PAST NEWSLETTERS

Main Takeaways for the week of March 23, 2022

Governments, companies, and people around the world are being squeezed by shortages of oil, refined products, natural gas, coal, and metals. The IEA estimates a 3 mb/d shortfall of Russian oil output. The United States is working to improve relations with Saudi Arabia, Iran, and Venezuela. China’s fourteenth five-year energy plan calls for more domestic production of oil and gas. India is combatting rising energy prices with discounted Russian imports. Germany announces cooperation with Qatar on LNG supplies. Japan imposes blackouts to deal with an increasingly vulnerable grid. Belgium proposes delaying phase-out of 2 GW nuclear for ten years. Canada will begin selling “green bonds” this week for "clean projects".

Featured Article

Storage requirements in a 100% renewable electricity system: Extreme events and inter-annual variability, by Oliver Ruhnau and Staffan Qvist for ZBW - Leibniz Information Centre for Economics

Headlines

Global Petroleum Liquids

• Governments in Europe and around the world introduce tax cuts for gasoline in attempt to limit pain
• IEA March Oil Market Report estimates that 3 mb/d of Russian oil output could be shut-in as a result of sanctions
• China raises retail gasoline and diesel prices to reflect rising global costs
• IEA releases 10 point plan for reducing oil demand by up to 2.7 mb/d including reducing speed limits, introducing car-free Sundays, and working from home
• S. diesel prices reach highest level ever recorded
• Chevron is trying to convince Biden admin to allow them to reenter Venezuela, promising to add additional 0.8 mb/d to market “within months”

Global LNG

• The role of natural gas as a “transition fuel” is being questioned in the European Union
• United States DOE issues two orders allowing Sabine Pass and Corpus Christi to export additional 7.4 bcm/yr LNG to countries without free trade with U.S.
• Spanish LNG prices sit far below prices in northern Europe due to Spain’s abundant LNG import capacity and lack of serious natural gas connection over the Pyrenees

Global Coal

• Coal miner in Australia warns that there are only limited quantities of Australian coal supply available to replace Russian coal exports to Europe

North American Energy Infrastructure

• No significant developments

China

• China’s fourteenth five year plan for energy aims at a huge increase in generating capacity by 2030, higher oil and gas production, unchanged renewable targets

Russia

• The impact of sanctions on Russia are declining due to high net cash inflows for energy exports, according to Robin Brooks
• Biden will travel to Europe March 23^rd to impose further sanctions on Russia and announce joint action to reduce Europe’s dependence on Russian gas

Europe

• Spain, with support of European Commission, backs Morocco’s autonomy plan for the Western Sahara, angering Algeria, the source of 55bcm of European NG
• EC will present another toolbox for dealing with high energy prices to EU countries at March 24-25 meeting
• Germany will import Qatari LNG to replace Russian natural gas – how much to be determined
• EU and IEA strategies to reduce Russian natural gas imports are very different, spelling trouble

India

• India is offsetting high energy prices with discounted imports from Russia
• Coal buyers paying huge premiums in India due to extremely tight thermal coal market

U.S. - Canada Energy Relations

• Shortages of DUC wells, materials, labour, and rigid capital spending plans all combining to restrain U.S. shale oil ramp-up
• United States Securities and Exchange Commission releases proposed rules for public company Climate-Related Disclosures

Middle East Energy Geopolitics

• Aramco announces net income of $110 billion in 2021, and plan to raise maximum sustainable crude oil capacity to 13 mb/d by 2027
• Saudi Arabia says it is not responsible for any oil shortages caused by recent attacks on its oil facilities by Yemeni Houthis
• S. sends Patriot missile systems to Saudi Arabia to smooth tensions
• S. may be considering removing IRGC from its list of Foreign Terrorist Organizations

Central Asia Energy Geopolitics

• No significant developments

Canadian Oil and Gas

• Canada will begin selling “green bonds” this week, earmarked for environmentally focused projects, excluding oil and gas or nuclear
• Peter Zebedee will leave CEO role at LNG Canada to join Suncor as a vice-President of mining and upgrading

Electricity

• Ukraine successfully integrates with ENTSO-E European power grid, providing greater security as Russia continues bombing power generation
• Japan’s power grid is forced to impose blackouts following an earthquake, and years of allowing generation to become increasingly fragile

Renewables

• The Netherlands will accelerate plan for doubling offshore wind capacity

Copper

• Copper market remains at severe deficit levels
• Trafigura CEO Jeremy Weir warns that governments will need to step in to avoid global shortages of critical metals

Lithium

• No significant developments

Nickel

• Nickel prices continue to cool off after chaos at LME

Cobalt

• No significant developments

Carbon/Graphite

• No significant developments

Hydrogen

• No significant developments

Nuclear

• French President Macron alludes to a potential state takeover of sickly EdF
• Belgium proposes a delay of the planned 2025 phase-out of two nuclear reactors to 2035, keeping 2 GW of nuclear power online
• Boris Johnson met with nuclear industry leaders on March 21^st about accelerating nuclear energy capacity in the UK

Biofuels

• No significant developments

Quotes

Most Russian oil production is in the permafrost, and for most of the summer the permafrost is inaccessible because its top layer melts into a messy, horizon-spanning swamp. What the Russians do is wait for the land to freeze, and then build dike-roads and drill for crude in the long dark of the Siberian winter. Should something happen to consumption of Russian crude oil or any of the millions of feet of pipe that take that crude from wellhead to port or consumer, flows would back up through the literally thousands of miles of pipes right up to the drill site. There is no place to store the stuff. Russia would just need to shut everything down. Turning it back on would require manually checking everything, all the way from well to border.

From The End of Russian Oil, by Peter Zeihan for Zeihan on Geopolitics

China’s closed capital account means that just switching in and out of renminbi requires permission from the government. Add to that the sweeping asset forfeiture rules incorporated into Beijing’s anti-sanctions law introduced last year, and you’d be naive to think that China was any more secure a place for Riyadh to store its wealth in the long term. In times of peace, it’s easy to forget that whenever you invest or sell a product overseas, you’re dependent on the goodwill of a foreign government to ensure you get paid.

From Saudi Arabia’s oil-for-yuan bid won’t threaten the dollar, by David Fickling for Bloomberg Opinion

Permian Basin shale oil can be brought online quickly to substitute for the absence of Russian oil on global markets. Alongside the obvious security and economic benefits to the West, the oil-and-gas industry has the opportunity to ensure the Permian is the cleanest hydrocarbon source in the world. To do this, producers should set aggressive emission-reduction targets and drive methane emissions as close to zero as possible with measuring and monitoring verified by third parties.

From U.S. Shale Oil and Gas Are the Key to a Renewable Future, by Christopher James for Wall Street Journal Opinion

Prices of materials like crude, gas, wheat and metals have become alarmingly erratic as a gulf emerges between buyers and sellers who are facing big financing strains. Markets have been roiled on fears about Russia’s invasion of Ukraine constraining commodities flows, though in many cases rallies were quickly followed by a drop in prices.

From The world’s biggest commodities markets are starting to seize up, by Mark Burton and Alex Longley for Bloomberg

Japan introduced a feed-in tariff program in 2012 that boosted installations of solar panels. While wildly successful, it also crowded the nation’s grid with intermittent power output, making it difficult -- and sometimes not very cost effective -- to replace retiring thermal power plants. So when last week’s earthquake hit and knocked offline 12 power plants, Japan had little spare capacity to call upon. The sudden cold blast boosted demand but reduced solar output, forcing the nation’s top utility to ask businesses and households to lower consumption.

From Japan’s Power Crisis Was a Decade in the Making and Won’t Go Away, by Stephen Stapczynski and Shoko Oda, for Bloomberg

When optimizing system costs based on single years rather than a multi-year time series, we find substantial inter-annual variation in storage requirements with the most extreme year needing more than twice as much storage as the average year. We conclude that focusing on short-duration extreme events or single years can lead to an underestimation of storage requirements and costs of a 100 % renewable system.

From Storage requirements in a 100% renewable electricity system: Extreme events and inter-annual variability, by Oliver Ruhnau and Staffan Qvist for ZBW - Leibniz Information Centre for Economics

"We are going to need a lot of fossil fuels to mine more metals. Higher oil prices mean higher costs to mining, thus higher metals prices. Thus higher prices to the consumer [are] circular, and that's what people are missing," she said. "If you want to increase demand or production for EVs, that only increases demand for fossil fuels. There’s no way you can produce these vehicles without increasing demand for fossil fuels."

Quote by Tracy Shuchart from Biden's clean energy revolution depends on diesel trucks, by Alex Lockie for Commercial Carrier Journal

Recent data from Energy Intelligence, however, indicate that the fall in Russian petroleum exports to date has been somewhat smaller than the initial estimate of 3 mb/d and coincided with oil price weakening after March 8. What changed is that much of the Russian oil that continues to be exported from Baltic and Black Sea ports at steep discounts is not delivered to refiners, as is customary. Instead, trading houses are purchasing the oil and keeping it in commercial storage in Europe, from where it may be potentially resold, bypassing financial sanctions. Buying oil for storage is not prohibited under current sanctions.

From The Russian Oil Supply Shock of 2022, by Lutz Kilian and Michael D. Plante for the Federal Reserve Bank of Dallas