Best in Energy – 4 August 2022

OPEC+ raises output  by de minimis amount¹

Electricity transmission links undervalued

Freeport LNG to restart partially in October

Autos/semiconductors relationship

Automakers see weakening demand

¹ Higher oil production by Saudi Arabia and the other Gulf monarchies was briefed as one of the benefits from U.S. President Joe Biden’s visit to the region and “reset” of the relationship with Saudi Arabia last month. The tiny output increase of +100,000 b/d was the smallest that could be announced without appearing to snub the president completely. But it raises the question of what diplomatic benefits the president achieved from the trip – if not higher oil output did he secure some other objectives? Who advised the president to make this trip, within the administration and outside? Does the president ultimately see it as a success or a disappointment?

BRENT spot prices and calendar spreads have weakened consistently in recent weeks, a sign the recent upward price cycle has begun to break down. Prices and spreads are softening in response to the increased probability of a recession dampening oil consumption:

BRENT’s calendar spread from December 2022 to December 2023 has softened to a backwardation of $7.20 per barrel, down from $16.50 in early June, and close to its lowest levels since Russia invaded Ukraine in February. Traders are anticipating an imminent business cycle slowdown will relieve under-production in the oil market and stabilise inventory levels:

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Best in Energy – 22 July 2022

Germany to cut energy use to resist blackmail

EU divided on compulsory gas demand cuts

Europe’s electricity generation under stress

Europe turns to Africa for more oil and gas

China’s semiconductor manufacturing ($BBG)

Texas power grid and bitcoin miners ($BBG)

RHINE RIVER water levels measured at Kaub are the lowest for the time of year for more than a quarter of a century and indicative of drought conditions across northwest Europe. Low rainfall is restricting river borne freight and is an indicator of the stress for thermal and nuclear power plants that rely on river water for their cooling systems. For coal and gas combustion plants, efficiency and maximum output is reduced. For nuclear plants, insufficient cooling capacity can force output limits or a precautionary safety shutdown:

EUROZONE manufacturers reported a decline in activity this month for the first time since the first wave of the pandemic in 2020. Preliminary data show the manufacturing sector purchasing managers index fell to 49.6 in July (28th percentile) down from 52.1 in June (47th percentile) and 54.6 in May (65th percentile). Russia’s invasion of Ukraine and the sanctions the EU has imposed in response have pushed the region’s economy into recession:

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Best in Energy – 5 July 2022

REUTERS has appointed Guy Faulconbridge as its new bureau chief for Russia and the CIS. Guy is one of the most talented journalists of my generation and an outstanding choice for the toughest job in journalism at the moment. For the most accurate, insightful and unbiased coverage of Russia, I strongly recommend following him on Twitter @GuyReuters

U.S./China hold round of economic discussions (trans.)

Coal consumption hits new high in 2021 ($WSJ)

Russia’s coal exports increase despite sanctions

Europe’s seaborne coal imports surge ($BBG)

Semiconductor makers signal slower demand ($WSJ)

GLOBAL COAL-FIRED power generation rose to a record 10,244 terawatt-hours (TWh) in 2021, passing the previous peak of 10,098 TWh set before the pandemic in 2018. Coal combustion is set to rise further in 2022 as China and India focus on indigenous energy resources to improve their energy security and reduce the cost of imports, and Europe tries to reduce its consumption of Russian gas:

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Best in Energy – 4 May 2022

EU proposes full embargo on Russia oil by end of year

(see Von der Leyen’s speech to European Parliament)

U.S./Russia/China trilateral diplomacy and sanctions

Semiconductor shortage to be prolonged ($WSJ)

India raises coal production to record high ($FT)

China/Russia oil trade rises with discounts ($FT)

Russia/India oil trade rises with discounts ($BBG)

U.S. Northeast diesel inventories deplete ($BBG)

Multilateralism and symbolic walkouts ($WSJ)

U.S. GAS PRICES have climbed to $8 per million British thermal units, based on the front-month futures contract for deliveries at Henry Hub. In real terms, prices are the highest since November 2008, when the financial crisis had started to intensify and the economy was heading deeper into recession. The inflation-adjusted price is in the 82nd percentile for all months since 1990, creating an incentive for more gas drilling as well as maximum fuel-switching away from gas in power generation: