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Kazakhstan’s Oil Flows to Germany Threatened as Russia Demands Transit Fees

Kazakhstan’s Oil Flows to Germany Threatened as Russia Demands Transit Fees

Russian pipeline operator Transneft has warned Kazakhstan’s oil companies that ship crude to Germany via Transneft’s Druzhba pipeline that the customers of the Kazakh firms have until June to pay for metering services or risk a halt to supplies, trading sources told Reuters on Thursday.

In early 2023, as Russian crude flows via the Druzhba pipeline dropped off, crude oil from Kazakhstan started flowing via the Russian pipeline network to Poland for further delivery to Germany.

In December 2022, Kazakhstan’s oil pipeline operator KazTransOil applied to transport a total of 1.2 million tons of Kazakh crude oil through Transneft’s system of trunk oil pipelines in the direction of the Adamova Zastava point for further delivery to Germany.

Meanwhile, crude oil deliveries from Russia to Poland were suspended.

The northern leg of the Druzhba oil pipeline system which connects Germany and Poland via Belarus, is now used for Kazakhstan’s oil exports for the Schwedt refinery. Schwedt is the fourth-largest refinery in Germany and it gets its oil from the Druzhba oil pipeline. The refinery supplies 90% of the fuel needs of Germany’s capital city Berlin.

Now the Russian pipeline monopoly Transneft has recently told Kazakh suppliers that Polish state pipeline operator PERN has until June to pay for metering services at its Adamowo base on the Polish-Belarussian border, according to Reuters’ trading sources. The current service contract is due to expire on June 5, one of these sources said.

The use of the Druzhba pipeline and the Russian Black Sea ports for oil exports highlights the dependence of Kazakhstan’s oil supply on Russia.

Most of Kazakhstan’s crude oil exports are currently being handled by the network of the Caspian Pipeline Consortium (CPC). The CPC pipeline runs from the Caspian coast in northwest Kazakhstan to the Novorossiysk port on Russia’s Black Sea coast and carries 80% of Kazakh crude exports.

Russia Is Struggling to Repair Refineries Due to Sanctions

Russia Is Struggling to Repair Refineries Due to Sanctions

Due to the sanctions, Russia cannot access spare parts from Western engineering companies that have provided refinery equipment in the past, leaving Russian refiners struggling to repair damaged units, multiple industry sources in Russia have told Reuters.

Western firms including America’s UOP and Swiss ABB have supplied parts and equipment to major Russian refineries in the past. After the invasion of Ukraine, they no longer fulfill new orders from Russia, leaving local engineers scrambling to find spare parts and equipment.

One example of such difficulty is Lukoil’s Norsi refinery in Nizhny Novgorod on the Volga River. A turbine malfunctioned there in early January and Russian engineers have struggled to have the equipment replaced since then, according to Reuters sources.

This has left the refinery with a reduced capacity to produce gasoline.

The malfunction at the refinery compounded last month after a fire broke out at the facility following a drone attack.

Since all major Russian refineries use at least some part of Western technology, they could struggle to repair equipment and units that broke down or have been damaged by Ukrainian drone attacks, which have intensified in recent weeks and have taken an estimated 14% of Russia’s refining capacity offline.

Russia claims it can repair all damaged units within two months.

On Wednesday, Russia’s Energy Minister Nikolai Shulginov said that all damaged refineries in the country would be restarted by the beginning of June.

“Repairs are underway at the refineries. We plan to re-launch a number of refineries after repairs in April-May, possibly before the beginning of June,” Russian news agency Interfax quoted Shulginov as saying.

“All facilities that were damaged will be re-commissioned,” the minister added.

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China’s Coal Production Hit a New Record High in 2023

China’s Coal Production Hit a New Record High in 2023

Higher power demand and efforts to boost energy security pushed China’s coal production to a record-high level in 2023, according to official statistics data published on Wednesday.

Chinese coal output rose by 2.9% year-over-year to 4.66 billion metric tons in 2023, per data from China’s National Bureau of Statistics reported by Reuters.

