Best in Energy – 21 September 2022

European energy trading hit by falling liquidity

Small modular reactors – deployment challenges

U.K. government caps energy prices for businesses

Coal miners seek ways to stay in future energy mix

Germany nationalises gas importer Uniper

Hertz orders 175,000 more electric vehicles ($WSJ)

CHINA’s railway hauled a record volume of freight in the first seven months of the year. Freight tonne-kilometres were up +9% compared with the same period in 2021 and +22% compared with before the pandemic in 2019. Coal is by far the largest item on the network. The system is moving record quantities of coal from the northern mining areas in Shanxi, Shaanxi and Inner Mongolia to the major consuming centres in the eastern, central and southern provinces:

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Best in Energy – 20 September 2022

Germany’s auto sector emissions remain high

China boosts imports of coal from Russia

EU/Africa tensions over gas investment ($FT)

La Niña to boost winter heating in Japan ($BBG)

U.S. shale producers hit drilling limits ($WSJ)

U.S. central bank refocuses on inflation ($WSJ)

Stranded asset story and the energy crisis ($FT)

Renewables and domestic energy security ($FT)

California relies on nuclear for 10% of electricity

United States is shifting policy on Taiwan ($BBG)

Coal boom leads to expansion of marginal mines

U.S. TREASURY securities with ten year maturity are yielding 3.53%, the highest since 2010, as traders anticipate the central bank will have to keep interest rates higher for longer to bring down inflation. Yields are rising at the fastest year-over-year rate since 1999. The increase is testing the downward trend in place since the mid-1980s. If the increase is sustained it will force a widespread re-pricing of most other assets:

HEDGE FUNDS and other money managers made few changes to their positions in the six most important petroleum futures and options contracts in the week to September 13. There were total net purchases of +4 million barrels with buying in NYMEX and ICE WTI (+10 million) and Brent (+3 million) but sales of U.S. gasoline (-5 million), U.S. diesel (-3 million) and European gas oil (-1 million):

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Best in Energy – 16 September 2022

Germany takes control of Russian-owned refinery

EU explores alternative benchmarks for gas prices

U.K. government set to lift moratorium on fracking

La Niña disrupts global economy ($BBG)

Europe’s gas prices have retreated ($FT)

EU28 GAS STOCKS stood at 953 TWh on September 14 and are on course to reach 1,019 TWh with a likely range of 981-1,080 TWh by the time the summer refill season ends in late October or early November. Inventories will begin the winter drawdown season at the third-highest level on record.

In the last ten years, inventories have drawn down by an average of 588 TWh with a range of 352-782 TWh between the peak in October-November and the trough in March-April.  But this has been with strong pipeline inflows from Russia and other countries as well as LNG deliveries.

If Russian pipeline flows are severely disrupted the winter draw is likely to be much higher. High prices and exceptional demand restraint will be needed to ensure stocks do not run out before the winter ends. Even so, they are likely to fall to very low levels by next March, implying another herculean effort to refill them next summer:

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Best in Energy – 15 September 2022

[MUST READ] China focuses on self-reliance ($FT)

Remote work likely to persist after pandemic ($WSJ)

U.S. shale firms won’t boost oil and gas output ($FT)

U.S. SPR’s role in the oil market is changing ($BBG)

U.S. gas consumption forecast to hit record in 2022

Germany warns about energy risk from cold winter

China planner warns against yin-yang coal prices

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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Best in Energy – 13 September 2022

EU frames energy windfall tax as “solidarity contribution”

EU explores electricity demand reduction at peak hours

Diesel additives are in short supply in Germany ($BBG)

Europe needs more diesel fuel exports from China

Renewable energy jobs set to increase rapidly

U.S. railroads prepare for imminent strike ($WSJ)

China reports cyberattack by United States (trans.)

U.S. Northeast distillate inventories very low

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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Best in Energy – 12 September 2022

German households stock up on electric heaters¹

Germany’s north benefits from wind resources

France appeals for grid-to-grid support ($FT)

Droughts and hydropower reliability ($WSJ)

Boreal forests and a warming climate ($FT)

HEDGE FUNDS and other money managers increased short positions in NYMEX WTI futures and options by +2 million bbl to 44 million bbl in the week to September 6, among the largest number of short positions since Russia’s invasion of Ukraine in late February. Bearish sentiment has been gradually building since the start of June as the economy slows under the combined impact of supply chain problems, inflation and rising interest rates:

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Best in Energy – 8 September 2022

Global energy employment report from IEA

Germany to subsidise basic electricity quota

China boosts coal imports amid hot dry spell

China buys cheap LNG from Russia ($BBG)

U.S. power use forecast to hit record in 2022

White House plan to cut industrial emissions

Semiconductor makers face downturn ($BBG)

Europe set for big gas shortfall in 2023 ($BBG)

Europe energy suppliers face Lehman moment

Goldman’s case for a U.S. soft landing ($WSJ)

Pakistan’s floods risk triggering unrest ($FT)

U.S. COOLING DEMAND since the start of the year has been around +11% higher than the long-term seasonal average (1981-2010) and +2% higher than the prior seven-year average (2015-2021). Higher-than-usual temperatures have contributed to pressure on electricity networks and put gas consumption by power generators on course for a record high this year:

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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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