Best in Energy – 10 November 2022

City leaders plan for 24/7 carbon-free energy

Aramco to ship full crude volumes to Asia in Dec

Coal prices tumble as winter supply fears ease

Corporate-level emissions receive more focus

U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -4 million barrels in the week to November 4. There were only minor changes in stocks of distillate fuel oil (-1 million barrels), jet fuel (+1 million barrels) and gasoline (-1 million barrels). Total inventories have depleted by -498 million barrels since the start of July 2020 and are at the lowest seasonal level since 2004:

Best in Energy – 9 November 2022

G7 sanctions will raise tanker ton-miles ($BBG)

U.S. coal mining firms plan for gradual phase out

U.S. coal mining regional productivity variations

New Zealand to increase strategic oil inventories

EU agrees distribution of emissions targets

LONDON’s temperatures have been higher than the long-term seasonal average consistently since the middle of October, reducing heating demand and gas consumption. The number of heating degree days so far this winter has reached just 117 compared with a long-term average of 153. But the city-region is only 10% of the way through the expected heating season. The half-way point doesn’t normally arrive until January 23 as a result of seasonal lag:

Best in Energy – 8 November 2022

Europe squeezes LNG supply for emerging markets ($BBG)

Russia sends tanker to China via northern sea route ($BBG)

China to boost diesel exports as new refineries start up

China’s oil imports rise as new refineries build stocks

Nvidia downgrades semiconductors for China ($WSJ)

U.S. coal-fired generators scheduled to retire by 2029

Renewable diesel output grows rapidly from low base

Fusion firms target commercial models by 2030s ($FT)

China explores gradual retreat from lockdowns ($WSJ)

ATMOSPHERIC concentrations of carbon dioxide (CO2) at the Mauna Loa observatory on Hawaii rose to 415 parts per million (ppm) in October 2022 up from 404 ppm in October 2017 and 391 ppm in October 2012. CO2 concentrations have increased at a compound annual rate of +0.57% per year between 2017 and 2022. On the current trajectory, concentrations are likely to reach 430 ppm, the maximum scientists say is consistent with +1.5°C of average global warming, in 2027:

Best in Energy – 7 November 2022

U.S./Russia communicate to cut escalation risk ($WSJ)

Global LNG prices slide as storage fills ahead of winter

U.S. electricity generators add more gas-fired capacity

G7⁺ price cap for Russian oil to have low impact ($BBG)

German economist sues OPEC for illegal cartel ($BBG)

U.S. shale gas promotes itself as cleaner than coal ($FT)

China’s exports fall as global trade slows ($BBG)

WESTERN EUROPE’s temperatures are expected to be above average for the time of year through December, according to the European Centre for Medium-Range Weather Forecasting, which would reduce heating demand and ease pressure on gas and electricity supplies:

U.S. EMPLOYMENT has been growing faster than would have been expected based on output growth alone. The discrepancy between rapid job gains and slower growth in real gross domestic product is evident whether jobs are measured from the employer side (payrolls) or employee side (household surveys). If historical relationships reassert themselves, job gains are likely to slow or output growth will accelerate:  

U.S. EMPLOYMENT in the transportation and warehousing super-sector has been flat since June  after growing rapidly for two years following the first wave of the pandemic. The number of jobs in the sector has levelled off around 6.5 million up from 5.8 million before the arrival of the pandemic in the first quarter of 2020:

Best in Energy – 4 November 2022

G7⁺ agree to set fixed price cap for Russia oil exports ¹

Netherlands regulator supports TTF gas benchmark

Global coal consumption set for new record ($BBG)

U.S. tech firms enter downturn with layoffs ($WSJ)

Europe’s floating LNG storage queue ($FT)

¹ A fixed price cap that will be reviewed regularly in the light of market conditions sounds a lot like creating an “Organization of Petroleum Importing Countries” (OPIC) with all the resulting problems of information collection, analysis, forecasting and decision-making. OPEC has struggled to be an effective market manager; there is no reason to think OPIC will be any more successful.

Some operational and policy questions for OPIC:

  • How will the organisation estimate current production and consumption?
  • How will the organisation forecast future production, consumption, inventories and prices?
  • Will OPIC seek input from oil traders and refiners?
  • Will OPIC hold regular meetings to decide policy?
  • How often will the organisation review and revise the price cap?
  • Will OPIC coordinate with OPEC and OPEC⁺ ?
  • What is the relationship between OPIC and the IEA?
  • How will OPIC respond if Russia cuts production and exports?
  • Will the U.S./IEA release more crude and product stocks to counter any interruption of Russia’s oil exports?
  • Will G7⁺ set policy unilaterally or will it take into account the interests of third-country importers (e.g. China and India)?

U.S. GAS INVENTORIES rose by +107 billion cubic feet (bcf) in the week to October 28. Inventories have increased by a total of +2,119 bcf since the start of April, the fastest seasonal rise since 2019 and before that 2015. Stocks are still -203 bcf (-5%) below the pre-pandemic average for 2015-2019 but the deficit has narrowed from -401 bcf (-14%) since mid-August:

Best in Energy – 3 November 2022

Africa’s governments demand fair energy transition

U.S. gas production and injections drive prices lower

China’s gas consumption growth stalls in 2022

Australia’s mining companies explore renewables

Saudi Arabia’s more independent foreign policy ($FA)

South Africa’s newest coal generator damaged ($BBG)

Aero-engine makers struggle to meet demand ($FT)

Canada excludes China from lithium sector ($FT)

China’s quarantine system – an inside view ($FT)

U.S. INTEREST RATE TRADERS expect the Federal Reserve to raise its federal funds target for longer to peak at a higher level and sustain them at a higher rate than before, following a warning by the central bank’s chief. Policy-controlled interest rates are expected to continue rising until they peak at 5.00-5.25% in May 2023, up from 3.75-4.00% at present, and still be at 4.00-4.25% at the end of 2024:

U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -3 million barrels in the week to October 28. Stocks have depleted in 90 of the last 122 weeks by a total of -494 million barrels since the start of July 2020:

Best in Energy – 2 November 2022

[MUST READ] South Africa’s transition from coal ($FT)

Maersk predicts container volume down 2-4% in 2022

UAE advised against cutting OPEC⁺ output target ($WSJ)

Russia oil exports predicted to fall by 0.5-1.0m b/d ($FT)

Europe’s industrial base at risk from high energy prices

U.S./Europe compete to attract investment ($FT)

United Kingdom tests plan to restart power grid ¹

Black start – planning for a complete grid failure

China’s coal production situation (trans.)

China’s updated city classification list (trans.)

California plans to repurpose gas network ($WSJ)

¹ This article seems to be merging the related but separate concepts of rotating power cuts to cope with possible electricity shortages caused by insufficient gas-fired and renewable generation this winter with restarting the grid after a total failure such as might be caused by an accident or sabotage.

“Yarrow” sounds like a plan for a “black start” of generation, transmission and distribution systems following complete failure. Electricity network managers in the United Kingdom and other countries have planned for a black start for decades. It is one of those remote “high impact low probability” risks commonly used in scenario planning.

The United Kingdom has never had to undertake a nationwide black start though a regional one was necessary in parts of the southeast following damage caused by the Great Storm of October 1987.

Black starts involve a complicated series of steps and would take several days to complete. Designated generating units would have to be started up autonomously, following by limited energisation of the transmission grid, first regionally and then nationally.

Black start sites often have auxiliary diesel-fired generators maintained at a high state of readiness that can restart without external power. The auxiliary generator is then used to start one or more main generators (usually oil, coal or gas-fired) on the same site which are then reconnected to the grid.

