Best in Energy – 16 September 2022

Germany takes control of Russian-owned refinery

EU explores alternative benchmarks for gas prices

U.K. government set to lift moratorium on fracking

La Niña disrupts global economy ($BBG)

Europe’s gas prices have retreated ($FT)

EU28 GAS STOCKS stood at 953 TWh on September 14 and are on course to reach 1,019 TWh with a likely range of 981-1,080 TWh by the time the summer refill season ends in late October or early November. Inventories will begin the winter drawdown season at the third-highest level on record.

In the last ten years, inventories have drawn down by an average of 588 TWh with a range of 352-782 TWh between the peak in October-November and the trough in March-April.  But this has been with strong pipeline inflows from Russia and other countries as well as LNG deliveries.

If Russian pipeline flows are severely disrupted the winter draw is likely to be much higher. High prices and exceptional demand restraint will be needed to ensure stocks do not run out before the winter ends. Even so, they are likely to fall to very low levels by next March, implying another herculean effort to refill them next summer:

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Best in Energy – 15 September 2022

[MUST READ] China focuses on self-reliance ($FT)

Remote work likely to persist after pandemic ($WSJ)

U.S. shale firms won’t boost oil and gas output ($FT)

U.S. SPR’s role in the oil market is changing ($BBG)

U.S. gas consumption forecast to hit record in 2022

Germany warns about energy risk from cold winter

China planner warns against yin-yang coal prices

China’s continued drought in Yangtze basin (trans.)

U.S. Northeast fears fuel shortages in event of rail strike

LVMH to turn off store lighting overnight to save power

Eiffel Tower to turn off lights earlier to save power ($WSJ)

U.K. GAS AND ELECTRICITY consumption has not shown a significant decline so far in response to higher prices. I spent a large part of yesterday trying to find a price response in the available official consumption statistics without success. The charts are below. But there are some important limitations:  

  • Electricity consumption data is only available through June and gas data is only available through March owing to publication delays.
  • Most of the rise in prices has occurred since April with another big increase scheduled to take effect from October.
  • Heating demand and bills are lower in the summer months reducing consumers’ sensitivity to prices.
  • Domestic and commercial consumption patterns have been distorted by the lockdowns in 2020/21 and then re-opening in 2022.
  • Electricity and gas consumption has been on a long-term downtrend as a result of improvements in insulation and efficiency.
  • Electricity and gas consumption shows significant annual variation depending on winter temperatures.

Once these factors are taken into account, there is no evidence of a significant reduction in gas and electricity use by households, offices and commercial premises so far. If reductions are going to occur, it will be later this year and into 2023:

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Wartime controls on coal prices, consumption and profits in the United Kingdom during the First World War (1914-1918)

Source: The British Coal-Mining Industry During the War, Redmayne, 1923.

Sir Richard Redmayne, great grandfather of the actor Eddie Redmayne, held a series of civil service positions during the War including chief inspector of mines, head of the production department and chief technical adviser to the coal controller. After the war, he wrote the definitive history.

“[In 1915] The price of coal (more especially the retail price) had been steadily rising in the large towns, London and the south of England in particular.

London retail prices for best Derbyshire coal

Date                                     Price per ton

16 June 1914                      26 shillings

26 September 1914           27

21 November 1914            28

12 December 1914             29

19 December 1914             30

7 January 1915                   31

28 January 1915                 32

29 January 1915                 33

17 February 1915               35

On 7 June 1915, the Home Secretary at instigation of the President of the Board of Trade requested the Coal-mining Organization Committee to consider desirability of setting a limit on the selling price of coal, and the committee’s favourable report was delivered on 8 July 1915.

On 29 July 1915, the Price of Coal (Limitation) Act became law. Limits applied to prices at the pit mouth. Increases were restricted to no more than 4 shillings per ton above the corresponding price for the corresponding date in the 12 months before 30 June 1914. Other provisions controlled increases in the price of freight. Law remained in effect until the end of March 1921.

In May 1915, the Board of Trade reached voluntary agreement with London retail coal merchants to limit prices, agreeing to a maximum profit margin of 7 shillings and 6 pence per ton to cover their gross expenses, delivery charges and profit. Voluntary arrangement was later extended to some of the larger provincial towns with a letter sent to local authorities detailing the London scheme and inviting them to reach their own local agreements.

Munitions of War Act (1915) permitted the government to fix the “standard amount of profits” for controlled industries. Standard profits were defined as the average of the best of any two of the three preceding financial years, or a 6% return on capital, whichever was higher. Excess profits above this standard amount were taxed at 80% with the company retaining 20%.

