Energy market analysis Dec. 18, 2024

“Gasoline will probably peak in China this year or next – not because no one is moving, but simply because the fleet is slowly changing toward electric vehicles.” – Russel Hardy, Vitol

Oil demand in China, the world’s largest importer of crude oil, could peak as early as next year as the penetration of electric cars and LNG trucks is accelerating. This is expected by state-owned China National Petroleum Corporation (CNPC). This time last year, CNPC did not expect this peak in Chinese oil demand until around 2030. Now, after a year of EVs and LNG-powered trucks replacing some of the gasoline and diesel demand, the peak in Chinese oil demand could occur 5 years earlier. That is, in 2025, according to a report by CNPC economists via Bloomberg.

Although some of the lower oil demand can be attributed to weaker economic performance, the shift to EVs and LNG trucks will permanently eliminate a substantial volume of road fuel demand, analysts expect. China’s shift to EVs will cause domestic gasoline demand to peak this year or next. This is also the expectation of CEO Russel Hardy of Vitol Group, the largest independent oil trader. Earlier this year, Vitol changed its timeline for a global peak in oil demand starting in 2030. The reason, according to Hardy, was a slower pace of the energy transition.

Ukraine has identified 238 tankers that it says belong to a shadow fleet of ships that Russia uses to move its oil and fuels around the world. This information has been known to the West for years. Ukraine hopes Western authorities will sanction the cargo ships. According to Ukraine, the shadow fleet has a total carrying capacity of more than 100 million tons, about 17% of the global oil tanker fleet. The Military Intelligence Directorate of the Ukrainian Defense Ministry says the list, published on its website, describes a detailed $10 billion build-up by Russia consisting of more than a thousand mostly obsolete, poorly maintained ships without proper insurance, with confusing ownership and management structures, based in friendly jurisdictions, under “convenient” flags.

President Zelenskiy of Ukraine says he is working on sanctions against Russia’s shadow fleet. These sanctions will have to be supported at the EU-wide level. According to Zelensky, this tanker fleet provides Putin with most of the revenue for the war in Ukraine.

The problem is that these sanctions will not be supported. Not now and not in 2022 when Europe had every opportunity to permanently block Russian oil exports. The reason is that the west has little interest in harsh sanctions because they would push oil prices much higher. A number of tankers from the shadow fleet have already been sanctioned by the west, with zero effect because of the reason mentioned above. Publishing the new list of oil tankers in the shadow fleet will also have no impact on actual oil exports.

Price Crude oil – Brent February 2025 ($/barrel) – month cloud candle, log scale

“It’s been cold and with very little wind, so those are the fundamentals that have eaten into gas storage in Europe and are also supporting electricity prices.” – Bjorn Inge Vik, analyst Volue

A rise in European electricity prices has given Norway’s ruling party a reason to limit electricity exports, according to Bloomberg. In its election program for September 2025, Norway’s Labor Party floated a plan to end the electricity link with Denmark in 2026 if the contract is to be renewed. Electricity prices on the spot market in Oslo hit their highest levels since December 2022 on Thursday, Dec. 12, but were down 65% the very next day. Legislator Ingvild Kjerkol said, “Despite full water reservoirs, electricity prices are sky-high. It is very difficult to explain to people in Norway why a country with a large electricity surplus has high prices.” This is in line with Prime Minister Jonas Gahr Store’s Labor Party and its coalition partner, the Center Party, which during the 2022 energy crisis favored limiting electricity sales.

Although Norway is not an EU member, it is part of a single energy market where long-term export restrictions are not allowed. Norway’s stance on its electricity contrasts sharply with its key role as a main supplier of gas to the EU that covers a third of the bloc’s needs. Analyst Bjorn Inge Vik says recent price hikes due to cold weather and low wind production can be blamed on eroding Europe’s gas reserves that increased electricity costs.

According to Bloomberg, Norwegians, long accustomed to low stable electricity prices, are now paying higher rates due to increased market integration and volatility. With 17 international power lines, Norway remains connected to the global electricity trade, according to Kjerkol. Norwegian people have traditionally enjoyed stable and low electricity prices thanks to 1,000 hydroelectric plants. Increasing market integration has brought price volatility from the European continent to the Norwegian region.

The Norwegian grid is connected to Sweden and several countries via submarine cables, including Denmark, Germany, the Netherlands and Britain. Last year, Norway rejected a proposal for a second UK cable to retain more electricity for its own electrification needs.

Bard Standal of the renewable lobby Fornybar Norge concludes, “The trend is that very little renewable energy is being built in Norway, while a lot is being built around us. In a few years, cooperation with these countries can ensure energy security and low power prices.”

Price Baseload Electricity supply year 2025 (eur/MWh) – week cloud candle, log scale

“Germany’s energy margin, the available electricity supply to meet demand, fell this week to its lowest level so far this winter, as low wind speeds and colder weather put pressure on the power system.” – Tsvetana Paraskova

Last week, intra-day electricity prices in Germany rebounded. Natural gas-fired electricity rose to a two-year high due to low wind speeds that caused wind power output to drop considerably.

Natural gas use for gas power plants rose to the highest level since December 2022. This was caused by a large gap in supply that meant weak wind generation had to be filled by gas-fired power plants. Consequently, Wednesday’s Dec. 11 peak hours jumped to a record €1,000 per MWh, according to EEX data.

Germany’s power margin, the available supply of electricity to meet demand, fell to its lowest level so far this winter last week due to low wind speeds and colder weather. Since early November, the so-called “Dunkelflaute,” or dark wind lull, has often resulted in wind farms generating only a fraction of their nameplate capacity. This leads to day-ahead electricity prices for peak hours at levels not seen since the highs of the 2022 energy crisis.

Short-term electricity prices have risen due to fluctuating supply while lower temperatures have increased demand. As a result, Germany had to import more electricity from France and lean more on fossil fuels for electricity production during this period. Gas-fired electricity production jumped in November compared to October with the biggest monthly increase ever, according to data from energy think tank Ember. This was mainly due to 25% lower wind generation in October and November compared to the same months in 2023.

Price TTF gas supply year 2025 (eur/MWh) – week cloud candle, log scale

“Coal still accounts for about 60% of China’s electricity generation, despite a spike in hydropower earlier this year following abundant rainfall, which reduced coal’s share of the country’s energy mix in the summer.” – Tsvetana Paraskova

Global thermal coal consumption and exports are expected to rise to new record highs this year compared to 2023. This can be concluded following data from Reuters columnist Gavin Maguire. Coal-fired power generation is already up 2% this year compared to 2023. Output has reached new highs as electricity demand grows in emerging markets. Emissions from coal-generated electricity will also hit a record in 2024, according to think tank Ember.

Global exports of thermal coal, the type used in coal-fired power plants, also increased this year. Mainly due to increasing demand in India and China. Global thermal coal exports increased by 9 million metric tons between January and November 2024, compared to the same period last year. This can be shown by ship tracking data from commodity analysts at Kpler. Indonesia, the world’s largest coal exporter, will ship more than 500 million metric tons of coal this year for the first time ever, Kpler expects. Last year, coal demand grew 2.6% to an all-time high, according to International Energy Agency (IEA) in their overview of coal markets last July. Back then, the agency expected coal demand for 2024 to remain mostly flat compared to 2023. However, demand has continued to grow in China and India. Although coal’s share of China’s electricity mix has declined in recent years with the renewable explosion, coal-fired power generation remains at a high level. Coal still accounts for about 60% of China’s electricity generation. Despite a surge in hydro power this year following abundant rainfall, coal’s share of the power mix declined last summer. After that, however, hydro power saw a sharp decline in September. This in turn caused a sharp increase in the use of thermal coal.

Price ICE Coal delivery year 2025 (usd/t) – day cloud candle, log scale

“From 2025-2030, there will be a great need to address the complex distributional impacts of decarbonizing buildings and transport, whose emissions reductions to date have been relatively small. To avoid political blowback, it may be necessary to offer financial incentives to households in exchange for the adoption of more expensive green technologies.” – think tank Bruegel

According to new estimates, the EU’s green transition will cost €1.3 trillion annually until 2030. And €1.54 trillion per year until 2050. The high cost of the transition will most likely require higher taxes, subsidies and potentially national, green investment strategies. Concerns exist about public support for transition goals toward net zero because of the increasing cost of living and potential damage to competitiveness.

Financial incentives will be needed to get households to adopt the more expensive green technologies, as indicated in the quote above. This effectively amounts to European governments taking the money away with one hand and partly giving it back with the other. Just to have CO2 emissions reduced by 55% from 1990 levels by 2030 and then, by 2050, to reach net-zero status. Given the recent political events in Europe, especially in Germany, Romania and now France, the people will not really warm to this green transition.

Bruegel says the money for the transition is there: by effectively linking all national policies to the European Green Deal. The EU is currently seeking to achieve its transition goals by establishing National Energy & Climate Plans (NECPs). To be effective, Bruegel said these NECPs “must be transformed into true national green investment strategies, providing a reference point for investors, stakeholders and citizens when making investment decisions.”

The impossibility of finding enough money to finance the transition could be a “blessing in disguise .

Price Emission Rights – Dec-25 contract EEX (eur/t) – day cloud candle, log scale

“We cannot have an electricity system based solely on wind and solar power. There are strong technical and economic limits to how much we can integrate into the power grid.”– Brian Vad Mathiesen, professor Aalborg University (Denmark)

Europe is reaching its limit in terms of wind power. Countries like Denmark and Sweden, once leaders in offshore wind capacity expansion, are now running into barriers as electricity prices and incentives are too low to support new projects, according to Bloomberg.

In a recent Danish auction for offshore wind, there was no interest at all. This immediately highlights the problem. This delay in wind development risks longer dependence on fossil fuels as rising costs challenge the renewable sector’s previous success in pushing prices down.

Denmark, which led the world last year by getting 58% of its electricity from wind, saw no bids in its largest-ever offshore wind tender. State-owned Ørsted gave as its reason the unattractive investment conditions, with low electricity prices caused by an oversupply of wind power. The Bloomberg report found that Sweden is facing the same challenges after years of rapid wind expansion have depressed revenues, discouraging new projects. Delays and cancellations of green industrial projects in the north make future projects uncertain.

Britain’s goal of phasing out fossil fuels through 2030 requires a major shift in electricity consumption to bring it in line with the fluctuating supply of renewable energy. So says the grid operator. Record amounts of wind power are currently being squandered because of grid constraints.

Wind farms operate when conditions permit, often resulting in oversupply and even negative electricity prices. This is in contrast to coal and gas plants. While solar has the same issues, falling costs of solar panels have softened the impact. However, the wind sector is struggling with rising costs for materials such as steel and labor. Encouraging consumers to adjust their demand, especially with the electrification of transportation, heating and industry, could stabilize prices and drive investment in clean energy.