Coal imports also rose last year, as some domestic mining operations were suspended for some time in 2023 due to safety inspections and concerns.

Higher demand after the COVID restrictions were lifted and higher domestic coal prices led to record-high coal imports into China, which soared by 61.8% year-on-year to 474.42 million metric tons in 2023, data from the General Administration of Customs showed last week.

In the latter part of 2023, China ramped up coal and natural gas production, imports, and consumption as its electricity demand jumped in the second half and looks to hit a record-high winter peak demand.

Chinese authorities have been keen to avoid a repeat of the 2022 shortages and spiking prices and have instructed utilities and producers to maximize imports and output before the winter.

China continues to rely on coal and coal-fired power generation to meet its growing power demand, and despite being the world’s top investor in solar and wind capacity, it also plans a lot of new coal-fired electricity capacity.

During the first half of 2023 alone, China approved more than 50 GW of new coal power, Greenpeace said in a report this year. That’s more than it did in all of 2021, the environmental campaign group said.

China’s coal demand is expected to drop this year and plateau through 2026, and global demand is set to decline to 2026, “but China will have the last word,” the International Energy Agency (IEA) said in its Coal 2023 annual report.

The outlook for coal in China will be significantly affected in the coming years by the pace of its clean energy deployment, weather conditions, and structural shifts in the Chinese economy, according to the agency.

China Snaps Up Record-High Volumes Of Russian Crude In The First Half Of 2023

China Snaps Up Record-High Volumes Of Russian Crude In The First Half Of 2023

  • In the first half of 2023, China imported 2.13 million barrels per day of Russian crude oil, making Russia its single biggest supplier.
  • In June, China once again imported record-breaking levels of Russian crude, a 44% increase compared to the same month in 2022.
  • Total Chinese oil imports are also soaring, with the country importing the second-highest monthly import figure on record in June.
Crude

Despite an apparent weakness in its economy, China is importing record volumes of oil and is buying record amounts of Russian crude to add to stockpiles.

During the first half of 2023, Chinese imports of Russian crude oil averaged 2.13 million barrels per day (bpd), which helped Russia oust its OPEC+ partner Saudi Arabia from the top spot as the single biggest supplier to the world’s top crude importer so far this year, per Financial Times estimates based on Chinese customs data. Imports from the world’s top crude oil exporter, Saudi Arabia, averaged 1.88 million bpd between January and June, according to FT’s calculations.

In June alone, China broke – for yet another month – the record for importing Russian crude oil, per data from the Chinese General Administration of Customs cited by Reuters. Chinese imports from Russia averaged 2.56 million bpd last month, a surge of 44% compared to the same month in 2022, the Chinese customs data showed.

The previous record, of 2.29 million bpd, was set in May as Chinese refiners continued to buy discounted Russian oil. The discounts for Russia’s crude narrowed relative to the benchmarks in June, but this didn’t stop China from boosting imports and breaking in June the record from May.

China’s imports from Saudi Arabia also rose in June, compared to May and June last year. But at 1.93 million bpd in June 2023, those imports still trailed behind the record-breaking Chinese crude oil imports from Russia.

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UK Looks To Boost Energy Security With Small Modular Nuclear Reactors

UK Looks To Boost Energy Security With Small Modular Nuclear Reactors

  • The UK has launched a competition for small modular reactor technology and created a new nuclear body.
  • The focus on small nuclear reactors is part of the country’s efforts to produce more zero-emission energy domestically.
  • As well as backing SMRs, the UK remains committed to traditional nuclear projects including Hinkley Point C and Sizewell C.
Nuclear

The UK launched on Tuesday a competition for small modular reactor (SMR) technology and created a new nuclear body, Great British Nuclear, in a bid to provide more zero-emission energy from locally-developed sources.

Great British Nuclear (GBN) is expected to drive the rapid expansion of new nuclear power plants in the UK, to boost UK energy security, reduce dependence on fossil fuel imports, create more affordable power, and grow the economy.

The nuclear industry is estimated to generate around $7.9 billion (£6 billion) for the UK economy, the government says.