Progressively more generators would be started up and synchronised to the network, which would start to provide limited power to the local distribution systems. Protected sites would start to receive power and then more customers as sufficient power becomes available.

The process could take up to 5-7 days in the event of total failure. In the meantime most customers would receive no power or be subject to rotating power cuts to limit demand while generation is restored gradually.

The complexity and time needed for a full black start explains why grid managers attempt to avoid them at all costs. Temporary but controlled load-shedding directed by grid managers is preferable to uncontrolled cascading failure of the power grid leading to collapse and forcing a black start.

Black start should be a very remote risk in a well-run grid. But the sabotage of the Nord Stream pipelines has focused attention on the risks of deliberate attacks on energy infrastructure and will make black start a higher priority for emergency planners.

EUROZONE manufacturers reported an accelerating decline in activity last month as the region’s economy was hit by inflation, soaring energy prices, supply chain problems, Russia’s invasion of Ukraine and the EU sanctions imposed in response. The composite purchasing managers’ index slipped to 46.2 in October (12th percentile for all months since 2006) from 48.4 in September (24th percentile) and 58.3 in October 2021 (92nd percentile). The composite index has been below the 50-point threshold dividing expanding activity from a contraction for four months running, confirming the zone’s economy is entering a recession:

Best in Energy – 1 November 2022

U.S. distillate shortages – a useful market primer

U.S. workforce and the impact from faster inflation

(more information about the distribution of losses)

United States narrows semiconductor embargo ($BBG)

Japan appeals for winter electricity conservation ($BBG)

U.S. EAST COAST distillate fuel oil inventories were just 24 million barrels on October 21, compared with a pre-pandemic five-year seasonal average of 50 million barrels. The East Coast deficit (-26 million bbl) accounted for nearly all the nationwide deficit (-29 million bbl): 

WESTERN EUROPE’s gas consumptionwas down in August and September by 14-15% compared with the pre-pandemic seasonal average for 2015-2019, as a result of high prices, industrial closures, a slowing economy, and energy conservation measures:

Best in Energy – 31 October 2022

EU LNG offshore queue is depressing gas prices

EU diesel prices at record relative to jet and crude

U.S. road freight faces ‘muted’ peak season ($WSJ)

U.S. gas prices fall as inventories swell ($WSJ)

Copper production is falling short of consumption

Copper shortage threatens energy transition ($FT)

EU/Russia gas conflict, inventory and prices ($FT)

Europe’s consumers cut discretionary spend ($FT)

China builds coal-fired back to renewables ($BBG)

China’s internal news reporting system

China’s ever-normal granaries ($JSTOR)

CHINA’s manufacturers reported a decline in activity last month as the economy struggled with repeated lockdowns. The official purchasing managers’ index slipped to 49.2 in October (4th percentile for all months since 2011) from 50.1 in September (24th percentile). Manufacturing activity has contracted in seven of ten months so far in 2022:

SOUTHERN CALIFORNIA’s ports handled the lowest volume of containers in the month of September since 2009, as spending on merchandise slowed and retailers struggled to reduce excess inventories:

Best in Energy – 28 October 2022

EU gas consumption down by 14-15% in Aug-Sep

China coal production disrupted by covid controls

U.K. gas storage site re-opens at reduced capacity

U.S. electric and gas reliability for winter 2022/23

U.S. coal-fired generation limited by fuel shortage

Caterpillar reports strong equipment sales ($WSJ)

Intel cuts jobs as semiconductor sales drop ($WSJ)

U.S./China hostage diplomacy ($WSJ)

NORTHWEST EUROPE’s gas futures prices for deliveries in December, the first part of winter, are still above those for Northeast Asia, continuing to divert cargoes. But the premium has narrowed to around €30/MWh from €60-75 two months ago as Europe’s gas supply has improved and storage has neared maximum capacity. Europe’s lower gas prices are steadily filtering through to lower prices in East and South Asia for spot cargoes, though prices remain exceptionally high compared with before 2022: