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 – 12 July 2022

Computer shipments tumble on inflation (WSJ)

Iran/Israel war is emerging from the shadows

Texas averts blackouts with voluntary conservation

U.K. utility bills on course for winter crisis

U.K. retail sales fall rapidly as inflation surges

U.S. Treasury lobbies for oil price cap

Chartbook – what causes an energy crisis?*

* I will update this chartbook from September 2021 to illustrate the gas, electricity and oil crisis in 2022 triggered by Russia’s invasion of Ukraine but which was building long before as spare capacity eroded. The current energy crisis has all the four classic elements; (1) pre-crisis erosion of spare production capacity and inventories; (2) failure to appreciate increasing risk and take timely preventive action; (3) a short-term trigger that turns a potential shortage into an actual shortage; and (4) panicked reaction.  

U.S. TREASURY yield curve has continued to invert and is now trading at a premium of 9 basis points between the two-year and ten-year maturities. The yield spread is in 96th percentile for all months since 1980 and implies traders believe a significant economic slowdown is inevitable. The last occasions on which the spread had tightened this much were in January 2007, February 2006, November 2000 and September 1989:

LONDON’s temperatures have climbed sharply since the start of July and are currently +5°C above the long-term average. In contrast to the United States, peak electric load occurs in midwinter rather than midsummer. Solar and wind output is currently favourable. But distribution transformers are vulnerable to the heat:

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Best in Energy – 12 April 2022

Retail gasoline prices: rockets and feathers

EU’s proposed carbon tariff moves forward

U.S./India talks about Russia oil

OPEC warns EU about oil shock

U.S. households’ energy security

BRENT spot prices and especially calendar spreads have softened significantly and are now trading at or below levels prevailing immediately before Russia’s invasion of Ukraine. China’s coronavirus outbreaks and lockdowns, signs of a business cycle slowdown in Europe and North America, and the massive offer of 240 million barrels from strategic stocks by the United States and its allies have all weighed on futures near to expiry:

BRENT futures for delivery in July 2022 – the impact of the business cycle and epidemic waves on oil prices:

U.S. GASOLINE and diesel prices at the pump are still elevated despite the reduction in crude futures prices as fuel inventories remain low:

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