¹ China’s high-altitude balloon overflight across North America and the U.S. decision to shoot it down is being almost totally ignored by the country’s main state-controlled media, suggesting the government is still deciding its response and/or is keen not to allow the episode to worsen relations further.
U.S. OIL DRILLING is slowing in response to the slide in prices since the middle of 2022 (when WTI was trading around $120 per barrel) especially since the start of November (when it was still $90-95). Typically there is a 15-20 week lag between a change in futures prices and a change in number of active rigs. The number of rigs drilling for oil has fallen in 7 of the last 9 weeks by a total of -28 rigs (-4%). The drilling reduction is the largest since July and August 2020 when the industry was still in shock after the first wave of the pandemic and the volume war between Russia and Saudi Arabia:
CHINA imported 508 million tonnes of crude oil in 2022, down from 513 million in 2021 and 542 million in 2020, according to preliminary data from the General Administration of Customs. Slower imports as the country grappled with intermittent lockdowns eased pressure on global petroleum supplies. But the economy’s re-opening is likely to boost crude imports and tighten the market in 2023:
¹ PJM’s post-event study for winter storm Elliot on December 24 is worth reading in full and confirms the major problem was the failure of many generators to respond to instructions from the grid because of a failure to start up or secure enough fuel (principally gas). Generators were unavailable even though they had been given repeated warnings of an extreme weather event for several days beforehand and told to prepare for a plunge in temperatures. In many cases, generators provided less than 1 hour of notice they would not be available. If generators cannot be depended upon to respond to instructions they cannot be considered firm dispatchable power for reliability purposes.
In response, PJM was forced to initiate a series of relatively extreme emergency measures to protect the transmission system, including voltage reductions and an order for flat-out maximum generation from units that were available.
U.S. PETROLEUM INVENTORIES including the strategic reserve totalled 1,599 million barrels on January 6, the lowest seasonal level since 2004. Stocks have fallen by -185 million barrels over the last 12 months and are down by -518 million barrels from their peak in mid-2020 as production has persistently fallen below consumption:
COAL-FIRED generators typically require 2-3 hours from initial notification to reach full power from a hot start, 6-7 hours from a warm start, and 10 or more hours from a cold start. Assuming the two massive coal units at Drax are typical, if the U.K. transmission operator wants them to be available during the evening peak from 1600 to 1900 GMT, notice to light up and begin warming must be given by 0600 GMT. If the forecast reserve margin improves during the day, however, the stand-by notices can be cancelled later, as happened on December 12.
The table below shows typical timelines for coal-fired and gas-fired generators showing how it takes (1) from initial notification from the grid controller to synchronisation with the grid – at which point the generator can start providing power to the network; and (2) from synchronisation to reaching maximum power output (“Technical Assessment of the Operation of Coal & Gas Fired Plants,” Parsons-Brinckerhoff for the U.K. Department of Energy, 2014):
LONDON and southeast United Kingdom are now a quarter of the way through the typical heating season. After an exceptionally warm period from mid-October to late November, which depressed heating demand, temperatures have plunged far below normal, erasing the earlier deficit in degree days, and putting winter heating demand on an entirely different trajectory:
BRITAIN’s electricity transmission system is heading towards what is likely to be the first triad event of winter 2022/23 on the early evening of December 8. Freezing temperatures with little wind and an early end to solar generation will maximise demand on the island-wide transmission system from 1630-1800 GMT. Net demand has been climbing steadily towards likely-triad levels in recent days. Major customers with discretionary loads have a strong incentive to reduce demand in these critical periods to benefit from lower transmission charges through throughout the entire year ahead. Deliberate “triad avoidance” behaviour helps curb peak loads and reduce stress on the system:
BRENT’s six-month calendar spread has collapsed to a backwardation of just 67 cents per barrel (54th percentile for all trading days since 1990) from $8 (98th percentile) at the start of November. Month-to-month spreads are flat through April 2023. Traders anticipate crude supplies will remain comfortable through the first few months of next year because: (a) the EU/G7 price cap on Russia’s exports was set at a relatively high level; (b) policymakers have signalled a relaxed approach to enforcement (c) refiners have boosted purchases and inventories ahead of the price cap’s introduction; and (d) the slowing global economy is expected to dampen oil consumption:
U.S. GAS inventories fell faster than the seasonal average in the second half of November. Working gas stocks in underground storage were -178 billion cubic feet (-4.9%) below the pre-pandemic five-year seasonal average on November 25 compared with a deficit of -97 bcf (-2.5%) on November 11:
UN climate targets start to stretch to +1.7°C ($WSJ)
U.K. energy crisis hits poorer households hard ($FT)
Europe’s electricity networks brace for winter ($FT)
CHINA was historically a collection of macro-regional economies, with strong transport and commercial links within each region, but much weaker links between regions. The country’s rapid industrialisation and urbanisation since reform and opening in 1978-1980 has led to much more integration at national level, but regionalism remains persistent.
The first map, showing ten macro regions in 1893, is taken from “The Structure of Chinese History”, a presidential address given by Skinner to the U.S. Association of Asian Studies in 1984. The second map, showing nine regions, consolidating the Gan Yangtze region into the Middle Yangtze, is taken from “Evolving core-periphery interactions in a rapidly expanding urban landscape”, Ye et al., 2004. The final set of three maps is taken from the government’s most recent Five-Year Plan (2021):
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United States prepares to ease Venezuela oil sanctions ($WSJ)
U.S. GASOLINE inventories have remained much closer to normal, in contrast to distillates, with gasoline stocks just -9 million barrels (-4%) below the pre-pandemic five-year seasonal average on November 18:
EUROPE’s gas inventories have continued to accumulate later into the start of the traditional winter heating season than any other year in records dating back to 2011. Gas inventories in the European Union and the United Kingdom (EU28) were still rising on November 13, later than the previous record of November 12 in 2011 and far past the median peak occurring on October 26. The late fill is attributable to a combination of warmer-than-normal temperatures and high prices rationing consumption. Late fill is lifting inventories close to a record high and reducing the probability stocks will fall critically low before the end of winter:
GREAT BRITAIN’s maximum winter loads on the transmission system since 1990/91 are illustrated in the chart below (loads exclude Northern Ireland which has its own electricity network). Loads shown are “triads” – the three highest half-hourly loads separated by at least 10 days occurring each winter between November and February. Triads are used to set transmission network use of system (TNUoS) charges for large electricity consumers who are metered on a half-hourly basis. Triads are declared retrospectively after the end of each winter in March (“What are electricity triads?” National Grid, 2018).
Half-hourly (HH) customers are billed for TNUoS based on the amount of electricity they use during the three triad half-hours. Triads set charges for the entire year. In the limit, if a HH consumer uses no electricity from the grid during those three half hour periods, their TNUoS is set at zero for the entire year. The possibility a triad might be declared gives HH customers a strong incentive to minimise electricity use and/or generate their own power during periods when the total load on the network is expected to be very high.
Triad charging helps reduce strain on the grid during the winter peak, usually between 1630 GMT and 1800 GMT, when street lighting comes on, families start preparing the evening meal, but many shops and offices are still open and occupied. Several consultancies offer triad forecasting services – alerting HH consumers when there is an elevated risk that a triad could occur so they can reduce their net load temporarily.
In winter 2021/22, triads occurred on Thursday December 2 (43.7 GW at 1630-1700 GMT); Wednesday January 5 (42.8 GW at 1700-1730 GMT); and Thursday January 20 (43.5 GW at 1700-1730 GMT) (“Triads 2021/22”, National Grid, March 29, 2022).
Triad loads have been declining since 2007/08, and especially since 2010/11, as a result of improvements in energy efficiency, sluggish economic growth, changes in the industrial mix, and an increase in self-generation by HH consumers as well as embedded generation from solar panels added to homes, offices and local distribution networks:
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