Best in Energy – 10 August 2022

European retailers cut lighting and hours to save energy

U.S. electricity use forecast to rise to record high in 2022

Microsoft cuts travel and other expenses ($WSJ)¹

China’s climate is getting hotter and wetter (trans.)

China’s ultra-deep Tarim basin oil and gas wells (trans.)

¹ Most major corporations are starting to restrict travel and other routine expenses spending as they try to cope with rising inflation while maintaining earnings in line with forecasts and analysts’ expectations. Business spending reductions will flow through into slower growth in passenger aviation, hospitality and other business-related services. Spending controls will therefore amplify the broader business cycle slowdown that is already underway.

EUROPE’s major rivers are running very low as a result of the prolonged drought and temperatures well above normal. Recorded water depth on the Rhine at the Kaub gauging station has fallen to just 48 centimetres, the lowest seasonal level for more than a quarter of a century by a wide margin, severely restricting barge freight:

U.S. RETAIL GASOLINE prices have fallen for eight consecutive weeks by a total of -96 cents per gallon (-19%) since June 13. Retail diesel prices have declined for seven consecutive weeks by a total of -82 cents per gallon (-14%) since June 20.

Fuel-price reductions are mostly explained by the decline in international crude prices. Refining margins remain higher than before Russia invaded Ukraine. Diesel prices remain elevated compared with gasoline as a result of the global diesel shortage.

In the last two months, lower crude and fuel prices have been driven by the slowdown in the economy (actual and expected) and the pass-through from former price increases which have enforced changes in household and business behaviour and dampened consumption. In the next few months, if lower prices are sustained, they will relieve some pressure on household budgets and business operating costs, ease recessionary forces, and buy back some of the demand that was lost:

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Best in Energy – 9 August 2022

U.K. household gas and electricity bills set to surge

German economy set to lose $265 billion from war

Goldman reiterates forecast for even higher oil prices

Long-term energy storage using thermal systems

U.S. reconciliation bill tax and spending implications¹

¹ The non-partisan Congressional Budget Office (CBO) prepares a “scorecard” for all proposed legislation examining the implications for government revenues and spending. The linked document is the scorecard for the “Inflation Reduction Act of 2022” approved by the Senate on a party-line 51-50 vote on August 7. Full details of the contents of the bill and its passage through the legislature are available from the bill tracking system maintained by the non-partisan Congressional Research Service.

SOUTH CHINA’s precipitation has tapered off after an unusually heavy start to the rainy season, which brought flooding earlier than usual. Total precipitation at Yibin/Xiangjiaba on the Sichuan/Yunnan border has been 800 millimetres since the start of the year, around 7% above the 2014-2021 average, but the surplus has been shrinking in recent weeks. Reduced rainfall is likely to limit hydropower production later in the year and increase reliance on coal-fired generators:

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Best in Energy – 8 August 2022

Russia oil discounts narrow on China/India demand

Germany’s river freight restricted by low water level

Bangladesh explores rotating factory closure ($BBG)

Asia’s emissions market prices are still low ($BBG)

China’s navy and air force practices Taiwan blockade

China forecasts flooding in major coal areas (trans.)

U.S. shale producers focus on higher oil prices ($FT)

U.S./China navy competition and Northern Sea Route

EUROPEAN GAS OIL calendar spreads between December 2022 and December 2023 have fallen into a backwardation of less than $11 per barrel from almost $33 in mid-June, as traders anticipate the onset of a recession depressing consumption:

JAPAN LNG STOCKS at the end of May had risen to 2.36 million tonnes, the highest for the time of year for at least seven years, as the country’s utilities accumulate inventories to protect against possible supply disruptions in winter 2022/23:

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Best in Energy – 3 August 2022

G7 statement reaffirms exploration of Russia oil-price cap

France plans to fill gas storage completely by end of October

France cuts nuclear output as heatwave warms rivers ($BBG)

Rhine water levels close to forcing transport closure ($BBG)

U.S. retailers seek warehouses for excess inventories ($WSJ)

Global refinery capacity expansions

RIVER RHINE water levels at Kaub had dropped to just 61 centimetres on August 2, the lowest since December 2018, and the lowest for the time of year for more than 25 years, as prolonged drought causes river levels to fall across Northwest Europe, threatening power generation and transport of bulk commodities:

CHINA’s hydroelectric power stations generated a record 583 billion kWh in the first six months of the year, an increase of +100 billion kWh or more than +20% compared with the same period in 2021. China’s hydro generation was more than three times the entire electrical output of the United Kingdom:

CHINA’s thermal power generation, nearly all of it from coal, dipped to 2,728 billion kWh in January-June, a decrease of 98 billion kWh (-4%) compared with the same period in 2021, helping improve the coal inventory situation:

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Best in Energy – 2 August 2022

India starts rationing gas to industrial users

Australia grapples with pricing for domestic gas

Baker Hughes plan to sell Russia unit to insiders

Rosatom tightens grip on nuclear energy ($BBG)

China focuses on energy indigenisation (trans.)

U.S./Saudi visit: what did Biden achieve? ($BBG)

United Kingdom closes nuclear power generator

EU struggles to balance energy security and transition ($WSJ)

U.S./EU responses to energy security and transition challenges

U.S. MANUFACTURERS reported a further slight deceleration in growth last month, with the ISM purchasing managers’ index slipping to 52.8 in July (50th percentile for all months since 1980) from 53.0 in June (53rd percentile). New orders fell for the second month running, slightly faster in July (48.0, 14th percentile) than June (49.2, 17th percentile), implying business activity will slow further over the next few months:

U.S. DISTILLATE CONSUMPTION has begun to fall in line with the deceleration in manufacturing activity. The volume of distillate supplied was down -0.4% in March-May compared with the same period a year earlier. Distillates are the most cyclically sensitive part of the oil market, so the business cycle slowdown is filtering through into lower fuel use, part of the market rebalancing process:

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Best in Energy – 1 August 2022

OPEC says Russia is essential to success of OPEC+

Lyondell plans to repurpose Houston oil refinery

New England solar reshapes electricity load curve

EU/UK ease sanctions on Russian oil trade ($FT)

U.S. threatens to sanction Iran oil trading ($WSJ)

Bangladesh sees LNG shortage until 2026 ($BBG)

China’s leaders recommit to zero-covid (trans.)

Australia explores controls on LNG exports

U.S. energy systems hit by shortages ($WSJ)

Iraq’s political crisis is intensifying ($WSJ)

CHINA’s manufacturers reported a significant contraction in activity last month with the composite purchasing managers’ index falling to 49.0 in July (2nd percentile for all months since 2011) down from 50.2 in June (33rd percentile). Repeated lockdowns are disrupting supply chains and economic activity:

U.S. GAS production was up +4.2% in May compared with the same month a year earlier, and up +3.1% in the three months March-May compared with the same period in 2021:

U.S. CRUDE OIL production fell -57,000 b/d in May compared with April as lower output from the Gulf of Mexico (-157,000  b/d) more than offset increases from the onshore Lower 48 (+95,000 b/d) and Alaska (+5,000 b/d). Onshore L48 output was up by just +468,000 b/d in March-May compared with the same period a year earlier:

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Best in Energy – 29 July 2022

EU’s bilateral emergency energy sharing deals

U.S. refiners say fuel consumption still strong

Japan’s energy saving template for Europe

U.S./China leaders call – White House view

U.S./China leaders call – China view (trans.)

Global coal use rebounds to previous peak

German city turns off lights and hot water

U.S. REAL FINAL SALES to private domestic purchasers were unchanged in the second quarter after advancing at an annualised rate of +3.0% in the first, confirming the economic slowdown that has been evident for some time. Real final sales to private domestic purchasers (RFSPDP) strips out the impact of inventory changes, government spending and trade to focus on the underlying behaviour of households and businesses and is therefore the best indicator of underlying economic momentum. RFSPDP was growing at the slowest rate since the first wave of the pandemic in 2020 and before that the recession of 2008/09:

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Best in Energy – 28 July 2022

EU/Russia gas pipeline flows fall sharply

U.S. frackers warn of supply chain limits

China’s plan to centralise iron ore purchasing

U.S. leaders embrace subsidies, tariffs ($WSJ)

Grid-scale batteries used for price response

U.K. households face winter bill crisis ($FT)

West London’s local power constraint ($FT)

U.S. PETROLEUM inventories depleted by -9 million bbl in the week to July 22, with declines in commercial crude (-5 million), gasoline (-3 million), and distillate fuel oil (-1 million) as well as a drawdown in the SPR (-6 million), partially offset by increases in propane (+3 million) and other oils (+3 million). Petroleum inventories have depleted in 80 of the last 108 weeks by a total of -438 million bbl since the start of July 2020. Total stocks are at the lowest seasonal level since 2008 and show no signs of rebuilding:

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Best in Energy – 25 July 2022

EU softens oil-trading related sanctions on Russia

China’s biggest coal miner boosts output (trans.)

U.K. transmission grid hits capacity limit ($BBG)

Dark tanker market grows competitive

Urban centres and heatwaves ($FT)

Oil exploration accelerates ($BBG)

China’s lessons from Russia’s war

U.S. INITIAL CLAIMS for unemployment insurance benefits have been trending upwards since the start of April, albeit from an exceptionally low base, indicating the labour market may be starting to cool:

BRENT futures for September delivery are showing characteristics of a squeeze, trading in a backwardation of almost $5 per barrel compared with October. But further forward, spreads have softened significantly in recent weeks, as traders anticipate an increased probability a recession will dampen oil consumption:

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