INDIA’s gas-fired power generation fell to 1,862 GWh in March 2023 down from 2,481 GWh in March 2022 and 3,988 GWh in March 2021 as the surge in LNG prices encouraged switching to coal and renewables:
U.S. GASOLINE inventories depleted by more than -1 million barrels over the seven days ending on May 12. Stocks are at the lowest seasonal level for nine years since 2014:
U.S. MANUFACTURERS are raising prices more slowly as input costs for raw materials and energy ease and demand for goods falls. Producer selling prices for finished products other than energy and food increased at an annualised rate of +4.2% in the three months to December 2022 down from an annualised +11.5% increase in the three months to April 2022. But selling prices are still rising twice as fast as the central bank’s target of a little over 2% per year for overall inflation, keeping upward pressure on interest rates:
¹ Distillate fuel oil is an important fuel source for electricity generators designed to serve peak loads and provide emergency reserves. New England is particularly reliant on distillate to provide reserve generation and distillate units were heavily used during cold weather around Christmas. In the rest of the country, distillate is also used as lighting-up fuel for coal-fired units, which were heavily used during the extreme cold. Coal will not ignite on its own and distillate is sprayed into the furnace to provide initial combustion, heat up the furnace, establish air circulation, and support the combustion process until the flame is stabilised. As the coal combustion becomes self-sustaining, the distillate burners are gradually shut off.
² Failure of generators to start when instructed by the grid contributed to the shortfall in capacity in New England ISO region on December 24, as in other areas. Scheduled generation of 2,150 MW became unavailable. Failure to start remains one of the biggest problems for electric reliability during extreme cold events.
EUROPE’s gas futures prices no longer command a premium over futures for deliveries into Northeast Asia. Europe’s prices have fallen much more rapidly than Asia’s as fears of a winter emergency have faded. Europe’s futures are now trading at a slight discount for the first time since Russia invaded Ukraine in February 2022. European importers are no longer paying a premium to attract cargoes which should leave more LNG cargoes available for consumers in Northeast and South Asia:
U.S. DISTILLATE STOCKS fell -1.4 million bbl over the seven days to December 30 (including drawdown of -0.7 million bbl in New England). Inventories were probably pulled forward along the supply chain to homes, offices and power generators as a result of extreme cold around Christmas:
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:
EUROPE’s benchmark gas futures price for deliveries in January 2023 has continued to retreat and is now at €176 per megawatt-hour down from €346 shortly before the end of August:
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¹ Fixed line telephone systems carried their own electricity supply so the network would remain operational during power cuts. From this story it appears cell towers rely on the public distribution system and have not (yet) been prioritised in the same way as hospitals and other essential customers to ensure they remain operational during rotating power cuts. It is a classic example of how complexity and the unplanned evolutionary growth of networks can lead to the fusion or “coupling” of formerly separate systems, unintentionally creating a single point of failure (“Normal accidents”, Perrow, 1999). It is also an example of how the failure of the petroleum, gas or electricity networks can result in the failure of other systems critical to the functioning of a modern economy and society (“Brittle power”, Lovins and Lovins, 1982).
² If a government or a business or any other organisation has to say publicly everything is okay, or some variant, that’s an important sign of problems and stresses. If it really was okay, there would be no need to say it. Do don’t say. So statements such as this are important markers thought not in the way policymakers intend.
U.S. PETROLEUM inventories depleted by -13 million barrels last week, the largest decline this year. Drawdowns included crude (-5 million barrels), gasoline (-2 million), jet fuel (-2 million) and distillate fuel oil (-3 million). Petroleum inventories have depleted in 86 out of the last 117 weeks by a total of -464 million barrels since the start of July 2020. Distillate inventories are just 114 million barrels, the lowest for the time of year since 1996:
China’s continued drought in Yangtze basin (trans.)
U.S. Northeast fears fuel shortages in event of rail strike
LVMH to turn off store lighting overnight to save power
Eiffel Tower to turn off lights earlier to save power ($WSJ)
U.K. GAS AND ELECTRICITY consumption has not shown a significant decline so far in response to higher prices. I spent a large part of yesterday trying to find a price response in the available official consumption statistics without success. The charts are below. But there are some important limitations:
Electricity consumption data is only available through June and gas data is only available through March owing to publication delays.
Most of the rise in prices has occurred since April with another big increase scheduled to take effect from October.
Heating demand and bills are lower in the summer months reducing consumers’ sensitivity to prices.
Domestic and commercial consumption patterns have been distorted by the lockdowns in 2020/21 and then re-opening in 2022.
Electricity and gas consumption has been on a long-term downtrend as a result of improvements in insulation and efficiency.
Electricity and gas consumption shows significant annual variation depending on winter temperatures.
Once these factors are taken into account, there is no evidence of a significant reduction in gas and electricity use by households, offices and commercial premises so far. If reductions are going to occur, it will be later this year and into 2023:
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NORTHWEST EUROPE’s benchmark gas futures contract for deliveries in January 2023, the heart of next winter, has fallen to less than €200 per megawatt-hour from a peak of €345 in late August. Higher inventories in seasonal storage have reduced the probability about stocks running out. Plans for significant voluntary and mandatory reductions in gas and electricity consumption and the increasing probability of a region-wide recession will also lessen the pressure on stocks in the event gas supplies from Russia are disrupted:
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INDIA’s power producers hold coal stocks equivalent to 10 days of consumption compared with just 4 days at the end of September 2021 and 11 days in September 2019. In recent years, September has marked the low-point in the annual inventory cycle. At the moment stocks appear sufficient to avoid widespread generator closures but the government is monitoring levels closely:
U.S. PETROLEUM INVENTORIES including the strategic reserve increased by +4 million barrels last week. But inventories have declined in 84 of the last 114 weeks by a total of -450 million barrels since the start of July 2020 illustrating the persistent shortage of oil available to the market. Stocks are at the lowest seasonal level since 2004 and are still trending lower:
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CALIFORNIA’s power grid is running short of capacity in the early evening when consumption, driven by air-conditioning, is past its late afternoon peak but still high and solar generation is rapidly fading. The load curve below for September 6 shows the strain on dispatchable generating capacity between around 1600 and 2100 hrs local time. The California Independent System Operator (CAISO)’s forecast curve shows the same problem is expected today on September 7:
BRENT spot prices and calendar spreads are consistent with a market that is still tight but past its cyclical peak. The six-month calendar spread has softened to a backwardation of $5.60 per barrel (97th percentile) from a record of more than $21 in the immediate aftermath of Russia’s invasion of Ukraine in early March. The spread from December 2022 to December 2023 has softened to a backwardation of under $10 from a peak of $16 in early June. Softening spreads reflect an increased probability that a cyclical slowdown in the major economies will cut consumption and lead to an accumulation of inventories over the next year:
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