In 1916, coal owners argued for a special adjustment to permit returns of up to 12% on capital invested for their industry, and eventually secured a rate of 9 or 10%.

“[Critics argued] the effect of the tax would be to discourage development out of revenue. … But on the other side, it must be observed, the times were abnormal; the effect of the War was to put some branches of industry in a peculiarly profitable position, a fact which was likely to conduce to a state of industrial unrest, and it was unfair to the public generally that any branch of industry should be able to make great profits out of the special circumstances created by the War. On looking back, however, in the light of experience gained from subsequent events, it appears doubtful whether, at any rate in regard to certain branches of industry, of which mining is essentially one, it would not have been more politic to have recovered the excess of earnings by way of individual income tax, for though the national exchequer would probably at the time have suffered somewhat in respect of receipts it would have ultimately reaped a richer harvest due to the better maintenance of the industry. Of course there had to be taken into consideration the unsettling effect on the employees if unrestricted profits were permitted to the owners; but, as we now know, considerable unrest did exist even under the revised conditions, and at the time of writing many of the colliery owners are ‘high and dry’ for lack of capital, trade is stagnant, and wages falling.”

In 1916, the Coal-mining Organization Committee drafted a series of ‘Hints to Householders’ on how to economise on the use of coal at home. A million copies were printed by the Parliamentary War Savings Committee in the form of a leaflet but with doubtful effectiveness. “General self-denial in the unnecessary use of coal, as in respect of other forms of self-indulgence, is rarely secured by preaching only.”

On 10 August 1917, the Household Coal Distribution Order (1917) was issued under the Defence of the Realm Regulations. Coal rationing was initially applied only to the Metropolitan Police District of London. The order had three purposes: (1) establish minimum reserve stocks; (2): prioritise distribution in case of shortages for smaller coal consumers; (3) restrict coal consumption in excess of normal average requirements for homes of different sizes. The order set coal allowances for houses, flats and tenements according to the number of rooms they contained and time of year (October-March and April-September).

In August 1918, the restrictions were extended throughout England and Wales through the Household Fuel and Lighting Order (1918). In September, the restrictions were applied to Scotland, starting from October 1918.

The metropolitan order was intended to regulate distribution rather than reduce consumption. Allowances were based on surveys of coal merchants and households. But the nationwide orders of the following year were intended to cope with an expected shortfall in the volume of coal available equal to around 25% of pre-war consumption. The scale of allowances was reduced but targeting the larger consumers.

“Curiously enough, the provision of an allowance for poorer consumers of 2 cwt per week resulted in an increase in the quantity of coal consumed by the working classes. There is no doubt that before the War, the working classes could not in many instances afford a reasonable allowance of coal, and could not obtain it even if they could afford it, but with the inauguration of the control and the general rise in the level of wages of work-people, the working classes were able to demand the coal which the Controller attributed to them. The total demand for coal was not therefore reduced so much as might have been expected with the introduction of the rationing scheme.

The Wholesale and Retail Coal Prices Order (1917) issued in September 1917 cancelled all existing contracts for inland coal consumption and established new allowances for selling prices based on a fixed margin over costs. In the case of retailers, the margin for net profit was fixed at 1 shilling per ton.

In the summer of 1917, the government’s coal controller intensified a public relations fuel economy campaign. “The proposals were largely in the nature of pious opinions, and the advice given might or might not be followed. The proposals were in the nature of war measures and necessarily temporary in character. … Schemes of coal rationing are prompted not so much from the motives of preventing extravagance as for the purposes of sustaining supplies for small consumers. In other words, the supply for domestic consumption was limited, and the coal scheme sought to make the supply go round so that everyone might have a fair share.”

The fuel economy campaign was intensified in 1918 when the government urged consumers to switch from coal to wood where possible. The Board of Trade wrote to churches pointing out the serious shortage of coal and suggesting church services be held in daylight.

In June 1918, pit mouth coal prices were raised under the Price of Coal (Limitation) Act of 1915 by increasing the fixed margin over pre-war prices from 4 shillings to 6 or 9 shillings depending on the area. By another order issued in July 1918, wholesale and retail prices were increased by 1 shilling and 6 pence for all domestic consumption.

“The threatened coal famine was averted, though in August [1918] the situation was so grave that the government decided to recall some miners from the [armed services] to work in the collieries.  .. The signing of the Armistice eased the position, enabling as it did, in a very short time a still further number of miners

Best in Energy – 6 September 2022

Nuclear generators and service extensions

California calls for electricity conservation

U.S. gas-fired generation hits record high

Economic warfare and energy bills ($FT)

Energy crisis myths dispelled by IEA ($FT)

EU smelters close on high energy costs ($FT)

EU/UK POLICYMAKERS are considering how to protect households and businesses from surging gas and electricity prices. History suggests there are four basic options that can be employed singly or in combination. Multiple refinements are possible with each option – but the four basic responses have been the same since at least 400 BCE:

EUROZONE manufacturers reported business activity declined for the second month running in August. The composite purchasing managers’ index slipped to 49.6 in August from 49.8 in July and 52.1 in June as the conflict between Russia and Ukraine, record gas and power prices, broader inflation, and falling household and business confidence tipped the regional economy towards recession:

HEDGE FUND and other money manager positions in the six major petroleum futures and options contracts on August 30:

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Best in Energy – 9 August 2022

U.K. household gas and electricity bills set to surge

German economy set to lose $265 billion from war

Goldman reiterates forecast for even higher oil prices

Long-term energy storage using thermal systems

U.S. reconciliation bill tax and spending implications¹

¹ The non-partisan Congressional Budget Office (CBO) prepares a “scorecard” for all proposed legislation examining the implications for government revenues and spending. The linked document is the scorecard for the “Inflation Reduction Act of 2022” approved by the Senate on a party-line 51-50 vote on August 7. Full details of the contents of the bill and its passage through the legislature are available from the bill tracking system maintained by the non-partisan Congressional Research Service.

SOUTH CHINA’s precipitation has tapered off after an unusually heavy start to the rainy season, which brought flooding earlier than usual. Total precipitation at Yibin/Xiangjiaba on the Sichuan/Yunnan border has been 800 millimetres since the start of the year, around 7% above the 2014-2021 average, but the surplus has been shrinking in recent weeks. Reduced rainfall is likely to limit hydropower production later in the year and increase reliance on coal-fired generators:

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Best in Energy – 2 August 2022

India starts rationing gas to industrial users

Australia grapples with pricing for domestic gas

Baker Hughes plan to sell Russia unit to insiders

Rosatom tightens grip on nuclear energy ($BBG)

China focuses on energy indigenisation (trans.)

U.S./Saudi visit: what did Biden achieve? ($BBG)

United Kingdom closes nuclear power generator

EU struggles to balance energy security and transition ($WSJ)

U.S./EU responses to energy security and transition challenges

U.S. MANUFACTURERS reported a further slight deceleration in growth last month, with the ISM purchasing managers’ index slipping to 52.8 in July (50th percentile for all months since 1980) from 53.0 in June (53rd percentile). New orders fell for the second month running, slightly faster in July (48.0, 14th percentile) than June (49.2, 17th percentile), implying business activity will slow further over the next few months:

U.S. DISTILLATE CONSUMPTION has begun to fall in line with the deceleration in manufacturing activity. The volume of distillate supplied was down -0.4% in March-May compared with the same period a year earlier. Distillates are the most cyclically sensitive part of the oil market, so the business cycle slowdown is filtering through into lower fuel use, part of the market rebalancing process:

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Best in Energy – 28 July 2022

EU/Russia gas pipeline flows fall sharply

U.S. frackers warn of supply chain limits

China’s plan to centralise iron ore purchasing

U.S. leaders embrace subsidies, tariffs ($WSJ)

Grid-scale batteries used for price response

U.K. households face winter bill crisis ($FT)

West London’s local power constraint ($FT)

U.S. PETROLEUM inventories depleted by -9 million bbl in the week to July 22, with declines in commercial crude (-5 million), gasoline (-3 million), and distillate fuel oil (-1 million) as well as a drawdown in the SPR (-6 million), partially offset by increases in propane (+3 million) and other oils (+3 million). Petroleum inventories have depleted in 80 of the last 108 weeks by a total of -438 million bbl since the start of July 2020. Total stocks are at the lowest seasonal level since 2008 and show no signs of rebuilding:

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Best in Energy – 25 July 2022

EU softens oil-trading related sanctions on Russia

China’s biggest coal miner boosts output (trans.)

U.K. transmission grid hits capacity limit ($BBG)

Dark tanker market grows competitive

Urban centres and heatwaves ($FT)

Oil exploration accelerates ($BBG)

China’s lessons from Russia’s war

U.S. INITIAL CLAIMS for unemployment insurance benefits have been trending upwards since the start of April, albeit from an exceptionally low base, indicating the labour market may be starting to cool:

BRENT futures for September delivery are showing characteristics of a squeeze, trading in a backwardation of almost $5 per barrel compared with October. But further forward, spreads have softened significantly in recent weeks, as traders anticipate an increased probability a recession will dampen oil consumption:

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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


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.