Best in Energy – 24 January 2023

Freeport LNG requests approval to restart some operations

Pakistan restores power transmission system after blackout

North Sea seabed conflicts between wind farms and CCUS

U.S. official denies easing sanctions on Iran oil ($BBG)

Investors bet on rapid inflation slowdown ($WSJ)

U.K. explores tariff to protect steelmakers ($FT)

Nuclear reactor life extensions to 80 years ($BBG)

CHINA imported 508 million tonnes of crude oil in 2022, down from 513 million in 2021 and 542 million in 2020, according to preliminary data from the General Administration of Customs. Slower imports as the country grappled with intermittent  lockdowns eased pressure on global petroleum supplies. But the economy’s re-opening is likely to boost crude imports and tighten the market in 2023:

Best in Energy – 10 January 2023

India forecasts coal shortage and orders extra importing

India expects coal-fired generation to rise 8% in 2023/24

China’s re-opening mixed effect for oil consumption

China’s re-opening to boost power sector emissions

U.S. CO2 emissions above target

Cryptocurrencies and emissions

U.K. gas storage strategy ($FT)

OPEC⁺ and pricing power ($FT)

U.S. GAS front-month futures prices have slumped to less than $3.80 per million British thermal units (34th percentile for all months since 1990) from more than $9.10 (86th percentile) at the end of August. Figures have been adjusted for inflation using the core consumer price index for all items excluding food and energy:

Best in Energy – 6 January 2023

U.K. windfarms provided almost 27% of electricity in 2022

Ukraine calls for power conservation as temperatures fall

New England power generators replenish distillate stocks ¹

New England grid’s event summary for Dec 24 emergency ²

China’s crude buying tightens supplies for Europe ($BBG)

Venezuela’s oil exports fell again in 2022

U.S. warehouse leasing falls as goods demand slows ($WSJ)

Europe’s gas futures prices fall on plentiful stocks ($WSJ)

Australia/China to resume coal shipments after diplomacy

¹ Distillate fuel oil is an important fuel source for electricity generators designed to serve peak loads and provide emergency reserves. New England is particularly reliant on distillate to provide reserve generation and distillate units were heavily used during cold weather around Christmas. In the rest of the country, distillate is also used as lighting-up fuel for coal-fired units, which were heavily used during the extreme cold. Coal will not ignite on its own and distillate is sprayed into the furnace to provide initial combustion, heat up the furnace, establish air circulation, and support the combustion process until the flame is stabilised. As the coal combustion becomes self-sustaining, the distillate burners are gradually shut off.

² Failure of generators to start when instructed by the grid contributed to the shortfall in capacity in New England ISO region on December 24, as in other areas. Scheduled generation of 2,150 MW became unavailable. Failure to start remains one of the biggest problems for electric reliability during extreme cold events.

EUROPE’s gas futures prices no longer command a premium over futures for deliveries into Northeast Asia. Europe’s prices have fallen much more rapidly than Asia’s as fears of a winter emergency have faded. Europe’s futures are now trading at a slight discount for the first time since Russia invaded Ukraine in February 2022. European importers are no longer paying a premium to attract cargoes which should leave more LNG cargoes available for consumers in Northeast and South Asia:

U.S. DISTILLATE STOCKS fell -1.4 million bbl over the seven days to December 30 (including drawdown of -0.7 million bbl in New England). Inventories were probably pulled forward along the supply chain to homes, offices and power generators as a result of extreme cold around Christmas:

Best in Energy – 4 January 2023

Duke’s insufficient generation during storm ($BBG)¹

China issues more export quotas for fuels

Japan gas suppliers seek overseas resources

India to compensate coal-fired generators

Saudi Arabia’s sovereign wealth fund ($WSJ)

U.K. steel makers seek another bailout ($FT)

China/Australia discuss end of coal boycott ($BBG)

¹ Failure of coal and gas-fired generators to start up when instructed by the grid because of instrument and equipment freezes has been a recurrent problem and major cause of power failures during extreme cold weather episodes in the last several decades. Failure to start has meant actual generation available has been much lower than forecast, reducing reserve margins and forcing rotating blackouts to restore margins to safe levels.

THE FUNDAMENTALS of commodity trading have not changed in 2500 years, illustrated by this quote about China’s commodity merchants taken from the Guan Zi, which purports to be a dialogue between Lord Huan of Qi and his powerful chief minister Guan Zhong in the Spring and Autumnperiod (771-481 BCE) but probably a compilation of traditional knowledge written during the Warring States period (481-221 BCE):

“Merchants observe outbreaks of dearth and starvation, scrutinize changes in the fortunes of states, study the patterns of the four seasons, and take notice of what goods are produced in each place. With this knowledge of prices in the marketplace, they gather up their stock of goods, load them on oxcarts and horses, and circulate throughout the four directions. Having reckoned what is abundant and what is scarce and calculated what is precious and what is worthless, they exchange what they possess for what they lack, buying cheap and selling dear … Marvellous and fantastic things arrive in timely fashion; rare and unusual goods readily gather. Day and night thus engaged, merchants tutor their sons and brothers, speaking the language of profit, teaching them the virtue of timeliness, and training them how to recognise the value of goods.”

Guan Zi: Political, Economic and Philosophical Essays from Early China (Rickett, 1985) cited in The Economic History of China: From Antiquity to the Nineteenth Century (von Glahn, 2016)

EUROPE’s gas prices are falling and the futures curve has shifted into contango as inventories remain very high for the time of year and traders no longer anticipate any risk of a shortage before the end of winter 2022/23. The end-of-winter March-April 2023 calendar spread is trading in a contango of more than €1.20/MWh down from a backwardation of €9.70 at the end of September:

Best in Energy – 3 January 2023

Europe’s energy crisis eased by mild weather ($BBG)

U.S./Venezuela crude oil trade set to resume

Russia/China struggle to bridge gaps on Ukraine

France energy security improves on mild weather

U.S. shale oil production growth slows in 2022/23

U.S. winter storm reveals energy fragility ($BBG)

U.S. regional indicators point to future recession

Semiconductor market moves into surplus ($WSJ)

Global supply chains starting to normalise ($WSJ)

Tesla discounts to clear excess inventories ($WSJ)

United Kingdom explores more steel subsidies ($FT)

CHINA’s manufacturers reported a severe contraction in business activity in December as coronavirus infections surged following the end of the government’s suppression policy. “The epidemic has had a great impact on the production and demand of enterprises, the arrival of personnel, and logistics and distribution,” according to the National Bureau of Statistics. The purchasing managers index fell to 47.0 (1st percentile for all months since 2011) in December down from 48.0 in November (2nd percentile) and 50.1 (26th percentile) in September:

NORTHWEST EUROPE’s temperatures ended 2022 much higher than normal, sharply reducing gas consumption and pulling down prices. On December 31, the average temperature at Frankfurt in Germany was almost +14°C higher than the long-term seasonal average. Frankfurt has experienced 764 cumulative heating degree days so far in winter 2022/23 compared with a seasonal average of 901, a deficit of -15%:

Best in Energy – 19 December 2022

U.K. parliament warns hydrogen is not a panacea

Employment transition and future energy system

Europe’s challenge to refill gas storage in 2023

ING bank closes offices to conserve energy ($BBG)

U.S. SPR to purchase small amount of crude oil

U.S. shale chief warns against more drilling ($FT)

China set for surge in coronavirus cases ($BBG)

Australia/China try to mend relations ($BBG)

U.S. southeast prepares for cold snap ($BBG)

U.K. utilities warn of cash crunch risk ($FT)

U.S. WELL DRILLING shows signs of having hit a peak and starting to fall as the sector responds to lower prices. The number of active rigs targeting oil or gas has fallen in the most recent two weeks and is no higher than at the end of October. As a result, the rig count has increased by an average of just +1.0 per week in the last 13 weeks:

Best in Energy – 15 December 2022

G7/Vietnam plan aims to avert big increase in coal

Germany spends heavily to offset energy shock

China’s coal output hit record high in November

China accumulates inventories of cheaper crude

U.S. cargo terminals sold to container lines ($WSJ)

Tanker rates rise on war, sanctions, longer routes

Drax coal-fired unit to start up in test run ($BBG)¹

Mekong hydro dams and sediment flow

U.S. refiners report higher profits

¹ Running a “test” of the cold-start process at Drax on December 16 just four days after the coal-fired power plant received instructions (subsequently cancelled) to light up and prepare to generate for “real” on December 12 to help with insufficient reserve margins is interesting timing.

U.S. DISTILLATE inventories increased by +1 million barrels to 120 million barrels over the seven days ending on December 9. Stocks are still -16 million barrels (-12%, -0.79 standard deviations) below the pre-pandemic five-year average, but the deficit has halved from -34 million barrels (-24%, -2.05 standard deviations) on October 7. The biggest seasonal inventory accumulation for at least two decades has erased a large part of the previous shortage:

Best in Energy – 14 December 2022

EU/UK diesel imports rise pre-sanctions ($BBG)

China braces for exit wave of infections ($WSJ)

China travel rises as quarantine controls end

G7/Vietnam deal on energy transition funds

India’s solar expansion mainly displaces gas

U.K. plans hydrogen-ready home heat ($FT)

Shanxi restarts coal mine production (trans.)

U.S. fusion experiment reaches milestone

U.S. SERVICE SECTOR prices rose at an annualised rate of 6.4% over the three months ending in November. Service sector output is more labour-intensive than manufacturing and prices tend to be more sticky. Services inflation has decelerated from 9.9% in the three months ending in June, but it is still three times faster than the central bank’s target of a little over 2%:

Best in Energy – 13 December 2022

EU agrees carbon border tariff in principle

China deletes epidemic phone tracking app

China faces exit wave of infections ($BBG)

China’s internal aviation rebounds ($BBG)

U.S. shale oil revolution is maturing ($BBG)

Turkish Straits re-open to oil tankers ($BBG)

U.S. solar roll out slows on trade restrictions

U.K. grid cancels stand-by notices for coal units

Battery materials technology

COAL-FIRED generators typically require 2-3 hours from initial notification to reach full power from a hot start, 6-7 hours from a warm start, and 10 or more hours from a cold start. Assuming the two massive coal units at Drax are typical, if the U.K. transmission operator wants them to be available during the evening peak from 1600 to 1900 GMT, notice to light up and begin warming must be given by 0600 GMT. If the forecast reserve margin improves during the day, however, the stand-by notices can be cancelled later, as happened on December 12.

The table below shows typical timelines for coal-fired and gas-fired generators showing how it takes (1) from initial notification from the grid controller to synchronisation with the grid – at which point the generator can start providing power to the network; and (2) from synchronisation to reaching maximum power output (“Technical Assessment of the Operation of Coal & Gas Fired Plants,” Parsons-Brinckerhoff for the U.K. Department of Energy, 2014):

LONDON and southeast United Kingdom are now a quarter of the way through the typical heating season. After an exceptionally warm period from mid-October to late November, which depressed heating demand, temperatures have plunged far below normal, erasing the earlier deficit in degree days, and putting winter heating demand on an entirely different trajectory:

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: