¹ Food and energy shortages have always been about prices and affordability rather than physical supplies and availability. Higher-income and wealthier households will always find ways to put food on the table and heat their homes, it is lower-income and poorer households that lack financial resources that are unable to cope and hit hardest (“Corn supply of ancient Rome”, Rickman, 1980).
SOUTHERN CALIFORNIA’s ports are experiencing a sharp drop in container traffic reflecting contentious labour negotiations and the threat of a strike as well as the slowdown in global merchandise trade and efforts by U.S. manufacturers and distributors to cut excess inventories. Combined container traffic through the neighbouring ports of Los Angeles and Long Beach was just 0.84 million twenty-foot equivalent units (TEUs) in October, down from 1.07 million TEUs in the same month in 2021, and the lowest for the time of year since the recession of 2009:
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:
¹ The Politburo Standing Committee special study session on epidemic control is top news across all government-controlled media. Reverse engineering the official commentary, top leaders seem anxious to counter political and social fatigue with repeated lockdowns, reinforcing the current zero-covid strategy in the short term despite its rising costs, while also searching for a way out via improved vaccination rates and the development of new vaccines and therapeutic drugs.
U.S. SERVICE SECTOR prices increased at an annualised rate of +7.8% in the three months to October, more than three times faster than the central bank’s target, ensuring that interest rates are likely to continue rising:
BRITAIN’s economy entered a recession during the third quarter with real gross domestic product declining in three out of four months between June and September. So far the downturn has been led by manufacturing but is likely to spread to construction and services:
China explores gradual retreat from lockdowns ($WSJ)
ATMOSPHERIC concentrations of carbon dioxide (CO2) at the Mauna Loa observatory on Hawaii rose to 415 parts per million (ppm) in October 2022 up from 404 ppm in October 2017 and 391 ppm in October 2012. CO2 concentrations have increased at a compound annual rate of +0.57% per year between 2017 and 2022. On the current trajectory, concentrations are likely to reach 430 ppm, the maximum scientists say is consistent with +1.5°C of average global warming, in 2027:
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:
¹ A fixed price cap that will be reviewed regularly in the light of market conditions sounds a lot like creating an “Organization of Petroleum Importing Countries” (OPIC) with all the resulting problems of information collection, analysis, forecasting and decision-making. OPEC has struggled to be an effective market manager; there is no reason to think OPIC will be any more successful.
Some operational and policy questions for OPIC:
How will the organisation estimate current production and consumption?
How will the organisation forecast future production, consumption, inventories and prices?
Will OPIC seek input from oil traders and refiners?
Will OPIC hold regular meetings to decide policy?
How often will the organisation review and revise the price cap?
Will OPIC coordinate with OPEC and OPEC⁺ ?
What is the relationship between OPIC and the IEA?
How will OPIC respond if Russia cuts production and exports?
Will the U.S./IEA release more crude and product stocks to counter any interruption of Russia’s oil exports?
Will G7⁺ set policy unilaterally or will it take into account the interests of third-country importers (e.g. China and India)?
U.S. GAS INVENTORIES rose by +107 billion cubic feet (bcf) in the week to October 28. Inventories have increased by a total of +2,119 bcf since the start of April, the fastest seasonal rise since 2019 and before that 2015. Stocks are still -203 bcf (-5%) below the pre-pandemic average for 2015-2019 but the deficit has narrowed from -401 bcf (-14%) since mid-August:
CHINA’s manufacturers reported a decline in activity last month as the economy struggled with repeated lockdowns. The official purchasing managers’ index slipped to 49.2 in October (4th percentile for all months since 2011) from 50.1 in September (24th percentile). Manufacturing activity has contracted in seven of ten months so far in 2022:
SOUTHERN CALIFORNIA’s ports handled the lowest volume of containers in the month of September since 2009, as spending on merchandise slowed and retailers struggled to reduce excess inventories:
NORTHWEST EUROPE’s gas futures prices for deliveries in December, the first part of winter, are still above those for Northeast Asia, continuing to divert cargoes. But the premium has narrowed to around €30/MWh from €60-75 two months ago as Europe’s gas supply has improved and storage has neared maximum capacity. Europe’s lower gas prices are steadily filtering through to lower prices in East and South Asia for spot cargoes, though prices remain exceptionally high compared with before 2022:
¹ Floating storage is more expensive than storing on land. Storing LNG is especially expensive because it needs to be kept super-chilled. But the extreme contango in European futures for nearby delivery months has made relatively long duration floating storage commercially viable. As a result, Europe’s available inventories are even higher than shown in the daily storage reports from Gas Infrastructure Europe.
U.S. PETROLEUM INVENTORIES including the strategic reserve fell by -5 million bbl in the week to October 21. Stocks have depleted by a total of -491 million bbl since the start of July 2020 and are at the lowest seasonal level since 2004. Oil inventories are on an unsustainable trajectory. “If something cannot go on forever, it will stop,” according to the aphorism popularised by Herbert Stein, chief economic adviser to U.S. President Richard Nixon. Global production must grow faster. Consumption must grow more slowly. Or both:
CHINA’s LNG imports have run significantly below prior-year rates every month so far in 2022. The country imported 40.9 million tonnes in the first eight months of the year compared with 52.5 million tonnes in the same period in 2021, leaving more cargoes for Europe and helping ensure the global shortage has not been even worse: