PAST NEWSLETTERS

Main Takeaways for the week of April 20, 2022

Issues with raw material supplies are causing EV and wind turbine manufacturers to throw cold water over transition targets. Guyana mulls creating an NOC. U.S. natural gas pipelines supplied by the Permian may be at capacity by late 2023. Italy continues work in securing more natural gas supplies, from Egypt, Angola, and the Republic of the Congo. U.S. embraces more nuclear, with DoD support for microreactors and Infrastructure Bill support for existing nuclear plants. Japanese companies propose new ways to convert old LNG carriers into LNG production facilities.

Featured Article

 “I was honored to visit Alberta, Canada with Premier Jason Kenney to discuss the importance of strengthening North America’s collective energy security. Canada, like the United States, is blessed with abundant natural resources that can be used to eliminate our dependence on Russian and Chinese energy and critical mineral supply chains. A strong North American Energy Alliance can fuel worldwide economic development and allow us to meet our shared climate goals while significantly reducing Russia and China’s unwarranted influence on the global community,”

Quote from United States Senator Joe Manchin

Weekly Energy Chart

From The United States ended the winter with the least natural gas in storage in three years, by the EIA

Headlines

Global Petroleum Liquids 

• S. and Iran at an impasse on the JCPOA revival due to U.S. maintaining IRGC terrorist designation
• Libya closes key export terminal Zueitina, handling a quarter of its oil exports due to “the entry of a group of individuals”
• Guyana may form a national oil company, exclude Exxon from further exploitation of its oil

Global LNG 

• Morocco considering LNG import facility options to replace missing natural gas months after Algeria shut off pipeline
• Japanese companies JGC Holdings and Kawasaki Kisen claim to have found a way to turn old LNG carriers into offshore liquefaction terminals
• Study argues that methane leaks eliminate the environmental benefits of LNG-powered vessels
• Cheniere working to eliminate methane emissions in its natural gas supply chain to attract European LNG customers

Global Coal 

• No significant developments

North American Energy Infrastructure 

• Biden administration is directing federal agencies to only use U.S.-made steel in projects funded by infrastructure package
• S. pipelines bringing Permian natural gas to market could be at capacity by late 2023
• Biden restores NEPA rules requirng major infrastructure projects to consider indirect and cumulative environmental impacts

China

• CNOOC prepares to leave its operations in Western countries, including Canada
• China dramatically reducing coal and natural gas imports with boosted domestic production
• COVID-19 shutdowns are spreading across China, threatening enduring supply chain disruptions

Russia

• No significant developments

Europe

• Mario Draghi forced to scrap planned trip to Angola and Republic of the Congo to discuss LNG supplies after testing positive for COVID-19
• Eni signs deal to increase Egyptian natural gas production, claiming this will allow for another 3 bcm of natural gas exports to Europe

India

• India begins buying discounted Russian coal to overcome domestic shortage

U.S. - Canada Energy Relations 

• No significant developments

Middle East Energy Geopolitics 

• No significant developments

Central Asia Energy Geopolitics 

• Pakistani airstrikes kill at least 45 people in eastern Afghanistan, bringing Pakistan and Taliban-held Afghanistan closer toward war

Canadian Oil and Gas 

• Steven Guilbault warns Suncor that its proposed Base Mine extension would not pass a federal environmental review due to emissions

Electricity 

• Alberta moves to dissolve electricity balancing pool, bringing Alberta’s electricity market closer to free market competition
• Pakistan is producing 6 GW less electricity than it needs due to natural gas, coal, and oil shortages, resulting in major power outages
• EU electricity regulator ACER will present final report on EU wholesale electricity market design by the end of April

Nuclear 

• S. Department of Defense will design, build, and demonstrate a 1-5 MW Generation IV nuclear microreactor – “Project Pele”
• Biden administration will provide $6 billion to bail out financially distressed nuclear power plants

Renewables

• Wind turbine manufacturers warn they will not be able to meet Europe’s planned tripling of wind power capacity by 2030 due to soaring material costs
• CAISO reaches record of 97.6% of electricity coming from renewables

Energy Transition Metals

• Rivian CEO warns that bottlenecks along the supply chain for batteries will result in shortages, “90 to 95% of the supply chain does not exist”
• Statevolt battery gigafactory in California will use lithium produced from geothermal brine in the U.S. for its batteries

Hydrogen 

• No significant developments

Biofuels

• Biden announces plans to allow high blends of ethanol in gasoline to combat high prices, but move is unlikely to affect gasoline prices
• Colonial Pipeline will begin shipping sustainable aviation fuel

Quotes

It is unclear if truly indigenous Chinese innovation can take the baton and drive future growth. Firms that have innovated have frequently been the target of reasserted state control, for fear of independent actors. Other firms are building out a massive technology base, but only with support and subsidies from the state, which calls into question how efficient they are at research and development and how much longer the state can afford to support them. No doubt, given the effort the CCP has put into industrial policy, there will be successes. But as a system, Chinese innovation funding is underperforming.

From The Age of Slow Growth in China, by Danial H. Rosen for Foreign Affairs

“I was honored to visit Alberta, Canada with Premier Jason Kenney to discuss the importance of strengthening North America’s collective energy security. Canada, like the United States, is blessed with abundant natural resources that can be used to eliminate our dependence on Russian and Chinese energy and critical mineral supply chains. A strong North American Energy Alliance can fuel worldwide economic development and allow us to meet our shared climate goals while significantly reducing Russia and China’s unwarranted influence on the global community,”

Quote from United States Senator Joe Manchin

Derivative hedges for firms that are long the underlying commodities are typically known as offsetting “short” positions—that is, the derivative position protects against a commodity price decline. These hedges, however, have liquidity implications for firms using them. Specifically, while the two positions net out in an economic sense, the cash flows aren’t offsetting. For example, a commodity trading firm may buy a physical commodity and then also expend cash on a derivative hedge against falling prices. However, if commodity prices rise, the derivative position taken to guard against a price decline loses money. Margin calls from the derivative counterparty may follow, requiring that the trader/producer provide additional funding of the hedge and further draining cash.

From Commodity Financing Markets Shaken by Russia Invasion; Monitoring for U.S. Financial Stress, by Jill Cetina, Matthew McCormick and Pon Sagnanert for the Federal Reserve Bank of Dallas

There are a number of reasons this supply gap has emerged. One important explanation—and one that continues to play a role in 2022—is the inability of some OPEC+ members to increase production to take advantage of their growing quotas. These countries are bumping into capacity constraints for several reasons, including infrastructure issues and the difficulty of attracting sufficient investment to offset production declines at existing wells. Angola is an example. Its quota in February 2022 was 1.42 mb/d. However, Angola’s maximum capacity is 1.19 mb/d, according to IEA estimates. This supply gap will only worsen in coming months, as Angola’s quota will eventually reach 1.53 mb/d, the country’s October 2018 output according to OPEC.

From Capacity Constraints Drive the OPEC+ Supply Gap, by Lutz Kilian, Michael D. Plante and Kunal Patel for the Federal Reserve Bank of Dallas

Another set of assumptions that have not fared well during the war are the concepts of “energy independence” and the ability of the United States to counter Russia’s weapon with its own weapon. The United States is energy independent—at least in the way people measure independence, which is to say that the United States is a net energy exporter. Being a net exporter does nothing to insulate the United States from the shocks of the global oil market. This is not a surprise. But for people who think producing more oil is a way to avoid oil shocks, this crisis could be a correction of sorts. Or it should be.

From The Energy Weapon—Revisited, by Nikos Tsafos for the Center for Strategic and International Studies

In that sense, carbon has emerged as an intriguing new commodity, but with some curious aspects. Emissions from a flue stack can be highly concentrated, but those from an oil field can be hugely dispersed. As a relatively new commodity type, and only recently with a financial incentive, emissions have not to date attracted the kinds of investments in measurement methodology, measurement tools, and analytics, leading to an inadequate understanding of the scale of the problem (or the opportunity). Even standards for reporting are still a work in progress.

From Carbon is Now a Commodity Too Valuable to Overlook – Here’s Why, by Geoffrey Cann for EnergyNow.com