As of today, companies can register their interest with GBN to participate in a competition to secure funding support to develop their SMR technology, which could result in billions of pounds of public and private sector investment in small modular reactor projects in the UK.

SMRs are considered to be the future of nuclear power technology because they are smaller than conventional reactors and can be manufactured in factories, making nuclear power stations cheaper and faster to build.

In the UK, Rolls-Royce has been developing SMR technology, which, the company says, can deliver cost-competitive and scalable net-zero power for multiple applications – from grid and industrial electricity production to hydrogen and synthetic fuel manufacturing.

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European Natural Gas Prices Surge Ahead Of Cold Spell

European Natural Gas Prices Surge Ahead Of Cold Spell

  • The Dutch TTF benchmark price jumped by 11% on Tuesday morning, recovering from a 17% price slump last week.
  • An unplanned outage at a Norwegian gas processing plan and short covering combined to add upward pressure to gas prices.
  • Next week, temperatures could be lower than initially expected, which would boost demand for natural gas after a mild winter so far.

Europe’s benchmark gas prices have rebounded this week as traders closed short positions at the expiry of the front-month contract and some weather forecasts suggested colder weather in northern and central Europe next week than previously expected.

The Dutch TTF benchmark price jumped by 11% at over $65 (60 euros) per megawatt-hour (MWh) at the opening of trade in Amsterdam on Tuesday, extending small gains from Monday and recovering some of the losses from last week, when prices slumped by 17%.

On Monday, the prices were supported by short covering and an unplanned outage at a Norwegian gas processing plant. However, wind power generation is still expected to be strong, which could curb some demand for gas-fired power generation.

But next week, temperatures could be lower than initially expected, which would boost demand for household heating. Colder spells are set to return to northern and central Europe next week, according to weather models by Maxar Technologies Inc, cited by Bloomberg.

Still, the record gas prices in Europe could be behind us, according to ING’s revised outlook on natural gas for this year.

“Mild weather and weak industrial demand have ensured that gas storage has remained strong. The region should get through this winter comfortably and prospects also look better for the 23/24 winter,” Warren Patterson, Head of Commodities Strategy at ING, said on Monday.

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China’s Oil Demand Is Set To Hit A Record High In 2023

China’s Oil Demand Is Set To Hit A Record High In 2023

  • China’s oil demand is expected to hit a record high 16 million bpd this year, an increase of 800,000 bpd.
  • Having lifted its zero-Covid policy, China is currently suffering through an exit wave of Covid but should recover in the second quarter.
  • China is preparing for its reopening already, with the government issuing a huge batch of oil import quotas for its private refiners.

China’s oil consumption is expected to jump by 800,000 barrels per day (bpd) this year to a record 16 million bpd, after Beijing abandoned the strict ‘zero Covid’ policy and re-opened its borders, a median estimate of 11 China-focused consultants polled by Bloomberg News showed.

Following the initial exit Covid wave after the strictest curbs were lifted, Chinese oil demand is set to rebound from the second quarter onwards, also raising global oil demand for this year, many analysts say.

Despite the fact that China’s crude oil imports in 2022 were slightly lower than the previous year, for a second consecutive year, crude imports in December rose by 4% annually for the third highest monthly purchases in 2022, data showed on Friday.

Despite the current Covid wave, China is preparing for the re-opening with the issuance of a huge batch of oil import quotas for its private refiners.

“Higher quotas support the view of recovering Chinese demand this year and the quicker-than-expected change in Covid policy means that the demand recovery could be more robust than initially expected,” ING strategists Warren Patterson and Ewa Manthey said this week.

Global oil demand in 2023 is expected to grow by around 1.7 million bpd, of which 50% will be driven by China, according to ING, which says “There could be some upside risk to this” forecast.

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Texas Refineries Could Take Two Weeks To Fully Restore Operations After Storm

Texas Refineries Could Take Two Weeks To Fully Restore Operations After Storm

Most refineries on the U.S. Gulf Coast have begun procedures to restart operations that were disrupted by the massive winter storm late last week, but a full return to normal output of motor fuels could take up to two weeks for some facilities.

The freezing temperatures affected refinery equipment and caused issues at the steam and co-generation units at some refineries, sources with knowledge of the situation told Reuters on Wednesday.

Pemex’s Deer Park refinery and Motiva Enterprises’ Port Arthur, the biggest refinery in the United States, could see their restart stretched out to the first or second week of January, sources familiar with the refineries’ operations and schedules told Reuters.

Winter Storm Elliott led to hard-freeze warnings issued for all the states along the U.S. Gulf Coast, where most of the U.S. refining capacity is located.

As of Friday, December 23, as much as 1.5 million bpd of the Gulf Coast’s refining capacity was shut down due to the freezing temperatures, per Reuters estimates.

Refineries run by Motiva Enterprises, Marathon Petroleum, and TotalEnergies outside Houston were shut late last week. Operations at other refineries in Texas, run by ExxonMobil, Valero Energy, and LyondellBasell, were also disrupted by the severe winter storm.

In total, the extreme winter weather affected some of the output at refineries along the Gulf Coast that process a combined 3.58 million barrels per day (bpd) and deliver around 20% of U.S. motor fuels.

Last week, the national average gasoline price dropped for a seventh consecutive week, but it’s not certain this week will bring another decline in gasoline prices, due to the rally in oil prices and the refinery outages due to the storm, according to fuel savings app GasBuddy.

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Europe’s Energy Crisis Is Just Getting Started

Europe’s Energy Crisis Is Just Getting Started

  • While Europe managed to fill its gas storage ahead of winter this year, it will have to import huge amounts of LNG in a competitive market to survive next winter.
  • The next 12 to 24 months will be critical in establishing whether Europe can stave off a long-term energy crisis.
  • According to the IEA, if Russian gas supply drops to zero and Chinese LNG demand hits 2021 levels, the EU could have a supply-demand gap of 27 billion cubic meters in 2023.

Despite successfully filling its gas storage ahead of winter this year, Europe’s energy crisis is far from over. The situation for Europe could, in fact, be worse next winter when Russian pipeline gas supply will be down to a trickle, at best.

European households and businesses have already seen a rise in total energy costs by $1.06 trillion (1 trillion euros), according to estimates by European economic think-tank Bruegel published by the International Monetary Fund (IMF). According to Bruegel’s analysts, if governments in Europe do nothing except offer financial support, and if they cover the price increases, this sum would represent a massive 6% of the annual GDP of the EU.

“Massive government support could delay adjustment to a new price equilibrium and create the need for even more support,” Bruegel’s experts say.

Instead, the EU needs a “grand bargain” to encourage savings and increase supply at the same time.

The next 12 to 24 months will determine whether Europe will be able to cope with the energy crisis without having to resort to mandatory rationing or without losing too much industry competitiveness.

Europe’s energy systems were already put to the first real test this month amid an Arctic blast that swept through most of northwestern Europe, bringing freezing temperatures, snow in the UK, and depressing wind speeds in Germany.

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The Diesel Crunch Is Finally Causing Demand Destruction

The Diesel Crunch Is Finally Causing Demand Destruction

  • Diesel inventories slumped to their lowest level for the time of the year since 1951.
  • signs have emerged that weaker demand in the past weeks may have slowly started to rebuild diesel inventories.
  • Refiners are processing more crude oil to capture the still high refining margins.

High prices seem to have started to weigh on diesel demand in the United States, where distillate inventories – comprising diesel and heating oil – have been slowly rising over the past few weeks.    American distillate inventories are still below the five-year average, but the gap in stocks compared to previous years has slowly started to narrow, suggesting that high prices are hitting demand, while encouraging more refinery output thanks to solid refining margins.

In this week’s inventory report, the U.S. Energy Information Administration said that distillate stocks rose by 1.7 million barrels in the week to November 18, with production rising to an average of 5.1 million barrels per day (bpd). Distillate fuel inventories are still about 13% below the five-year average for this time of year, but two months ago, they were more than 20% below the five-year average for that time of the year.

