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Underwhelming fuel oil and crude demand for power generation

Underwhelming fuel oil and crude demand for power generation

The article examines fuel oil imports in Egypt and Saudi Arabia, as well as alternative energy sources used for power generation


Xavier Tang
Xavier TangMarket Analyst

Historically, high-sulphur fuel oil has been the primary petroleum feedstock in power generation plants, as the product is considered an unwanted byproduct of processing crude oil into high-margin oil products, such as gasoline, diesel, or jet fuel. However, as countries strive to reduce their dependence on fossil fuels, the demand for oil used for power generation has slowed in Egypt, reducing the demand for the bottom of the barrel.

Egypt fuel oil imports decline due to ramp-up of LNG receipts

Egypt’s fuel oil imports hit record highs of 190kbd in June due to the suspension of natural gas flows via pipeline from Israel during the Middle East conflict. However, fuel oil imports declined by 36% month-over-month in July and are likely to remain subdued in August. Egyptian General Petroleum Corp. recently cancelled more than 2 million barrels of fuel oil cargoes after securing LNG supplies (Bloomberg). Going forward, Egypt will reduce its reliance on fuel oil imports as the country has found alternative energy sources to meet rising summer demand for power generation. 

Egypt's domestic gas production has fallen sharply since 2022, so the country has turned to liquefied natural gas (LNG) imports to offset its growing shortfall. In recent weeks, three new floating storage regasification units (FSRUs) began receiving LNG cargoes: two at Egypt’s own Ain Sukhna port and one in Jordan. The LNG import four-week moving average (excluding Jordan FSRU) rose to close to 290kt last week.

Another FSRU will be installed later in August at Damietta on Egypt’s Med Coast. This will boost the country’s LNG import capacity access to more than 20 million tonnes per annum (mtpa) – over five times its pre-July level. Additionally, in early August, Egypt agreed to significantly increase future piped gas imports from Israel's Leviathan field (NewMed Energy). However, the first incremental volumes will only arrive in 2026, following completion of new pipeline connections. This will likely reduce Egypt's dependence on fuel oil for power generation, given the lower cost of imported natural gas.

Egypt fuel oil

Egypt fuel oil imports (kbd) and Egypt LNG weekly imports by destination terminal (bars) and total LNG imports on 4-week moving average (line) (kt)

Underwhelming Saudi Arabia's crude/DPP arrivals in power generation terminals 

Arrivals of seaborne crude/condensate and dirty petroleum products (DPP) at Saudi Arabia's power generation terminals in Shoaiba, Rabigh, Al Shuqaiq and Jeddah have been weaker-than-expected, with volumes falling below the nine-year historical average in June and July.

Saudi Arabia's fuel oil imports from Russia doubled year-over-year in July, as there are limited outlets for Russian supplies, due to the current supply overhang in Asia. Singapore's fuel oil floating storage reached a 33-month high at the end of July, with supply outpacing demand significantly, causing Asia's fuel oil cracks to plunge. This rise in fuel oil imports from Russia offset the decline in imports from Europe, as European high-sulphur fuel oil cracks remained resilient over the past two months. 

Using data from the Joint Organisations Data Initiative (JODI), Saudi Arabia's crude burn remained relatively in line with the seasonal trend for the first five months of the year, with April and May figures closely in line with the 6-year seasonal averages. However, with higher-than-expected rainfall forecasted in Southern Riyadh and Eastern regions in July and August (National Center for Meteorology), power generation demand may fall below last year’s, limiting seaborne crude/DPP arrivals in the power generation terminals.

Saudi crude burn

Saudi Arabia seaborne crude/dirty petroleum product arrivals in power generation terminals (kbd)

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About the analyst

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Xavier Tang

Market Analyst