The Barrel. Platts oil blog The essential perspective on global energy http://so-l.ru/news/source/the_barrel_platts_oil_blog Sun, 15 Dec 2019 12:14:35 +0300 <![CDATA[Insight from Shanghai: NEV regime takes off training wheels as government slashes subsidies]]> China has put leadership in the development of New Energy Vehicles (NEVs) – battery electric, plug in hybrid and fuel cell vehicles – at the heart of its industrial policy.

The country is the world’s largest market for electric vehicles, with 2.3 million battery electric and plug in hybrid vehicles on the road in 2018, accounting for 45% of the global stock.

In a draft of the latest development plan for the sector released early December, the government envisages that NEVs will account for a quarter of all auto sales by 2025. In June 8% of all passenger cars sold were NEVs.

But since then sales have tumbled and the trend has been in reverse: NEVs accounted for just 3% of total passenger car sales in October. Something will have to change if the government is to hit its NEV target of 25% by the mid-2020s.

NEV growth and policy

Sales of electric vehicles are down more than 20% this year as China takes an axe to the buyer subsidies that have made the price of NEV more competitive with conventional ICE vehicles since they were introduced in 2009. Back then fewer than 1,000 battery electric and plug in hybrid passenger cars were sold in China.

By the end of 2018 this had risen to more than million vehicles, making China by far and away the world’s largest market for electric cars, well ahead of the global number two, the United States.

EVs sold in China - yoy change

But this soaring growth cost the government an estimated RMB 245 billion ($36.6 billion) in direct central and local government subsidies to buyers according to the Center for Strategic and International Studies, a think tank.

Add in lost revenue from exempting EVs from sales tax, as well as mandated government procurement of vehicles like electric buses and investment in charging infrastructure, and total government largesse was RMB 390 billion ($58.3 billion) between 2009-2017. That’s more than the economy of Slovenia.

The subsidy programme inadvertently helped create and sustain a huge number of NEV manufacturers. By the end of 2018 more than 200 companies were authorized to make EVs, and a further 200 were awaiting government approval. A government investigation in 2016 found that some of these manufacturers had been fraudulently claiming subsidies. Little wonder the government decided enough was enough.

Starting January 2017, the government tightened the requirements for subsidies, making them more dependent on the energy density of the battery, a measure of how much charge it can hold for its weight. This meant that autos using older battery technologies would not qualify for subsidies.

But the big change came in March this year. Tighter technical requirements around range and battery density mean that many passenger cars are no longer eligible for subsidies.

And for those NEV that can still claim them, they are a lot less generous. The funding for the most efficient BEV with a range of more than 400 km has been halved from RMB 50,000 to 25,000. PHEV subsidies have also been slashed and are now one third of what they were in 2016.

And if that wasn’t enough, local governments are no longer allowed to offer subsidies to buyers. In an already weak auto market paring back all these purchase subsidiaries has made buying an NEV a lot less attractive. Little wonder that EV sales have been so feeble since June when the policy came fully into effect.

Less carrot, more stick

The subsidy programme will be fully phased out by the end of 2020 to be replaced by a new policy called the “dual credit policy”. This scheme compels manufacturers of passenger automobiles to make NEV and improve the fuel efficiency of ICE vehicles if they want to avoid financial penalties.

Each NEV produced is awarded NEV credits according to a complex formula which takes into account factors like type of vehicle, maximum speed, energy consumption, weight, and range.

These credits are used to offset against a target based on total production of passenger cars. Those manufacturers that do not earn enough credits must purchase them from manufacturers that have surplus credits or face financial penalties.

This year the target number of NEV credits is equal to 10% of total production. The 15 million passenger cars sold in the first nine months of this year must therefore earn 1.5 NEV million credits. Over the same period 800,000 NEVs have been produced suggesting that each car will need to earn on average 1.9 NEV credits.

This year the target should be relatively easy for the industry to meet. But it will rise by 2% in subsequent years so that by 2023 car makers will need to earn enough NEV credits to meet 18% of their output.

Manufacturers will have little choice other than produce higher volumes of more efficient NEV with a higher range if they are to gain the required number of credits.

China EV subsidies slashed

The government’s hope is that the stick of sanctions, if car makers do not meet their NEV credit targets,  will be more effective than the carrot of subsidies to make China a global leader in NEV production and battery technology.

In the short term the removal of buyer subsidies will likely see NEV sales continue to contract. Without government subsidies, only the strongest domestic auto companies are likely to survive. And they will be encountering stiff competition.

The dual credit policy is forcing foreign carmakers, which hitherto had little interest in NEV, to invest heavily in electric vehicles in order to maintain their position in the world’s largest auto market. VW and its local partners aim to be able to produce 1.5 million EVs by 2025. That’s about 6% of China’s total passenger car sales last year.

Others want a slice of the action too. In October Tesla gained approval to start producing cars at its factory in Shanghai and in November Mercedes launched its first all-electric SUV in China.

Given all the new NEV capacity set to open over the next few years it’s very possible that a quarter of all cars sold by 2025 will be NEV. But in the new Darwinian landscape created by the dual credit policy, which car makers will thrive and which will perish remains to be seen.

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http://so-l.ru/news/y/2019_12_11_insight_from_shanghai_nev_regime_takes Wed, 11 Dec 2019 18:00:06 +0300
<![CDATA[Asia’s crude oil buyers pivot towards US crude]]> Crude oil buyers in Asia dialed up their efforts to diversify supply this year, after Iranian barrels became off limits and repeated attacks endangered Middle Eastern oil supply chains, Gawoon Philip Vahn writes. This is the third article in a series examining key energy sector trends, ahead of the S&P Global Platts Global Energy Awards.

Major energy consumers including India, South Korea and Japan, as well as multiple Southeast Asian buyers, are increasingly shifting their focus to North American barrels to cover growing supply disruption risks in the Middle East.

Asian refiners have been under constant pressure this year to secure adequate crude supply as geopolitical tensions in the Middle East significantly raised the region’s energy security concerns.

The US sanctions blocking access to abundant Iranian crude supply, as well as a series of attacks on oil tankers and key output facilities in the Persian Gulf, meant many regional refiners that rely heavily on Middle Eastern sour crude grades were kept on their toes.

Asia US crude oil imports

South Korea, China, Japan and India were among the eight countries granted a waiver in November 2018 allowing imports of Iranian barrels to continue until May 2, 2019. But with no further extensions beyond that date from the White House, the vast majority of Asian refiners suspended purchases of Iranian crude and condensate.

Shortly afterwards, a series of attacks in June on oil tankers in the Gulf of Oman, including one on a UAE-flagged ship, put the oil market on alert and triggered growing concerns over supply disruptions.

Iran denied involvement in the incidents. However, the country had on a number of occasions threatened to close the narrow Strait of Hormuz if its oil exports were squeezed by US sanctions, which are supported by its regional rivals Saudi Arabia and the UAE. About 21 million barrels of crude transit the waterway daily – more than one-fifth of global oil supply.

Then in September, Saudi Arabia – the biggest supplier of crude to Asia – suffered a temporary loss of 5.7 million b/d of crude production after attacks on its core oil facilities. Following the attacks, which briefly curtailed nearly 60% of the kingdom’s output, a number of Asian refiners were notified by Saudi Aramco that some of their September and October term crude oil supplies would be affected.

Go deeper: Infographic – Saudi Arabia’s oil infrastructure 

In China, at least three state-run refineries saw shipment of their October term contract barrels from Saudi Arabia pushed back due to the output disruption. Several other term customers were notified by Saudi Aramco that they would have to take Arab Medium or Arab Heavy as substitutes instead of light sour crude.

Reliable supply

The heightened risk of Middle Eastern supply disruptions gave Asian refiners little choice but to seek out more reliable crude supply sources, and they looked to the North American market.

South Korea has emerged as Asia’s biggest customer for US crude oil this year, importing 98.67 million barrels of crude and condensate from the North American producer over January-September, up more than threefold from a year earlier, data from Korea National Oil Corporation showed.

“This is part of efforts to cope with the impact of the loss of Iranian oil … the government has been helping local importers diversify crude supply sources,” said an official from the country’s Ministry of Trade, Industry and Energy.

The country’s efforts to diversify crude import sources saw the share of Middle Eastern crude in its monthly procurement basket fall below 70% during the third quarter of 2019, compared with more than 85% on average in 2016, latest data from KNOC showed.

South Korea's crude oil import basket

Meanwhile, the US exported around 260,000 b/d of crude oil to India over the first eight months of this year, more than doubling the 138,000 b/d sent in the same period in 2018, according to the US Census Bureau.

“The US is helping India by providing a secure energy supply while meeting its environmental goals,” Kenneth Juster, the US Ambassador to India, told the India Energy Forum in October.

Taiwan broke into the top three buyers of US crude in Asia this year, receiving 186,590 b/d of crude oil from the US over January-August. That was almost double the 100,593 b/d imported in the same period a year earlier, according to data from the Bureau of Energy, Ministry of Economic Affairs.

Taiwan’s strong preference for US crude came as little surprise, as the WTI benchmark remained at a discount against its Middle Eastern and European counterparts Dubai and Brent.

Sweet and sour

As far as crude quality is concerned, Asia has shown interest in a wide variety of US grades in 2019. Lighter and sweeter US crude grades, including WTI Midland, Bakken, and Eagle Ford crude and condensate, have been among the most popular grades heading to Asia, but some high-sulfur US grades have also regularly attracted customers across Asia since the third quarter.

In South Asia, India’s Mangalore Refinery and Petrochemicals Ltd bought 1 million barrels of Thunder Horse crude from the US via spot tender for delivery over October 11-20. Thunder Horse has a gravity of 32.3 API and 0.90% sulfur content. This North American spot crude cargo deal marked the Indian state-run refiner’s first ever purchase of the medium sour US grade.

“We are open to buying more US [sour] grades at competitive prices in the near future,” a company official told S&P Global Platts.

In addition, Indian Oil Corporation holds a term supply contract to take light sweet US crudes, as well as medium sour Mars Blend grade, for 2019, Asian trade sources with knowledge of the matter told Platts.

Mars Blend is a medium crude with gravity of 29.99 API and 1.82% sulfur content. India’s flagship state-run refiner has put in place “a robust sourcing plan” to replace Iranian volumes after the US did not renew sanctions waivers for key customer of Iran’s oil, IOC Chairman Sanjiv Singh said in early May.

In Northeast Asia, Japan imported 1 million barrels of medium sour Southern Green Canyon crude from the US late last year and the country received 995,663 barrels of Mars Blend in March, according to data from the country’s Ministry of Economy, Trade and Industry. Southern Green Canyon has an average gravity of 28.2 API and typical sulfur content of 2.3%, according to crude assays from BP.

Japan imports non-Middle Eastern crude oil

Elsewhere, out of the 98.67 million barrels of US crude South Korea has received so far this year, close to one fifth of the total consists of high-sulfur US grades including Mars Blend, Southern Green Canyon and Poseidon, trading sources at SK Innovation, Hyundai Oilbank and GS Caltex said.

Southeast Asia joins the party

As rival Northeast Asian and Indian importers actively snapped up both sour and sweet US crude cargoes to cover any potential shortfall in Middle Eastern crude supply, Vietnam and Indonesia decided to act quickly to secure their own requirements.

Binh Son Refining and Petrochemical Company (BSR), an affiliate of the state-run Petrovietnam, said it would import 2 million barrels of WTI Midland crude from the US in the fourth quarter. The company, which operates Vietnam’s 148,000 b/d Dung Quat refinery, received a cargo carrying 1 million barrels of the light sweet US crude in October, and was due to receive another cargo in December, a company official said. Dung Quat refinery received its first cargo of US crude in the second quarter of 2019.

Indonesia’s state-run Pertamina also bought its first cargo of US crude in the second quarter. A company source said the cargo of light sweet WTI Midland crude arrived in Indonesia in early June and that more cargoes could be purchased later in H2.

US-China trade tensions

China’s surprise decision in August to include crude oil in its latest round of tariffs on imports from the US did little to restrict the overall US-Asia crude trade flows as various other Asian buyers were keen to pick up US crude cargoes diverted from Chinese buyers.

In retaliation for the US government’s 10% tariff on Chinese goods announced on August 15, Beijing announced a week later that it would levy a 5% tariff on US crude imports from September 1, as part of a new round of tariffs on $75 billion worth of US goods.

However, US crude oil suppliers were able to shrug off the counter-measures from Asia’s biggest oil consumer as demand for the US product remained robust in the region. As US crude has increasingly become a staple for many Asian refineries, the higher offtake from refiners in South Korea, Taiwan, India and Thailand has more than made up for the cutback in China’s purchases this year.

China was the biggest buyer of US crude oil in Asia in 2018, but US crude sales to the Middle Kingdom have been rather small this year. The Asian country imported 15.45 million barrels of crude oil from the US in H1, down 76.2% from the same period a year earlier, according to data from the General Administration of Customs. “We are unlikely to take much US crude as it attracts a 5% tariff now,” said a senior executive at state-run Chinese refiner Sinopec.

China’s sharp cutback in light sweet US crude purchases has presented other regional buyers with an opportunity to secure more low-sulfur refinery feedstocks, market participants said. With a resolution to the trade dispute looking to be within reach, there is scope for a significant revival in Chinese imports.

In Southeast Asia, traders and refinery sources in Thailand, Singapore and Vietnam told Platts that companies may consider offers from Chinese refiners and traders looking to resell some of the US crude cargoes initially bought for fourth quarter deliveries. “US crude is a very popular item for many Asian refiners, so there are plenty of buyers willing to absorb the volume that China wouldn’t take,” said a trading desk manager at a Southeast Asian refiner.

Freight cost challenge

US crude suppliers have emerged as the winner in the battle over the vast and growing Asian demand pie this year, but it may not be plain sailing going into 2020.

A sharp rally seen in international dirty tanker freight rates in the fourth quarter this year could continue to exert a strong influence on crude pricing, potentially making the US-Asia arbitrage uneconomical.

The sharp spike in VLCC freight rates, after the US imposed sanctions on China’s COSCO Dalian Tanker Shipping on September 25 over its failure to adhere to the US’s Iran sanctions, raised alarm bells among Asian crude importers as the cost of shipping crude oil from regular long-distance supply sources in Africa and the Americas rose sharply.

Platts assessed the benchmark Persian Gulf-Far East Asia 270,000 mt VLCC rate at an all-time high of Worldscale 327.50 on October 14. On a dollar per metric ton basis that equates to $65.53/mt.

Although the sharp rally in global dirty tanker rates came to a halt, with Platts benchmark Persian Gulf-East Asia VLCC marker pulling back around 40% from the record high hit in mid-October, freight rates remained significantly higher than the levels seen for most of 2019.

Higher freight rates will have a direct impact on Asian crude buyers, preventing them from taking advantage of price arbitrage between oil producing regions.

“This will lead Asian buyers to favor more nearby supply from within the region or the Middle East,” Platts Analytics said.

 

More articles in this series:

The biggest challenges to decarbonization are still ahead

US utilities race to slash emissions as ESG reporting takes off

 

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http://so-l.ru/news/y/2019_12_10_asia_s_crude_oil_buyers_pivot_towards_us Tue, 10 Dec 2019 16:55:12 +0300
<![CDATA[Qatar and Saudi Arabia eye peace, a mega gas deal could follow]]> Qatar and Saudi Arabia have several good reasons to finally settle their political differences. Agreeing what could be the gas deal of the century is perhaps the best.

The kingdom burned almost 900,000 b/d of valuable liquid fuels for industrial use and power generation in 2017, according to the Riyadh-based energy think tank, King Abdullah Petroleum Studies and Research Center.

Replacing this oil with natural gas could generate more than $10 billion of additional export revenue at current market prices, or add to its existing cushion of spare crude capacity that was recently tested by the attacks on Abqaiq.

Buying gas from Qatar is one of the cheapest ways for the kingdom to remove oil entirely from power generation, but first must come peace after a near three-year total breakdown in diplomatic and economic relations.

A partial thaw came this week when King Salman bin Abdulaziz invited Qatar’s emir, Sheikh Tamim bin Hamad Al-Thani, to attend a gathering of the Gulf Cooperation Council leaders in Riyadh later this month. Although the emir declined the invitation – sending his prime minister instead – the direction of travel is undeniable.

“Gas supply has always been the Achilles heel to Saudi’s ambitious economic growth plans,” said Samer Mosis, senior analyst at S&P Global Platts Analytics.

“While the kingdom has equally ambitious plans to expand non-associated gas production, Saudi Aramco’s track record in this arena is spotty at best. A gas deal with Qatar would be the rational solution to this conundrum, but Saudi would be loath to build a dependence on Qatari gas.”

On paper, Saudi holds the world’s fourth-largest gas reserves and is the Middle East’s third-biggest producer after Iran and Qatar. But output of natural gas – most of its current output is associated with its oil – could have been much higher had Saudi fully developed its resources.

Qatar oil and gas infrastructure

Twenty years ago it invited international oil companies including Royal Dutch Shell, Eni and Lukoil to explore for natural gas in its vast desert, known as the Empty Quarter.

However, the so called “Gas Initiative” was a disaster. By 2015 most of the companies involved had abandoned their quest, acknowledging the high costs and limited returns on offer partly because of the kingdom’s commitment to providing cheap subsidized electricity for its rapidly growing population of over 30 million people.

Despite these failures and the obvious advantages of importing gas from Qatar, historically Riyadh has obstructed its neighbours’ attempts to build a regional gas network between the Gulf Arab states. In 2006, the kingdom used a 30-year-old border dispute to threaten blocking the eventual opening of the Dolphin gas pipeline linking Qatar to the UAE and Oman.

Senior figures in Doha with knowledge of the issue had suspected gas, and not Qatar’s relationship with Iran, or its troublesome broadcaster Al Jazeera, may have been the real reason behind Saudi Arabia’s decision to orchestrate a regional boycott, effectively blockading its neighboring emirate.

They feared Riyadh was at one stage planning to invade and seize control of its underground wealth stored in the North Field – the world’s largest offshore gas field – because Qatar’s rulers refused to sell it the fuel at a sharply discounted price.

Instead, Saudi Arabia has increasingly eyed the potential of importing liquefied natural gas (LNG) from outside the region to help meet its domestic demand. Saudi Aramco has explored partnerships or investments in LNG projects, from the frozen seas of Russia’s Arctic to the US Gulf Coast and Africa. But with transport accounting for up to 40% of the costs of importing the fuel, finding suppliers closer to the Middle East would make more economic sense.

Qatar’s plans to radically expand its LNG industry could now bridge the divide between these former Arab allies. Doha has signed off on increasing its annual LNG production by a whopping 64% to 126 million tons by 2027. Saudi Arabia – the Middle East’s largest economy – would be the logical customer to mop up some of this LNG at the right price.

“Saudi Arabia will need to turn gas imports to feed its growing industrial and power sector gas demand, most likely with LNG imports on infrastructure-isolated west coast. Whether Qatari LNG will ever land there is a question that can only be answered in Riyadh,” said Mosis from S&P Global Platts Analytics.

Of course, many hurdles still exist to such a deal ever materializing. Despite the invite to visit the kingdom, feelings of enmity within Qatar towards the Saudi regime still run deep in some corners. The UAE is also hostile to bringing it’s gas-rich neighbor back into the GCC fold. It could be many years before trust is rebuilt.

If gas did tear Riyadh and Doha apart almost three years ago, it has the economic power to bring these energy superpowers back together again at the dawn of a new decade in 2020.

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http://so-l.ru/news/y/2019_12_10_qatar_and_saudi_arabia_eye_peace_a_mega Tue, 10 Dec 2019 14:30:05 +0300
<![CDATA[The biggest challenges to decarbonization are still ahead]]> To achieve a clean and affordable energy supply, we will need the right balance of technology and regulation, writes Chris Midgley, global director of S&P Global Platts Analytics. This is the second article in a series looking at key energy sector trends, ahead of the S&P Global Platts Global Energy Awards.

The Extinction Rebellion protests and the passionate pleas of Greta Thunberg for world leaders in politics and industry to take action on what they describe as the unprecedented global climate emergency have brought a greater sense of urgency to the energy transition.

There can be no doubt that the cycle of significant climate events is increasing and that emissions of CO2 or greenhouse gases (GHGs) are rising at alarming rates. However, in a world where over 1 billion people still lack access to simple electricity and many more still live in poverty, the dual challenge of providing affordable clean energy and tackling the impacts of climate change remains complex.

Addressing the challenge of climate change will require us to find a balance between regulation and government policy, technology, and consumer behaviour. Government policy can come with unintended consequences and tends to use taxpayers’ money inefficiently.

The German Renewable Energy Policy or Energiewende, for example, has successfully grown renewable energy in the country from less than 4% in 1990 to 40% today, but has also meant high electricity bills. However, CO2 emissions in Germany have been impacted by marginal dispatchable electricity coming from carbon-intensive lignite (low quality coal).

So has the Energiewende been a failure? Far from it. Without Germany effectively subsidizing the renewables industry, it would have not created the scale of demand that has seen technology and manufacturing processes bring down the cost of renewables to below the cost of thermal (oil, gas or coal) power generation.

Technology often needs a helping hand to gain momentum before it can compete with traditional fossil fuels. But policies cost money. We may have movements like Extinction Rebellion pushing for change, but we have equally passionate ones protesting about the cost of change, such as the gilets jaunes in France, or the protests in Iran, Ecuador and Chile over reductions in fuels subsidies and increases in transport costs.

Regrettably, consumers are strongly motivated by their personal welfare, which is determined by their disposable income or relative wealth. Lower energy costs over the last five years have resulted in an increase in energy consumption as the world economy has created wealth and jobs, leading to what I have previously described as consumer hedonism. Taking away this privilege is hard, and with lower energy prices, technology will find it harder to compete with traditional fossil fuels and/or get the financing required.

Regulation and responsibility

However, there is a new pressure emerging that I call “moral regulation” or self-regulation. Corporations are coming under increasing pressure from shareholders to meet environmental, social and governance (ESG) standards, and are being punished for not addressing the impact of their businesses on society.

We have started to see this among International Oil Companies (IOCs) as their strategies, and more importantly capital, have moved away from high-intensity carbon fuels towards less carbon intensive gas and renewables, some even shifting towards becoming electricity suppliers.

At the same time, National Oil Companies (NOCs) are recognizing the risk of reliance on fossil fuels and potentially having stranded assets, and as such are looking to diversify their economies. Saudi Arabia’s strategy to float part of Saudi Aramco in an IPO in order to raise funds to invest in its Vision 2030 is a case in point.

Technology and regulation need to work together effectively to help provide momentum in the right direction but without distorting market forces. Today, subsidizing electric vehicles effectively benefits the wealthy who can afford them. Subsidizing the scrappage of old polluting vehicles instead would enable the less wealthy to be able to afford cleaner, more efficient, vehicles, which can have a bigger impact on emissions than increasing the number of EVs on the road.

S&P Global Platts Analytics Chris Midgley

A counter-argument could be, do EVs need subsidies to help give them the momentum to compete and bring down costs? Road transportation makes up 20% of global carbon emissions, so clearly it needs to be addressed, but electrifying transportation simply moves emissions up the supply chain to power generation, which today produces 40% of GHG emissions. The current trend towards the electrification of everything may not be the optimal solution.

Harnessing technology

Technology will need to provide a range of solutions to tackle the energy transition across the supply chain. Renewables will play a significant role both in liquid fuels and electrons.

The biofuels sector must avoid competing with land for food and adversely impacting ecosystems, by shifting its focus to transforming plant waste to biofuels, or converting used vegetable oils or tallow from animal fat, through bio-refining. This process can provide liquid fuels such as naphtha (“bio to plastics”), gasoil and, possibly most opportune, jet fuel, in order to decarbonize aviation which contributes over 1 gigaton of CO2 per year.

Go deeper: Learn more about S&P Global Platts Analytics Scenario Planning Service

New renewable electricity has leapfrogged new conventional thermal power in terms of levelized cost of generation but needs to solve the problem of intermittency. In the short term, wind and solar challenge the economics of new combined cycle gas turbine (CCGT) plants and have pushed countries like China and Russia to focus on coal for base-load generation.

Compared with CCGT, traditional coal plants have less turndown, meaning they have to run at higher base-load when ample renewable energy is available. Clean coal power plant with carbon capture and storage (CCS) or use (CCU) can be efficient and have net zero emissions but the right incentives are needed to encourage investment in the technology.

Solving the problem of storing intermittent electricity generation continues to be a significant challenge. Diversifying away from battery storage (and electric vehicles) could be resolved by moving towards a hydrogen economy. When burned, hydrogen emits water, but it requires a lot of energy to produce.

Using renewable net-zero carbon energy to produce hydrogen at scale and in a distributed fashion can provide an affordable solution to first partially decarbonize natural gas, by blending in hydrogen. Hydrogen could then also be used in the road transport sector, in particular as a solution for heavy commercial road transport, in fuel cell vehicles, for which cost and infrastructure are the only current constraints.

Rethinking consumption

Using less energy is something we can and should all be doing today – adjusting our thermostats, buying fewer disposable goods and using more mass transport. Over time we need to recycle, reuse and, most importantly, reduce what we use.

Industry is looking at similar opportunities, such as reusing carbon dioxide in CO2 to petrochemicals. Or reducing the need for energy intensive commodities such as steel and aluminum (even paper), where plastics can be used to lightweight durable products, or, if used responsibly, with the right policies and processes around recycling and reuse, in consumable product supply chains.

Global energy mix scenarios

We will continue to need fossil fuels in our energy mix for decades to come and as such, we need to ensure that the fossil fuels we do consume are of the lowest possible carbon intensity and impact on our planet. With the advent of big data and the Internet of Things (IOT) we can use things like blockchain technology to be able to track and monitor the impact of the carbon we consume. This would enable us to create carbon attributes for the fossil fuels we produce, process and consume.

Today, gasoline and diesel have sulfur and other environmental specifications, and we should also have a specification for the energy (or carbon) used to produce gasoline, incentivizing use of the gasoline with the lowest energy intensity and making inefficient production uneconomic.

Likewise, the energy used to produce and transport natural resources such as gas and oil – and to liquefy LNG – can be measured. Again, by assigning a cost to the energy used we can create transparent tradable markets to incentivize use of only the least energy intensive hydrocarbons.

There are many uncertainties around the future of traditional fossil fuels but there are also many opportunities to make our supply chains more efficient and less energy intensive, to enable the world to achieve its objective of minimizing global warming to less than 2 degrees Celsius.

However, technology alone will not achieve this outcome. We will need well-thought through policies, socially responsible companies and investors, and consumer acceptance to changing behaviours and the cost increase of sustaining our planet for generations to come.

 

More articles in this series:

US utilities race to slash emissions as ESG reporting takes off

Asia’s crude oil buyers pivot towards US crude

 

The post The biggest challenges to decarbonization are still ahead appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_12_09_the_biggest_challenges_to_decarbonizatio Mon, 09 Dec 2019 18:53:58 +0300
<![CDATA[Commodity Tracker: 5 charts to watch this week]]> Oil markets are digesting the latest OPEC announcement on production cuts this week, while regional LNG prices converge and nickel continues on a bearish streak, in S&P Global Platts editors’ pick of energy and commodity trends.

1. OPEC, allies agree to new oil output cuts at eleventh hour

 

OPEC cuts compliance November 2019

 

What’s happening? OPEC, Russia and nine other allies delivered a new production cut deal November 6, just hours after it appeared their pact was close to unravelling. OPEC+ will deepen collective output cuts by 503,000 b/d to 1.7 million b/d from January through March, with Saudi Arabia voluntarily slashing another 400,000 b/d of production beyond its new quota. “We already believed market fundamentals warrant $66/b Brent in January, even assuming the existing agreement simply rolled over through end-2020,” said S&P Global Platts Analytics following the decision. “Needless to say, a lower supply forecast provides more support.”

What’s next? The coalition’s inability to agree on extending the deeper cuts beyond March sets the stage for another potentially tough meeting three months from now. OPEC members Iraq and Nigeria have been serial violators of their quotas, and Russia has also had patchy compliance, though its condensate exemption should help it improve its performance. Whether these producers deliver could be pivotal to the current deal and the pact’s ability to bring down oil stocks in a period of weak demand.

Go deeper: Podcast – Will OPEC+ stick to its latest oil production cuts?

 

2. Nickel continues to slide as supply concerns recede

 

LME Nickel price

 

What’s happening? The nickel price has been riding high throughout 2019, on supply fears related to an export ban from the world’s number one producing nation Indonesia. It was detached from other base metals, which suffered from the US/China trade spate. Nickel hit a high of $18,850/mt in September. However, the ban suddenly seemed to be less of a concern than poor demand, and the price rapidly corrected, reaching a low of $13,115/mt, December 4. It seems the metal was a target for the old trading tactic, “buy the rumour, sell the fact.”

What’s next? With the price now trading in a range of $13,000-$14,000/mt, and year-end on the horizon, it is doubtful there will be any return to stellar form for nickel in 2019. Physical traders seem to be neutral on the metal, with no new bookings being fielded even with the price crash. Eyes will be on what Indonesia actually does in 2019, what it means for supply and how bad demand really is from the stainless steel sector.

 

3. As regional hub prices converge, Europe attracts US LNG

 

JKM LNG vs TTF natural gas prices

 

What’s happening? The JKM-TTF spread has narrowed again, making Europe a more attractive destination for US LNG amid subdued Asian demand. About half of the cargoes that were delivered last month from US LNG export facilities landed in Europe, reflecting a shift in trade flows that appears to favor proximity, liquidity, and the ability to hedge, over traditionally more robust end-user markets in Asia.

What’s next? That Europe has become a home for US LNG beyond just a means to balance the global supply market has taken on added importance amid the ongoing trade dispute between Washington and Beijing. A continued wave of US LNG coming to European shores could help keep a lid on European gas prices through the winter.

 

4. Nordic hydro concerns ease in a bearish European power market

 

Nordic hydro stocks historical

 

What’s happening? German and French generation tend to set European power prices, but Nordic hydro can be a big winter swing factor too. A few colder, drier weeks in Norway have taken stocks down below norms, with the hydro “deficit” put at over 10 TWh. Nordic hydro matters: peak regional stocks of over 100 TWh equate to all coal generation in Germany to end-September this year, while annual inflow in Norway alone can vary by 65 TWh.

What’s next? A material change in the Nordic weather forecast looks set to reverse the recent above-average decline in stocks. Milder, windier conditions could see net outflows decrease on reduced demand and strong wind production. Nordic spot prices are trending down below Eur40/MWh, having been over Eur45/MWh in late November.

 

5. US refinery restarts put pressure on gasoline crack spreads

 

  Gasoline cracks

 

What’s happening? Crack spreads for NYMEX RBOB, an indicator of profitability for gasoline production, have weakened since late November, as the return of refineries from fall maintenance is adding barrels of gasoline to storage. The RBOB crack spreads for February 2020 against ICE Brent ended Thursday at around $4.86/b, down $3.16/b on week. The decline followed a surprisingly large US gasoline stock build. Stocks rose by 12 million barrels between the first and last week of November, based on US Energy Information Administration data. US refiners are restarting after maintenance season. At its peak, the week ended October 11, a combined 3.36 million b/d of distillation and FCC capacity was down in the US Gulf Coast and Midwest, according to S&P Global Platts Analytics.

What’s next? By end-November, outages had fallen to 847,000 b/d, and by end-December they are expected to decline to just 372,000 b/d. Refineries are also returning from maintenance in Europe and parts of Asia, which should add to global gasoline supplies in December.

Reporting by Paul Hickin, Ben Kilbey, Stuart Elliott, Henry Edwardes-Evans, Jeff Mower

 

The post Commodity Tracker: 5 charts to watch this week appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_12_09_commodity_tracker_5_charts_to_watch_thi Mon, 09 Dec 2019 14:33:19 +0300
<![CDATA[Five commodity themes for 2020]]> What will be the biggest drivers and concerns for global commodity and energy markets in 2020? S&P Global Platts president Martin Fraenkel shares his outlook.

This year has been marked by a tug of war between geopolitical tensions and macroeconomic concerns, rangebound commodity prices and – perhaps most importantly – rising consumer awareness of climate change. As we look ahead to 2020, we think the year will bring some of these themes into even sharper focus.

The upcoming US presidential election, a decelerating Chinese economy and rapidly evolving technology will once again keep commodity markets unpredictable, even for the most seasoned observer.

Here are my personal five commodity themes to watch during the coming year.

Energy transition

Energy transition is going to be ever-present, driving discussions and strategic planning in 2020. World leaders in both politics and industry are under mounting pressure from consumers – particularly in the West – to deliver increased energy produced with dramatically lower emissions and in more sustainable ways.

Heightened awareness by the Extinction Rebellion movement and the activist Greta Thunberg has put both governments and companies on notice of people’s expectations that action must be taken to keep the global average temperature rise at no more than 2 degrees Celsius.

While it is certain that this shift will require huge investment, the way forward is still emerging. Numerous technologies and solutions are vying for the same investment dollars that are already shifting away from traditional higher-carbon intensity industries. There will likely be a heavy reliance on subsidies, which in turn are dependent on policy. No one single approach is likely to win out, at least in the short term.

In terms of transportation, the focus has been predominantly on electric vehicles, while there is also increased investment and research into the use of hydrogen for heavy duty and long-distance transportation. But biofuels look set to take center stage in 2020, as favorable economics and the consumer-led call for immediate action have revitalized support for the fuel, particularly in Europe.

Go deeper: Watch the “5 commodity themes for 2020” video

Biofuel blending looks to be the fastest route to reducing emissions, with consumption expected to increase in 2020, eating into gasoline and diesel’s share of the market and adding renewed pressure on oil refiners.

With more than 1 billion conventional cars in the global fleet, road transport currently accounts for 20% of global carbon emissions, a number that is not likely to fall without a bigger solution for infrastructure. Based on this trend, S&P Global Platts Analytics forecasts that global oil production will need to increase to meet rising demand from road transport over the coming years.

In the US, the situation is more complex, with tensions apparent between federal and regional policies. At the same time, natural gas is cheap, putting pressure not only on coal use for electricity production, but also on cleaner nuclear, renewables and energy storage.

Of course, the race to renewables alone will not be enough to meet aggressive carbon reduction targets. To deliver these significantly lower emissions, every type of energy and product needs to reduce its carbon intensity – we will need carbon capture and storage and consumers will need to be more energy efficient.

Economic slowdown in China

Tariffs and trade wars will continue to dictate global pricing and trade flows for multiple commodities in 2020, but the consequences of the ongoing dispute between China and the US, particularly, are now rippling out into the economy, sparking fears of another recession.

The dispute – now in its 21st month – has exacerbated a change in local Chinese policy that aims to wean state-owned enterprises and banks off stimulus packages. The combined effect is that the rate of China’s economic growth has slowed to a pace not seen since 1992.

The effects of this domestic slowdown and weaker fuel demand growth have resulted in increased gasoil, gasoline and jet fuel exports, putting pressure on Asian commodity prices and refinery margins.

Platts Analytics expects that exports of gasoline, gasoil and kerosene in 2019 will reach an estimated 54.5 million mt (1.17 million b/d) if no more rounds of export quotas are released by the year end. This is nearly a tenth of the country’s crude imports, which is roughly equivalent to Saudi Arabia or India’s refined exports – both regions where refineries also cater heavily to export markets.

This figure is likely to rise in 2020, with the significant growth in new refineries resulting in total capacity reaching 18.71 million b/d, with another 320,000 b/d still under construction.

China’s crude imports have remained robust in 2019 as a result, surging 17% year on year to hit a historical high of 10.76 million b/d, or 45.51 million mt in October. Sinopec, the largest refiner in the country, forecasts that imports could reach 500 million mt in 2019.

The rise of new markets

Despite strong electric vehicle production, the slowdown in Chinese demand following the government’s decision to reduce state subsidies on EVs in July is weighing heavily on the market (with sales down 50% year on year).

While many are hopeful that EV sales could be poised to rebound in 2020, significant costs associated with buying an EV and limited infrastructure remain a barrier to entry for many. Although leading manufacturer Tesla has moved back into the black this year, costs in the sector as a whole are expected to come into parity around 2022-23, while 2025 is widely touted as the year when sales may take off globally.

Similarly in the petrochemicals market, the transition from virgin to recycled plastics is under way, with many brand owners making global commitments on the back of European policies.

However, virgin polymers and feedstock monomers are expected to remain more competitively priced into the mid-2020s, and this is challenging traditional discounts for recycled material. It remains to be seen whether the consumer push can be sustained despite unfavorable economics, and manufacturers will have to test consumer appetite to bear the cost of increasingly recycled packaging.

Go deeper: Read S&P Global Platts’ special report “Plastics recycling: PET and Europe lead the way”

Investments are under way globally, but as with all nascent markets, infrastructure that makes industries truly scalable and markets commoditized will take time to develop.

Weather-driven market events

Weather-related demand swings have always been a feature of commodity markets, particularly natural gas and electricity, but the cycle of significant climate events is increasing.

In the spring of 2019, US farmers were unable to plant crops on 19.4 million acres in the Midwest.

This was the largest number of so-called “prevent plant” acres since the government began tracking this type of data in 2007. In 2018, the number was 1.9 million acres.

The cause of this was flooding due to an accelerated snow melt in the spring, which was caused by record rainfall at the time. Over 14 million acres that were intended for corn, soybeans and wheat went unplanted, sending corn and soybean prices to multi-year highs.

As agriculture and biofuel demand grows, these swings in demand will get larger as will the demand for heating fuels, as growing populations get access to domestic gas or LPG, making the demand for these commodities increasingly vulnerable to weather conditions.

Beyond blockchain

2020 could be the year of the centralized ledger, but potentially without Blockchain technology itself. Blockchain has huge advantages for security and encryption, with some early adopters using the software in North Sea oil contracts. But speed, cost and energy intensity mean it is currently difficult to scale for many players in the commodity markets.

Smart contracts that offer a similar level of security are already a reality, albeit with centralized ledgers using the similar reconciliation and physical documentation of trade but without the need for simultaneous record keeping, thereby reducing the energy, latency and cost. These efforts could significantly reduce costs and lower barriers to entry across commodities markets.

Platts has already leveraged this technology, launching Platts Trade Vision in November 2019, a cutting-edge tool that allows price submissions into Platts US Natural Gas benchmark indices. Already nearly half of our data is being submitted through Trade Vision after just a few weeks.

Data automation and artificial intelligence will play an increasingly transformative role in 2020. Successful trading has always been focused on nimble operations and scale, but tighter margins and increased competition have made participants look at accessing faster, broader datasets to gain an advantage.

In a world where data is now more valuable than oil, the seriousness of efforts by companies – including Platts – to harness the power of data and technology cannot be underestimated.

 

The post Five commodity themes for 2020 appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_12_06_five_commodity_themes_for_2020 Fri, 06 Dec 2019 19:51:32 +0300
<![CDATA[China Macro & Metals: Steel output falls, but property creates bright spots]]> Chinese steel production posted a rare drop in October, while domestic steel prices have been buoyed by the property sector. Paul Bartholomew and Sebastian Lewis analyze China’s key economic indicators, and what they mean for the metals sector.

Crude steel production growth falls for first time in nearly 4 years

 

China crude steel output growth, iron ore imports

China’s crude steel production fell 1% on year in October, marking the first time output has contracted since the beginning of 2016. The fall was mainly due to production cuts in northern China to “keep the skies blue” over the 70th Anniversary of the People’s Republic of China celebrations and Golden Week holiday in early October. October was the second consecutive month of slowing steel production growth.

S&P Global Platts sees crude steel output growth easing to 2% next year, compared with around 6%-7% in 2019. This year there was a big spike in new steelmaking capacity commissioned, most of which replaced facilities that had long been closed. From 2020, the relationship between capacity removed and new capacity commissioned will be much closer, therefore the year-on-year production increase will be more modest.

Go deeper: The relentless rise of Chinese steel production

Demand from property construction remains robust, supporting steel and iron ore demand for most of 2019. The property sector could see a boost from government bonds issued in early Q1, 2020, in the same way it did at the start of this year.

China steel consumption by segment

 

However, weaker house price data in recent months indicates all is not completely well in China’s property market. In fact, some argue that it has overheated and is bound to cool in 2020.

Iron ore imports have been strong since July on recovering seaborne supply but imports fell in October due to cautious mill restocking in anticipation of possible steel production cuts over winter.

China bulls: Domestic rebar prices rose by 80% over the month of November and should be supported by robust property construction data

China bears: Weak home price data in October indicates problems down the track…

Cooling housing sector bodes ill for steel demand

 

China steel consumption and house prices

Housing data shows floor space started (which represents floor space in building projects started) in January-October expanded 10% year on year. Growth had been 9% for January-September. Floor space sold is also picking up slightly, moving into positive year on year growth after nine months of contraction. Typically, there is a 6-9 month lag between floor space sold and steel being purchased for the construction project.

But there is reason to be cautious about the outlook for property. Research by S&P Global Ratings argues that regulators are clamping down on the real estate sector, curbing offshore bond issuance by developers and ordering banks and other sources of financing to reduce their exposure to the sector.

S&P Global Ratings attributes some of the recent growth in floor space sold to developers cutting prices in a bid to sell properties and improve cash flow. Beijing has said it does not want to use the property sector for short-term economic stimulus. But the sector remains vital to China’s economy, particularly in view of weak manufacturing – though manufacturing improved in November.

Funding has gone into real estate rather than infrastructure

 

China fixed asset growth, infrastructure and real estate

New home prices fell in 17 of the 70 cities monitored by the National Bureau of Statistics, giving the biggest average month-on-month drop in the house price index for several years.

Historically, falling house prices have led to a decline in demand for steel. When buyers stay away from the market in the hope of cheaper prices, developers slow the number of new starts which leads to a decline in demand for steel.

Infrastructure demand may not compensate for any slowdown in property construction demand. Year-to-date fixed asset investment growth in infrastructure fell back to 4.2% in October, after rising slightly in September. This is despite China’s intention of boosting infrastructure this year.

There is a view that government bonds intended for infrastructure projects this year were channeled into funding residential construction due to a lack of viable infrastructure projects to invest in.

Steel margin pressure eases on lower iron ore prices

 

HRC, rebar margins and iron ore import prices

Chinese steel prices rallied in November, driven by a combination of low inventories, stronger futures markets and positive sentiment around the property market. Chinese domestic hot-rolled coil margins started November at $11.94/mt and reached $60.64/mt on November 29, while rebar climbed to $101.93/mt from $56.92/mt, Platts analysis shows.

Iron ore imports have been above 90 million mt/month since July due to the recovery in supply from Australia and Brazil. But imports of 92.8 million mt in October were down 7% on September as mills were cautious about restocking in case China announced steel production cuts for the winter period.

Iron ore restocking will likely pick up in coming weeks ahead of the colder winter months and Chinese New Year, and in anticipation of the usual weather-related export curtailments from Australia and Brazil in Q1. This should help support iron ore prices in December.

 

 

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http://so-l.ru/news/y/2019_12_06_china_macro_metals_steel_output_falls Fri, 06 Dec 2019 16:31:50 +0300
<![CDATA[LNG displaces Atlantic basin pipe gas, but meets resistance in Asia]]> Liquefied natural gas (LNG) cargoes have displaced pipeline natural gas volumes in the Atlantic Basin throughout 2019, due to historically low spot prices of the shipped fuel.

Higher LNG spot market activity has helped unleash some of the commodity’s inherent flexibility. It is inherent because a spot cargo that can move to any importing nation is more flexible than a pipeline whose destinations are fixed.

Cargo pricing can therefore regularly have a significant influence on pipeline pricing – this is seen in oil markets, where it is seaborne benchmark prices that are used as the basis of pipeline flows in most geographies.

Even though Asia accounts for most of the world’s LNG imports, and, until 2019, has been LNG’s demand growth engine, the disruption of piped gas by LNG has not been a noticeable trend in Asia, in  part because there is less pipeline gas to disrupt.

Asia’s utilities are yet to see the full cost benefit of historically cheap and plentiful spot LNG supplies due to contractual inflexibility (destination restrictions, for instance) and pricing decisions such as linking long-term contracts to higher crude oil prices.

Go deeper – Read S&P Global Platts’ special report on the future of LNG markets

To achieve significant demand growth in Asia, LNG will need to consistently challenge coal and displace the fuel in power generation, especially in China and India. To do that, competitive spot market and long-term contract pricing will be necessary.

In the Atlantic markets LNG-on-gas and LNG-on-coal competition is more prevalent, and it is consequently no surprise these markets have been at the forefront of this year’s global 3% reduction in coal use for electricity generation. Here are a few cases where piped gas has been affected by LNG cargo imports.

Europe: Algeria’s oil-indexed gas hit hardest by LNG

The summer season (April-September) saw Europe’s natural gas imports grow 8.2% on-year to 191.7 billion cubic meters, according to government trade data. This increase was mainly due to higher LNG regasification, up 117.5% on-year to 47.17 bcm.

Algeria pipeline flows to Spain and Italy for January-September 2019 dropped 43% on-year, or 3.87 bcm, suffering the most as Algeria’s oil-indexed contracts were out of the money compared to LNG prices.

However, Norwegian piped gas exports to Europe dropped more than 10% on-year during the summer to 46.83 Bcm. Even piped flows from Russia dropped slightly in the same period. Norway has been open about its commercial optimization of piped flows, regularly reducing exports to Northwest Europe due to low day-ahead hub pricing compared to seasons further out on the forward curve.

“In 2020 oil-indexed contracts will still be out of the money, constraining Algeria pipeline exports to Europe, while LNG flows to South Europe will remain strong,” Samer Mosis, Senior LNG Analyst for Platts Analytics said. “The biggest question is Russian pipeline gas, which has shown responsiveness when hub prices test Gazprom’s short-run marginal costs. [Platts Analytics] expects this to come into full focus in Summer 2020, when hub pricing in North Europe will test Gazprom’s marginal costs once again, pitting LNG against pipeline gas.”

Elsewhere in Europe, Greece has shifted to 53% of its gas supply coming from LNG in 2019, versus 21% in 2018. The country’s pipeline gas receipts from Bulgaria are down 44% to 1.51 bcm (up to end-October), while Greece’s import terminal, Revithoussa LNG, has regasified 2.42 bcm in 2019 compared to 977 mcm last year.

The trend is clear: flexible, competitively-priced LNG dislodged piped gas in a period of strong consumption. It is notable that this occurred in Europe, a continent with the most advanced piped gas hubs of any major net importing region. Therefore, LNG has competed very effectively with piped gas on price. The chart below shows the steep discounts against natural gas hub prices of imported LNG cargoes into Europe.

LNG spot price vs hub price Europe

Latin America: Brazil takes advantage of low LNG prices

Brazil has seen increases both in domestic gas production and LNG imports as imported piped gas has dropped this year.

Average daily LNG regasification from January – August hit 9.2 mcm/d, increasing 33% compared to 2018 and reaching the highest since 2015. Brazil’s domestic gas production has increased 6.4% in January-September 2019 on-year to 32.3 bcm, according to government data.

Brazil’s imported piped gas volumes from Bolivia slid 30% in January – August 2019 to 15.3 mcm/d. Bolivia’s exports to Brazil are linked to petroleum product prices such as fuel oil. Brazil’s average LNG import price was just $4.1/MMBtu on an FOB basis in August, demonstrating the country has been taking advantage of historically low market-based prices.

LNG spot price vs long-term contract

Overall, though, Latin America LNG demand has disappointed in 2019 against expectations. LNG is forecast to play a minor role as a support to hydropower, but also second fiddle to stronger local natural gas production in the coming years, with Argentina’s Vaca Muerta shale play and Brazil’s subsalt expansion plans .

Asian power generation: next frontier for LNG

With LNG supply likely to continue to outpace demand in 2020, there could be more extreme pipeline gas disruption in the Atlantic. In Asia, LNG consumption is linked more broadly to the energy transition rather than pipelines: LNG on a legacy oil-linked contract basis is nowhere near competitive versus cheaper seaborne or domestic coal, either today or in most price forecast scenarios.

Therefore, the LNG industry faces a stick-or-twist moment in its largest potential growth region. Many production projects commissioned in recent years are difficult to sustain financially at today’s spot prices. But in order to incentivize major new demand growth, LNG will likely need to properly break into power generation in Asia’s biggest consuming nations (China and India) by getting close to competing with coal on price.

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http://so-l.ru/news/y/2019_12_05_lng_displaces_atlantic_basin_pipe_gas_b Thu, 05 Dec 2019 14:11:51 +0300
<![CDATA[Tariffs and tribulations: recasting US metals industries]]> “Trade wars are good, and easy to win,” President Donald Trump tweeted in March 2018 after imposing sweeping tariffs on US imports of steel and aluminum. The application of a little-known trade remedy sent shockwaves across the metal markets and upended well-established supply chains.

More than two years have passed since the Section 232 investigation was carried out by the US Department of Commerce, under provisions in a 1962 trade act, and 20 months since the tariffs were imposed on the grounds of national security.

The 25% tariff on steel imports to the US appears to have had more impact on company balance sheets and investment decisions than the 10% tariff on aluminum imports. Nonetheless, North American metals markets have been rattled.

A steel renaissance?

Steel prices in the US neared 10-year highs during the summer of 2018 on the back of the tariffs. The daily Platts TSI US hot-rolled coil index, a bellwether finished steel price, surged by almost 57% from the fourth quarter of 2017 to a peak of $920 per short ton in early July 2018.

The rise in US steel prices, much more than anticipated, kicked off a celebratory atmosphere for many US steelmakers with US Steel CEO David Burritt declaring a “renaissance” for the industry.

The party in 2018 has been followed by a tariff-induced hangover in 2019. Prices went on a nearly year-long skid from July 2018 to July 2019, with 10-year highs replaced by three-year lows. The drop pushed steel prices to levels not seen since the collapse of oil prices in 2015-2016.

steel hot rolled coil price US

The decline of steel prices had two main causes. Prices overreacted to the 25% tariffs as uncertainty and the fear of a supply crunch led to a sharp increase in buying activity. The runaway prices only fueled more buying as market participants who waited faced higher domestic prices when they finally placed orders.

The rollout of the tariffs left market players confused about the rules of the game. The application of the tariffs was broader than many expected and between March and June there was an ever changing landscape of which countries were subject to the tariffs.

However, as trade policy calmed in the second half of 2018 and the tariffs were established, buyers began reducing long positions as inventory costs started to look inflated. The destocking continued into the first quarter of 2019 with a brief pause before resuming through the summer of 2019.

The second contributing factor to the decline was a pickup in supply from restarted domestic capacity and higher mill run rates. Domestic steelmakers, like US Steel, looked to capitalize on the high steel prices by bringing back previously shuttered capacity. By October 2018, US Steel had restarted two blast furnaces at its Granite City Works in Illinois with a rated raw steelmaking capability of 2.8 million st/year.

India-based JSW moved further into the US market by acquiring an Ohio-based mill in March. The steelmaker restarted its electric-arc furnace in December 2018.

The restarted capacity was coupled with higher mill utilization rates following the tariffs, leading to the highest annual domestic steel production since 2014 at 95.47 million st.

US raw steel production

Despite the price slide in the second half of 2018, the year went down in the record books for domestic steelmakers. Nucor and Steel Dynamics Inc. both cashed in on record annual profits with Nucor netting $2.4 billion and Steel Dynamics earning $1.3 billion. Meanwhile, US Steel posted its largest annual profits since the 2008 peak at $1.1 billion.

US steelmaker profits

The surge in US steelmaker profits and nearly 10-year price highs may have disappeared but the impact is set to shape the US steel industry for the next decade.

Through last year, domestic mills unleashed a flurry of new projects to expand domestic capacity. The wave of new flat-rolled supply will come online over the next three years, and is estimated at 8.2 million st, without including the restarted capacity at US Steel or JSW.

The capacity increases can be viewed through two lenses. In the glass half-full view, the new mills will be a giant leap forward that helps to modernize the US steel industry, allowing it to compete on the global stage more effectively than ever.

However, in the glass half-empty view, the added capacity will result in a glut of domestic supply and depressed prices. As a consequence, higher-cost mills will have to either shut down or consolidate. This thesis has been trademarked “Steelmageddon” by Bank of America.

“I think this is the most transparent train wreck I’ve seen in my career. And it’s coming for us,” Timna Tanners, an analyst at the bank, said in March at S&P Global Platts’ Steel Market North America conference in Chicago. “The path from here to the next five years could be pretty ugly.”

Aluminum import dependence

While raw steelmaking saw a production boost from section 232 tariffs, the impact was nowhere near as great for aluminum.

There is a simple reason. The US-North American aluminum industry is deeply integrated, and Canada’s smelters are a major source of aluminum for US companies.

The US produces about 80% of all the finished steel it consumes, but only about 17% of all the primary aluminum it consumes. Even at full capacity, the US could only meet less than half its primary aluminum needs, according to the Aluminum Association.

Steel industry lobbying groups such as the American Iron and Steel Institute and Steel Manufacturers Association have energetically supported the tariffs, citing the wave of new investment and job creation. Interestingly, their counterpart, the Aluminum Association, never embraced the tariffs.

In February of this year, the Aluminum Association said: “Claims that the Section 232 tariffs on aluminum have driven a significant amount of US investment are not supported by the facts.” The group asked for the tariffs to be removed on “vital” trading partners and for the administration to focus on what it sees as the real problem – China’s excess aluminum capacity. In May, the US lifted the 10% Section 232 tariff on aluminum imports from Canada and Mexico.

Shifting trade flows

Tariffs have not proved a magic bullet for the aluminum industry. Instead, the lifting of import tariffs against Canada and Mexico in May has resulted in some significant shifts in trade flows to the US from these countries.

Primary aluminum in the US in the form of ingot, sows, T-bars, billet and slab are manufactured into semi-finished products such as extruded profiles, coil, sheet and plate, foil, rod and bar, and die castings. US Census Bureau data shows that flows of unwrought aluminum from Australia, which are mainly in the form of P1020 ingots, are up 305% through August year on year. Imports from Canada were down 14.4% during the same period.

North American total demand – shipments by domestic producers plus imports – for H1 2019 totaled 14,258 million lb (6.47 million mt), up 0.7% year on year. Demand for semi-fabricated or mill products totaled 10,413 million lb, up 2.2% year on year. Apparent consumption, demand less exports, for H1 2019 was estimated at 12,753 million lb, up 2.2% year on year, all according to the Aluminum Association.

Australia, Argentina, Canada and Mexico are exempt from Section 232, but US Census data shows 36.6% of imports are still facing tariffs.

US primary aluminum imports to port

The largest supplier of sows to the US is Canada. Data from Panjiva, part of S&P Global Market Intelligence, which tracks ocean shipments to US ports, showed that of the 178,465 mt of sows only 4,976 mt or 2.8% were 99.85% purity or greater.

Most of the sows imported from Canada into US ports are P1020, 99.7% purity, for which S&P Global Platts holds the benchmark in the US; and P0610, 99.8% purity. Together these account for 95.6% of imports. Canadian exports to the US were up 33.4% year on year in July and 28.1% in August.

The September data showed Australian imports of unwrought aluminum to the US were down 50% month on month, a trend the market was expecting. Canada’s exemption from Section 232 means producers that have smelting operations in both Australia and Canada have an incentive to shift their sales. For the US market, this means less Australian ingot and more Canadian sows, which is a change from the majority of 2018 and 2019.

During Q3, duties were levied on 81.7% of imported billet – used in automotive, building and construction, HVAC and engineering – and 97.3% of imported foundry alloys – used for aluminum castings in wheels, chassis components and electrical applications.

The Panjiva data for Q3 showed that 48% of total US primary aluminum imports faced duties, mainly due to the data not including shipments from Canada by rail and road.

US primary aluminum imports

Mixed results

Section 232 had two stated goals: to increase domestic steel mill capacity utilization above 80% and reduce imports.

For the steel sector, it is possible to say the tariffs were successful in achieving the stated goals. Domestic steelmaking increased as utilization rates moved higher. In addition, imports year-to-date through September 2019 were down by 13% to 20.64 million mt, their lowest level since 2011.

Some of the more traditional steel trading partners, like Turkey, have been squeezed out due to the tariffs. Others have had a narrower offering of products or are limited by quotas.

Still, the most noticeable development in 2019 is the fact that even as imports have been severely restricted and rendered uncompetitive with domestic prices, US mills have been their own worst enemy. Import pricing has historically helped to set a floor for domestic steel prices, and mills have typically competed against imported material but rarely gone below import offers. This has not been the case in 2019. Import offers have been at a considerable premium to domestic prices through most of the year.

While there have been some notable trade flow shifts stemming from the aluminum tariffs, they have not been a major shot in the arm to aluminum smelting in the US. There are just eight remaining viable aluminum smelters in the US. In 2017, the year before the Section 232 tariffs, the average rate of aluminum capacity utilization was about 43% in the US. Platts estimates US aluminum smelters’ average rate of capacity utilization at around 65% in 2019 – short of the stated 80% goal.

In both aluminum and steel the tariffs have helped raise operating rates among US producers. But even with the tariffs on aluminum and steel, prices have succumbed to global macro headwinds.

As one steel executive said, “the market is going to do what it’s going to do.” Translation: Market fundamentals have a way of trumping trade actions.


Markets perspective: aluminum derivatives react

Exchange prices for Aluminum on both sides of the Atlantic have been reflecting the relatively weak global demand and persisting uncertainty around geopolitics and tariff regimes.

Physical aluminum producers, consumers and traders can hedge out their price risk using the London Metal Exchange’s physically deliverable contract, which has over 550 approved warehouses in 33 locations across the US, Europe and Asia.

For most of 2019 financial spreads on the LME on a month-to-month basis have been considered large enough to cover the cost of carry and financing. This in turn is supportive for premiums such as those assessed by S&P Global Platts, which reflect regional pricing.

Even with weak spot demand and pressure on flat price, traders and banks can hold positions and cover costs if carries are wide enough – around $7/month is needed on average. But cash to three-month spreads were under pressure in early November at the tightest levels since January 2019.

LME Aluminum cash to 3-month spread

At that point the December 2019/January 2020 spread was in backwardation, i.e. the December contract’s price was higher than January 2020. In general, if sustained over a prolonged period of time, this would put pressure on premiums, since traders would look to sell physical or deliver on to the LME.

Meanwhile, on the CME, the US aluminum transaction premium has moved into weaker backwardation since the Canada/Mexico exemption from section 232. CME Group’s Aluminum Midwest US Transaction (symbol AUP), a benchmark settled on a monthly basis against Platts’ US Aluminum Transaction premium, had a spot-to-six month spread of around 0.75 cents/lb in mid-October, from 2.85 cents/lb in May 2019 right after the announcement that tariffs on Canada would be lifted, which was a new high for the year.

CME Aluminum Mid-west US transaction

Calendar year 2020 premiums in the US dropped sharply in Q4 due to recent selling pressure from producers. This came after 2020 demand was revised lower both in the US and globally by major producers and banks, while the possibility of production increases by Chinese smelters in 2020 also looms.

As open interest declined during 2019 so did AUP average daily volumes, which sits at 7,250 mt per day, down from 10,300 during the same period in 2018, due to uncertainties over tariffs and macroeconomic trends. A reduction in US imports and drawing on inventories has also contributed, as market participants seek to avoid holding expensive stock, potentially at a loss.

Weak carry spreads and business conditions looked set to spur producer and fund selling into year-end and the drawing down of producer inventories, with a negative impact on the near-term flat price and premiums.

 

The post Tariffs and tribulations: recasting US metals industries appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_12_04_tariffs_and_tribulations_recasting_us_m Wed, 04 Dec 2019 13:02:20 +0300
<![CDATA[US utilities race to slash emissions as ESG reporting takes off]]> US utilities have stepped up their efforts to provide environmental, social and governance (ESG) reports with clear emissions reduction goals, writes Jeffrey Ryser. This is the first in a series of articles assessing key energy sector trends, ahead of the S&P Global Platts Global Energy Awards.

The year 2019 may come to be seen as pivotal in the transformation of the US electricity sector.

A drive by dozens of US electricity utility holding companies to provide ESG reports has brought to the forefront numerous new commitments to zero carbon emission goals, and an accompanying surge in plans to install thousands of megawatts of wind and solar generation over the next few decades.

The preparation and release of ESG reports in the US power sector has jumped significantly this year. The Edison Electric Institute, the US association representing investor-owned electric utilities, had 21 of its members participate in a sustainability report pilot program in late 2017. Now, 35 of its members have posted their own ESG/Sustainability template on their websites.

At the holding company level, EEI has 63 member companies, but when measured by market capitalization, more than 90% of the US investor-owned electric power industry is currently using the ESG/Sustainability Template to report information to investors, according to EEI spokesman Brian Reil.

“As ESG disclosure continues to evolve from a ‘nice-to-have’ to a ‘must-have,’ EEI’s efforts to create a comprehensive reporting template and methodology that respond to the needs of both members and financial institutions are notable,” said Val Smith, global head of corporate sustainability at Citi, following the launch of EEI’s version 2 reporting template in late August.

EEI and its member companies do not necessarily consider all ESG/sustainability information to be financially material, but intend the information provided to be “supplemental” to material financial information provided to the US Securities and Exchange Commission.

Nevertheless, the increase in this supplemental information has brought with it a material increase in CO2 emissions reduction goals that foreshadow a major reshuffling in utility business models with dramatic implications for the US power generation mix, and a potentially large reduction over the next few decades in fossil fuel usage for generation.

“The growing interplay between environmental and social forces will have a transformative impact on the credit quality of these sectors, and will likely translate into balance sheet and/or business model realignment for industry players,” Moody’s Investors Service said in one of its recent ESG Focus reports.

Moody’s estimated that utilities and power companies “are on track to achieve a 27% reduction in CO2 emissions by 2030.” That percentage also appears likely to rise given the utility actions announced this year.

Moody’s said that legislative and regulatory support “drives the pace of carbon transition.” It said that policymakers are influencing the speed of the transition to a more carbon-friendly generation mix “by facilitating investments in renewable energy and, in one instance, the expansion of nuclear generating capacity.”

“Among US corporate sectors, electric utilities and power companies are best positioned to significantly reduce carbon dioxide emissions by 2030,” largely due to the decline in coal-fired power generation, Moody’s said.

It noted that with coal in decline, environmental opposition to natural gas also “is on the rise.” That opposition already has led to a large turn away from natural gas in long-term utility planning.

“A heightened public focus on reducing carbon emissions could prompt state legislators and regulators to accelerate the pace of the power sector’s transition to renewable energy sources. If we were to assume that declining coal-fired generation is replaced by a mix of 20% natural gas and 80% renewable generation (instead of the 60% natural gas/40% renewable mix assumed in our base case), the result would be a net reduction in CO2 emissions of 650 million tons, instead of 532 million tons, representing a 35% reduction from 2018 emissions by 2030,” Moody’s said.

ESG impacts credit, loans

S&P Global Ratings has said that, over the past year, more and more businesses have shifted focus to address issues closely linked to the mitigation of and adaption to climate change. The ratings agency says that ESG considerations are finding their way into loan pricing. Sustainability or ESG linked loans have emerged as the latest innovation for bank loans, both investment grade and speculative grade.

The S&P 500 ESG Index was developed to serve as a benchmark for index-linked investment products. The methodology of the S&P 500 ESG Index was constructed with two objectives, S&P Global has said: to provide a similar risk/return profile to the S&P 500; and to avoid companies that are not managing their businesses in line with ESG principles, while including companies that are.

As of October 31, 2019, the S&P 500 ESG Index had 315 constituents, with 190 constituents of the S&P 500 excluded. These exclusions comprised 26.32% of the S&P 500 index’s market capitalization as of the same date.

Surge in CO2 commitments

Given the absence of a federal climate change policy, a growing number of utilities have been encouraged by investors over the past two years to set their own carbon targets, noted the pro-renewables group, the Energy and Policy Institute, in a June report.

There has been a recent jump in ESG reporting, and an increase in climate goals in particular, with at least seven utility holding companies declaring they will reach 100% C02 emission reductions by 2050.

US utilities' CO2 emissions reduction goals

One of the seven is Duke Energy, which in September announced an updated climate strategy with a new goal of net-zero carbon emissions from electric generation by mid-century. The company said it was accelerating its near-term goal by cutting its carbon dioxide emissions by half, or more, from 2005 levels by 2030. Xcel Energy, based in Minnesota, said earlier in May that it is on pace to reach its interim goal to cut carbon by 80% by 2030, with its longer-term goal being the delivery of 100% carbon-free electricity by 2050.

Warren Buffet’s Iowa-based regulated utility MidAmerican Energy has installed so much wind generation that it has said it might be able to reach 100% reduction by next year. Numerous other electric power companies have slightly lower CO2 emission reduction goals. Dominion Energy has said it is “committed to reduce carbon emissions from its power stations 55% by 2030 and 80% by 2050, and to cut methane emissions in half by 2030.”

On November 5, the CEO of Vistra Energy presented analysts with a 10-year fundamental outlook, reflecting Vistra’s announced goal to cut carbon dioxide emissions by more than 50% by 2030 from 2010 levels. The Dallas-based company has already completed or announced plans to retire 14 coal plants and three gas plants, which should cut CO2 emissions by 42%, CEO Curt Morgan said, adding that “our fundamental analysis would suggest that future retirements of this magnitude will be warranted based on economics alone.”

Even in the Midwestern part of the country, ESG sustainability reports have become de rigeur. Alliant Energy, based in Madison, Wisconsin, has said it is targeting a 40% reduction in carbon emissions below 2005 levels by 2030 and an 80% reduction by 2050. The WEC Energy Group, based in Milwaukee, Wisconsin, said in July that its long-term goal is to reduce total carbon dioxide emissions by 80% below 2005 levels by 2050.

A national price on carbon

The Democrat-led House Energy and Commerce Committee adopted a bold target earlier this year to achieve a 100% clean economy by 2050. In an October 31 hearing, the committee chairman, Democrat from New Jersey Frank Pallone said, “In the power sector, there are clear, achievable ways to get to 80% decarbonization, but it’s the last 20% that will, by far, be the biggest challenge.”

Pallone said, “Getting to 100% will require a balanced portfolio of low- and zero-carbon technologies — including solar, wind and nuclear power — as well as energy storage and carbon capture technologies. Without this balanced portfolio, deep decarbonization will happen at a slower pace and at a higher cost to homeowners and businesses.”

Go deeper: Factbox – US 2020 presidential election energy platforms compared

However, according to PSEG President and CEO Ralph Izzo, “The shortest path to a net-zero economy requires setting a national price on carbon.”

“This is what will drive the innovation needed to achieve our goals. This is what allows us to end technology-specific subsidies that layer on additional costs,” he said. “And this is what will help drive emissions reductions through market mechanisms not just from the power sector but economy-wide.”

In early October, the New York Independent System Operator, or NYISO, proposed embedding the social cost of carbon dioxide emissions into the wholesale price of electricity. NYISO may end up providing the model that will be used by regulated power markets and grid operators.

Pushing the clean agenda

Deloitte, the audit and consulting firm, released a report in early October on a survey it did of 308 executives from eight industries, not including the US power sector. Deloitte said that 45% of the executives from those industries have a target year to increase renewable energy sources in their electricity consumption. Six companies indicated they were aiming at 100% renewable energy.

One non-energy company, Amazon, issued in mid-September what it called a climate pledge committing it to 100% renewables by 2030 and net zero carbon emissions by 2040. Amazon said it will speed up its adoption of renewable energy with the goal of converting 80% of the company’s energy sources to renewable energy by 2024.

Coal plummets, renewables soar

Some doubts remain about whether a country the size of the US can or even should go 100% renewable, but it is fairly clear that the sprint away from coal generation will continue.

There is approximately 1.1 million megawatts of installed generation capacity of all types that are available to the US grid. Between 2010 and the first quarter of 2019, US power companies announced the retirement of more than 546 coal-fired power units, totaling about 102,000 MW of generating capacity, according to the US Energy Information Administration. “Plant owners intend to retire another 17,000 MW by 2025,” said the EIA in a July 2019 report.

US power generation mix

EIA said coal-fired capacity will average 25% of the US fuel mix in 2019, while natural gas-fired generation will rise from 34% in 2018 to 37% in 2019 and 2020. Since the end of 2007, installed wind capacity across the US has gone from 16,907 MW to 97,963 MW at the end of the second quarter 2019, a nearly six-fold increase.

In 2007 there was 830 MW of solar PV capacity installed in the US. At the end of Q2 2019, the total reached 69,100 MW, according to the Solar Energy Industries Association. During the 12-year period, the combined capacity of US wind and solar has grown from 17,737 MW to 167,063 MW.

A combination of federal production tax credits and guaranteed federal construction loans and cash reimbursements helped spur the growth of wind, while an investment tax credit has aided the development of solar generation.

The question is, how much wind and solar growth can realistically be expected and over what period of time? According to the American Wind Energy Association, there were approximately 20,900 MW of new onshore wind facilities under construction in Q2 2019 alone, with 1,962 power purchase agreements signed, 52% by corporate customers.

One potential new area for zero-emission generation is offshore wind, which East Coast utilities along with European developers have estimated could reach as much as 18,000 MW by 2030. Currently, there is only 30 MW of offshore wind installed in US waters.

Nukes seek subsidies

Nuclear generation emits no carbon, and the 98,000 MW of installed nuclear capacity in the US makes it a prime baseload generation platform to build on if the goal is reducing CO2. However, the growth of natural gas supply and generation in the US and the rapid rise of renewables have pushed power prices so low that nuclear plants cannot compete and many are being retired.

Several states in the US have chosen to subsidize nuclear generation rather than see it retired. A total of 14 nuclear reactors at 10 plants in five states with combined capacity of 12,400 MW are now receiving state subsidies in the form of zero emissions credits, or ZECs, to keep them operational.

Exelon Energy owns all or a portion of six nuclear facilities that are now receiving ZECs. The Chicago-based holding company in September closed its most famous, or infamous, nuclear facility, the 819 MW Three Mile Island in Pennsylvania, bringing its total fleet down to just under 18,200 MW.

Exelon has long argued, though, that since 90% of its generation fleet is carbon emissions free it has a seat at the table when it comes to discussing deep carbon emission reductions. Many have argued that net-zero emissions in the US cannot be achieved without impacting reliability unless nuclear remains a large part of the generation mix.

Power of public opinion

Prior to the United Nations launching its Climate Action Summit in September in New York, UN Secretary General Antonio Guterres said in a television interview that he believed “public opinion is waking up” to the threats of climate change.

“What we see in the US, even if it’s probably the country where you have a bigger number of people disbelieving [in climate change], there is already a solid majority believing,” Guterres said. “Central banks are including climate change risks. We see rating agencies including climate change risks. We see more and more big asset managers representing trillions of dollars divesting from fossil fuels.”

Guterres said governments follow public opinion. “I am starting to see governments also understanding that they need to act. We still have emissions growing. We are still not there. Climate change is running faster than what we are. But for the first time I’m seeing more and more countries accepting that they have to be carbon neutral in 2050,” Guterres said.

After the summit, London-based fund manager Octopus Investments Limited released a report forecasting that “it will cost the UK alone more than GBP1 trillion to hit net zero carbon emissions by 2050.” Nonetheless, it noted, the UK is now one of over 75 countries that have committed to the zero carbon emissions target.

The Octopus report, titled “The Great Transition: Opening the renewables floodgate,” argued that over the coming decade, institutional investors plan on divesting $920 billion from fossil fuels, “while also ploughing $643 billion into renewable energy.”

The report also said that a survey showed institutional investors “know they can play an important role in tackling climate change, but less than a quarter of respondents have adjusted their portfolios to reflect that.” The report added: “While mounting pressure from external parties is being felt globally, the most common response is to launch ESG products in-house.”

AEP’s about-face on coal, renewables

Columbus, Ohio-based holding company American Electric Power, long one of the country’s largest utilities and coal-fired generators, said in September it wants to cut its carbon dioxide emissions “faster than anticipated” and revised its 60% by 2030 reduction target to 70% from 2000 levels. It also said it was “confident” it could get its emissions down to 80% of its 2000 level by 2050.

AEP emitted 167 million metric tons of CO2 in the year 2000, making it one of the biggest electric power emitters that year.

US CO2 emissions

In 2007, when emissions from the US power sector reached a peak of 2,425 billion mt, AEP’s emissions were still as high as 151 million mt. However, since 2011, when its annual C02 emissions totaled 136 million mt, AEP has retired 8,620 MW of its coal-fired capacity, bringing emissions down to 69 million mt in 2018.

AEP has said that through the end of 2019 it expects coal-fired generation to represent 46% of its total capacity, while natural gas-fired generation will represent 27% and nuclear generation 7%.  Another 1,450 MW of AEP’s coal-fired capacity is expected to be retired in 2020, and a further 1,300 MW by 2028.

In recent financial presentations, AEP executives told analysts that the company has come a long way since 2005 when coal-fired generation capacity was 70% of its total. In 2019 renewables – hydro, wind, solar and pumped storage – represent 16% of AEP’s fuel mix.

American Electric Power annual CO2 emissions 2007-2018

It has said in its integrated resource plan that with generation additions and additional retirements through the year 2030, it expects coal-fired capacity to account for 27% of its fuel mix, natural gas 22% and nuclear 7%, with hydro, wind, solar and pumped storage reaching 40% combined.

Its target of an 80% CO2 reduction from its 2000 level by 2050 translates to just 13.3 million mt of CO2 annually by mid-century.

 

More articles in this series:

Asia’s crude oil buyers pivot towards US crude

The biggest challenges to decarbonization are still ahead

 

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http://so-l.ru/news/y/2019_12_03_us_utilities_race_to_slash_emissions_as Tue, 03 Dec 2019 11:33:11 +0300
<![CDATA[Commodity Tracker: 6 charts to watch this week]]> As COP25 kicks off in Madrid, S&P Global Platts editors take a look at the CO2 impact from OPEC oil production. European gas and nuclear, and IMO 2020’s impact on commodities as diverse as fuel oil and iron ore, are also on the agenda in this week’s pick of charts.

1. OPEC oil-only CO2 output dwarfs EU total emissions

 

COP25 OPEC oil production CO2 emissions

Click to enlarge

 

What’s happening? OPEC is meeting this week to decide on output quotas, but climate change isn’t on the agenda for the group of 15 major oil producers. OPEC’s total crude output for 2018 would have been responsible for carbon dioxide pollution equal to 5 billion mt, calculated based on average emissions figures for oil from the US Environmental Protection Agency (EPA). That exceeds Europe’s total emissions of the greenhouse gas, from all sources, last year. The cartel currently has no plan in place to mitigate the impact its oil has on global warming despite the growing pressure from consuming nations and business to cut back investment in fossil fuels.

How did we get to these numbers? A barrel of crude weighs about 300 lb, or 136 kg. The CO2 from fuel weighs more than the fuel itself because the carbon element combines with oxygen in the air to form CO2 gas. Carbon-based fuels derived from oil give off CO2 which is on average 3.15 times the weight of the fuel. A standard barrel is 159 liters, and in the US gets refined into 44.1% gasoline, 20.8% distillate fuel oil, 9.3% kerosene-type jet fuel and 5.2% residual fuel oil. So an average barrel of oil will produce at least 317 kg CO2 for just the above four fuels, making the EPA’s average figure of 430 kg seem quite sensible.

Go deeper: Infographic – Major economies drag feet as COP25 kicks off

What’s next? OPEC and its allies, which pump more than 45% of the world’s crude, are scheduled to meet on December 5 and December 6 in Vienna where a decision on a possible extension to the production cut deal could be taken. The gathering coincides with the 25th Conference of the Parties, or COP, held in Madrid where 200 countries will discuss climate change action as new figures released by the World Meteorological Organization show that green house gas levels reached their highest recorded levels last year.

 

2. European gas spot prices have risen but December turns bearish

 

TTF natural gas time arbitrage

 

What’s happening? Europe’s benchmark prompt gas contract, the Dutch TTF Day-ahead, crept to a seven-month high last week despite healthy supply. Lower temperatures, reduced storage withdrawals and continued buying combined to tighten the market. The contract has risen Eur6/MWh since October 31, when it dipped below Eur10/MWh. Utility traders are holding onto stocks in anticipation of a greater premium in Q1 2020.

What’s next? While Q1 2020 TTF gas remains over Eur16/MWh, front month December is coming under pressure as Europe’s gas glut looks set to continue. A deluge of LNG is expected to complement already comfortable Russian and Norwegian supply, while gas is seen by market participants as detaching from carbon, and temperatures forecasts have ticked up. Q1 2020 has been more resistant to bearish sentiment because of the risk that transit talks will fail between Russia and Ukraine.

 

3. French nuclear at record-low lifts December power prices

 

French nuclear non-availability winter 2019

 

What’s happening? French nuclear generation is set for a record-low fourth quarter due to maintenance delays and safety inspections at the Cruas nuclear plant following an earthquake. November output averaged 40 GW, down 11% on year, the third month in a row with a double-digit on year decline.

What’s next?  17 of France’s 58 reactors won’t be available at the start of December. French spot power prices are set to hit their highest so far this winter this week despite a generally bearish market, characterized by cheap gas and growing wind output. Colder weather is set to boost demand above 80 GW on Tuesday for the first time this winter with a strike looming as well on Thursday. French gas and coal plants are poised to fill the nuclear shortfall, while stronger hydro and reduced exports should act to ease French price.

 

4. IMO 2020 sends high sulfur fuel oil cracks tumbling…

 

Rotterdam HSFO crack vs Urals

 

What’s happening? Global cracks for high sulfur fuel oil have weakened sharply over the past two months after a year of abnormal strength, reflecting the drastic change in oil products demand due to the International Maritime Organization‘s impending sulfur limit on marine fuels. This month regional prices for HSFO in Asia, Europe, Africa, and the Americas have all reached record discounts to crude as demand falls in the run-up to the IMO 2020 rule limiting sulfur content to 0.5% from January 1, although in some regions they have rebounded somewhat in the past two weeks.

What’s next? Most market watchers believe HSFO prices have now largely bottomed out and are set for a recovery next year. Uncertainty persists, however, over the extent of recovery as pricing economics and uptake of exhaust gas scrubbers – which allow ships to continue burning HSFO – will play a key role in determining HSFO demand.  Looking ahead to 2020, the HSFO crack forward curve in Europe is in contango, suggesting regional prices are already set for a recovery.

 

5. …and complicates shipping costs for iron ore buyers

 

Iron ore spot freight rates vs formula

 

What’s happening? Iron ore contract buyers this year may be paying as much as $10/dmt more for FOB cargos using industry freight formulas, rather than pricing off spot freight rates. Freight rates are used for invoicing FOB iron ore prices based on benchmark China CFR indices such as Platts IODEX 62% Fe, and Platts 65% Fe fines index. Greater comparative volatility has emerged between spot and long-term industry freight formulas, for Brazil-China Capesize dry bulk rates used to reference contract FOB iron ore prices. Agreeing formulas rather than spot rates may be becoming more complex as bunker oil, a key component in determining long term freight rates under formulas, switches to use lower sulfur marine fuel under IMO 2020 fuel regulations.

What’s next? The extent to which IMO 2020 affects bunker fuel prices and demand for grades consumed, and continued use of industry longer-term freight formulas, remains to be seen. The changes in fuel oil and shipping rates may be discussed by iron ore buyers as they move into new iron ore pricing contracts for 2020 calendar year and fiscal 2020-2021 terms. Some suppliers are already moving contract pricing terms away from formulas to reference spot freight rates, to simplify pricing comparisons with iron ore delivered to markets in China and the rest of the world.

 

6. Corn prices shoot up in Brazil’s Mato Grosso

 

Brazil corn prices in Mato Grosso

 

What’s happening? Corn prices in Mato Grosso, Brazil’s largest producer, are surging as supplies dwindle and domestic consumption rises, according to Mato Grosso Institute of Agricultural Economics. The state accounts for over 42% of second corn crop, or safrinha, produced in the country. Last week, corn prices in the state hit Reais 29.51 per 60 kg ($116.39/mt), up 53% from the same period a year ago. Strong domestic demand is mainly coming from the ethanol and animal protein industries.

What’s next? As Brazil is the world’s second-largest corn exporter, markets will be closely watching the price movements, as higher corn prices may encourage farmers to expand the crop area for second corn. The second corn planting in the state begins in February. Any increase in domestic consumption is also expected to reduce the supply for exports. The state exported 18.8 million mt of corn in January-October, 54% of Brazil’s total exports of the crop, up from 17.7 million mt in the full calendar year of 2018.

Reporting by Andy Critchlow, Henry Edwardes-Evans, Hector Forster, Andreas Franke, Robert Perkins and Mugunthan Kesavan

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http://so-l.ru/news/y/2019_12_02_commodity_tracker_6_charts_to_watch_thi Mon, 02 Dec 2019 15:21:09 +0300
<![CDATA[An evolving Russian gas industry deserves new clichés]]> The Russian gas industry has long been portrayed by means of predictable and dated clichés.

Mention of Russian bears, gas as the new cold war, or pipelines forming the new Iron Curtain, have littered both journalistic and analytical coverage of Russia’s gas sector for decades.

It is no secret that the divide between the handful of companies making up Russia’s gas industry and the Russian state has always been a very thin one, with gas widely seen as an instrument of Russian foreign policy, as much as diplomacy ever was.

While the economic, political and strategic importance of gas to the Russian state has not and is never likely to diminish, the evolution of Russia’s gas sector is bordering on something of a renaissance.

Post-communist free market principles resoundingly entered the Russian gas sector at the same time they entered the Russian economy as a whole. But the sector has never shown itself to be so forward thinking, commercially astute and strategically adept as it is now.

Similarly, or perhaps consequently, Russia’s pivotal position on the global gas stage has never been more dominant. Russia holds 20% of the world’s gas reserves (more than Asia Pacific, Africa and Europe combined) as well as 17.3% of global gas production, and it supplies nearly 21% of Europe’s pipeline gas imports.

Russia proved gas reserves vs other top producers 2018

 

Top global gas producers 2019

This privileged position of resource endowment gave Russia a strength it has had no hesitation using to further its own political, geopolitical and strategic aims over the years.

From cutting off supplies to Ukraine three times in the depths of winter, to hard-line price renegotiations, the Russian bear has never been shy to growl, wield swords or flex the iron fist in the velvet glove according to the clichéd vocabulary employed in media coverage of its actions.

This power has not diminished, but what is new is that Russia’s gas sector is discernably planning for the future and placing itself on a much more commercially-focused footing, rather than simply opening and closing gas taps in order to make money and exert influence.

The emerging zeitgeist is of a more mature and measured Russia, quietly and confidently asserting its authority to promote both longer and shorter term interests. Three relatively recent developments give a sense of the Russian gas industry’s evolution.

Going east

The soon-to-be-completed Power of Siberia pipeline allows Russia to sell Siberian gas to China. The significance of this project does not lie in its $55 billion price tag, which makes it Russia’s most ambitious infrastructure project to date. Nor is it due to the technical prowess required to build the 3,000 km pipe through climatically hostile territory.

Go deeper: Analysis – Russian pipe gas supplies and China LNG import growth

Rather, it is geopolitically important, as it will open up a route to China, the world’s largest energy importer. By positioning itself between the European markets to the west, and the rapidly growing gas hungry Chinese markets to the east, Russia is not only creating new income streams, but hedging its bets and bolstering its position strategically. While there is more than enough gas to meet the needs of both its eastern and western customers, the ability to play one off against the other will not have been lost on either Gazprom or the Kremlin.

The deal with China is very much a marriage of convenience – Russia has the gas that China wants, with Russia willingly accepting all the associated geopolitical advantages and the increase in its status.

Russia’s has other pipeline development projects due for completion by the end of 2020, such as TurkStream, taking gas to Turkey, and Nord Stream 2, which will double Russian gas volumes to Germany. All have similarly beneficial impacts to Russia, and serve to consolidate its growing position. These are projects with economic and strategic advantages that stretch decades into the future, and carry more weight and influence than any threat of winter supply disruptions or price renegotiations.

Russia gas infrastructure

Click to enlarge

Flexible gas sales

However, it is not just infrastructure projects opening up new markets that herald the changing face of the Russian gas industry. The launch by Gazprom of the Electronic Sales Platform in September 2018 marked a drastic change of approach, and an attempt by Russia to be more customer friendly and to evolve to meet the changing demands of the market.

The ESP moves Russia away from the decades-old sales model based on long-term oil-indexed volumes. It has brought an unprecedented level of supply flexibility to European offtakers who are increasingly turning their attention to another flexible supply source – the LNG wave currently hitting Europe.

Diversification

Russia’s attempts to diversify the markets it operates in, and to expand away from its core European markets are another sign of a maturing gas industry.

Investments in petrochemicals, LNG and gas storage all signify the realisation within Russia that sitting on a big pile of gas, and occasional mid-winter sabre rattling, no longer constitute a sound commercial strategy to ensure long-term survival.

The image of an unreactive monolith moving at a glacial pace, and any number of other stereotypes from what is now a bygone era, are no longer fit for purpose. The newly emerging, ambitious and commercially savvy Russian gas industry is no less ruthless or determined than it was before, but is now showing itself to be wiser and more mature.

The time has come for the cliché writers to sharpen their pencils, and find some new ways to characterise this kingpin of the global gas sector.

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http://so-l.ru/news/y/2019_11_29_an_evolving_russian_gas_industry_deserve Fri, 29 Nov 2019 09:18:15 +0300
<![CDATA[Five global trends for the ferrous and steel sectors]]> S&P Global Platts hosted its Ferrous & Steel Outlook event in Singapore last week. Here are five key takeaways from the event.

1. China winter steel production cuts of less concern than property sector

 

Chinese mills have been less inclined to restock iron ore for fear they will be ordered to cut crude steel or sintering production over winter to reduce emissions, which would curb demand for iron ore and pull down prices.

S&P Global Platts China steel analyst Jing Zhang argued that winter output cuts are likely to be fairly mild this winter. Steel production rates will depend on margins that will largely be driven by property construction demand.

Citigroup head of iron ore trading Habib Esfahanian said China’s property sector should grow around 4%-5% next year, helping to support iron ore prices in the range of $70-$90/mt CFR.

 

2. Southeast Asia could be the next steel overcapacity region

 

Potential new steel capacity in ASEAN

If all of the planned steelmaking projects come to fruition, Southeast Asia could add another 61 million mt/year of steel capacity  in coming years, Mike Fujisawa, principal of JFE Steel’s overseas planning department, highlighted in his presentation.

Much of the new capacity will be Chinese-owned, with large projects planned for the Philippines and Malaysia. Fujisawa said new capacity slated for Malaysia was “comparable to its current steel use,” and steel market participants in the region were growing increasingly worried. If production outpaces demand, the new capacity will likely be exported, adding to supply pressure in Asian markets.

 

3. India unlikely to become a sizable coking coal producer

 

India is self-sufficient in iron ore but needs to import metallurgical coal. This truism seems unlikely to change in light of activity around India’s mine lease auction program. Private companies in India can only gain access to mining leases via the e-auction process.

To date, 24 of the 68 mining blocks that have been auctioned are iron ore mines, of which four are operating, according to Tata Steel’s head of raw materials, Somesh Biswas. But there have been no takers for coking coal leases in the last few tranches auctioned off.

Coking coal blocks contain non-coking material but owners are prohibited from selling coal to power stations; high upfront payments for the leases are non-refundable; and many blocks have communities living on them who farm the land. As a result, India will remain a coking coal importer.

 

4. US steel import tariffs not as draconian as thought

 

US steel imports subject to section 232 tariffs

The Trump administration’s imposition of import tariffs on steel following the Section 232 investigation last year was seen by many as the catalyst for the ongoing global trade tensions.

Trump was raising the drawbridge and protecting US business – in this case, the steel sector. But trade statistics presented by Philip Bell, president of the Steel Manufacturers Association (US), showed that only 17% of US steel imports were subject to the tariffs in June when the analysis was carried out.

Australia, Canada and Mexico (29% of imports) are exempt from the tariffs, Argentina, Brazil and South Korea (29%) were allowed a quota, and a further 25% of imports were subject to exclusions from the tariffs. Further, the US still imports more than 25% of its steel, down from 30.5% in the year to mid-2018.

 

5. Indian consolidation needs to move from flats to longs

 

India’s steel sector has undergone significant consolidation over the past 18 months with international heavyweights such as ArcelorMittal and Nippon Steel coming into the country via acquisitions.

Close to one-fifth of India’s steel capacity has changed hands as a result of the consolidation process, according to CRISIL Research director Rahul Prithiani. India’s flat steel sector will comprise four major players, shrinking from six previously. This will enable the producers to lift capacity utilization rates, better negotiate for raw materials, and improve margins.

India’s long steel production is more fragmented, with many smaller “secondary” producers. Prithiani expected weaker players to exit the market, with better quality assets snapped up by the large steel companies, giving them greater market share in India’s long steel sector.

 

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http://so-l.ru/news/y/2019_11_28_five_global_trends_for_the_ferrous_and_s Thu, 28 Nov 2019 12:43:36 +0300
<![CDATA[Insight from Brussels: Taxing times for diesel in Europe]]> Ending tax breaks for fossil fuels like diesel is a key policy pledge for the incoming EU commissioners, as part of the drive to make the EU carbon neutral by 2050.

This is set to be a major test of national governments’ commitment to reducing fossil fuel use, as fuel tax changes are very visible to voters.

Any tax changes, if eventually imposed, could have a major impact on demand for diesel, gasoline, biofuels, natural gas and electricity in transport, by changing the relative cost of various fuels.

The European Commission has estimated that excise duty revenues on electricity and energy products collected across the EU total around €225 billion ($249 billion) per year. The importance of these revenues to national budgets varies from 1.1% to 3.2% of GDP, so individual governments as well as different energy producers and users are likely to have very different interests.

The EU’s transport sector is already facing stricter CO2 emission standards for new cars and trucks from 2025 as part of efforts to encourage alternative fuels such as electricity, biofuels, hydrogen and LNG.

These efforts will continue, as new European Commission president Ursula von der Leyen has said cutting transport emissions will be a key policy focus over the next five years.

She has asked the incoming EU economy commissioner, Paolo Gentiloni, to lead work on changing EU energy tax rules to support the EU’s climate and energy goals, and to end fossil-fuel subsidies.

Diesel’s tax advantage

The EU last agreed minimum energy taxation rates back in 2003, when the focus was on creating a competitive internal market, and diesel was favored over petrol as a more efficient transport fuel.

The minimum excise duty for unleaded gasoline became €359 per 1,000 liters, compared with €302 per 1,000 liters for diesel fuel. The diesel rate rose to €330 per 1,000 liters in 2010, but remained lower than unleaded gasoline.

Most national governments apply higher taxes than the minimum rates, and these vary significantly across the EU. The rules allow governments to tax energy products differently based on their sulfur content, energy content, CO2 emissions, biofuel shares, or commercial use, for example.

This means road freight diesel may have tax breaks that deter “more sustainable transport modes,” according to a European Commission evaluation of the 2003 energy taxation directive in September.

Such favorable rates for diesel in the directive have contributed to “excessive dieselization” of Europe’s road vehicles, the EC said. It argued that these rates work against the EU’s transport policy goals to reduce carbon emissions and air pollution.

EU oil product demand diesel gasoline jet fuel

Diesel/gasoil road transport demand in Western Europe averaged 5,800 million b/d in 2018, according to Platts Analytics. This is 4% higher than the average 5,574 million b/d in 2003, before the current tax rules applied.

In contrast, unleaded gasoline road transport demand in Western Europe averaged 1,767 million b/d in 2018, down 33% on the 2,649 million b/d average demand in 2003, Platts Analytics data shows.

Unanimity challenge

The EC last tried to update the EU’s energy taxation directive in 2011, when it proposed new minimum EU energy tax rates to start in 2013 based on CO2 emissions and energy content rather than volumes.

But the proposal failed to achieve the unanimous approval needed from finance ministers in the EU Council to become law, and the EC eventually withdrew it.

Attitudes are now changing, according to Finnish finance minister Mika Lintila, who is leading the finance ministers’ debates during the Finnish EU presidency until the end of 2019. All EU finance ministers agreed in September that energy taxation could help the EU meet its climate and energy goals.

The minimum tax rates set in the 2003 directive “do not reflect any specific logic and are too low, which means they do not encourage energy-efficient technology and emission-free activities,” according to the Finnish EU presidency.

It called for the directive to be revised to differentiate between renewable and non-renewable fuels, and differences in greenhouse gas emissions.

The current directive taxes fuels according to volume, not energy content, which discriminates against renewable fuels in favor of conventional fuels, particularly diesel, the EC said in policy paper in April.

The directive also does not cover new fuels, or energy storage, and exempts international aviation and maritime transport from fuel taxes.

Popular protests

The ministers may have been swayed by the rise in climate protest marches across Europe, such as those inspired by the teenage Swedish activist Greta Thunberg.

Around 15,000 people took to the streets in Brussels in September for example, to protest against governments’ inaction on climate change. This was part of coordinated protests in other major cities across the world.

But the protests can also go the other way, as demonstrated when French president Emmanuel Macron was forced in 2018 by the gilets jaunes – yellow vests – to drop a fuel tax rise.

The post Insight from Brussels: Taxing times for diesel in Europe appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_11_27_insight_from_brussels_taxing_times_for Wed, 27 Nov 2019 16:55:30 +0300
<![CDATA[North Sea’s latest crude oil stream is out of fashion, but still in demand: Fuel for Thought]]> The razzle dazzle of US tight oil and new rules on marine fuels could have meant a chilly reception for the arrival of the North Sea’s Johan Sverdrup.

The medium sour crude grade could be the region’s last big production boost at a time when, especially in Europe, there has been a shift to cleaner, less-sulfurous fuels. But China, India and the US will likely welcome it with open arms.

While much of the talk of the onset of Johan Sverdrup has been around the resilience of the North Sea, with the first phase set to add 440,000 b/d by next summer and 660,000 b/d by 2023, the real story is the global appeal of the medium sour crude grade.

Johan Sverdrup has a density of 28 and sulfur level of 0.8%, which means it is of slightly inferior quality to UK’s Forties, the largest of the five grades that comprise the Dated Brent benchmark. Forties’ quality is 37.31 API gravity with a 0.54% sulfur content.

Forties is also the only one with a similar volume at 450,000 b/d with the other generally sweeter lighter grades – Brent-Ninian Blend, Oseberg, Ekofisk and Troll – producing smaller quantities and in decline.

Go deeper: Explore Platts’ periodic table of oil to learn more about crude quality

This suggests that as volumes from Sverdrup ramp up over the coming years, the North Sea’s average crude quality will shift from light sweet toward a more medium sour mix.

“Forties and Johan Sverdrup have a lot of similarities … and both should price at export parity to Asia,” Platts Analytics’ senior crude analyst Sergio Baron said.

Increasing demand for medium sour crude grades into Asia comes at the same time US light sweet exports are pouring into Europe. With US production exceeding domestic refinery demand, and export capacity growing, the international market is the only outlet for excess US barrels.

The International Maritime Organization’s 0.5% sulfur cap on marine fuels means many European refiners are lapping up lighter sweeter crudes that generally produce a greater share of lower-sulfur products like naphtha and gasoline, with high-sulfur fuel oil cracks having plunged.

And despite yielding a similar level of gasoline to WTI Midland, Johan Sverdrup should not be considered an “IMO 2020 champion,” as it has to be blended with sweeter grades to lower its sulfur level in its fuel oil output.

Further, Johan Sverdrup may also be shunned by other parts of Asia, such as South Korean and Japanese refiners, who are less keen on medium-sulfur crude and have often taken more premium North Sea grades.

This means a buyers’ market for China, India and the US, with refineries with the sophisticated tools to process dirtier crudes.

Jhan Sverdrup vs Forties gross product worth

A wrong perception

Contrary to some views, Johan Sverdrup isn’t the wrong crude at the wrong time in the wrong place.

Like many medium sour varieties, it produces more distillates than gasoline. In terms of its distillate yield, Johan Sverdrup is similar to Russia’s Urals, ESPO, Middle Eastern Dubai, Arab Medium and Iran Heavy. But Johan Sverdrup will likely be more expensive, and it will have to travel further distances to its Asian demand hubs, which could impact arbitrage economics

Johan Sverdrup, therefore, will be helped by the OPEC and non-OPEC alliance to cut back their production to bring price stability.

Indeed, current supply outages from Iran and Venezuela along with OPEC cuts have not only impacted price levels but also price differentials between key sweet-sour benchmarks.

This comes as US shale continues its upward trajectory and is slowly being unshackled from its pipeline constraints. Platts Analytics forecasts US oil and condensate production to rise to 13.36 million b/d in 2020 and average nearly 14 million b/d in 2021.

The spread between ICE Brent and Dubai futures remains fairly narrow as the outlook for medium sour crude points to tight global supplies expected over January to March next year. This is a sign that Johan Sverdrup, like many medium sour grades, could remain popular, given the sweet-sour/light-heavy imbalance is set to widen, at least in the near-term.

Tighter Urals supply is exacerbating an already short market for medium sour barrels globally, and complex refiners will roll out the red carpet for the new Norwegian grade.

Saying that, market watchers will look to see how actual demand emerges as refiners will take a while to understand the new grade. So far, a couple of large tankers are already en route to Asia with Johan Sverdrup, while European refiners appear more hesitant. It may well be the shape of things to come.

The post North Sea’s latest crude oil stream is out of fashion, but still in demand: Fuel for Thought appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_11_26_north_sea_s_latest_crude_oil_stream_is_o Tue, 26 Nov 2019 16:27:58 +0300
<![CDATA[Commodity Tracker: 5 charts to watch this week]]> In this week’s pick of energy and commodity charts, Asian jet fuel suppliers feel the pinch from Hong Kong’s weak demand as protests in the city persist. Plus: Fujairah stocks and IMO 2020, global gas exporters meet in Equatorial Guinea, and more.

1. Hong Kong unrest causes jet fuel demand to nosedive

South Korea jet fuel exports to Hong Kong

 

What’s happening? Prolonged political protest in Hong Kong appears likely to continue taking a heavy toll on the city’s oil consumption. Aviation fuel demand in particular has trended sharply lower in recent months, on faltering air passenger and cargo traffic volumes. Hong Kong has been gripped by social unrest since June, with protests prompting a major airport shutdown on August 12. Aircraft activity, freight and passenger figures all sharply fell in October as the demonstrations intensified, data from the Airport Authority of Hong Kong showed. Freight volumes fell 5.6% on year to 419,000 mt in October, for a seventh consecutive month of decline.

What’s next? Declines in Hong Kong’s jet fuel imports have raised alarm bells among Chinese and other regional aviation fuel suppliers, including South Korean refiners. Months-long protests could jeopardize the city’s role as a key aviation hub and stable jet fuel supply outlet. Refineries in China supplied 1.06 million mt or 2.78 million barrels/month of jet fuel to Hong Kong in the third quarter, down 7.1% on year. South Korean refiners supplied around 800,000 barrels/month of jet fuel to Hong Kong over the past few years, but managed to export only 1.24 million barrels over Q3, down 31.1% on year.

 

2. Iron ore price rebounds despite rising global supply

 

Platts iron ore index CFR China

 

What’s happening:  Iron ore prices are rebounding, reaching $87.80/mt for 62% Fe fines delivered to China late last week. The uptick comes despite an increase in global supply since production curbs following Vale’s January tailings dam burst, which provoked a five-year spike to over $120/mt in July. Iron ore is supported by the continuing growth trend in steel output in China, as well as seasonal factors. Analysts say a short-term rebound in the key steelmaking ingredient is not unusual before the Chinese winter mill production cuts for pollution control, which boost steelmaking margins, and ahead of the rainy season in Brazil, which typically disrupts shipments.

What’s next? Iron ore and steel derivatives markets in Asia point to continued strength in iron ore prices and are holding up sentiment. The Chinese state council’s relaxation in recent days of restrictions on infrastructure funding has improved prospects for future steel demand and reinforced confidence in the economy. “Steel demand from the property market remains strong, which helps to digest a lot of inventory,” a Chinese trader said. Weaker demand is nonetheless foreseen for high impurity products, and sources report a shift in preference towards higher grade cargoes, of 65% Fe and above, lump products and pellets, which can improve blast furnace productivity and help reduce carbon emissions as they require less coal to be used in the blast furnace mix.

 

3. Fujairah stocks of heavy residues soar ahead of IMO 2020

 

Fujairah bunker fuels heavy distillates stocks

 

What’s happening? Stockpiles of bunker fuels and other heavy residues and distillates have climbed to a record in Fujairah, according to data released last Wednesday by the Fujairah Oil Inventory Zone, as shippers switched fuel types to meet new rules taking effect in January. Heavy distillates and residues rose 10% to 15.425 million barrels as of November 18, the highest level since data began to be compiled in January 2017.

What’s next? Demand is shifting from high-sulfur fuel to low-sulfur fuel as the International Marine Organization regulation looms. The price of 380 CST high-sulfur bunker fuel has been dropping as the IMO rule requires ships to lower their fuel sulfur content to no more than 0.5%, from 3.5% currently. S&P Global Platts is the official publisher of the oil products data. Fujairah has the Middle East’s largest commercial storage capacity for refined products.

 

4. Gas exporting countries meet as backlash against fuel grows

 

Gas exporting countries forum export volumes

 

What’s happening? Heads of state from Gas Exporting Countries Forum (GECF) member countries are meeting in Equatorial Guinea to discuss the state of the global gas market this week. With global gas prices having been especially low in 2019, the GECF – whose members include gas heavyweights Russia, Qatar and Iran – will have much to ponder.

What’s next? Unlike its sister organization for the oil sector, OPEC, the GECF does not get involved in coordinated market action, instead focusing on promoting the use of gas. But with prices in the doldrums – due to an oversupplied global LNG market – and an increasing backlash against fossil fuels from environmental groups, the GECF’s members may also look at ways to preserve the role of gas in the global energy mix for decades to come.

 

5. EU benchmark power contract sinks to 15-month low

 

German power year-ahead prices vs EUA carbon price

 

What’s happening? German year-ahead power prices have fallen to a 15-month low as EU carbon allowance prices devalued by 20% since July’s 10-year high. German power prices are still driven by coal generation costs despite a sharp decline in output this year as cheap gas generation displaced the least efficient hard coal units.

What’s next? Low gas prices are set to stretch deeper into 2020, keeping a lid on power as well as carbon prices. Slightly colder weather forecasts saw contracts rebound on November 22. With gas storage still almost full, only a cold winter or supply disruption could deplete storage sufficiently to prevent another bearish summer. Beyond that, nuclear and coal closures are set to tighten reserve margins, with Cal 2023 trading at a premium to Cal 20. Meanwhile carbon traders continue to eye Brexit ahead of the UK elections on December 12, and to anticipate the expiry in mid-December of Dec-19 options and forward contracts.

 

Reporting by Stuart Elliott, Andreas Franke, Paul Hickin, Diana Kinch, and Philip Vahn

The post Commodity Tracker: 5 charts to watch this week appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_11_25_commodity_tracker_5_charts_to_watch_thi Mon, 25 Nov 2019 08:43:00 +0300
<![CDATA[More and more West Texas crude heading Down Under]]> The US is quickly becoming a top supplier of crude for Australia, with the first full laden VLCC with WTI en route to Australia.

Like a microcosm of the overall US crude oil export growth phenomenon, Australian refineries are increasingly importing crude oil from the US, quickly making the it one of the main suppliers for the island continent.

Through July this year, Australia imported 75.55 million barrels of crude, with just 1.83 million of those barrels, or 2.4%, coming from the US.

But the latest Australian petroleum statistics from the Australian government’s Department of the Environment and Energy shows US crude inflows surged to account for almost 23% of total imports in August in September. In barrel terms, the country imported over 18.77 million barrels in August and September, with 4.26 million barrels of US crude.

Australia imports of US crude oil

Crude imports from Malaysia and the UAE, Australia’s two largest crude suppliers, fell in August and September compared with the first seven months of the year.

From January through July, monthly imports from Malaysia averaged 2.8 million barrels but fell to 2.01 million barrels in August and September. Similarly, imports from the UAE fell from 2.1 million barrels January through July to 1.23 million barrels in August and September.

First US-direct VLCC

The Pantariste, the first fully loaded VLCC carrying West Texas crude from the US directly to Australia, is en route, having left offshore Galveston, Texas, on October 28, according to data from cFlow, Platts’ trade flow software, with an estimated arrival December 10. Data from Kpler, a data intelligence company, shows the Pantariste to be carrying a full cargo of Midland-spec WTI crude.

S&P Global Platts fixtures data shows BP chartered the Pantariste in September for a lump sum of $5.15 million, with a loading period from October 14-18. Indeed, BP has chartered a slew of vessels in recent months to Australia, generally of the Suezmax class.

BP’s 146,000 b/d Kwinana Refinery southwest of Perth, Australia, is the likely destination for the Pantariste’s cargo, a sign the company is moving “equity barrels,” or barrels produced by a company and transported on ships or pipeline space it owns to its own refineries.

Kpler data has shown the Kwinana Refinery to be one the three main buyers of US crude in Australia, along with the 109,000 b/d Lytton Refinery owned by Caltex and the 120,000 b/d Geelong Refinery owned by Viva Energy.

“Historically, we have seen US crude reach Australia via ship-to-ship transfers off the coasts of Malaysia and Singapore,” said Emmanuel Belostrino, crude oil analyst at Kpler. “We’ve seen the first direct USGC-Australia voyage in April this year, with an Aframax carrying WTI Midland from Houston that unloaded at BP’s Kwinana refinery in July. Since then, at least one vessel a month has been departing from the US to deliver crude” to Kwinana.

From April through September, the Kwinana refinery imported around 34,300 b/d of US crude oil, according to Kpler data.

West Texas Down Under

Between January and October 2019, around 36,700 b/d of West Texas Intermediate crude were imported by Australian refineries, along with some partial cargoes of West Texas Light and other light sweet crudes, according to Kpler data.

In recent weeks, UAE Murban crude has traded at premiums between 40 cents/b and 50 cents/b over its January official selling price. Indeed, some traders expected Murban to trade over its January OSP because of seasonal demand and strong demand from Asia. These elevated levels for Middle East crude offer continued arbitrage opportunities for US crude.

According to S&P Global Platts Analytics Crude Arbflow Calculator, arbitrage for WTI from the Magellan East Houston terminal to Singapore versus Malaysia’s Tapis crude is shown to be open at a 24 cents/b incentive.

Murban crude has an API gravity around 40 and a sulfur content around 0.76%, Tapis crude has an API gravity around 42.7 and a sulfur content around .04%, while WTI crude has an API gravity around 40 and a sulfur content around 0.31%, according to an average of recent assays for the grades seen by Platts.

Go deeper: Explore crude qualities with the S&P Global Platts periodic table of oil

The post More and more West Texas crude heading Down Under appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_11_21_more_and_more_west_texas_crude_heading_d Thu, 21 Nov 2019 17:04:02 +0300
<![CDATA[Insight Conversation: Young-Jin Chang, CME Group]]> China has dominated the physical global gold markets for the last few years, as not only the world’s number one producer but also the top consumer.

Physical flows have swapped direction – no longer East to West, but West to East. The traditional hubs of New York, London and Switzerland remain powerhouses – but China tops the charts.

China produced 401.12 mt (14.15 million oz) of gold in 2018, down 5.9% from 426.14 mt the previous year. Despite the decrease, China has now held the global record for gold production for 12 consecutive years, China Gold Association said.

China also remained the world’s largest gold consuming country for the sixth consecutive year with 1,151.43 mt (40.62 million oz) in 2018, a 5.7% rise from 1,089.07 mt the previous year, CGA added.

Young-Jin Chang, global head of metals CME Group

Young-Jin Chang, global head of metals at CME Group

CME Group recently partnered with the Shanghai Gold Exchange to offer the Shanghai Gold Futures contract, giving investors access to China’s booming bullion business.

CME’s Global Head of Metals, Young-Jin Chang, talked to Ben Kilbey about the rationale behind the partnership, and gave insight to what the future holds for the exchange. CME already operates the world’s most liquid gold contract on COMEX.

How is the new Shanghai Gold contract doing?

We are only in week three [as of 07/11/2019], but the market is showing interest in the new Shanghai Gold Futures contracts with more than 23,000 contracts traded since launch and daily volumes around 1,350 contracts. We are starting to get interest from the paper markets, banks and other clients. Although it is very early days, we are happy with the way things are going.

What is the main reasoning for launching the product?

Over the past 20-years there has been a massive switch in gold flows, with physical metal flowing West to East. China in particular has seen the main flow, and is now the world’s largest consumer, producer and net importer. This has created a new spot market, and a unique opportunity that only happens very rarely. We saw a natural opportunity to bridge the local physical price to a futures contract. Not only that, but it is an opportunity to bridge the global gold industry to China and facilitate trade and liquidity.

The Shanghai Gold Benchmark Price is widely regarded as the Renminbi-denominated gold benchmark, and CME Group’s two new gold futures contracts will provide global market participants access to the Chinese gold markets.

What are the benefits of the contract for participants?

China is the largest gold producer and consumer in the world, whose market dynamics can differ from the international benchmark. These products will offer our clients the opportunity to trade the onshore market on a familiar global venue. International clients can access the Chinese market, allowing them to trade the arbitrage between the COMEX price and the China price.

On a like-for-like basis, the Chinese contract trades at a premium to COMEX. This can increase around times of heightened demand, such as Chinese New Year. The contract also gives refiners and other physical players a new hedging tool.

 

LBMA vs Shanghai Gold exchange gold price

 

What’s the most important thing to CME’s business?

Our focus is on providing our customers with the deepest, most liquid and most efficient metals markets of any exchange so they can effectively manage their price risk here at CME Group.

What’s next for CME?

In terms of the metals business, we will continue to grow our global footprint and we’re very excited about this. It’s important to note that the growth we’ve seen across all our metals products is part of a broader, multi-year growth story, led primarily by our global benchmark COMEX gold and copper contracts.

The post Insight Conversation: Young-Jin Chang, CME Group appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_11_19_insight_conversation_young_jin_chang_c Tue, 19 Nov 2019 16:24:05 +0300
<![CDATA[Around the tracks: Auto sales, coil prices unlikely to gain traction before 2020]]> This new monthly feature looks at key auto markets around the globe, including output and sales trends and the impact on relevant steel and metals prices.

The auto sector accounts for around 25% of steel consumption in the US and Germany, 7% in China and 12% in India. The sector will play a growing role in metals demand in emerging nations.

Global manufacturing has undergone a severe downturn this year, due in large part to US-China trade tensions undermining investor confidence. Consumers have not been immune to the negative sentiment and many have deferred decisions to buy cars and other consumer goods.

China’s auto sales and output improved in September but were still down on the year before. Demand in Germany and India slumped in September. Prices of steel coil used in auto manufacturing fell in all major markets in September, while lithium chemical prices show no sign of any recovery.

Forward gear: Auto sales in China, Philippines and Vietnam

Reverse gear: Auto sales in the US, EU and India. Coil prices in most major markets.

 

Outlook

Views are mixed on prospects for the auto market in Europe with an upturn likely to occur in Q2 next year. Strong seasonal buying may not occur in China in November and December due to bearish consumer sentiment, while over in the US, another interest rate rise may have a negative impact on auto. Coil prices will likely stay weak next month despite efforts from US and EU steelmakers to support prices. Steel export markets will stay extremely competitive with coil flowing into Asian markets and dampening prices.

 

US

In the US, the outlook for the sector is mixed and the industry has been hampered by  industrial unrest. US metals company Reliance Steel & Aluminum said it expected stronger demand from the automotive sector in Q4. Nissan has warned that higher interest rates in the US may further dampen consumer sentiment for buying cars.

 

US auto output

  • New passenger vehicle sales dropped 11% on year to 1,272,726 units in September, government data shows. Toyota’s sales of light vehicles slumped by 16.5% on year in September, while Nissan’s dropped by 17.6%.
  • S&P Global Platts data shows that US cold-rolled coil prices averaged $693.4/short ton in October, compared with $734.35/st in September.

 

EU

EU manufacturing remains in the doldrums, with Germany, the region’s biggest car producer, now seemingly on the brink of recession. The European steel market has suffered from the downturn in automotive and construction demand, while in the UK uncertainty surrounding Brexit has resulted in a lack of confidence among consumers and investors.

 

EU car registrations

  • Car registrations in France dropped by 14% on year in August.
  • Delegates at a trade fair in Stuttgart in late October said they expected a recovery in the auto sector by April 2020.
  • Northern European cold-rolled coil prices averaged $535/mt in October, down from $555.4/mt in September, Platts data shows.

 

China

China’s vehicle output and sales have started to recover – or at least, the decline has slowed. Last year saw the first reversal in car sales and production since the early 1990s. Chinese consumers remain highly leveraged to property and are buying fewer cars. The US-China trade conflict also continues to dampen sentiment and weigh on investment decisions.

 

China autos output

  • Chinese CRC output increased by just 2.8% on year over January-September to 24.55 million mt, compared with HRC growth of 11%. Domestic CRC prices averaged Yuan 4,242.33/mt in September, down from Yuan 4,259/mt in August.
  • China’s vehicle output and sales in October reached 2.30 million and 2.28 million units respectively, up 3.9% and 0.6% on the month, and 1.7% and 4% lower than a year earlier, data released by the China Association of Automobile showed.

 

India

Auto demand was expected to be one of the big drivers of Indian steel demand but growth expectations of around 6-7% in the next few years may fall short. Car producers continue to cut production to bring down inventories, which in turn is pulling down steel coil prices. This was due to weak demand and output cuts resulting from the economic slowdown. India’s car ownership on a per capita basis stands at just 22 per 1,000 inhabitants, compared with 173 in China.

 

India autos output

  • India’s vehicle production in October fell for an 11th month running, down 26% on year to 2.16 million units, data from the Society of Indian Automobile Manufacturers showed.
  • Indian HRC prices have slumped by 18% this year, forcing Indian steelmakers to look overseas for sales in recent months.

 

What to look out for

In Europe the market will want more clarity on ArcelorMittal’s announcement that it plans to stop operating the Ilva Taranto steelworks in Italy. Less coil supply could support prices but it will probably require an improvement in auto demand. US steel prices will depend on whether the auto sector supports mills’ attempts to hike prices. Car makers in the US normally offer big discounts in December in a bid to meet yearly sales targets, which could see an uplift in sales.

The post Around the tracks: Auto sales, coil prices unlikely to gain traction before 2020 appeared first on Platts Insight.

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http://so-l.ru/news/y/2019_11_19_around_the_tracks_auto_sales_coil_pric Tue, 19 Nov 2019 11:28:55 +0300
<![CDATA[Commodity Tracker: 6 charts to watch this week]]> Nuclear generation in the US and France faces contrasting challenges of power market prices and safety concerns, as this week’s graphics show. Other top trends picked by S&P Global Platts editors include China’s falling LNG imports, stuttering gold prices, refinery margins and coking coal prices.

1. US nuclear sector struggles amid weak power prices…

 

US nuclear fleet retirements

 

What’s happening? Across the US Northeast, largely in states with deregulated power markets, nuclear power plants are being slated for retirement. Their owners are contending with low to flat power demand and depressed wholesale power prices, partly as a result of robust shale gas supply that has lowered gas prices. In deregulated markets, power generators compete to sell electricity in wholesale markets, as opposed to earning a guaranteed rate of return negotiated with utility regulators in regulated markets.

What’s next? S&P Global Platts Analytics estimates that roughly 16 GW of nuclear generation is at risk of retiring before their licenses expire across the US between now and 2025. Assuming this nuclear generation were to be replaced by gas-fired generation, an incremental 2.7 Bcf/d of gas demand from power generation would be required to replace these retiring generators, Platts Analytics estimates.

 

2. … while France faces winter with a curtailed nuclear fleet

 

France nuclear power availability 2015-2019

 

What’s happening? An earthquake in the Rhone Valley has taken EDF’s huge Cruas nuclear plant (3.66 GW) out of service, forcing the French utility to cut its 2019 nuclear output target, and removing a big chunk of generation capacity at a time when French nuclear availability is normally ramping up to meet rising winter electric heating demand.

What’s next? While EDF plans to bring the Cruas reactors back through the first half of December, it is regulator ASN’s decision to make. With restart clearances prone to bureaucratic delay, the current volatility in prompt prices could intensify as winter deepens. For every degree fall in winter temperatures, French power demand ratchets up 2.2 GW.

 

3. Europe is LNG market of last resort as China’s appetite wanes…

 

China LNG imports 2018 2019

 

What’s happening? Chinese imports of LNG continue to trend downward on weaker demand, with the year-on-year decline taking the market by surprise following several years of double-digit growth.

What’s next? A fall in Chinese LNG imports — considered key to maintaining a global LNG market balance — will likely see more cargoes headed for Europe, which acts as a market of last resort for surplus LNG cargoes. This in turn could put more bearish pressure on European gas prices, which are already low due to full storage stocks.

 

4. … and coking coal pressured by lower Chinese demand

 

Coking coal vs China import growth 2019

 

What’s happening? Coking coal benchmark prices have fallen as China’s imports slowed down in the third quarter, and demand for steel in Japan, South Korea, India, Europe and South America was weaker than earlier expected. China’s coking coal imports are expected to rise from 2018, but growth rates through 2019 have fallen as annual quotas get used up.

What’s next? The industry is meeting in Warsaw next week, and US coal miners have already started to slash higher-cost production and shipment targets for the reminder of the year and for 2020. Progress on US and China trade tariffs may help build expectations of stronger global steel demand, supporting raw materials, while the effect of IMO 2020 fuel regulations on shipping costs may affect tradeflow if rates deter longer voyages.

5. Gold loses shine as investors rediscover taste for risk

 

Gold price LBMA 2019

 

What’s happening? Gold is under pressure, falling from $1,520/oz to $1,450/oz in recent weeks, dashing talk earlier this year that it had the potential to touch its all-time high of more than $1,900/oz. The drop has occurred even without signs of an early resolution in the US-China and US-EU trade spats. ING Bank strategists report that investors have been liquidating gold as risk appetite returns in the market and demand for safe-haven assets slows down. Exchange-traded fund investors have sold significant positions in gold and physical demand faces pressure due to high prices and a pause by China on gold buying for forex reserves.

What’s next? Gold’s close link to geopolitics makes its fortunes hard to foresee. However, some pundits see a downside trend, due to market resistance to inflated gold prices. “With the Christmas period approaching, there is evidence that gold investors are taking money off the table after a pretty decent job[s] 17% year-to-date gain,” said analyst Ross Norman said in his Metals Daily publication in recent days. “As such, gold looks vulnerable to a deeper short-term correction.”

 

6. Refiners eye lucrative low-sulfur fuel oil ahead of IMO 2020

 

Northwest Europe refining cracks gasoline low-sulfur fuel oil

 

What’s happening? Rising demand for 0.5% sulfur fuel oil is leading to cracks for the new fuel outstripping those of gasoline. Crack spreads reflect the difference in price between a refined product and crude oil. Current cracks make production of the very low sulfur marine fuel (VLSFO) an attractive proposition for refiners as the IMO 2020 deadline on cleaner shipping fuel approaches. The growing attraction of 0.5% sulfur fuel oil production is causing some refiners to reduce run rates at fluid catalytic cracking units.

What’s next? Historically, a refinery would always look to maximize gasoline at its fluid catalytic cracker, using the vast majority of vacuum gasoil for gasoline cracking. However, sources have noted that the longer than historic maintenance periods across Europe could indicate the intent to limit gasoline production in favor of the new, more attractive 0.5% fuel oil crack.

Reporting by Jared Anderson, Henry Edwardes-Evans, Andreas Franke, Stuart Elliott, Hector Forster, Ben Kilbey, Diana Kinch, Solomon Lanitis, Tom Washington and Paul Hickin

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http://so-l.ru/news/y/2019_11_18_commodity_tracker_6_charts_to_watch_thi Mon, 18 Nov 2019 09:04:20 +0300