Earlier this autumn, U.S. distillate stocks slumped to their lowest level for this time of the year since 1951, just as the heating season started and a few months ahead of the EU embargo on Russian oil product imports, which goes into effect in February.

Now signs have emerged that weaker demand in the past weeks may have slowly started to rebuild diesel inventories, contrary to seasonal trends. Distillate inventories in the U.S. rose by 3 million barrels in the six weeks to November 18, according to estimates by Reuters’ senior market analyst John Kemp based on EIA data.

 

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Can Europe Avoid A Worst-Case Energy Scenario This Winter?

Can Europe Avoid A Worst-Case Energy Scenario This Winter?

  • European countries have done most things they feasibly could to fill gas storage units.
  • Overall in the EU, gas storage was 92.37% full as of October 17.
  • Weather will be the determining factor in how fast gas in storage would be depleted, so Europe hopes for the best and prays for a milder winter.

Europe’s gas prices fell at the start of this week to the lowest level in three months as storage is fuller than initially expected, LNG cargoes are coming in, and the weather is mild.   But European governments have been preparing for the worst-case scenario in which a colder-than-usual winter could quickly sap gas in storage, send gas prices soaring again, intensify competition for costly LNG with Asia, break consumers’ resolve to conserve energy in freezing temperatures, and force more businesses and industrial processes to halt operations.

Europe has done all it can to ensure the heating and lights will be on this winter, analysts say. Yet this may not be enough—a long cold, windless spell this winter would threaten to unravel all the efforts and lead to mandatory energy-saving targets, rationing, or rolling outages.

The Good News

All that can be feasibly done to ensure alternative gas supply after the Russian invasion of Ukraine and the Russian halt of gas flows to nearly all EU member states has been done. Floating storage regasification units (FSRUs) are being set up in Germany, the Netherlands, and Finland. Eemshaven in the Netherlands and Wilhelmshaven and Brunsbüttel in Germany are expected to begin operations as early as the end of this year. Europe is paying a lot for LNG supply, outbidding Asia, which was the top buyer of spot cargoes before the war.

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Europe’s Fuel Supply Fears Worsen As Major Refinery Malfunctions

Europe’s Fuel Supply Fears Worsen As Major Refinery Malfunctions

The biggest refinery in Europe, Shell’s Pernis in the Netherlands, suffered a malfunction late on Wednesday, which could exacerbate an already worsening fuel supply situation in northwest Europe due to the strikes in France.

Shell Pernis said late on Wednesday that “Due to a malfunction on one of our installations, we are forced to flare.”

Shell is investigating the cause of the malfunction and is doing everything it can to solve the problem as soon as possible, and to limit the nuisance for the residents in the vicinity of the refinery near Rotterdam, the company said.

Governments have been informed about the malfunction at Europe’s largest refinery, Shell said in a statement carried by Bloomberg, but didn’t go into details about potential losses of fuel supply.

Fuel supply is already tight in Europe amid an ongoing strike at most of France’s refineries, and if the Dutch refinery malfunction leads to further supply losses, the European diesel market will find itself even shorter on supply, less than four months before the EU embargo on imports of Russian fuels by sea.

France’s fuel distribution continues to be disrupted by the ongoing strikes at refineries, with no end in sight to the industrial action that has left more than 60% of French refining capacity offline. Earlier this week, France said that it would requisition essential workers to staff Exxon’s French oil depot, and threatened to do the same for Total’s French refineries if talks failed to progress. But workers at Total’s Donges refinery decided on Tuesday to strike beginning on Wednesday, French union CGT said.

French ministers said today that TotalEnergies should raise the salaries of the workers, who have been on strike for two weeks now.

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Angry Customers Demand Explanation As German Energy Bills Soar

Angry Customers Demand Explanation As German Energy Bills Soar

Utilities in Germany have had to handle a surge in customer service calls in recent weeks from clients angry or desperate about their sky-rocketing energy bills, Reuters reports.

The biggest utility, E.ON, has ramped up its capacity to handle calls from consumers who are shocked to find just how much their energy bills have surged in recent months.

