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Hello Power Up readers! Europe is still trying to figure out how it will put together a gas cap, the Saudis and United States remain at loggerheads, but if Israel and Lebanon can get an agreement together, so can everybody. Let’s go from here.
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The European gas crisis would make my eyeballs bug out, too. (That's Germany's Chancellor Olaf Scholz on-screen with Economics Minister Robert Habeck and Finance Minister Christian Lindner. (REUTERS/Lisi Niesner))
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The European Union is still trying to figure out how to pull together an agreement to keep prices low enough for consumers and also deal with the cost of power generation, as well as a joint gas-buying agreement for the swath of countries that would begin next summer.
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EU energy commissioner Kadri Simson said the EU plans to develop an alternative EU gas price benchmark, but it isn’t clear if there’s enough support for a price cap on power generation just yet. Spain and Portugal capped the price of gas used in power generation in June, which has helped lower local power costs. The problem? Overall gas demand has risen - and if that is repeated across the continent, the EU’s stores of gas will quickly diminish.
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Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud, gesturing upward. Vienna, Austria. REUTERS/Lisa Leutner
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The decision by the Organization of the Petroleum Exporting Countries to cut its output target by 2 million barrels per day continues to ripple through markets, and a leading energy watchdog has given a thumbs-down, saying it raises the chances of a global recession.
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"With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession," it said in its monthly oil report.
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The cross-currents that are set to hit the oil market may only exacerbate higher prices. The EU is set to ban Russian oil imports outright in early December, and it, with the United States, are trying to pull together some sort of price cap mechanism to force down Russia’s revenues from oil.
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Overall, though, the IEA, OPEC and the U.S. Energy Department all see demand struggling in 2023; the U.S. now sees growth of just 1.5% in world demand in 2023, down from previous estimates for 2% growth.
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LNG tankers really are kinda bulky and blah looking.
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The energy market will take relief where it can get it, and so some are exhaling as it appears China's liquefied natural gas (LNG) importers will stay out of the spot market this winter due to demand growth hitting a 20-year low.
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China is the biggest importer of LNG, but this winter is set to be fraught as Europe deals with the ongoing scramble for supply after Moscow cut off gas flows via pipeline.
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Overall, China's total LNG imports are expected to fall in a range of 65 to 57 million tonnes for the year, down from the 78.9 million tonne record from 2021. "China basically stopping bidding for spot is great because (there is) one less party to fight for cargo," said Alex Siow, ICIS' lead Asia gas and LNG analyst.
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The relief may not last. Analysts at Columbia University’s Center on Energy Policy note that China’s gas demand is expected to account for half of the increase in global gas demand growth through 2025 - a period of time that will see very little in terms of new LNG supply.
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Graphic by Ron Bousso
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After a brief post-OPEC cut run-up, sellers have reemerged to take down the price of U.S. and Brent crude. But one product is hanging in there, and that’s the heating oil futures contract, a signal of ongoing worries about tight supply, winter demand, and a refining complex that’s in a pickle worldwide.
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Over the last four days, the Brent benchmark is down by more than 4%. Heating oil, by contrast, is up 4%, boosting overall diesel margins in both Europe and the United States to near-record levels.
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The simple reason? Refining. U.S. output has been hamstrung by a series of outages, while France deals with an ongoing refinery strike at several facilities that has caused petrol stations to run out of fuel. But the real culprit is the shuttering of facilities worldwide - over the last two years, nearly 4 million barrels per day of potential capacity has shut, according to the International Energy Forum.
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Which means that $80 profit margin on making diesel isn’t going to go away soon. “In both the short-term and medium-term, the balance for fuel markets will be fragile. Any unexpected, prolonged refinery outage could cause high and volatile prices,” IEF said.
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"Everything points to natural causes, material fatigue, of course the fractured section will be examined. So at this moment we have no information that could point to sabotage."
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Mateusz Berger, Poland’s Secretary of State in charge of strategic energy infrastructure, referring to a leak in the main pipeline carrying oil from Russia to Germany
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Maybe he's smiling, but either way, that's Israeli Prime Minister Yair Lapid at a news conference after Israel's cabinet endorsed a U.S.-brokered deal to delineate a maritime border with Lebanon. REUTERS/Ronen Zvulun
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Lebanon wants to move forward quickly as the country’s leadership, mindful of its ongoing economic crisis, seeks the possibility of gas revenues. “Everything (Lebanese) leadership can do to show some hope, limited or not, will be super, super helpful,” said Efi Chalamish, institute fellow at risk advisory group Kroll Institute.
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There are still hurdles. Israel has a coming election, and ex-Prime Minister Benjamin Netanyahu, should he emerge a winner, is not necessarily a supporter. Israel has already found commercially viable quantities of natural gas; Chalamish says the hurdles on the Israeli side to coming to an agreement could cause some delays, but says it would also be a “game changer” for that nation.
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The agreement ripples outward, as well. Potential exploration - and pipeline construction - would give Europe another route for energy supply as it decouples from Russia.
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Sustainable Business
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Kosovo's government has ordered power utility KEK to give tens of thousands of tonnes of coal to its workers to heat their homes as the country braces itself for more power cuts during winter months. "This is a just and smart decision because workers are tired of these staggering price increases," said Qamil Pllana, who arrived at the mine to see when the coal will reach his home.
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