Best in Energy – 7 October 2022

U.K. electricity winter reliability forecast

U.S./Saudi standoff over oil policy ($FT)

White House fury with oil output cut ($BBG)

France outlines plan for “energy sobriety”

Nord Stream inquiry confirms sabotage

Texas electricity market and volatility

Houston and energy system transition

Luck more important than talent ($WSJ)¹

¹ Luck plays a more important role in determining individual success than talent, according to the study authors. But individuals have to be ready and open to grasp opportunities. The best strategy to maximise the probability of success is therefore “expose, explore, exploit,” which seems sound advice.

GERMANY’s industrial production was down -4.5% in the three months from June to August compared with the same period in 2019 before the coronavirus epidemic. The economy is struggling with multiple shocks stemming from Russia’s invasion of Ukraine, sanctions, gas shortages, higher energy and raw materials prices, and persistently sluggish growth in China:

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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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Best in Energy – 21 July 2022

Russia restarts Nord Stream 1 gas pipeline

China doubles new solar power installations

EU urges member states to cut gas use by 15%

Shell chief discusses transition strategy ($FT)

EU energy system strained by heatwave ($FT)

China enters main flood season (trans.)

U.K. homes are worst in western Europe

What does an energy crisis look like in real-time to contemporary observers? The following secret diplomatic cable sent from the U.S. embassy in London to Washington on 7 February 1947 and reproduced in the Foreign Relations of the United States (FRUS, 1947, Volume 3, pages 487-489) illustrates how Britain’s coal and electricity crisis in the winter of 1946/47 appeared to observers at the time, without the colour of hindsight:

Telegram to the U.S. Secretary of State from the U.S. Chargé d’Affaires in the United Kingdom

7 February 1947

SECRET

Shinwell, Minister Fuel, announced in Parliament today that beginning Monday no power would be furnished industrial consumers in London, southeastern, midland and northwestern areas, that power to all domestic consumers these areas would be cut off between 9 and 12 a.m. and 2 and 4 p.m. Drastic step taken in order to assure maintenance of power such essential services as sewage, water, lighting, hospitals, bakeries, etc.

Immediate cause emergency is snow and cold weather of past weeks which has nearly paralyzed road, rail and coastwise traffic and disrupted coal movement. Basic cause is shortage of coal stocks which country entered winter on November 1 and which has resulted in steadily worsening crisis ever since cold snap mid-December. Duration of emergency measures will depend on weather improvements but even after that it will take several weeks to build up coal stocks in order to provide general power requirements.

Meanwhile, industrial concerns throughout country whose deliveries had already been cut in mid-January to 75% in case of iron and steel and 50% all other industries, are rapidly exhausting their stocks, and press each day carries accounts of new factory close downs and production curtailment. Although government has not given out figures, in our opinion number unemployed already numbers over 100,000 with considerably larger number on short-time work, and effect of paragraph 1 will be to put several million out of work next week in affected areas. To make matters worse many households have already exhausted their yearly coal allocation which should have lasted until May 1.

Although coal traffic has been given priority on all rail lines traffic disruption has caused shortage of coal cars at the pits and forced serious curtailment coal production. Output in Yorkshire, largest producing area in Britain, is down 50% this week, other areas somewhat less.

In our opinion coal stock exhaustion throughout country is now such, that even with improved weather, the country can only limp through until mid-April. For until then country must live on current coal output which is not sufficient to meet winter needs, even if substantial increase in output, which occurred after January 1 when the mines formally passed into public ownership, is maintained when transport becomes normal.

Also in our opinion, government is now facing its first real loss of public support. Failure of production and export drive to forge ahead during past two months has already caused widespread misgivings, and with production and export declines inevitable during next three months in view coal position, we do not see how government can continue maintain popularity at same high levels during past 19 months. We do not, however, anticipate any government crisis or any attempt to form a coalition and discount all rumours to this effect. Only bright spot for the government is that Labor MPs who led the rebellion against Bevin’s foreign policy last fall and meant to renew their attack when Parliament resumed on January 21, have decided hold their fire in view of serious domestic situation in order not to embarrass government further.