Energy market analysis October 29th 2024

29-10-2024

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EU Energy ministers discuss alternatives for Russian gas

“Graphite, the largest mineral component used in batteries, is of particular concern. There is no EU-mined supply of manganese ore or coke, the precursor to synthetic graphite.”

The EU Critical Raw Materials Act has set various ambitious goals to improve the resilience of its critical mineral supply chains. The act includes non-binding targets to develop enough mining capacity within the EU to meet 10% of its critical mineral demand. In May 2024 the law came into effect.

The act also sets a target to meet 40% of the demand by processing within the EU and 25% through recycling. The table below shows the scale of the challenge the EU faces. This data of July 2024is from the Benchmark Mineral Intelligence. Synthetic graphite is not included in this data.

Except for nickel, none of the battery minerals deemed strategic by the EU are on track to meet these goals. Graphite, the largest mineral component in batteries, is particularly concerning. There is no EU-mined supply of manganese ore or coke, the precursor to synthetic graphite.

By 2030, the European Union is expected to supply 16,000 tons of ‘flake graphite’ locally, compared to a domestic mining target of 45,000 tons. The region is forecasted to produce 29,000 tons of lithium carbonate equivalent (LCE), compared to a target of 46,000 tons. In terms of mineral processing, the EU is expected to process 25% of its lithium requirements, 76% of nickel, 51% of cobalt, 36% of manganese, and 20% of flake graphite.

It is forecasted that the EU will recycle only 22% of its lithium needs, 25% of nickel, 26% of cobalt, and 14% of manganese. Graphite is not yet recycled on a commercial scale. A visualization of the total cobalt supply from the top 10 producers in 2030 is provided here.

Crude oil

“Rather than an energy transition, we are really talking about energy addition.” – Amin Nasser, CEO of Saudi Aramco

Amin Nasser, CEO of Saudi Aramco, is quite optimistic about Chinese oil demand, especially after China implemented a series of stimulus measures to revive the world’s second-largest economy. China, the largest importer of crude oil and the second-largest oil consumer, is Aramco’s biggest crude oil customer. Nasser notes that Aramco plans to increase its liquids-to-chemicals capacity to 4 million barrels per day. Most of the increase is targeted toward Chinese markets. Additionally, jet fuel demand in the country is a bright spot, according to Nasser. He points out that the energy transition in Asia is progressing much slower than initially expected. He anticipates that oil demand in the Global South will rise in the coming decades in line with living standards, followed by a long plateau. Therefore, he prefers to speak of energy addition rather than energy transition.

In a recent oil market report, the International Energy Agency (IEA) stated that crude oil demand could decline by the end of the decade due to the “Age of Electricity”. Predictions of a sharp and sudden decline in global crude oil demand have not yet materialized. In fact, fossil fuels, particularly natural gas, will continue to power the global economy for decades to come.

Chinese and Indian oil traders are responsible for the explosive growth of shadow fleet tankers transporting Russian crude oil to Asia to evade Western sanctions. A new report, “BRICS+ Energy: Engine of the New World Order,” by the Valdai International Discussion Club, highlights Russia’s strategic shift to redirect its oil exports away from Europe toward Asia due to G7 sanctions. The largest demand for Russian crude oil in 2023 came from only two BRICS countries: India and China.

By strengthening ties with BRICS countries, Russia continues to find alternative channels for its energy resources. Thus, BRICS+ is positioned as a significant counterbalance to Western financial and energy control in the new world order.

According to Robin Brooks from the Brookings Institution, Indian imports from Russia have increased by 900% compared to the pre-invasion period. He says this is primarily because Russian crude oil is sent to India for refining and then “shipped back to Europe.” This does not occur on Western oil tankers compliant with the G7 cap but rather on ships from the shadow fleet. India thus plays a crucial role in the global oil trade with its large-scale refineries. TankerTrackers.com shows how the global shadow fleet of oil tankers is deployed. In other words, Russia and other countries under U.S. sanctions are running circles around Washington and Brussels.

The Western sanctions bypassed by the shadow fleet contribute to the trend of de-dollarization. In other words, dollar hegemony is in serious trouble in the long term.

Price of Crude Oil – Brent December 2024 ($/barrel) – weekly cloud candle, log scale

Elec­tricity

“This is not just about increasing capacity; it’s about reimagining our entire energy landscape.” – Manohar Lal, Indian minister of power

India aims for a large-scale upgrade and expansion of its electricity transmission system. The country expects investment opportunities of $109 billion to support the integration of renewable energy sources and storage solutions, according to the Ministry of Power.

India’s new National Electricity Plan (Transmission) includes adding hundreds of thousands of kilometers of transmission lines, transformation capacity, and inter-regional transmission capacity by 2032. India is targeting 500 gigawatts (GW) of renewable energy capacity to be installed by 2030. By 2032, this would increase to 600 GW, according to the National Electricity Plan. The country expects electricity demand to rise to 708 GW by 2047, according to the Minister of Power.

This push toward green energy aligns with India’s commitment to reduce CO emissions by 1 billion tons by 2030 and to achieve net-zero emissions by 2070, according to the Ministry of Power. To meet this demand, India must quadruple its electricity capacity, the minister adds. The country will need to install at least 44 GW of clean energy capacity each year by the end of the decade to reach the 500 GW target, according to Bloomberg estimates based on data from the Indian Ministry. Renewable Energy Minister Pralhad Joshi stated that financial institutions have committed $386 billion in investment pledges to help India boost its renewable energy industry.

The price of electricity rose last week in line with the gas price.

Price Baseload Elektricity year of delivery 2025 (eur/MWh) – week cloud candle, log scale

Natural gas

“We have seen in Belgium a doubling of LNG volumes. These are probably destined for security of supply within Europe but we have difficulty implementing this (14th) package that’s why we are calling for a tracking system.” Tinne van der Straeten, minister of energy Belgium

EU ministers debate alternatives to Russian gas imports as the Ukrainian transit agreement expires in December. Concerns are arising over the increase in LNG imports and the effectiveness of EU sanctions regarding re-exports. Some EU members support stricter LNG reporting, and alternatives like gas imports from Azerbaijan are being discussed, but no concrete solutions have yet been agreed upon.

The most recent sanctions package against Russia in June included a ban on reloading services for Russian LNG in EU territory, aiming to hinder transshipments to third countries. A transition period of nine months applies. This also covers ship-to-ship and ship-to-shore transfers, as well as reloading operations. It does not affect imports, only re-exports to third countries via the EU.

Now, various EU member states, including France and Belgium, are requesting the European Commission to establish stricter requirements for reporting LNG import volumes by suppliers and storage companies. Regarding the remaining pipeline gas supplies from Russia to the EU via the Ukrainian transit route, Ukraine has already indicated several times that it will not renew the current transit agreement after December 31, 2024. Slovakia continues to receive Russian gas and has stated it wants to keep using the route through Ukraine.

EU energy ministers have discussed replacing Russian gas by deploying Azerbaijan as a supplier. However, there are few details on how this would work, technically and politically, according to Bloomberg. The EU is still far from an agreement on replacing Russian supplies. A potential deal might even happen at the eleventh hour or early next year, anonymous sources told Bloomberg.

Russia appears to be circumventing Western sanctions on its LNG tanker fleet by transferring ship ownership to a newly created company based in a free trade zone in Dubai. Three LNG tankers, previously managed by Russian companies Gazprom and Sovcomflot, have a new owner in Dubai, Matias Ship Management, according to the global shipping database Equasis. Russia began using a shadow fleet of tankers to ship its LNG through transfers in ship ownership, similar to the creation of a shadow fleet for oil exports after the initial Western sanctions.

Despite weakness in the oil market, gas prices remain strong. Yesterday saw a correction of 2-3% after a series of increases last week. Even though the market movement does not yet look like an impulsive bull run, the trend remains upward as price and lagging line are above the daily cloud.

TTF Gas Price year of delivery 2025 (EUR/MWh) – Weekly Cloud Candle, Log Scale

Coal

“A rebound in hydropower in China has limited to some extent the share of coal in its electricity supply.” – OilPrice.com

 A higher natural gas usage for electricity production has made America more dependent on fossil fuels for electricity supply than China, the world’s largest CO emitter. Since June 2024, the high demand for American electricity in the summer has primarily been met by increased gas-fired electricity production. Meanwhile, a recovery in hydropower in China has limited the share of coal in its electricity mix.

As a result, fossil fuels, including natural gas and coal, accounted for an average share of 62.4% of the total U.S. electricity supply since June. This compares to a lower fossil fuel share in China’s coal-dominated electricity system, where fossil fuels accounted for 60.5% of generation between June and September, according to data from energy think tank Ember.

The increase in electricity output from natural gas could undermine America’s current goals to achieve a zero-carbon grid by 2035. Electricity production from natural gas rose by 20% in the first 9 months of 2024 compared to the same period in 2019. The share of gas in electricity supply increased to 43%, up from 38% five years ago.

In recent years, U.S. electricity demand, most of which is supplied by gas-fired plants, has significantly increased. This demand is expected to grow further with increasing electrification and higher electricity needs for powering and cooling data centers. U.S. utilities are announcing plans for the highest volume of new natural gas plant capacity in years as AI growth drives up electricity demand.

Price of ICE Coal year of delivery 2025 (USD/t) – Weekly Cloud Candle, Log Scale

Emission certificates

“The energy transition is failing, and will fail.” – Barry Norris, Argonaut Capital Partners

A recent Bloomberg analysis covering 500 hedge funds shows a trend: many Wall Street hedge funds hold a “net short” position in green sectors such as batteries, solar, EVs, and hydrogen companies, rather than “long” positions which favor growth. This aligns with data from Hazeltree, which monitors alternative investments, indicating that more funds are net “long” on fossil fuels compared to those that are “short” on oil, natural gas, and coal. This despite the billions of investments in green stimulus packages to support these industries in the Western countries and China. Stille some green industries have no future. A number of speculative green companies have imploded.

In 2023, Wall Street quickly realized that investments in clean energy and green technology would not bring the fast returns anticipated. Many investors, influenced by government support and mainstream media narratives around the climate crisis, had invested too quickly and heavily in green companies that might not have survived in a high-interest-rate environment.

The Bloomberg analysis reveals a pattern of poorly managed investments by the majority of Wall Street, with hedge funds now primarily net short on green tech and long on fossil fuels. Since its peak in 2021, the S&P Global Clean Energy Index has declined by 60%, while the S&P Global Oil Index has risen by 70%.

The European Union and China agreed late last week to continue discussions on a possible alternative to EU import tariffs on China-made EVs, one week before the duties are set to take effect. Earlier this month, the European Commission received enough support from EU member states to impose heavy tariffs of up to 45% on imports of EVs from China due to unfair subsidization.

The EU and China are negotiating a potential alternative solution to the tariffs. If no agreement is reached, the import tariffs will take effect next month. Talks with China on an alternative to the EU tariff will continue, even after the high import taxes. Both parties confirm their political commitment to finding a mutually acceptable solution that must be effective in leveling the playing fields in the EU and WTO (World Trade Organization). Further technical negotiations will take place soon.

The provisional EU tariffs, in effect since July, have led to a response in China, which is continuing anti-dumping investigations into EU imports focused on items such as cognac and pork products. Various EU member states, including Germany and major German car manufacturers, have expressed concerns that the tariffs could lead to a broader trade conflict and retaliatory tariffs from China.

The price of emission allowances has established a higher floor in early October compared to the low point in February this year. The correction has an ABC shape, and there is a high chance that the market price will rise again from here.

Price Emission certificates – Dec-24 contract EEX (eur/t) – week cloud candle, log scale

Renew­able

“Energy security and climate action go hand in hand: the world does not need to choose between ensuring reliable energy supply and addressing the climate crisis.” – Fatih Birol, director of the International Energy Agency (IEA)

Energy security is central to the World Energy Outlook 2024. Geopolitical tensions, wars in Ukraine and the Middle East, and the fragmentation of countries pose a threat to international coordination of the energy transition.

Guaranteed access to affordable energy remains essential. According to the IEA, it is important to anticipate the risks of electrification, secure the supply chains of materials for solar technologies, and mitigate the impact of extreme weather caused by climate change on the energy supply. Despite the acceleration of the adoption of renewable energy sources in recent years, the IEA sees major uncertainties in the short term. This is due to uncertainty over how government policies and industrial strategies will further develop. There is a risk that due to the costs of renewable energy and the stabilizing prices of fossil fuels, governments and industries will choose fossil fuels more often.

The agency expects the renewable energy market to become more balanced in the coming years. Solar panel and battery prices are expected to fall due to the expansion of production capacity and competition among suppliers. Although the growth of renewable energy occurred during a period of fluctuating fossil fuel prices, the IEA expects that the market will stabilize despite geopolitical instability. It is now up to policymakers and consumers to choose between fossil fuels and renewable energy.

The demand for electricity has grown significantly over the past decade, with China responsible for two-thirds of this increase. The IEA has revised its forecast for electricity demand in 2035 upward: total demand is expected to be 6 percent higher than in earlier forecasts, amounting to an additional 2,200 terawatt hours. Causes include industrial consumption, electric transportation, cooling, data centers, and the rise of artificial intelligence.

The energy transition and the growing demand for electricity are creating increasing uncertainty around energy security. The IEA emphasizes that significant investments are needed in the electricity infrastructure and network flexibility. A balance must be struck between investments in the power grid and in battery storage systems. This will allow seasonal and daily fluctuations in energy demand to be managed.

Source: Solar365