Best in Energy – 20 January 2023

China traders buy spot market crude

EU LNG price survey off to slow start

U.S. renewables displace gas and coal

EU refiners focus on biofuels growth

Russia is losing the energy war ($FT)

Turkey’s energy transition stalled in 2022

U.S. REAL PERSONAL INCOMES less current transfer payments (PILT) were down marginally in the three months from September to November 2022 compared with the same period in 2021. Real PILT captures the combined impact of changes in employment, wages and other compensation, and inflation. Turning points are one of the main indicators the National Bureau of Economic Research (NBER)’s Business Cycle Dating Committee uses to identify the onset of recessions and expansions. The deceleration in PILT to zero is a sign the economy is close to stalling:

U.S. PETROLEUMINVENTORIES including the strategic reserve increased by +2 million barrels in the seven days ending on January 13 after rising by +22 million barrels the week before. The combined two-week increase was the largest since the first wave of the coronavirus pandemic in the second quarter of 2020. But similarly large increases occurred in the first weeks of 2020 and 2019 so the rise was probably attributable in part to seasonal factors. Inventories are still -94 million barrels (-5% or -2.76 standard deviations) below the prior ten-year seasonal average:

Best in Energy – 19 January 2023

Energy conservation and excess mortality ($BBG)

J.B. Hunt earnings confirm freight decline ($WSJ)

U.S. refiners schedule more maintenance in 2023

U.S. gas prices forecast to fall in 2023/24 by EIA

Russia’s oil revenues predicted to decline ($FT)

Iran hit by winter gas shortages ($BBG)

Nuclear weapons and decision-making ($FT)

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:

Best in Energy – 18 January 2023

Europe’s gas supply gets lucky with warm winter ($BBG)

IEA forecasts global oil use to rise +1.9 million b/d

France electric grid cites improved reserve margin

Texas needs more progress on electricity reliability

Europe’s coal prices slump in competition with gas

U.S. airlines report strong passenger demand ($FT)

LONDON’s Heathrow airport handled 109,151 metric tonnes of air cargo in December 2022 down by -14% compared with 127,188 metric tonnes in December 2021. Air freight volumes are slackening as the global manufacturing sector enters a downturn, with the United Kingdom one of the hardest-hit economies:

Best in Energy – 16 January 2023

[MUST READ] U.S. shale revolution has ended ($FT)

EU boosts diesel imports from Russia ahead of ban

Iran oil exports rise as sanctions enforcement eased

India oil imports from Russia at record high ($BBG)

Iran hit by cold weather-related gas shortage ($BBG)

U.S. gas output growth set to decelerate as prices fall

U.S. oil refinery distillation unit to start up in Q1 2023

Russia’s crude oil exports able to avoid G7 sanctions

Germany boosted non-Russian coal imports in 2022

U.S. heating oil stocks are more comfortable ($WSJ)

U.S./Taiwan relations and next election cycle ($FT)

FRANKFURT and the rest of Northwest Europe are roughly half-way through the 2022/23 heating season. In the three decades between 1981 and 2010, on average 50% of heating degree days and heating demand at Frankfurt occurred before January 15. For London and southeast England, the half-way point arrives a few days later on January 23. So far this winter has been much milder than average. Frankfurt had accumulated 860 degree days up to January 15 compared with a long-term average of 1,078:

Best in Energy – 13 January 2023

Germany’s gas buying intensified price spike ¹

PJM probes generator unavailability in storm

EU economy boosted by drop in energy prices

EU seeks alternatives to Russian diesel ($BBG)

China’s epidemic moves to rural areas ($BBG)

Tesla discounts cars after missing sales target

¹ Germany’s government-directed gas buying in the spot market likely contributed to the spike in prices in summer 2022 and subsequent slump in winter 2022/23. Price spikes normally occur when a price-insensitive buyer is forced into the market to buy no matter the cost and no matter how much it moves prices higher against themselves.

Spikes are often characteristic of a short-seller forced to buy back their position (“short and caught” or “he who sells what isn’t his’n, must pay the price or go to prison”).

In this case Germany purchased gas for storage regardless of cost to increase inventories and improve energy security ahead of the winter, anticipating a disruption of Russian pipeline flows. Playing the role of “forced buyer”, Germany’s buying likely caused or at least accelerated the rise in prices to record levels in August 2022. Once the forced buying was completed, however, prices corrected lower.

Some EU policymakers have suggested the spike shows the futures market “failed” in the summer of 2022 and needs to be reformed or replaced with an alternative and more representative and liquid benchmark. But arguably the market was simply responding to the presence of a very large and completely price insensitive buyer.

U.S. SERVICE SECTOR inflation appears to have peaked. But prices are still rising at an annualised rate of 5.5-7.5%, two or three times faster than the central bank target of 2.0-2.5% per year. Inflation in the labour-intensive services sector tends to be stickier than for commodities and merchandise, which is why it tends to be a focus for policymakers:

Best in Energy – 11 January 2023

U.S. energy transition hits workforce shortage

FedEx cuts parcel deliveries on falling demand

India considers temporarily lifting solar tariffs

Europe’s mild winter increases drought threat

EU regulator launches LNG price assessment

Plastics boost petroleum consumption ($BBG)

Chesapeake’s recovery after insolvency ($WSJ)

U.S. electricity price volatility

Quantum computing ($FT)

EUROPE’s gas inventories are rapidly nearing a record high for the time of year following warmer than normal temperatures and reductions in industrial consumption. EU28 inventories were 937 TWh on January 9 closing in on the seasonal record of 944 TWh set in winter 2019/20.

Stocks were +247 TWh (+36% or +2.37 standard deviations) above the prior ten-year seasonal average up from a surplus of +92 TWh (+10% or +0.86 standard deviations) at the start of the winter season on October 1. The storage surplus is still increasing.

Inventories are projected to reach a post-winter low of 591 TWh with a probable range of 460 TWh to 749 TWh. If that proves correct, storage facilities would end the winter 52% full, with a likely range from 41% to as much as 66%:

Best in Energy – 10 January 2023

India forecasts coal shortage and orders extra importing

India expects coal-fired generation to rise 8% in 2023/24

China’s re-opening mixed effect for oil consumption

China’s re-opening to boost power sector emissions

U.S. CO2 emissions above target

Cryptocurrencies and emissions

U.K. gas storage strategy ($FT)

OPEC⁺ and pricing power ($FT)

U.S. GAS front-month futures prices have slumped to less than $3.80 per million British thermal units (34th percentile for all months since 1990) from more than $9.10 (86th percentile) at the end of August. Figures have been adjusted for inflation using the core consumer price index for all items excluding food and energy:

Best in Energy – 9 January 2023

Australia/ China coal shipments mostly symbolic value

U.S. SPR rejects first round of offers to refill inventories

Mass transit systems struggling after pandemic ($WSJ)

North Korea becoming full nuclear weapons state ($FT)

Solar storms and the risk to GPS systems and shipping

Local newspapers – disruption, finance and innovation

U.S. GAS INVENTORIES ended the year at 2,891 billion cubic feet on December 30. Stocks were -293 billion cubic feet (-9%) below the pre-pandemic five-year seasonal average down from a deficit of -71 billion cubic feet (-2%) on December 16, the result of a heavy weather-driven depletion in the final two weeks of the year:

U.S. NON-MANUFACTURING businesses reported an unusually sharp deceleration in activity in December. The Institute for Supply Management’s purchasing managers’ survey, which covers services, construction, mining and real estate, slumped to 49.6 (8th percentile for all months since 1997) in December from 56.5 (63rd percentile) in November and 54.4 (35th percentile) in October.

Non-manufacturing activity has been slowing in line with the manufacturing sector over the last 12 months  following the post-pandemic boom. The ISM non-manufacturing index is more volatile than its manufacturing counterpart, so the sudden deceleration should be treated with extreme caution. But if confirmed in the next couple of months it would indicate the business cycle downturn is spreading from merchandise to services:

Best in Energy – 6 January 2023

U.K. windfarms provided almost 27% of electricity in 2022

Ukraine calls for power conservation as temperatures fall

New England power generators replenish distillate stocks ¹

New England grid’s event summary for Dec 24 emergency ²

China’s crude buying tightens supplies for Europe ($BBG)

Venezuela’s oil exports fell again in 2022

U.S. warehouse leasing falls as goods demand slows ($WSJ)

Europe’s gas futures prices fall on plentiful stocks ($WSJ)

Australia/China to resume coal shipments after diplomacy

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:

Best in Energy – 5 January 2023

China LNG imports to rebound later in 2023

Russia ships Arctic crude oils to India and China

North America electric reliability in next 10 years

Pakistan’s retail gas storage in plastic balloons ¹

China boosts coal output and inventories (trans.)

U.S. gas prices tumble on mild weather ($WSJ)

Amazon plans 18,000 layoffs ($WSJ)

Steel and decarbonisation pathways

¹ Gas has been transported and stored in bags or balloons by poorer, often rural, customers without connection to grid supplies across Asia for some time. Specialised gas containers are relatively expensive. Photo agency Alamy has a photograph of a cyclist trailing a gas-filled “balloon” in China’s Shandong province in 2014. Don’t try this at home!

EUROZONE MANUFACTURERS reported business activity declined for the sixth month running in December but the deterioration was less widespread than in November and October. The eurozone manufacturing purchasing managers’ index was at 47.8 (21st percentile for all months since 2006). The index remained well below the 50-point threshold dividing expanding activity from a contraction. But declines were less widespread than November when the index was at 47.1 (17th percentile) and October at 46.4 (13th percentile):

U.S. CRUDE PRODUCTION including field condensates rose by +69,000 b/d to 12.381 million b/d in October 2022. The increase came entirely from onshore production in the Lower 48 states, most of which is from shale. Production has been up year-on-year by an average of around +630,000 b/d (+5.7%) in the last 12 months: