Why The U.S. Has Become The Blackout Capital Of The Developed World
Rolling blackouts, freezing homes and skyrocketing electricity prices. A few decades ago, power outages in vast swathes of the United States were relatively rare and would normally be seen as black swan events. Unfortunately, mass blackouts have now become a regular feature of modern American life. Power outages have increased 64% from the early 2000s while weather-related outages have soared 78%. According to one analysis, the United States now records more power outages than any other developed country, with people living in the upper Midwest losing power for an average of 92 minutes every year compared to just 4 minutes in Japan. Climate change and extreme weather events are largely to blame for this sad state of affairs. But the U.S. is not an exceptional case, with Europe feeling the adverse effects of a rapidly changing climate just as keenly as, if not worse than, the U.S. A closer look at the problem reveals that one fuel could be at the center of the conundrum: natural gas. Over the past two decades, the shale revolution unlocked a deluge of cheap natural gas, and made it easier for the country to transition from coal-fired generation to natural gas plants. Indeed, natural gas is widely touted as the ‘bridge fuel’ as the world gradually moves away from coal as the primary fuel used to generate electricity to renewables thanks to natural gas having a much cleaner emissions profile than coal. Gas now makes up ~41% of U.S. power generation, more than double its share in Europe’s energy mix at 19.6%. The harsh reality is that natural gas plants, even relatively modern ones, are proving to have the worst failure rate when faced with extreme weather compared with other generation methods. During last year’s Arctic Blast, gas units accounted for 63% of the failures while representing just 44% of the total installed capacity. The country’s vast network of gas plants and pipelines–the largest in the world–and the regulations that govern them simply were never designed or built without the realities of extreme weather in mind. Gas facilities aren’t uniformly winterized, with many relying on single gas pipelines for supply. Meanwhile, many generators lack the ability to burn an alternate fuel or keep back-up gas on hand in case of emergencies. More alarmingly, even the best gas generating facilities are showing a large degree of vulnerability. PJM Interconnection LLC is the operator of the country’s largest power grid, serving 65 million people in 13 states and Washington, DC, or about a fifth of Americans. The firm’s grid is generally considered to be one of the most reliable in the country thanks to its ample operating reserves and rich shale gas deposits. During the winter blast on Dec. 23, 2022, PJM called a “maximum generation emergency action,” meaning standby plants were supposed to run ramp up to full power. Whereas nearly 20% of those gas plants ran at 100% or more for at least an hour, more than 20% never got above even half capacity while many dropped to 0% output at some point during the emergency. PJM spokesperson Susan Buehler has conceded that generation performance during the storm “was not acceptable,” and added, “What we need, and what we are working on with all of our stakeholders, regulators and policymakers, is for all of our resources to perform when called upon.” Mind you, PJM actually performed better than many neighboring grids, many of which reported widespread electricity interruptions or blackouts, leaving one to wonder how the country’s multiple, highly fragmented and aging grids will manage to stay afloat as Americans continue to consume ever increasing amounts of electricity. During the crisis, a large number of new-model combined-cycle gas plants failed, with some reporting mechanical issues, failures to start due to according to people familiar with the operations and official filings. Others couldn’t get the fuel frozen wells, falling pipe pressure or compressor station failures. Others failed to get gas because they are supplied by utility pipelines that prioritize households and businesses first. “That’s a crisis that’s coming. It’s coming a lot closer and a lot nearer and a lot faster than even I thought a year ago when I first said we’re facing a reliability crisis,’’ Mark Christie, a member of the Federal Energy Regulatory Commission, has told Bloomberg. More Renewables And Grid Upgrades Some experts suggest that extending the existing gas infrastructure can help solve the problem. Many, however, believe that grid upgrades and incorporating more renewable energy is the long-term solution. For decades, the United States has been relying on an aging electrical grid that’s increasingly unstable, underfunded and incapable of taking us to a new energy future. Despite being the wealthiest country in the world, the U.S. only ranks 13th in the quality of its infrastructure. Indeed, our power grid is the weakest link in the ongoing energy transition. A study by UC Berkeley and GridLab found that it will be economically feasible for renewable energy to power 90% of a reliable grid by 2035, while only depending on natural gas for 10% of annual electricity production. Unfortunately, whereas renewable power sources have grown dramatically in recent years, our aging electrical grid is simply incapable of fully integrating them into our energy use, leading to so much potential power wasted. But, as is usually the case, the biggest challenge remains funding: a Wood Mackenzie analysis has estimated it would cost a staggering $4.5 trillion for the US. to fully decarbonize, including constructing and operating new generation facilities; investing in transmission and distribution infrastructure, making capacity payments, delivering customer-facing grid edge technology and more. Suddenly, the $13 billion that the Biden-Harris Administration, through the U.S. Department of Energy (DOE), has allocated to upgrading the national grid looks puny.
Is OPEC Locked Into Supply Cuts With Oil Below $75?
As oil prices hover underneath the $75 for a Brent barrel, OPEC has likely found itself stuck with the extra supply cuts it took on—mainly Saudi Arabia—a hedge fund manager told Bloomberg on Friday. “It would be too damaging to prices to remove it at this time, given the fragility of sentiment,” hedge fund manager of Black Gold Investors LLC said. Earlier this month, Saudi Arabia voluntarily agreed to downsize its production targets by another 1 million barrels per day for the month of July—although it could be extended. Oil prices reacted by jumping up, but the effects were not long-lasting. Today, crude oil prices are lower than they were prior to the announced cut, putting OPEC in a tricky position. In the runup to the OPEC meeting, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman warned traders once again against taking a speculative bet against oil. He made similar threats back in 2020. “I’m going to make sure whoever gambles on this market will be ouching like hell,” he said at the time. Indeed, OPEC’s cuts they announced back in April hurt short sellers when prices rallied. This time, however, the warning ahead of time likely muted the response to Saudi Arabia’s generous production cut. OPEC—most importantly Saudi Arabia—is working against disappointing economic data out of China. Brent prices are just a hair under $75 per barrel today, but recent estimations from the International Monetary Fund suggest that Saudi Arabia’s fiscal breakeven for crude oil is more than $80 per barrel. Saudi Arabia’s extra cuts go into effect in July, and prices could tick up as supply tightens. After all, the IEA has predicted that crude oil supply will exceed demand by 2 million bpd in the second half of this year.
Petrobangla seeks Tk71.81 billion loan to foot LNG import bills
State-owned Petrobangla, the oil gas and mineral corporation of Bangladesh, has sought a loan of Tk71.81 billion from the finance ministry to meet the cost of liquefied natural gas (LNG) import until next September. The cash-strapped corporation wrote a letter in the last week of May, mentioning that its loss amounted to Tk254.80 billion from 2018 to May this year and it now needs the loan to foot LNG import bills. The amount was over Tk80 billion in just one year from May 2022 because of the surge in global LNG spot price. A finance ministry official told The Business Standard, on condition of anonymity, that an inter-ministerial meeting would be convened to discuss Petrobangla’s loan proposal. “Before that, a comprehensive analysis will be conducted on Petrobangla’s overall income and expenditure data, including the status of the gas development fund, the company’s accumulated liabilities, and operating costs,” the official said, adding that a decision on the loan approval will require “some time.” According to Petrobangla sources, the corporation has also spent almost the entire amount deposited in the Gas Development Fund to meet the cost of LNG import due to the rise in prices in the international market. Out of the total Tk190 billion from the fund, only Tk15 billion is left now. The government has provided a subsidy of Tk220 billion to Petrobangla since 2018. The budget for the last financial year included an allocation of about Tk 60 billion for LNG. It has been fully paid, added the officials.
Saudi Arabia output cuts to kick in from July; will oil prices rise again
Saudi Arabia – the world’s largest oil producer, will undertake voluntary crude oil output cuts which are set to kick in this month, starting from July 1, amid a tighter market which is currently reeling under the impact of sluggish global economic growth and further rate hike fears by global banks. In the previous meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) on June 4, no changes in global oil output were announced for the remainder of this year. However, the world’s top oil exporter, Saudi Arabia output will decline to 9 million barrels per day from about 10 million barrels in May, as per its fresh production cuts set to kick in from July. OPEC+ reached a deal on output policy and decided to reduce overall production targets from 2024 by a further total of 1.4 million barrels per day (bpd). Apart from Saudi, the rest of the OPEC producers agreed to extend earlier cuts in supply through the end of 2024. Saudi Energy Minister Prince Abdulaziz said the cut of 1 million bpd by Riyadh could be extended beyond July if needed. “This is a Saudi lollipop,” he said. The deal came after a last-minute fight with African members over how their cuts are measured, which delayed the meeting by several hours. In addition, Saudi Aramco – the world’s largest oil company, believes market fundamentals remain “sound” for the second half as demand from emerging markets led by China and India will offset recession risk in developed markets, CEO Amin Nasser said last week.