Gas prices in Europe are very high and power prices in many countries, including Germany, have hit record levels this summer after Russia choked pipeline gas supply to Europe and shut down indefinitely the key gas export pipeline to Germany, Nord Stream, at the beginning of this month.

“Some become aggressive out of frustration, others are in tears and need psychological support,” Ingbert Liebing, head of local utilities organization VKU, told Reuters, commenting on the spike in customer calls to utilities’ service centers.

Apart from already high energy bills, German customers will have a surcharge as of October, as part of a government plan to implement a so-called gas levy on consumers in order to help struggling energy firms.

Germany has recently announced it would impose a gas levy on consumers from October 1 through March 2024 as it aims to help energy providers and importers of natural gas, which are struggling with low Russian gas supply and very expensive alternatives to Russian gas. The new natural gas tax is set to cost German families, who will have to foot the bill for the tax, an extra $500 a year.

Meanwhile, the German government is in talks with the biggest German importer of natural gas, Uniper, to potentially lift its 30% stake in the company to majority participation or to nationalize the firm…

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Finland Braces For Rolling Blackouts This Winter

Finland Braces For Rolling Blackouts This Winter

  • Finnish grid operator warns of rolling blackouts this winter.
  • Gazprom stopped in May all gas deliveries to Finland.
  • Norway is considering limiting its electricity exports.

Finland should be prepared for possible power outages this winter in case of shortfalls in electricity supply, the Finnish grid operator said on Tuesday, in yet another warning of an energy crunch in Europe after gas supply from Russia was severely reduced.

In Finland’s case, Gazprom stopped in May all gas deliveries to Russia’s neighbor to the West, making Finland the third EU member state with Russian pipeline supply cut off after Poland and Bulgaria. The halt of Russian supply to Finland took place days after Finland—together with its Scandinavian neighbor Sweden—formally applied to join NATO in the wake of the Russian invasion of Ukraine. Russia has warned both countries against applying to become NATO members.

Finland gets up to 70 percent of the gas it uses from Russia, but gas doesn’t have a large share in the overall energy mix and accounts for 5 percent of total energy consumption.

“The war in Europe and the exceptional situation on the energy market have increased uncertainties related to the availability of electricity. As a result of the great uncertainties, Finns should be prepared for power outages caused by possible electricity shortages this coming winter,” Finnish grid operator Fingrid said today.

According to Fingrid, the Olkiluoto 3 nuclear power plant would compensate for the missing Russian imports.

“In practice, in the event of an electricity shortage, Fingrid will inform the local distribution network companies of the total amount of power to be disconnected from each distribution network company’s area, and after this, power outages will be recycled as two-hour outages until the electricity shortage has ended,” said Tuomas Rauhala, Senior Vice President, Power System Operation, at Fingrid.

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Refinery Shuts Down Due To Lack Of Crude

Refinery Shuts Down Due To Lack Of Crude

A South African refinery has shut down operations and declared force majeure on the supply of petroleum products due to a delay in the shipment of crude, which highlights the fact that the physical market for crude is tight these days despite a slump in paper-traded oil futures.

Sasol, the biggest fuel producer in South Africa, was forced to declare force majeure on refined product deliveries because of delays in the crude oil supplied to its 108,000 barrels per day (bpd) refinery Natref, a company spokesperson told South Africa-based financial news outlet Fin24 on Saturday.

“These delays have impacted availability of crude oil feedstock for processing at Natref, which necessitates the shutdown of its Natref refinery,” the spokesperson said.

“In the circumstances, Sasol Oil will not be in a position to fully meet its commitments on the supply of all petroleum products from July 2022,” said the company, adding that it hopes the issue would be resolved soon and the refinery could resume production at full capacity by the end of this month.

The stoppage at Sasol’s Natref refinery now means that South Africa’s entire oil refining capacity is currently out of service, according to Bloomberg’s estimates. Other refineries have closed down production since COVID erupted, either because they would be converted to terminals or because of operational issues. Only Sasol’s synthetic fuel output using coal as a feedstock, of which South Africa has huge amounts, remains fully operational.

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