Energy Prospectus

NATURAL GAS

· EIA: US gas storage increased by 76 bcf w/w to 3.082 tcf and is down by 229 bcf vs. the 5-year high

· GIE: EU gas storage is just 72% full today, compared with 94% full last year and well below the 10-year average of 85% full...

· ...Citigroup believes Asian gas prices could surge to $100/mmBtu this winter if we experience a particularly cold winter

· The fallout of falling wind is windfalls: European politicians are scrambling to provide relief to consumers from high energy and power prices...

· ...Italian PM Draghi said the gov't would spend $3.5B to limit surging retail prices... ...Greece's Energy Minister suggested an EU-funded mechanism to use revenue from carbon allowances to offset rising prices...

· ...the UK Energy Minister has not ruled out the use of windfall taxes on energy companies that profit from soaring gas and power prices even as a majority of the UK's energy suppliers are lossmaking as wholesale costs surge above price caps...

· ...and the CEO of Drax said it may keep its coal plants operating beyond their planned closure in 2022 to maintain grid stability...

· ...over in Asia, South Korean state-owned utility KEPCO is raising electricity rates for the first time since 2013 amid soaring LNG and coal prices...

· ...our Chairman, Charif Souki, warned readers of the FT that the current mess in Europe is a wake-up call to the US, saying: "You go with misguided priorities and then all of a sudden you hit a wall because you don't have supply"

· And so it begins: the White House backed a plan by House Democrats to allow renewable energy firms to use MLPs to build out infrastructure...

· ...the $3.5 trillion spending legislation stops short of eliminating the use of MLPs for the oil and gas industry, which was pushed by more progressive environmentalists

COLUMN-Worldwide energy shortage shows up in surging coal, gas and oil prices: Kemp - Reuters News

24-Sep-2021 17:18:43

LONDON, Sept 24 (Reuters) - Record gas and electricity prices in Europe, record coal prices in China, multiyear-high gas prices in the United States and oil prices well above their real long-term average are all manifestations of the same global energy shortage.

In the aftermath of the coronavirus recession, energy production has failed to keep up with rapid growth in consumption as energy producers struggle to raise output while demand has bounced back quickly.

The business cycle downturn and slump in energy prices caused by the pandemic, and before that the U.S./China trade conflict, depressed investment throughout the energy sector in 2019/2020.

Since then, the global economy has experienced an exceptionally rapid cyclical recovery, aided by low interest rates, bond buying and massive government spending, which has focused on energy-intensive merchandise rather than services, boosting energy consumption at extraordinary rates.

The result is a severe cyclical shortage of energy, evident in below-average inventories and surging prices for coal, gas and oil in all the major consuming regions of the world (https://tmsnrt.rs/2XOvL6A).

Unusual weather has worsened the shortages, including a cold winter in the Northern Hemisphere in 2020/21, a late winter storm in Texas in February 2021, slow wind speeds in Europe in August-September 2021, and hurricane-related disruption to oil output in the Gulf of Mexico.< What happened to "Global Waeming"???

In recent months, China has reported low coal stocks at power stations and the government has urged major producing regions to boost output as a matter of urgency; coal futures prices have more than doubled from a year ago.

In the gas market, inventories are 5% below the pre-pandemic seasonal average in the United States and 15% below average in Europe.

Front-month gas futures prices have risen 140% in the United States, more than 500% in Europe, and more than 600% in Northeast Asia, compared with the same time last year.

On the oil side, U.S. commercial petroleum stocks are 5% below the pre-pandemic seasonal average and commercial inventories across the OECD are also around 5% below the 2015-2019 seasonal average.

Benchmark Brent futures are trading in the 70th percentile in real terms since 1990 while the six-month calendar spread is in the 98th percentile, indicating traders anticipate inventories will become even tighter.

AFTERSHOCKS

Energy industries have always exhibited strongly cyclical behaviour.

The bigger the initial disturbance to production, consumption, inventories and prices, the larger the immediate response, and the larger the subsequent reaction.

In this case, low inventories and high prices for coal, gas and oil are the direct consequence of high inventories and low prices this time last year caused by the first wave of the pandemic. < Wachos setting energy policy is also to blame.

Following an exceptionally rapid economic rebound, global industrial production and world trade volumes are both down by less than 1% compared with their pre-pandemic and pre-trade-war trends.

Global spare capacity is limited, especially in merchandise-producing industries, which are far more energy-intensive than service-producing sectors.

In consequence, global energy consumption is running very close to its long-term trend, with isolated exceptions, the most important of which is a sharp drop in the use of jet fuel for international passenger aviation.

With large sections of the global economy operating at close to full capacity, the energy system is struggling to meet incremental demand and prices are accelerating as a result.