China is buying natural gas like there’s still an energy crisis
CHINA is on a natural gas shopping spree, and officials are happy for importers to keep striking deals even after a global energy crisis has eased. The government continues to back efforts by state-owned buyers to sign long-term contracts and even invest in export facilities, in order to bolster energy security through the middle of the century, according to people who have had meetings with policymakers. The nation is on track to be the world’s top importer of liquefied natural gas (LNG) in 2023. And for the third straight year, Chinese companies are agreeing to buy more of it on a long-term basis than any single nation, according to data compiled by Bloomberg News. China is looking well into the future to avoid a repeat of energy shortages, while also seeking to fuel economic growth. Long-term LNG contracts are attractive because shipments are promised at a relatively steady price compared to the spot market, where gas surged to an all-time high after Russia’s invasion of Ukraine. “Energy security has always been a priority for China,” said Toby Copson, global head of trading and advisory at Trident LNG in Shanghai. “Having ample supply in their portfolio allows them to manage future volatility. I would expect to see more.” The dealmaking efforts will help underpin global export projects, strengthening the role the seaborne fuel will play in the energy mix. And as suppliers move to woo Chinese importers, Beijing’s influence in the market is set to increase.
Europe Set To Reach Natural Gas Storage Target Ahead Of Schedule
The European Union is on track to fill up its natural gas storage facilities ahead of schedule, Rystad Energy has forecast. “Considering historical demand, and assuming different supply scenarios, storage facilities could even be full ahead of winter this year, resulting in gas flows having to be diverted elsewhere,” senior analyst Lu Ming Pang said, as quoted by The National. The EU began filling its gas storage earlier this year but lately the additions have slowed down, Reuters’ John Kemp reported earlier this month, as low prices stimulate higher demand from industrial consumers. Kemp noted that the levels of gas in storage at the beginning of June were 48% higher than the ten-year average for that time of the year, after storage levels reached two-thirds of capacity in late May. There was more gas in storage to begin with, however, due to last year’s mild winter and significantly lower gas demand because of excessive prices. According to Rystad Energy, as of June 25, European gas storage was 76% full, compared to 56% a year earlier. The European Union targets a 90% fill level by November 1. Prices, meanwhile, have been on the rise for most of this month, mostly because of production outages in Norway due to field maintenance. So far this month, gas prices in the EU have added 38%, The National noted. This week, benchmark prices rose further, hitting $3575 per megawatt-hour as weather forecasts suggest that most of northwest Europe, the biggest consumers of gas, will see a hotter-than-usual start to the summer, to continue at least until the middle of July. Overall demand for gas in Europe, however, remains subdued compared to the five-year average as economies slow down and industries haven’t switched to gas despite the much lower prices compared to the records seen last summer. “The heat wave will increase electricity consumption this week, but Europe’s power demand remains subdued in 2023, despite lower prices,” BloombergNEF analysts wrote in a note earlier this week.
Are Moscow And China Aiming To Corner The Gas Market?
Current natural gas market prices remain depressed compared to record prices in 2022. However, indications suggest that the current low prices may soon become a thing of the past, especially if China brings online its significant LNG regasification projects within the expected timeframe and continues to exert influence on global markets. European gas markets could potentially benefit from this development, although it will primarily be a boom for Chinese companies. This situation may not align with the preferences of Brussels, Berlin, or The Hague. Already in May Chinese natural gas imports (LNG and pipeline gas) increased by 17.3%. China’s General Administration of Customs reported that May natural gas imports hit 10.64 million tons, compared to 9.07 million tons May 2022. The customs agency also stated that China’s gas imports increased by 3.3% year-on-year to 46.29 million tons for Q1. The report indicated that China’s LNG imports increased also for the 3rd month in a row in April, hitting 4.77 million tons of LNG, an increase of 10.3% year-on-year. At the same time that there is a sign of growing natural gas demand by China, a report by GlobalData states that China will be dominating the LNG regasification capacity additions in Asia. GlobalData states that 34% of all Asian additions will be in China. In its report, ‘LNG Regasification Terminals Capacity and Capital Expenditure (CapEx) Forecast by Region, Key Countries, Companies and Projects (New Build, Expansion, Planned and Announced), 2023-2027’, China is slated to add around 5.7 TCF from already received project approvals, while 2.1 TCF in capacity is currently in conceptual phases. As GlobalData analyst Bhargavi Gandham stated “China is rapidly expanding its LNG regasification capacity due to several factors, such as to meet ever-growing natural gas demand, mitigate environmental pollution, diversify its energy resources, and meet its carbon neutral objectives.” At present, the Tangshan II and Zhoushan II projects lead in terms of the LNG regasification capacity additions in China, with a capacity of 584.4 BCF by 2027 each. Tangshan II is an onshore regasification terminal planned in the Hebei province of China. China’s demand increase may be gradual, but looking at current developments, Europe’s gas customers will need to step up their game very soon, or pay hefty prices for spot cargoes. Where China is looking long-term, committing to natural gas usage beyond 2045-2050, Europe is still hesitant to close long-term contracts as politicians feel it doesn’t suit their energy transition strategy. At the same time that China’s natural gas strategy is implemented and its gas-related infrastructure expanded, Beijing also is playing a much darker strategic game. Reports have emerged that China was informed about Russian invasion plans before Putin decided to invade Ukraine. Chinese President Xi Jinping has until now vehemently denied having knowledge about the invasion of Ukraine, but China’s energy dealings just before the invasion in February 2022 raises eyebrows. Chinese players, mainly LNG buyers have been extremely active in the six months before the invasion. International publication Foreign Policy (FP) reports, based on 600 LNG purchase transactions worldwide, that from September 1 2021 until February 2022, around 12 Chinese entities, such as state-owned companies China National Offshore Oil Corp. (CNOOC), Sinopec, and Sinochem, acquired 91% of all global LNG purchased worldwide under term deals (typically spanning four years or longer). Even after the Russian invasion started, Chinese parties continued to close deals. Until April 2022, 57% of all LNG purchase deals were signed by Chinese parties. Between September 1 2021 and April 1 2022, around 23 million tons of LNG imports per year were agreed on. This volume is remarkable, knowing that between 2006 and 2020 Chinese deals averaged around 5 million metric tons per year, or 15% of the global market. The 2021-2022 buying spree was conducted by 11 different companies, of which 10 are either national or local government Chinese government-owned. This Chinese onslaught has soaked up near-term LNG supplies, mostly from Qatar, Russia, and the U.S. These developments coincided with Gazprom, Russia’s state-owned gas producer’s strategy of cutting gas exports to Europe in 2021, while shutting off its European gas supplies after the invasion. This political cooperation between Moscow and Beijing is becoming clear. If the Chinese had not entered in full force in the 2021-2022 gas markets, Russian gas cuts to Europe would have had little effect, removing not only fears of supply shortages but also of an imminent energy crisis. The deep cooperation between China and Russia is clear, even before the Ukraine invasion. There is no irrefutable evidence, but all signs point to a Russian-Chinese cornering of the market, which was a pre-emptive strike on Europe’s energy sector. As of now, Europe appears to be complacent and lacking proactive measures to counter the increasing collaboration between Beijing and Moscow. The practice of employing energy as a weapon is by no means a new one. The recent example of growing cooperation between Beijing and the Gulf Cooperation Council (GCC) in Saudi Arabia underscores that energy resources are no longer readily available for Europeans at a low cost. China and Russia are once again tightening their grip, raising the possibility of an impending and tumultuous European winter.
