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Europe’s Energy Troubles Continue: Hydro And Nuclear Output Declining

Europe’s Energy Troubles Continue: Hydro And Nuclear Output Declining

  • Europe’s hydro and nuclear output is declining, leading to mopre energy troubles.
  • Renewables are struggling to fill the gap as wind and solar output increase.
  • The EU may require increased LNG imports from the US to meet energy demands.

Last year, Europe was on the brink of an energy breakdown as Russian gas flows dried up and most of Europe doubled down on renewable energy.

The renewable energy bet paid off, in a way. Solar and wind electricity generation in Europe hit a record in 2022. In fact, for the first time in history, wind and solar together produced more electricity than natural gas-fired power plants.

There was just one problem with that. Lower hydro and nuclear output more than wiped out the significance of that record output.

Droughts were severe in Europe last year. They threatened major trade routes such as the Rhein in Germany and the Po in Italy. And they also caused severe declines in hydropower electricity output. For example, in Spain, hydropower output dropped by almost half because of the droughts. All this might repeat this year as well.

Meanwhile, nuclear wasn’t doing so swell, either. France suddenly found that years of underinvestment in maintenance would have consequences: emergency reactor shutdowns for repairs and maintenance.

The problems cost EDF a massive annual loss of $19 billion as half of its reactors had to be shut down for maintenance. Most blamed the pandemic, but nuclear experts such as Mark Nelson saw the roots of the problem much further into the past when France decided to bet on renewables over nuclear.

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Netherlands To Shut Down Europe’s Largest Gas Field

Netherlands To Shut Down Europe’s Largest Gas Field

The Dutch government plans to close the Groningen gas field this year despite Europe’s precarious supply position. Groningen is the largest gas field in Europe.

The field is dangerous, a government official from the Hague told the Financial Times, and the government has no plans to boost production from it.

“We won’t open up more because of the safety issues,” Hans Vijbrief told the FT. “It is politically totally unviable. But apart from that, I’m not going to do it because it means that you increase the chances of earthquakes, which I don’t want to be responsible for.”

Production from Groningen has been curtailed substantially, and there were plans in place to phase out production altogether because of increased seismic activity in the vicinity of the field even before the energy crisis began in 2021.

As gas prices began to climb in the autumn of 2021 and then took off in the spring of 2022, some began speculating that the Netherlands could keep the field operating to contribute to filling the gap in gas supply left by Russian pipeline deliveries.

The Dutch government was skeptical about that from the start and instead suggested production be extended, although at a minimum rate of some 2.8 billion cu m. Now, this, too, is being reconsidered.

“It’s very, very simple: everybody who has some knowledge of earthquake danger tells me that it’s really very dangerous to keep on producing there. I’m quite convinced it’s wise to close it down,” Vijbrief told the FT.

Since the 1980s, the FT notes, there have been some 100 earthquakes annually around Groningen, resulting in more than 150,000 claims for property damage. The operator of the field, a Shell-Exxon joint venture, was ordered to start reducing output in 2013 with a view to shutting the field down eventually.

Canadian Banks Slammed For Continued Fossil Fuel Investments

Canadian Banks Slammed For Continued Fossil Fuel Investments

  • Canadian banks are receiving backlash from investors for their continued investments in fossil fuels.
  • All Canadian banks were revealed to have increased their exposure to fossil fuels between 2020 and 2021, by between 25 percent—TD and BMO—and 132 percent for CIBC.
  • The report is the latest example of investor pressure on financial institutions to reduce their lending to fossil fuel companies.

An investor group has criticized Canadian lenders for investing heavily in fossil fuels despite the Paris Agreement, noting that all of the largest Canadian banks still need to be ready for net zero.

In a report titled Net Zero Policy Report Card, Investors for Paris Compliance graded Canada’s largest banks on several indicators, including fossil fuel investments, climate targets, and emissions reporting.

In fossil fuel investments, all banks were revealed to have increased their exposure between 2020 and 2021, by between 25 percent—TD and BMO—and 132 percent for CIBC.

According to the report, RBC invested $48.5 billion in fossil fuels last year, up 101 percent on 2020, and Scotiabank increased its exposure to the sector by 87 percent to $38 billion.

TD’s fossil fuel investments rose to $26.4 billion, and BMO’s went up to$23.5 billion. CIBC invested $27.8 billion in fossil fuels in 2021, Investors for Paris Compliance said, noting that the sixth bank under review, National Bank, had no data published on its fossil fuel industry exposure.

The report is the latest example of investor pressure on financial institutions to reduce their lending to the fossil fuel sector and focus on emission reporting and reducing measures in line with international Paris Agreement commitments.

This, however, stands in stark contrast with warnings, including from the IEA, that not enough is being invested in the new supply of fossil fuels, including coal, which this year saw a real renaissance.

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How Europe’s Energy Crisis Could Turn Into A Food Crisis

How Europe’s Energy Crisis Could Turn Into A Food Crisis

Runaway energy inflation has taken a toll on European industry, but another threat is looming.

  • Europe’s two biggest fertilizer suppliers, Russia and Belarus have retaliated against European sanctions by cutting off fertilizer exports.
  • The fact remains that the global food chain, especially its European links, is not in a good place right now.

Runaway energy price inflation has wreaked havoc on European industrial activity, with the heaviest consumers taking the brunt. Aluminum and steel smelters are shutting down because of energy costs. Chemical producers are moving to the United States. BASF is planning a permanent downsizing.

There is, however, a bigger problem than all these would constitute for their respective industries. Fertilizer makers are also shutting down their plants. And fertilizer imports are down because the biggest suppliers of fertilizers for Europe were Russia and Belarus, both currently under sanctions.

Both countries have retaliated against the sanctions by cutting off exports of fertilizers to Europe, and European officials repeating that fertilizer exports are not sanctioned is not really helping.

Russia accounts for 45 percent of the global ammonia nitrate supply, according to figures from the Institute for Agriculture and Trade Policy cited by the FT. But it also accounts for 18 percent of the supply of potash—potassium-containing salts that are one of the main gradients of fertilizers—and 14 percent of phosphate exports.

Belarus is a major exporter of fertilizers, too, especially potash. But Belarus has been under EU sanctions since 2021 on human rights allegations, and unlike Russia, it has seen its fertilizer industry targeted by these sanctions. This has made for an unfortunate coincidence for Europe and its food security.

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Europe May See Forced De-Industrialization As Result Of Energy Crisis

Europe May See Forced De-Industrialization As Result Of Energy Crisis

  • European industries including ferroalloys, fertilizer plants and specialty chemicals are shutting down as a result of the ongoing energy crisis.
  • Certain industries may not come back, even if the energy crisis eases.
  • An increasingly tight regulatory environment is another reason for de-industrialization in Europe.

The European Union has been quietly celebrating a consistent decline in gas and electricity consumption this year amid record-breaking prices, a cutoff of much of the Russian gas supply, and a liquidity crisis in the energy market.

Yet the cause for celebration is dubious: businesses are not just curbing their energy use and continuing on a business-as-usual basis. They are shutting down factories, downsizing, or relocating. Europe may well be on the way to deindustrialization.

That the European Union is heading for a recession is now quite clear to anyone watching the indicators. The latest there—eurozone manufacturing activity—fell to the lowest since May 2020.

The October reading for S&P Global’s PMI also signaled a looming recession, falling on the month and being the fourth monthly reading below 50—an indication of an economic contraction.

In perhaps worse news, however, German conglomerate BASF said last month it would permanently downside in its home country and expand in China. The announcement served as a blow to a government trying to juggle energy shortages with climate goals without extending the lives of nuclear power plants.

“The European chemical market has been growing only weakly for about a decade [and] the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains,” said BASF’s chief executive, Martin Brudermueller, as quoted by the FT, in late October.

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Energy Bills In Europe Are 90% Higher Than Last Year

Energy Bills In Europe Are 90% Higher Than Last Year

Electricity and gas prices are soaring across Europe, with bills close to double from last year in most European capitals, according to new data from the Household Energy Price Index—a monthly tracker of energy prices for households across 33 European capitals, including the 27 EU member states and several non-members.

According to the data collected for the HEPI, natural gas bills in Europe have gone up by as much as 111 percent over the past year, with electricity prices up by an average of 69 percent. Taken together, Euronews calculates these two make for a total 90-percent increase in household energy bills over the past year.

“Significantly higher [energy prices] compared to one year ago … can be attributed to a combination of factors, such as increased demand connected to post-pandemic economic recovery and extraordinary weather conditions, the record-high prices for natural gas, and high CO2 emissions allowances,” the authors of the latest HEPI report noted.

The high energy bills are creating headaches for European governments: strikes and protests are multiplying and disgruntlement with energy policies is growing. The cost of living in most of Europe is already exorbitant because of the energy crisis and this crisis is only going to get worse after the EU embargoes on Russian oil and then fuels come into effect.

In some parts of Europe, according to the latest HEPI report, energy prices have reached record highs but in others, prices have actually fallen, at least in October. The news is not as good as it looks at first glance: the decline was a result of government intervention, i.e. energy subsidies.

There have been a lot of subsidies as European governments try to alleviate the financial pain on households and businesses to avoid further disgruntlement. Germany alone will be spending some $200 billion on such coping measures, including a cap on energy prices up to a certain level of consumption.

Oil Prices Are Primed To Spike This Winter

Oil Prices Are Primed To Spike This Winter

  • The EU embargo on seaborne Russian crude oil exports and the G7 price cap on Russian oil are both less than a month away.
  • While a global economic slowdown and weak oil demand in China have capped prices, looming supply disruptions will likely send oil prices higher.
  • A lack of refinery capacity and crude oil disruptions will drive the price of fuels higher as well, particularly the price of diesel.

Less than a month from now, an embargo on seaborne Russian crude oil exports to the European Union will come into effect. As a result, global oil supply is set to tighten considerably as Russia is the biggest oil and fuels exporter in the world. And the market is preparing.

Hedge funds once again like oil, and are buying it on the futures market in considerable volumes, according to Reuters’ John Kemp. Last week, the buying reached 22 million barrels of Brent crude and 15 million barrels of West Texas Intermediate.

India is buying Russian crude at a discount, so it is buying a lot: its share of Middle Eastern oil imports fell to the lowest in 19 months in September, according to new data. Russia overtook Saudi Arabia as India’s number-two supplier after Iraq.

China is also buying Russian oil and not giving any indications it’s going to stop when the embargo enters into effect. The same is true of the G7 price cap for Russian crude that should also be coming into effect in a few weeks. China has already stated this will not change its current oil-buying habits.

Yet, with an EU embargo and a G7 price cap, what will almost certainly happen by the end of the year is that oil will become more expensive than it is now. Perhaps more worryingly, fuels – especially diesel…

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IEA: The Current Energy Crisis Is Unprecedented

IEA: The Current Energy Crisis Is Unprecedented

  • The executive director of the International Energy Agency has said that the world is currently in the middle of the first truly global energy crisis.
  • Natural gas markets are particularly tight, and they are set to worsen next year as demand climbs and Europe struggles to replace Russian pipeline gas.
  • As well as being more expensive than pipeline gas, the lack of infrastructure to import LNG to Europe is resulting in delivery delays.

“The world is in the middle of the first truly global energy crisis,” the executive director of the International Energy Agency, Fatih Birol, said today in Singapore.

The official went on to warn that natural gas and LNG markets would tighten further in 2023, with only 20 million tons of new liquefaction capacity scheduled to come online in that year, Reuters reported.

Speaking at the Singapore International Energy Week, the head of the IEA also said that while supply remains tight, demand for gas will continue to be strong, especially in Europe and possibly in China.

Birol’s warning comes amid expectations that this winter will not be the toughest for Europe. Next winter is believed to be potentially much worse because, during the first half of this year, the EU could stock up on Russian pipeline gas, which is unlikely to come back next year, leaving the EU with a supply gap that other suppliers would be hard-pressed to fill.

Meanwhile, as many as 60 LNG tankers have turned into floating storage off European coasts as there is not enough regasification capacity on the continent to unload the cargo.

This, CNBC reports, is delaying some of the tankers’ return to the Gulf Coast to reload, and pushes gas inventories higher, Andrew Lipow from Lipow Oil Associates told the network.

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An Oil Supply Shock May Be Imminent

An Oil Supply Shock May Be Imminent

  • Oil demand has remained resilient in the face of a multitude of challenges.
  • OPEC+ has fallen behind more than 3.5 million bpd on its output goals.
  • The DoE has no immediate plans to start refilling the SPR.
  • The risk of a supply shock grows as China’s economy re-opens while Russian oil is being forced off the market.

When the chief executive of Aramco said earlier this week that years of underinvestment had damaged the balance between supply and demand in the oil market, it should have been a wake-up call to those in decision-making positions. Instead, the secretary-general of the UN bashed the oil industry once again for “feasting” on record-high profits and urged governments to make them pay for this.

Meanwhile, OPEC’s production shortfall last month reached 3.58 million bpd—a figure equal to some 3.5 percent of global demand—and the United States continued to sell oil from its strategic petroleum reserve.

These seemingly unrelated news reports do have something very important in common. Both clearly suggest a supply shortfall on a global level is imminent. Throw in the news that Russia’s oil exports could fall by some 2.4 million bpd after the EU embargo enters into effect in December, and an oil shortage becomes more or less unavoidable.

Oil demand has remained resilient in the face of a multitude of challenges, and even prices of over $100 per barrel failed to curb it in any significant way earlier this year. Now, prices are somewhat tempered, but the embargo is still about two months away. Once this kicks in, prices are bound to jump because alternative supply is limited. And the U.S. will need to start refilling its SPR at some point because it is getting depleted.

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A Natural Gas Shortage Is Looming For The U.S.

A Natural Gas Shortage Is Looming For The U.S.

  • As natural gas demand around the world breaks new records, U.S. shale producers are struggling to keep up with demand.
  • While natural gas prices in the United States fell after a railway strike was averted last week, it looks likely that prices both at home and abroad will spike this winter.
  • A hotter-than-expected summer and a lack of alternative energy sources have left U.S. inventories below the seasonal average.

Last week, the media rushed to report that natural gas prices in the United States had fallen sharply after trade unions and railway companies reached a tentative deal that averted a potentially devastating strike.

Indeed, natural gas prices fell by nearly a dollar per million British thermal units, helped by a respectable build in inventories. And yet, inventories remain below the seasonal average, exports are running at record rates, and producers are beginning to struggle to meet demand, both at home and abroad.

Reuters’ John Kemp wrote in a recent column that domestic and international gas consumption had risen to record highs, and shale producers—the ones that account for the bulk of U.S. natural gas output—were having a hard time catching up with this demand.

Meanwhile, although higher on a weekly basis, inventories remained at the second-lowest for this time of the year for the last 12 years, Reuters’ market analyst noted. He also added there were no signs of any improvement in the level of inventories despite the rise in prices.

None of this suggests lower prices for natural gas are coming to either the United States or international markets as the northern hemisphere heads into winter. On the contrary, the latest figures suggest more financial pain for gas consumers. And they confirm, to an extent, forecasts made earlier this year.

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IEA: Europe Should Prepare For Complete Russian Gas Shutdown

IEA: Europe Should Prepare For Complete Russian Gas Shutdown

  • IEA chief Birol said that Europe should prepare for a complete suspension of Russian gas supplies.
  • Birol advised European governments to keep nuclear power stations running and take other contingency measures.
  • Germany, Austria, and the Netherlands are restarting coal power plants.

Europe should prepare for a complete suspension of Russian natural gas deliveries, the head of the International Energy Agency told the Financial Times in an interview.

“Europe should be ready in case Russian gas is completely cut off,” Fatin Birol told the FT. “The nearer we are coming to winter, the more we understand Russia’s intentions,” he added. “I believe the cuts are geared towards avoiding Europe filling storage, and increasing Russia’s leverage in the winter months.”

As a means of countering the worst effects of such a scenario, Birol advised European governments to keep nuclear power stations running and take other contingency measures, too. These other contingency measures seem to focus on demand.

“I believe there will be more and deeper demand measures [taken by governments in Europe] as winter approaches,” Birol told the FT, adding gas rationing was a distinct possibility in case of further cuts to Russian gas supplies.

In the past three months, Russia has cut off supply to several European countries that refused to pay for gas in rubles. It has also substantially reduced the flow along the Nord Stream, effectively cutting off supply to France and reducing flows to Germany by some 60 percent.

Gazprom and its equipment maintenance service provider Siemens Energy have blamed the reduction on a turbine delivery delay resulting from new Canadian sanctions against Moscow. Germany has blamed Gazprom.

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Russia’s Oil Output Is Plummeting, And It May Never Recover

Russia’s Oil Output Is Plummeting, And It May Never Recover

  • Russia’s oil output is plummeting, and the decline is expected to worsen in May.
  • OPEC recently warned that markets could see the loss of more than 7 million barrels per day of Russian oil and other liquids exports.
  • With many global producers constrained in their capacity to boost production fast, oil prices are likely to remain elevated for the foreseeable future.

Russian oil production is falling. In March, it shed half a million bpd, which by the end of April reached a full 1 million bpd, according to BP’s CEO, Bernard Looney. And this may well grow to 2 million bpd this month. These barrels may not be returning to the market any time soon. As the European Union targeted a barrage of sanctions on Moscow, oil was excluded as a direct target but financial and maritime sanctions affected the industry. Now, the EU is proposing a full oil embargo, save for a handful of member states too dependent on Russian oil to comply, and this will mean a further loss of barrels at a time when the global oil market is already stretched thin.

“We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,” the secretary-general of OPEC, Mohammed Barkindo, told the European Union last month.

This does not appear to have made any lasting impression on the decision-makers in Brussels, who are moving full steam ahead with the oil embargo. Meanwhile, alternative suppliers would struggle to fill the void left by Russian oil.

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Rationing Looms As Diesel Crisis Goes Global

Rationing Looms As Diesel Crisis Goes Global

  • Russian refiners cut processing rates of diesel fuel.
  • Already tight diesel supply is getting even tighter.
  • Vitol’s chief executive Hardy: diesel supply shortage could trigger rationing in Europe

Earlier this week, Vitol’s chief Russell Hardy warned that a diesel shortage could trigger fuel rationing in Europe. Now, those warnings are multiplying, with fuel rationing no longer looking like an abstract idea. Europe is risking a blow to its economic growth, Reuters reported on Thursday, citing experts. Diesel is what freight transport uses to deliver goods to consumers, but it is also what industrial transport uses for fuel. With Russian refiners cutting their processing rates in the wake of several waves of Western sanctions, already tight diesel supply is going to get a lot tighter.

“Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” the director general of Fuels Europe, part of the European Petroleum Refiners Association, told Reuters this week.

As Vitol’s Russell Hardy noted earlier this week, “Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. That systemic shortfall of diesel is there.”

Europe is not the only one feeling the diesel pinch, however. Middle distillate stocks are on a decline in the United States, too, Reuters’ John Kemp wrote in his latest column.

Distillate inventories, according to EIA data, have booked weekly declines for 52 of the last 79 weeks, Kemp reported, falling to 112 million barrels last week. The total decline for the last 79 weeks amounts to 67 million barrels. Last week’s inventory level was the lowest since 2014 and 20 percent lower than the five-year average from before the pandemic.

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Why Isn’t U.S. Shale Production Soaring?

Why Isn’t U.S. Shale Production Soaring?

  • With oil prices threatening to break $100 this year, many observers are confused by the lack of a U.S. shale boom.
  • The major reason that U.S. shale companies are reluctant to boost production at all costs is that they need to keep shareholders happy first and foremost.
  • Other issues include cost inflation and the shrinking number of sweet spots for them to tap.

A lot of news has been coming lately from the U.S. shale patch. Output in the Permian has broken records for two months in a row. The Energy Information Administration has forecast that the U.S. total could also break a record this year, thanks to higher prices.

But is this news good enough?

The rig count is on the rise; there is no question about it. Output is also on the rise. Yet, according to industry executives, this does not necessarily equate to a return to business as normal. On the contrary, it seems that most of the industry is determined to stick to its financial discipline and keep returning cash to shareholders instead of boosting production.

In an interview with the Financial Times, the chief executive of Devon Energy said that shareholders are, on the whole, still skeptical about production increases, and companies are heeding this sentiment.

“In the back of everyone’s minds is, ‘When is it going to be [production] growth? . . . We have investors saying ‘My gosh, if not now, when?’” Rick Muncrief told the Financial Times. “But for every one saying that, there’s at least one other if not two others waiting to say, ‘Gotcha! We knew that discipline would be shortlived.’ We have learned our lesson,” he added.

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Oil Executives: Higher Energy Prices Are Here To Stay

Oil Executives: Higher Energy Prices Are Here To Stay

  • Big oil executives expect that higher energy prices are here to stay.
  • Underinvestment in new production is seen as one of the driving factors behind higher energy prices in the mid-term.
  • Low global inventories and limited spare production capacity are driving crude prices in the short term.

We are just at the beginning of consumers’ energy bill troubles, Big Oil executives have warned as they reported bumper earnings thanks to higher oil and gas prices.

“I’ve no good news to deliver, oil prices will remain high,” TotalEnergies’ chief executive Patrick Pouyanne told media recently in comments on the current situation with energy costs in Europe.

The comment was echoed by the Asian head of commodity major Vitol, Mike Miller, who earlier this month noted low global oil inventories and limited spare production capacity as the reason for his expectations that oil will yet go up.

BP’s Bernard Looney also projected higher energy prices. He called it “volatility” and said oil supply could decline further this year, supporting prices of over $90 per barrel.

“We expect a tight gas market going forward and we expect volatility in power price development,” Equinor’s chief executive, Andres Opedal chimed in at the release of the company’s latest financial results, as quoted by Reuters.

There are two things that all the Big Oil majors quoted share. The first is strong profits resulting from that very same tight supply, coupled with strong demand. The second is the absence of plans to ramp up oil production.

Europe’s Big Oil has been under growing pressure to reduce its emission footprint. Shell even got sued for it and was ordered to slash its emissions. The way to do it: cut oil production.

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Olduvai IV: Courage
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Olduvai II: Exodus
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