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 – 28 September 2022

U.S. Treasury 10-yr yields surge to 4% (%WSJ)

Russia/NATO nuclear escalation calculations¹

Nord Stream pipelines sabotaged says EU

Nord Stream pipelines sabotaged ($BBG)

Nord Stream pipelines sabotaged ($FT)

Nord Stream pipelines sabotaged (trans.)

Solar generation – global deployment

Iran morality police pulled off streets ($FT)

¹ “On Escalation: Metaphors and Scenarios” (Kahn, 1965 and 2010) remains the best guide to escalation strategies (escalation ladders, escalate-to-negotiate, escalation pauses and escalation dominance) including the role of tactical and strategic nuclear weapons in conflict. I can highly recommend it as a guide to the current Russia/NATO conflict over Ukraine but also the U.S./Iran conflict in the Persian Gulf and the U.S./China conflict centred on Taiwan.

The taboo on the use of nuclear weapons is strong but has never been as absolute as opinion-formers have implied in public. Both the USSR and USA/NATO actively planned for the use of nuclear weapons in scenarios short of mutually assured destruction. Tactical and strategic nuclear weapons have always been a central part of NATO nuclear doctrine, including ambiguity on “first use”.

Nuclear weapons are also playing an increasingly central role in U.S./China strategic competition. China historically assigned a minor role to nuclear weapons but it is massively increasing its arsenal and delivery systems to give it more leverage and room for manoeuvre in any future conflict with the United States.

Some of the basic outlines of Kahn’s work on escalation can be seen in the table below (taken from page 39). The current Russia/NATO conflict has already escalated beyond the “nuclear war is unthinkable threshold” and reached the 14th or 16th rung on the ladder, with open speculation about breaching the “no nuclear use threshold” and climbing to the 21st-24th rungs or even the 26th-28th rungs:

U.S. TREASURY YIELDS on notes with 10-year maturity have climbed to 4.00% up from just 1.50% a year ago, the fastest increase since 1984. The rapid increase reflects expectations inflation will remain persistent and interest rates will remain higher for longer. The escalation in “risk-free” benchmark yields will force a re-pricing of all other assets and borrowing costs:

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