The Energy Crisis is Here
Each month 6,000 Athenians would pack together on Pnyx hill for the assembly where the citizens of Athens would vote to determine the laws of the city-state. This style of government was one of the world’s first formal democracies. Studying the history of ancient Greece can teach us a lot about the modern-day problems facing current Western Democracies.
It was during this period the word “Demagogue” was first coined.
Too often the Greek politicians, who were skilled orators, would sway the opinions of the mob and pass legislation that wasn’t in the best interest of the people. Ultimately it was the failed policies of the assembly voters that doomed the Athenians. Empires typically collapse from within.
Looking at the events unfolding in Europe today we can see that the energy crisis the country is facing is very much a self-inflicted wound. For decades charismatic leaders have been spreading misinformation about the ability of renewable energy to replace reliable coal and nuclear baseload. Coupled with the “not in my back yard” policies for sourcing the European Union’s still desperately needed hydrocarbons from Russia, and Europe today find’s itself in a tragic situation.
Over the last 15 years the UK, France, Germany, Spain, Ireland, and the Netherlands have all banned the extraction of hydrocarbons domestically using the provably safe method of hydraulic fracturing. Instead, these countries opted to buy their fossil fuels from Putin’s Russia.
In the now famous clip of President Trump giving a speech at the U.N. General assembly in 2018, he said:
“Germany will become totally dependent on Russian energy if it does not immediately change course. Here in the Western Hemisphere, we are committed to maintaining our independence from the encroachment of expansionist foreign powers.”
The German delegation laughed out loud during the speech.
No one in Germany is laughing now.
In their always eloquent and brilliant writing style, our friends over at Doomberg put out a timely piece today called “Dead of Winter.” If you haven’t subscribed to their Substack I would highly recommend doing so.
Article here:
The Doomberg piece highlights a young woman holding up a sign that says “CheaperCleanerGreener Fair Energy Now,” to which Doomberg points out the sad state of affairs in which people believe this “Unicorn Concept” actually exists.
All energy has tradeoffs. Currently the tradeoff Europe’s citizens are facing is one where they have to choose between heating their homes this winter or facing the crushing financial burden of skyrocketing energy prices.
The energy crisis that many have been warning about for years is finally happening. It’s hard to imagine a good scenario playing out this winter for Europe.
Market Update
Crude Oil
At the time of the newsletter, WTI was trading at $87.33/bbl. Earlier this week, crude reached $97.49/bbl then dropped 10% upon continued concern of inflation, high interest rates and looming demand destruction due to China’s renewed Covid lockdowns.
Last month, Russia exported more crude than any prior August. It was an unusually high month of crude exports with Switzerland being the primary importer. 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.
The EIA Petroleum Status Report for the week ending August 26th, 2022 reflected a crude inventory decrease of 3.4 mm bbls. Cushing storage has remained relatively unchanged for months at 25.3mm bbls. It is estimated that Cushing Tank bottoms represent ~17.4mm bbls, so volumes at Cushing have continued to hover close to the minimum storage. Domestic crude production increased from the prior week by 0.1 bbls. Refinery run rates continue to run at max rates at 92.7% utilization. Jet fuel supplied increased by 10% from the prior week.
www.eia.gov/petroleum/supply/weekly
Natural Gas
Natural Gas prices have held steady above the $9 mark this week. After opening the week at $9.67, prices have continued to move in the lower $9 range. Several factors have contributed to the corrective pattern of last week’s 14 year high when prices surpassed $10 in early week trading. Germany looks to be filling their storage quicker than most analysts had predicted and it’s the same song and dance for Russia, as the wait and see patterns continues. The 3-day maintenance on Nord Stream 1 has begun and time will tell if the schedule remains intact.
Weather looks to continue the warm trend for the next week, however, the pull on domestic demand should weaken with fall just around the corner. Look for prices to continue the vulnerable trend and bullish pattern as storage is projected to remain below the fiver year average.
Midcon highlights include a rise in gas prices as surplus gas from Western Canada makes its way into the Midcon market. According to Platts Analytics, Canadian production is up 1 Bcf above the previous year-to-date average of 15.7 Bcf/d. Look for the Western Canada to Midwest corridor to run at max capacity at least through the winter with this additional production and higher prices. Total Midwest demand has fallen slightly while local demand has seen a minimal gain. Midcon regional pricing has ANR-OK coming in $0.55 off Henry Hub at $8.40 while NGPL-Midcon is $.68 back at $8.27.
The EIA released storage numbers this morning, coming in at 2,640 Bcf, representing a net +61 Bcf increase from the previous week. This increase was slightly below marketplace expectations of +54. Stocks were 228 Bcf higher this time last year, however, this week’s levels are still within the 5 yr. historical range of 2,978 Bcf.
Natural Gas Liquids (NGLs)
Products across both Mont Belvieu and Conway markets were all down from the same period a week ago, with Isobutanes taking the brunt of the losses at 11% and 10%, respectively. N. Gasolines weren’t far behind, dropping 7% and 8%, respectively, as crude oil took some hits throughout the week. Ethane products lost 8% and 4%, respectively.
Talk Energy Podcast
This episode we have returning guest Mark Nelson. His last episode “The Nuclear Option” Mark gave a master class on the history of Nuclear energy and the challenges it has faced over the years.
This episode we talk about the future of nuclear energy and where Mark sees the industry heading. We discuss the current role Nuclear is playing in the European Energy Crisis.
He gives an update on the besieged nuclear power plant in Ukraine. We dive into the ongoing issues with France’s nuclear fleet. Lastly, we discuss if Mark was leader of the free world, what strategy he would use to bring us into a nuclear future.
Hope you enjoy the show!
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.