Traders To Blame As European Gas Markets Descend Into Chaos
Earlier this month, natural gas prices in Europe rose twofold in the space of 10 days, with a single trading day seeing a jump of 27% two weeks ago. On June 15, prices jumped by 30%. A day later, they dropped almost as sharply as they had risen, shedding over 20%. All this happened before the latest events in Russia that rattled commodity markets. And it will be happening again. Because traders are crowding the natural gas space, eager to make some money like others did last year. Volatility has come back to natural gas markets. Bloomberg reported this week that the gas trading market in Europe is seeing an influx of traders who do not normally play on that market but were tempted by the record profits gas traders made last year. At the time, gas prices in Europe soared to record heights after the EU bombarded Russia with sanctions, and Russia responded by decimating flows along the Nord Stream pipeline. Europe rushed to buy liquefied natural gas on the spot market, promptly pushing prices to levels never before seen. Traders made millions. “Some people thought they could make a lot of money given where prices had been, but there was an exaggeration of what this really meant for the gas market,” Citi’s commodity chief Ed Morse told Bloomberg. “Natural gas markets have proven to be a trap for both experienced and inexperienced traders,” he also said. In addition to the trap that is the gas market, there appears to be actual concern among traders about the sufficiency of gas supply for Europe. Norway has been going through some extended outages due to field maintenance, and the Netherlands has reiterated it will close the Groningen gas field. Both of these suggest doubts over the security of supply going forward. “Reports of Groningen closing down adds to a host of other news that are bullish for gas prices,” ICIS analyst Tom Marzec-Manser told the Financial Times. “But the price swings are an indication that there is still a lot of uncertainty over Europe’s gas outlook, and market participants remain on the edge,” Marzec-Manser also said. The fundamental problem, however, is not the outages in Norway and the shutdown of Groningen. As last year proved, there is plenty of LNG to go around in Europe, for the right price. This year there will be LNG too. But there will not be space in Europe’s gas storage caverns because they are already rather full of gas from last year that was bought at exorbitant prices. Earlier this month, Reuters’ John Kemp reported that Europe’s gas storage was at 48% above the ten-year seasonal average, noting that additions to this storage were slowing down because of low prices that encouraged more immediate consumption. Despite the slower rate of additions, Kemp also pointed out, capacity should be full earlier than last year, and this means drawdowns will need to begin earlier than last year. This is when prices may whipsaw again: when both Europe and Asia prepare to enter winter heating season. This is also why volatility in gas prices remains so high. It’s not because nobody knows if there will be enough gas. It’s because if last year was any indication, there will always be enough gas—for those who can afford it. There are plenty of speculators eager to grab the opportunity to make a quick buck before Europe finally realizes it might be wise to bet on long-term supply rather than splurging on spot market cargos. And there is always the risk of an unforeseen event or even a foreseen one—such as Ukraine’s warning that it might shut down gas transit from Russia when its contract with Gazprom expires next year.
U.S. Shale Growth Stalls As Oil Prices Fall
Softer oil and natural gas prices and rising costs are squeezing the profit margins in the U.S. shale patch, where the business activity growth stalled in the second quarter of the year. While the Energy Information Administration (EIA) continues to expect record production from the shale plays, growth in output next month is set to be the slowest in six months. With oil and gas prices currently lower than at this time last year, drilling activity is slowing down and could further slow amid uncertainties about the economy and the Administration’s policies toward the industry. U.S. shale producers are no longer the world’s swing producers as they are not boosting drilling activity too much, even when oil prices surge. Companies are now focused on returning more cash to shareholders and see profitability squeezed between lower commodity prices and higher costs, and higher interest rates for access to capital. Zero Growth In Business Activity The business activity index in Texas, New Mexico, and Louisiana – home to the biggest shale plays, including the Permian – fell to zero in the second quarter of 2023, down from 2.1 in the first quarter, according to executives of 152 energy firms who responded to the quarterly Dallas Fed Energy Survey. The business activity index is the survey’s broadest measure of conditions facing Eleventh District energy firms, and it showed zero growth. The last time business activity in the Permian stalled this much was in 2020, when U.S. producers – and all other oil producers in the world – reduced output amid plunging demand with the lockdowns during the pandemic. This time, U.S. producers are holding back on drilling as costs continue to increase, although at a slower pace, while oil prices dropped from last year and from earlier this year and benchmark U.S. natural gas prices tumble. The shale companies are also conscious of shareholder demands to boost returns to investors and reduce debt before reinvesting profits into new drilling. The Biden Administration’s attitude to the industry isn’t helping, either. In comments to the Dallas Fed Energy Survey, executives continue to slam the U.S. Administration for its “war” on the industry. In the survey, exploration and production (E&P) and oilfield services firms reported rising costs for the 10th consecutive quarter. The cost increases slowed but remained above the series averages. Larger firms generally expect their drilling and completion costs to be lower at year-end 2023 than year-end 2022, but smaller firms see their drilling and completion costs at year-end to be above where those costs were at year-end 2022. Barely Breaking Even The U.S. benchmark, WTI Crude, was trading at $69 a barrel on Tuesday, suggesting that the average producer would turn a profit, but a small one, considering the cost inflation in the shale patch over the past year. “It seems as if the breakeven price for oil is in the mid-$70-per-barrel range at this point,” an executive at an E&P firm said in comments to the survey. “I would drill if costs were not so high.” The executive also noted that “Margins have been squeezed to the point that it is hard to commit to new projects, and all of the uncertain economic projections give no confidence as to what is going to happen going forward.” Earlier this month, the largest pure-play U.S. shale producer, Pioneer Natural Resources, noted that the shale firms have seen their margins squeezed over the past year. Higher labor and material costs are slowing U.S. shale production growth, Pioneer’s Executive Vice President Beth McDonald said, noting that oil would likely trade in the $70-$100 range over the next three to five years as supply growth remains limited and OPEC+ continues to restrict output. “That squeeze in the margin is really keeping U.S. E&Ps (exploration and production companies) from moving forward in a significant way” despite OPEC’s efforts to push up prices, McDonald told Reuters at an industry conference earlier this month. In the Dallas Fed Energy Survey carried out in June, an E&P executive commented, “Commodity pricing continues to soften, while operating costs have continued to increase and stay at elevated levels, which has led to a continued narrowing of profitability. Regulatory uncertainty remains an issue.” Rig Count Drops The slowdown in activity is immediately evident in the weekly rig count numbers put out by Baker Hughes. Last week, the total rig count fell again – for the eighth consecutive week – to 682. This was 71 rigs below this time last year. Over the past two months, the number of active drilling rigs in the United States has fallen by more than 70. U.S. crude oil production levels are now up by 200,000 barrels per day (bpd) versus a year ago. This growth is one-tenth of the 2 million bpd growth in U.S. crude output between 2018 and 2019. Slowing production growth from the U.S. shale patch could lead to higher oil prices down the road if the U.S. avoids a recession and global oil demand holds up to current expectations of more than 2 million bpd of growth this year.
Honeywell to bring new carbon capture, hydrogen tech to India
Industrial technology solutions leader Honeywell International has developed several energy transitions and sustainability solutions to reduce carbon emissions and these technologies will soon be made available in India, says Ashish Modi, President, Honeywell India. Hoenywell, with a revenue worth $35 billion, pioneered solutions in carbon capture, new-age batteries, avionics products, and next-generation refrigerants like hydrofluoroolefins (HFO). It has developed new battery solutions that can last for 12 hours, next-generation refrigerant HFOs, renewable solutions to recycle and produce plastic, catalysts to increase green hydrogen production and thereby reduce cost, etc. More than 60% of Honeywell’s 2021 sales came from ESG-oriented solutions. Honeywell has developed a new catalyst-coated membrane (CCMs) technology for Green Hydrogen production, which ensures higher electrolyzer efficiency and higher electric current density. The new catalyst is projected to provide a 25% reduction in electrolyzer stack cost. Currently, the company is in talks with electrolyser manufacturers, including in India, to use this technology, Ashish Modi told Fortune India in an exclusive interview. Also Read: Mission Green Hydrogen Honeywell’s green hydrogen technology uses a combination of processes such as pressure swing adsorption (PSA), membrane systems, and cryogenic fractionation to enable hydrogen producers to capture carbon cost-effectively during the hydrogen production process. This recovers 20% more hydrogen than conventional PSA technology, while also reducing energy consumption. Honeywell has also developed a Liquid Organic Hydrogen Carrier (LOHC), a lower-cost solution for long-distance transportation of green and blue hydrogen. Today, more than 15 million tons of CO2 are being captured each year by Honeywell’s CCUS processes, including an advanced solvent carbon capture (ASCC) technology. That is equivalent to the emissions of more than 3 million cars on the road. In the US, Honeywell and EnLink Midstream are working together to develop a carbon capture and transportation solution along the Mississippi River corridor with many large, concentrated sources of industrial CO2 emissions.