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 – 12 January 2023

PJM says 46 GW of generators failed to respond ¹

U.S. says price cap is cutting Russia’s oil earnings

Global LNG import volumes hit record high

Freeport LNG outage extended to February

French aluminium smelter begins restart

South Africa hit by worst ever power cuts

Freight forwarder cuts employment ($WSJ)

Australia/China coal trade restarts ($WSJ)

Saudi Arabia plans full nuclear fuel cycle

LME’s nickel-market breakdown inquiry

¹ PJM’s post-event study for winter storm Elliot on December 24 is worth reading in full and confirms the major problem was the failure of many generators to respond to instructions from the grid because of a failure to start up or secure enough fuel (principally gas). Generators were unavailable even though they had been given repeated warnings of an extreme weather event for several days beforehand and told to prepare for a plunge in temperatures. In many cases, generators provided less than 1 hour of notice they would not be available. If generators cannot be depended upon to respond to instructions they cannot be considered firm dispatchable power for reliability purposes.

In response, PJM was forced to initiate a series of relatively extreme emergency measures to protect the transmission system, including voltage reductions and an order for flat-out maximum generation from units that were available.

U.S. PETROLEUM INVENTORIES including the strategic reserve totalled 1,599 million barrels on January 6, the lowest seasonal level since 2004. Stocks have fallen by -185 million barrels over the last 12 months and are down by -518 million barrels from their peak in mid-2020 as production has persistently fallen below consumption: