Best in Energy – 30 January 2023

India requests coal-fired generators stay in service

India plans to order maximum coal-fired generation

Jet fuel prices surge on post-pandemic consumption

Asia’s seaborne coal prices slip on plentiful supplies

Russia/Ukraine: which side does time favour? ($WSJ)

BP publishes revised energy outlook through 2050

EU gas price cap sparks plan to shift TTF to London

Israel/Iran drone attack ($WSJ)

EUROPE’s gas futures summer-winter calendar spread for July 2023 to January 2024 has slumped into an increasingly wide contango as traders anticipate a record carryover over inventories from winter 2022/23 which will leave the storage system short on space.  Lower gas prices in summer 2023 will encourage more consumption by power generators and major industrial users. Higher prices may still be needed to restrain consumption during the peak of next winter:

U.S. OIL DRILLING has started to slow in response to the fall in prices since the middle of 2022. The number of rigs drilling for oil was just 609 on January 27 down from a cyclical high of 627 on December 2:

Best in Energy – 27 January 2023

Freeport LNG takes first steps to restart

EU floats $100 price cap for Russia diesel

Pennsylvania’s transition from coal to gas

India’s electric cars and fuel consumption

China becomes major car exporter ($BBG)

U.S. labour market starts to weaken ($WSJ)

EUROPE’s gas prices continue to slide as traders anticipate a record carry over of inventories at the end of winter 2022/23. Futures prices for deliveries in March 2023 fell to just €55 per megawatt-hour on January 26 from €110 on December 19 and €177 at the start of the winter season on October 3. Prices are falling to encourage more consumption, principally from energy-intensive industrial users and power generators, to ensure there is more storage space left to absorb excess production in summer 2023:

U.S. GROWTH stalled in the fourth quarter of 2022. Real final sales to private domestic purchasers (FSPDP), a measure excluding volatile changes in inventories, trade and government spending, increased at an annualised rate of just +0.2% in the fourth quarter, slowing from +1.1% growth in the third quarter, and +2.6% a year earlier. Real FSPDP advanced at the slowest rate since the first wave of the pandemic in 2020 and before that the recession in 2009.

Business inventories increased rapidly between October and December contributing +1.46 percentage points to reported output growth in the fourth quarter of 2022. Inventory accumulation was probably unplanned as sales were lower than expected. Large inventory changes are normally reversed within one or two quarters. The accumulation during the fourth quarter of 2022 is likely to be followed by efforts at depletion which will make a negative contribution to reported output growth in the first and second quarters of 2023:

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:

Best in Energy – 21 December 2022

I am taking a few days leave before the end of the year. Best in Energy will resume on Tuesday January 3

EU gas price cap likely to avoided and evaded

U.S./EU LNG shipments and pricing in 2023

EU statisticians to change energy inflation

FedEx hit by weak parcel shipments ($WSJ)

Global supply chains slacken in 2023 ($BBG)

World Bank call for new debt workouts ($FT)

India’s demographic transition

FEDEX’s share price has slumped by more than -30% over the last year (more than -40% in real terms) as merchandise shipments have slowed after the pandemic. In the past, a retrenchment of this magnitude has been consistent with a mid-cycle slowdown or a cycle-ending recession:

U.S. S&P 500 equity index is down by almost -20% compared with the same point in 2021. In the past, falls of this magnitude have been consistent with the onset of a recession. The index closed at a new high only once in 2022 and that was on the first trading day of the year. The absence of new highs is reminiscent of the 2001-2012 period when equity prices stagnated in the aftermath of the dotcom bubble:

Best in Energy – 20 December 2022

European Union approves gas price cap

France upgrades electric reliability forecast

China completes 16 GW Beihetan hydro project

Commercial buildings and energy efficiency ($FT)

U.S. Treasury delays battery subsidy rules ($WSJ)

EUROPEAN gas futures prices for deliveries in March 2023, the end of the heating season, have been falling since early December, as traders become more confident there will be enough to satisfy consumption this winter. Prices are currently trading around €106/MWh down from €150 on December 7:

U.S. CONTAINER trade through the nine most important container ports was equivalent to just 2.72 million TEUs in October, down from 2.94 million TEUs in October 2021, and the lowest for the time of year since 2017, as manufacturers and retailers attempted to reduce excess inventories by reducing new orders:

Best in Energy – 16 December 2022

Lithium prices double on output deficit

Global coal consumption hits record high

China braces for impact of rural epidemic

ICE warns it could relocate TTF gas futures

Russia crude sold to India under $60 ($FT)

China experiences intense cold snap (trans.)

Texas oil production hit by seismicity limits

EUROPE’s seven-largest gas consuming countries (excluding the United Kingdom) reported consumption was down -21% in October compared with the same month a year earlier, and down by a similar percentage compared with the ten-year average, as a result of high prices, conservation, and milder-than-normal temperatures in the second half of the month:

U.S. MANUFACTURING output shows signs of peaking. Production was up by just +1.4% in November compared with the same month a year earlier, the smallest increase for almost two years, and the growth rate has been decelerating progressively since February:

Best in Energy – 12 December 2022

U.S. official berates shale firms and investors ($FT)¹

U.K. grid orders coal-fired units to start warming up²

France ramps up nuclear generation, easing shortages

China’s shipbuilders move into LNG tanker market

India’s coal mine production rises, with spot auctions

U.S. container trade moves to east coast ports ($WSJ)

Open source tests traditional spying agencies ($WSJ)

U.S./EU diplomacy on price cap reconstructed ($WSJ)

U.S. officials claim fusion power breakthrough ($FT)

Texas crypto-mining boom turns into bust ($BBG)

Thurrock council’s $500 million loss on solar ($BBG)

G7/Russia oil price cap introduced smoothly ($WSJ)

Anti-oil protests and theory of social change ($FT)

¹ When policymakers appeal to “patriotism,” or decry its absence, it usually means they have run out of good arguments. When I hear arguments based on patriotism and its variants, I am instinctively suspicious about the speaker’s motivations, and try to work out how someone is trying to mislead or distract attention from their own failures.

² Coal-fired units need roughly four hours to reach full generation from a warm start and 10-12 hours from a cold start. The grid’s instruction to start warming up ensures the two massive coal-fired units at Drax will be available to help meet electricity consumption during the evening peak on December 12. Before privatisation of the U.K. electricity industry, the state-owned Central Electricity Generating Board (CEGB) would often keep at least one coal-fired power station warmed up but not generating so it could be brought into service at relatively short notice. Long ramping times for coal-fired units, and the enormous quantity of fuel burned before commercial generation starts, are one reason gas-fired units are more efficient and have largely supplanted them.

CHINA’s semiconductor (integrated circuits) trade – export earnings have grown rapidly, but the cost of imports has risen even faster, so the country’s trade balance has become increasingly adverse:

Best in Energy – 9 December 2022

China’s hesitant exit from coronavirus lockdowns

Germany accelerated floating LNG rollout ($WSJ)

Oil prices fall despite G7 Russia price cap ($FT)

U.S. grid-scale battery storage to triple by 2025

U.S. shale output has delinked from prices

U.S. CONTAINERISED rail freight in October was running at the slowest seasonally adjusted rate since 2013, reflecting weakness in the manufacturing economy and cutting consumption of diesel:

LONDON temperatures were -6°C below the long-term seasonal average on December 8, stretching the transmission system to the limit, as solar generation faded and demand ramped up in an unusually frosty early evening. There were repeated periods of under-frequency on the transmission system in the run up to the evening peak, with load exceeding generation and reserves running low. National demand approached the maximum triad levels set in winter 2021/22, despite extremely high electricity prices, triad avoidance behaviour by major electricity users, and calls for household and commercial conservation:

Best in Energy – 7 December 2022

G7/Russia oil price cap evolution

China relaxes epidemic controls

India to purchase more gas for power generation

North Carolina’s 3rd day of blackouts after sabotage

Russia/China gas pipeline enters service (trans.)

Russian oil tanker spoofs position signal ($FT)

Russian oil tanker spoofs AIS maritime signals

London’s last great killer smog this week in 1952

BRENT calendar spreads slipped into contango yesterday through May 2023. The combined six-month spread moved into contango for the first time (outside the month-end expiry process when prices and spreads are unrepresentative) for the first time since November 2020, before the first successful coronavirus vaccines were announced:

LONDON is experiencing a period of unusually low temperatures this week, exactly 70 years after similar conditions between December 5 and December 9, 1952, caused the “Great Smog” resulting in 4,000 excess deaths. As temperatures dropped to freezing, domestic and commercial coal combustion surged, sending thousands of tonnes of particulates into the air over the city. A temperature inversion trapped smoke in low-lying areas along the Thames, between the hills surrounding the metropolitan area. For four days and nights, the metropolitan area was blanketed with a suffocating mixture of fog and smoke. The map below shows areas with the worst pollution, which were also the areas with the highest excess mortality:

Best in Energy – 6 December 2022

Renewables deployment accelerated by energy crisis

North Carolina substations in sophisticated sabotage

Oil tankers in queue to transit Turkish straits ($FT)

France prepares for tight power supplies next week

New England grid outlines winter reliability plan

EU retail sales fall with economy in recession ($WSJ)

EU plan for gas price cap distracts from real problem

U.S. jet fuel consumption below pre-pandemic level

BRENT’s six-month calendar spread has collapsed to a backwardation of just 67 cents per barrel (54th percentile for all trading days since 1990) from $8 (98th percentile) at the start of November. Month-to-month spreads are flat through April 2023. Traders anticipate crude supplies will remain comfortable through the first few months of next year because: (a) the EU/G7 price cap on Russia’s exports was set at a relatively high level; (b) policymakers have signalled a relaxed approach to enforcement (c) refiners have boosted purchases and inventories ahead of the price cap’s introduction; and (d) the slowing global economy is expected to dampen oil consumption: