a wide range of plastics from automobiles to electronics), and it is also seeking to secure crude oil supplies.

India has also increased its purchase of oil from Russia, while Bangladesh, Thailand, and Sri Lanka are also in negotiations with Russia.

In addition, Pacific island nations such as New Zealand are keenly aware that as the fuel scramble becomes even more intense in the coming months, they may be more vulnerable to shocks. Over the past few weeks, New Zealand Prime Minister Christopher Luxon has spoken by phone with leaders of Singapore, Malaysia, and South Korea—these three countries are key suppliers of New Zealand’s refined petroleum products—and he has also spoken by phone with the Chair of the European Commission.

New Zealand’s Minister of Energy and Resources Shane Jones said he also contacted commodity traders and others in an effort to support fuel supplies. “Unless you (set up) multiple alternative channels in advance, in two or three months’ time, in that frantic, crazy fuel hunt, our country is too small to be noticed at all,” Jones added.

(Source: Caixin Finance and Business News)