The irresistible rise in electricity prices in Europe

1. The recession could soon become a reality

– Despite recent attempts to redefine the concept of an economic recession, economic data strongly points to the inevitability of a recession amid soaring inflation, weakening manufacturing and a general deterioration in economic power. purchase.

– Going back to history, the US economy has always experienced a recession within two years of every quarter when inflation was above 4% and unemployment below 5%, and even the IMF questioned the narrative of the global economy avoiding one this time around.

– Usually a litmus test of recession, US Treasuries yield curves have inverted and the spread between 2-year and 10-year bond yields is hovering around -20 basis points, the most inverted since 2000 .

– The IMF expects global growth to slow to 2% next year, a level effectively equivalent to a recession given the underlying population growth.

2. Electricity prices in Europe are going haywire

– The dismantling of another turbine at Gazprom’s compressor station in Portovaya has increased gas flows from the Nord Stream 1 pipeline to around 20% of design capacity, causing gas and electricity prices to spike in Europe.

– Even if the much talked about turbine arrives in Russia, it seems that Gazprom will not pump gas at a rate higher than 40%, which implies that the compression will be long term.

– German power contracts hit record highs this week, with the Q4 baseload contract hovering around €475 per MWh, with the year ahead…

1. The recession could soon become a reality

– Despite recent attempts to redefine the concept of an economic recession, economic data strongly points to the inevitability of a recession amid soaring inflation, weakening manufacturing and a general deterioration in economic power. purchase.

– Going back to history, the US economy has always experienced a recession within two years of every quarter when inflation was above 4% and unemployment below 5%, and even the IMF questioned the narrative of the global economy avoiding one this time around.

– Usually a litmus test of recession, US Treasuries yield curves have inverted and the spread between 2-year and 10-year bond yields is hovering around -20 basis points, the most inverted since 2000 .

– The IMF expects global growth to slow to 2% next year, a level effectively equivalent to a recession given the underlying population growth.

2. Electricity prices in Europe are going haywire

Europe

– The dismantling of another turbine at Gazprom’s compressor station in Portovaya has increased gas flows from the Nord Stream 1 pipeline to around 20% of design capacity, causing gas and electricity prices to spike in Europe.

– Even if the much talked about turbine arrives in Russia, it seems that Gazprom will not pump gas at a rate higher than 40%, which implies that the compression will be long term.

– German power contracts hit record highs this week, with the fourth quarter base contract hovering around €475 per MWh, with the price for the coming year hovering between €350 and €370 per MWh.

– Prices for the month ahead of Europe’s main spot gas contract, the Dutch TTF, climbed on Wednesday to €205 per MWh (equivalent to $67 per mmBtu), an all-time high.

3. Iraqi export growth delayed by construction setbacks

Iraq

– Iraq has long sought to increase cargo capacity at southern ports, but delays to a pumping station project originally scheduled to start in the second quarter will keep maximum export levels at their current level of 3 .3 million bpd.

– In addition, the deterioration of two shipping lines supplying the jetties at the Basra terminal hampered a long-awaited ramp-up in exports, with pumping rates down 25% from previous loading levels.

– Repairing aging shipping lines would take about two years, bringing the total capacity of Basra’s jetties to 2 million bpd, potentially raising export capacity above 4 million bpd.

– According to data from Platts, Iraqi oil production stood at 4.38 million b/d in June, including production from Kurdistan, the total being more than 100,000 b/d below the target for 4.509 million b/d for the same month.

4. Japan faces a difficult nuclear relationship

Japan

– Electricity generation from nuclear power plants in Japan totaled only 4 GW in the second quarter of 2022, but the outlook for nuclear is looking brighter as several units will return from maintenance in the next quarter.

– 2023 could see the big restart of Japan’s once mighty industry, with three nuclear reactors set to restart after a long 12-year hiatus, nearly tripling current production levels by the fourth quarter of 2023.

– With coal trading at $250/mt and LNG not falling below $24/mmBtu throughout the summer months so far, Japanese power companies have started buying crudes Vietnamese sweet light for electricity generation.

– Meanwhile, Japan’s nuclear regulator has approved the discharge of treated radioactive wastewater from the Fukushima nuclear power plant into the sea next year, after undergoing a public review process.

5. The new European taxonomy creates its own challenges

Europe

– The European Union’s new energy taxonomy – a system that ranks sustainable investments in the EU – supports new nuclear power capacity while keeping the gas sufficiently “green” will be tricky, writes Rystad Energy.

– The EU taxonomy sets a direct emissions limit of 270g CO2e/kWh for new gas-fired power plants, implying that gas should rely on abatement technologies such as CCS which are not still ready for the market.

– New gas-fired power plants are only allowed if they are to replace existing coal capacity, Rystad expects some 45 GW of coal-fired power plants to be closed in the EU between 2026 and 2031, replaced by more than 51 GW of natural gas.

– Europe’s nuclear fleet is expected to experience a net generation loss of almost 22 GW by 2035, driven by a considerable 48 GW of capacity expected to be decommissioned, and it is expected that the new autonomy can at best bring the loss capacity rate to zero.

6. Exxon just can’t stop finding new oil in Guyana

XOM

– Not producing a single barrel of oil until 2019, Guyana’s offshore waters saw a production bonanza as US major ExxonMobil increased production from the Stabroek block to 360,000 bpd.

– While discoveries at Stabroek have already totaled more than 11 billion barrels of recoverable oil reserves, the Exxon-led consortium that operates the block added two new discoveries this week.

– The Seabob and Kiru Kiru both expanded previous resource estimates for the Yellowtail and Cataback fields, respectively, encountering high grade sandstone reservoirs with 30-40m of net oil.

– Boosting previous plans by 200,000 bpd, Exxon now plans to produce 1.2 million boed offshore Guyana, from at least six FPSOs (there are currently only two).

7. The Middle East assesses its CCUS capabilities

Middle East

– The Middle East could become the first region in the world to capture carbon dioxide, with market players predicting that the regional market could reach 50 mtpy within a decade.

– The world’s major oil producers, Saudi Arabia and the United Arab Emirates, already account for 10% of the world’s annual CO2 capture, at 3.7 mtpa, mainly from use in enhanced oil recovery.

– There have been an increasing number of pilot projects focusing on capturing CO2 from the flue gases of fossil fuel power plants, with coal-fired power plants having up to 15% CO2 in their exhaust gases.

– Throughout the 2020s, North America and Europe are expected to dominate the carbon capture and storage market, driven by the former’s new CCUS tax credits and the carbon market tightening of the second.

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