PAST NEWSLETTERS

Main Takeaways for the week of April 13, 2022

Several countries begin replacing Russian coal with other fuels, stretching already thin thermal coal and LNG markets. Covid-19 outbreaks in China plus a probable recession are cooling oil demand, though much is still uncertain. Fuel prices are causing instability in poor countries. Algerian natural gas supply concerns could spark disputes between Italy and Spain. Vehicle manufacturers are wading into metals production and refining to ease constraints on capital-starved components of their electric vehicle supply chains. United Kingdom releases an energy security strategy, heavy on nuclear, renewables, hydrogen, and carbon capture. Russia defaults on some of its foreign debt, leading to questions about whether more is to come. Canada approves Bay du Nord oil project off Newfoundland’s coast.

Featured Article

“What we need above all is an orderly low-carbon energy transition,” said Delbeke, a former senior official at the European Commission and currently professor at the European University Institute in Florence. “Given the new situation related to gas, a higher use of coal in the energy mix can be expected in the short term, and this will lead to a higher demand of carbon allowances.”

From War Requires Rethink of EU Carbon Reform, Market Architect Says, by Ewa Krukowska, for Bloomberg

Weekly Energy Chart

From U.S. nuclear electricity generation continues to decline as more reactors retire, by the EIA

Headlines

Global Petroleum Liquids 

• OPEC lowers 2022 global oil demand forecast by 480k bpd due to weaker economic growth and lockdowns in Chinese cities
• EIA Short-Term Energy Outlook anticipates a global return to market balance in the second half of 2022 and 2023 for petroleum liquids
• Violent protests over rising fuel and fertilizer prices in Peru prompt government to impose curfew
• Sri Lanka suspends bond payments partially due to skyrocketing prices of oil
• Russian resolve to continue war and partial easing of lockdowns in China push oil over $100/bbl

Global LNG 

• Japan’s move to ban Russian coal will likely increase demand in an already tight LNG market
• EIA Short-Term Energy Outlook sees continued high natural gas and LNG prices through 2023
• Major infrastructure investor I Squared Capital eyes the “reconfiguration of liquefied natural gas supplies from the US and Canada to Europe and Asia”

Global Coal 

• EIA Short-Term Energy Outlook anticipated the U.S. will replace much of the missing Russian coal supply

North American Energy Infrastructure 

• FERC moves Mountain Valley Pipeline closer to approval, though future of it and other major U.S. natural gas pipelines remains in question

China

• No significant developments

Russia

• Russia defaults on its foreign debt by paying in rubles rather than dollars, according to S&P

Europe

• No significant developments

India

• India is likely to see power shortages due to lack of thermal coal supplies

U.S. - Canada Energy Relations 

• No significant developments

Middle East Energy Geopolitics 

• Italy will massively increase Algerian gas imports, stoking concerns in Spain about their own security of supply following Spain’s siding with Morocco on Western Sahara and declining Algerian natural gas production

Central Asia Energy Geopolitics 

• No significant developments

Canadian Oil and Gas 

• Canadian Federal Government approves Bay du Nord oil project

Electricity 

• No significant developments

Nuclear 

• UK energy security strategy includes major supports for nuclear projects nearing FID, as well as hundreds of millions for new technology development

Renewables

• UK energy security strategy includes up to £320 million in government support for fixed bottom and floating wind ports and infrastructure
• Gas fired power plants are likely beneficiaries of anticipated tariffson imported solar in the U.S.

Energy Transition Metals

• Glencore signs deal with GM to supply cobalt from its mines in the Democratic Republic of the Congo
• Chinese covid-19 lockdowns are shutting down battery manufacturing, reducing demand for lithium and allowing sky-high prices to decline slightly
• Elon Musk hints at Tesla increasing its involvement in lithium mining and refining to bring the necessary capital

Hydrogen 

• UK energy security strategy plans for £240 million to Net Zero Hydrogen Fund
• UK government study pours cold water on both blue and green hydrogen, warning about warming impact of hydrogen leaks

Biofuels

• Biden looks to boost sustainable aviation fuel with a tax credit

Quotes

While the US and the EU see climate not just as an “existential” challenge but as a moral imperative, China, Russia, and India, for example, face much more immediate challenges as their economies struggle with pandemics, growth, and inequities that contribute to social and political instability. As exemplified by COP26, but largely ignored by commentators, there is a developing “East-West” divide on energy policy: Western governments are accelerating their commitments to net zero, while countries like Russia and China are choosing instead to move ahead aggressively with fossil fuel development and extraction.

From The global energy transition confronts East vs West realpolitik: Why energy security matters, by Jack Mintz and Ron Wallace for the Macdonald Laurier Institute

If the goal is to replace Russian gas entirely, this is a promising start, as Russia invaded Ukraine near the end of the first quarter of 2022 and so far, the EU and its members have not introduced strong energy-saving policies. On the contrary, national policies in response to rising energy prices have focused on cutting taxes, boosting demand. We showed previously that with stronger policies, savings of roughly 20% of total demand could be achieved.

From The European Union demand response to high natural gas prices, by Ben McWilliams and Georg Zachmann for Breugel

Even assuming continued broad policy success, our projections suggest growth will slow sharply to roughly 3% a year by 2030 and 2–3% a year on average over the three decades to 2050. Growing faster, up to say 5% a year to 2050, is notionally possible given China remains well below the global productivity frontier. However, we also show that the prospect of doing so is well beyond China’s track record in delivering productivity-enhancing reform, and therefore well beyond its likely trajectory. China also faces considerable downside risks.

From Revising Down the rise of China, by Roland Rajah and Alyssa Leng, for the Lowy Institute

Just replacing current hydrogen demand with the green kind in industries like oil refining and fertilizer production could reduce the European Union’s gas demand by 12%, according to BNEF. At the same time, the bloc’s carbon price has nearly doubled in the past year, making the emissions-free gas more attractive. “The economics are moving in favor of green hydrogen,” said Ivan Pavlovic, executive director at French bank Natixis CIB, which is working on financing for fuel production. “The projects we’re seeing look more bankable from a finance perspective now.”

From Russia’s Invasion Supercharges Push to Make a New Green Fuel, by William Morris, Rachael Morrison, and Vanessa Dezem, for Bloomberg

“What we need above all is an orderly low-carbon energy transition,” said Delbeke, a former senior official at the European Commission and currently professor at the European University Institute in Florence. “Given the new situation related to gas, a higher use of coal in the energy mix can be expected in the short term, and this will lead to a higher demand of carbon allowances.”

From War Requires Rethink of EU Carbon Reform, Market Architect Says