King Coal
The rumor’s of coal’s demise have been greatly exaggerated. Once the keystone of American industrialization in the 19th century, coal has been overlooked and under appreciated in current global energy landscape.
Coal was one of the most disruptive and innovative energy sources in human history. The advent of the industrial revolution saw coal take center stage and transform the way we harvest, store and consume energy. From transportation to household energy usage, coal impacted nearly every aspect of American society.
Fast forward a 100+ years and coal is centerstage again, but this time it is playing the role of the villain instead of the hero. Or at least that’s what many would have you believe.
Starting in the 1960s-70s the coal industry regulations began piling on from the federal government. Some of these regulations created a positive impact on air quality and worker safety, but ultimately put the industry on a trajectory to be less competitive against competing energy sources such as natural gas and renewables.
For the U.S. it ultimately made economic sense to move away from coal given the increasing regulatory scrutiny combined with the abundance of new hydrocarbon sources spurred on by the shale revolution. In other countries, like the ones that comprise the European Union, the story is more complicated.
Caving to pressures from the green movement, and seduced by cheap Russian gas imports, Germany started phasing out coal in earnest in the early 2000s. Germany’s last hard coal mine closed in 2018.
From 2013 - 2020 Germany spent over 200 billion Euros on renewables and ramped up their Russian gas imports to over 55%. Now with the war in Ukraine and the looming energy crisis heading into winter, coal is once again being looked at to shore up energy security and affordability. How the tables have turned…
Coal prices and demand have been setting all time highs in 2022 and the black rock from a bygone era is set to make a comeback of epic proportions.
This week’s guest on the Talk Energy podcast #140: is Natalie Biggs, the Director of Thermal Coal Markets for Wood Mackenzie.
This episode we discuss the current state of the coal markets. We dive into the ongoing energy crisis in Europe and how coal is continuing to play a large role in energy security for countries now faced with a shortage of Russia natural gas.
Lastly, we dive into the supply and demand dynamics for thermal coal. It was a fascinating episode, anyone who is curious about the coal markets should check it out.
Market Update
Crude Oil
Prompt month WTI closed down $2.37 yesterday to $92.52/bbl. The contract is trading softer again Friday a.m., currently down another $0.62. Despite the recent pullback, crude had a steady 5% increase this week (Oct 2022 rolled on @ $90.55/bbl)) and remained flat after the EIA reported a 3.3 mm bbls inventory draw on Wednesday.
OPEC+ is 2.9 mm bopd behind their previously announced production quota. There has been much speculation that OPEC+ is unable to produce more oil.
Texas has released a list of banks and financial service providers that have banned oil and gas investments. Texas is considering banning these companies from doing business in Texas.
The EIA Petroleum Status Report for the week ending August 19th, 2022 reflected a crude inventory decrease of 3.3 mm bbls. Domestic crude production decreased from the prior week by 0.1 bbls. Refinery run rates continue to run at max rates at 93.8% utilization. Jet fuel supplied remained the same as the prior week.
www.eia.gov/petroleum/supply/weekly
Rig Count Update:
The U.S. O&G rig count saw a significant bump on the week, adding 16 rigs to 877. Both oil and gas focused rigs each gained eight to 676 and 201, respectively. The large spike was the 2nd largest of 2022, behind a 20-rig gain in early June, although 11 of the 16 were vertical rigs outside the major basins. With exception of Permian (+4), the remaining basins were fairly calm, including no changes in the gas basins.
Natural Gas
Natural Gas prices have continued to soar above the $9 mark again this week. After opening the week at $9.17, prices hit a 14 year high as they surpassed $10 during Tuesday’s trading. This latest price run has more than recovered the plunge in prices that began in early June of this year. Russia’s latest chess move involving Nord Stream pipeline flows to Europe continues to apply pressure on the market. The latest announcement of a 3-day shutdown at the end of the month is piling pressure on the region and deepens the energy standoff in an already volatile environment. Some analysts are predicting European prices could soar another 50%. Freeport’s LNG facility has pushed its start date back to late November. Originally planned for an 85% thru put in October, the shutdown continues to contribute to global shortfall and price spikes. With warmer than normal weather in the forecast for much of the west and eastern parts of the US, look for the additional demand to continue to drive the bullish price structure.
In the Midcon, warmer weather forecasts have brought an expected power demand rise. With temperatures forecasted to be above normal for the next week, power demand is expected to rise near the 5.8 Bcf/d, the highest level seen in over a week. The power demand expectation along with projected inflows seeing the lowest levels in two weeks, have prices moving higher. ANR-OK is coming in $.86 off Henry Hub at $8.90 while NGPL-Midcon is right above at $8.92.
Market expectations called for a 61 Bcf injection into storage for the week ending Aug 19, 2022 and just about nailed it, with the EIA releasing a +60 yesterday. The injection brings total working storage to 2,579 Bcf, 268 Bcf less than a year ago and 353 Bcf less than the 5yr avg.
Natural Gas Liquids (NGLs)
Mont Belvieu product prices were split compared to a week ago – Propane and N. Butane were 3% and 2% higher, respectively. N. Gasoline and Isobutane were both 1% lower and Purity Ethane was basically flat. All Conway products were higher, with Ethane being the standout with a 9% boost WoW. Remaining products were 2-3% higher.
ANCOVA DISCLAIMER: The opinions expressed in this report are based on information which Ancova believes is reliable; however, Ancova does not represent or warrant its accuracy. These opinions represent the views of Ancova as of the date of this report. These opinions may be subject to change without notice and Ancova will not be responsible for any consequences associated with reliance on any statement or opinion contained in this report. This report should not be considered as an offer or solicitation to buy or sell any securities.