Last year was the warmest on record since global data collection began in 1850, with extreme weather and prolonged heatwaves pushing temperatures 1.18°C above the 20th-century average. This year, heatwaves have already affected the Middle East and Southeast Asia, starting as early as April, indicating a busy year ahead for power companies.
An early sign of the extreme weather's impact is the declining levels of onshore fuel oil stockpiles. In Singapore, a key fuel oil storage hub, stockpiles hit a five-year low as of May. Rising temperatures in the Middle East have driven up demand for fuel oil earlier than expected, reducing supplies to Asia. South Asia has also increased fuel oil imports for power generation due to rising temperatures.
The reduction in fuel oil flows from the Middle East to Singapore explains the falling inventories, leading to tighter supplies for Southeast Asia, where record-high temperatures resulted in school closures last month.
Further north in Asia, the summer has not even started. In Japan, the peak summer season begins much later, with temperatures reaching 40°C last August and unusually hot weather continuing into November. In China, temperatures hit a record 52.2°C in July last year.
Shares of Japanese power companies have surged in anticipation of higher power demand. The potential restart of some nuclear reactors has also boosted shares of local utilities like Tohoku Electric Power Co, which has risen over 50% this year. The company recently completed required safety construction work for one of its reactors in Miyagi prefecture, raising hopes for improved margins.
In China, coal remains the primary source of electricity generation, accounting for nearly 60% of supply. However, extreme temperatures over the past four years have caused an electricity crisis and power outages, challenging the current system's reliability.
This situation is expected to significantly boost demand and production for wind and solar power. Renewable energy is projected to overtake coal power production this year as Beijing targets a reduction in carbon dioxide emissions from key industries by about 1% of last year's national total. Shares of renewable energy companies, which have already risen this year, are poised for further gains.
