Today’s Key Takeaways: Impossible to predict short-term energy outlook in shadow of Russia’s invasion of Ukraine. Norway assembles world’s first floating wind farm to power offshore oil and gas platforms. 74% of U.S.LNG exports head to Europe. Weaning the U.S of Russian uranium supply. John Kerry continues anti-fossil fuel folly.
NEWS OF THE DAY:
Energy Outlook Still Suffering From Ukraine-Related Uncertainty
Bojan Lepic, Rigzone, June 8, 2022
The U.S. Energy Information Administration’s June Short-Term Energy Outlook (STEO) is subject to heightened levels of uncertainty resulting from a variety of factors, including Russia’s full-scale invasion of Ukraine.
Global macroeconomic assumptions in STEO include global GDP growth of 3.1 percent in 2022 and 3.4 percent in 2023, compared with growth of 6.0 percent in 2021. A range of potential macroeconomic outcomes could affect energy markets in the forecast period. Factors driving energy supply uncertainty include how sanctions affect Russia’s oil production, the production decisions of OPEC+, and the rate at which U.S. oil and natural gas producers increase drilling.
The Brent crude oil spot price averaged $113 per barrel in May. EIA expects the Brent price will average $108/b in the second half of 2022 and then fall to $97/b in 2023. Current oil inventory levels are low, which amplifies the potential for oil price volatility. Actual price outcomes will largely depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market.
The Administration forecasts Russia’s production of total liquid fuels will decline from 11.3 million bpd in the first quarter of 2022 to 9.3 million bpd in 4Q23. This STEO incorporates the recently announced EU ban of seaborne crude oil and petroleum product imports from Russia.
The EIA assumes the crude oil import ban will be imposed in six months and the petroleum product import ban in eight months. This forecast does not reflect restrictions on shipping insurance, as details regarding such restrictions were not available when the EIA finalized this forecast on June 2. The possibility that these sanctions or other potential future sanctions reduce Russia’s oil production by more than expected creates upward risks for crude oil prices during the forecast period.
At its June 2 meeting, OPEC+ announced an upward adjustment of production targets for July and August. EIA then updated its forecast to reflect these targets. OPEC crude oil production will average at 29.2 million bpd in 2H22, up 0.8 million bpd from 1H22.
The U.S. average retail price for regular grade gasoline averaged $4.44 per gallon in May, and the average retail diesel price was $5.57/gal. Rising prices for gasoline and diesel reflect refining margins for those products that are at or near record highs amid low inventory levels.
“We expect the gasoline wholesale margins – the difference between the wholesale gasoline price and Brent crude oil price – to fall from $1.17/gal in May to average 81 cents/gal in 3Q22, and we expect retail gasoline prices to average $4.27/gal in 3Q22. Diesel wholesale margins in the forecast fall from $1.53/gal in May to $1.07/gal in 3Q22, and retail diesel averages $4.78/gal in 3Q22,” EIA stated.
U.S. refinery utilization averages 94% in 3Q22 in our forecast, because of high wholesale product margins. Despite our expectation that refinery utilization will be at or near the highest levels in the past five years, operable refinery capacity is about 900,000 b/d less than at the end of 2019, and as a result, total refinery output of products will not reach its highest level in the past five years.
Natural Gas
According to the EIA, it is expected that the Henry Hub spot price will average $8.69 per million British thermal units (MMBtu) in 3Q22, up from an average of $8.13/MMBtu in May. Natural gas prices are rising mainly because of three factors: natural gas inventories that are below the five-year average, steady demand for U.S. LNG exports, and high demand for natural gas from the electric power sector given limited opportunities for natural gas-to-coal switching. In 2023, the Henry Hub price will average $4.74/MMBtu amid rising natural gas production.
U.S. natural gas inventories ended May at 2.0 trillion cubic feet (Tcf), which is 15% below the five-year average. Natural gas inventories will end the 2022 injection season (end of October) at just over 3.3 Tcf, which would be 9% below the five-year average.
U.S. LNG exports will average 11.7 billion cubic feet per day (Bcf/d) during 2Q22 and 3Q22 and 11.9 Bcf/d for all of 2022, a 22% increase from 2021, because of additional U.S. LNG export capacity that has come online. Since the end of 2021, the EU and the UK imported record-high LNG volumes because of low natural gas inventories. Europe has become the main destination for U.S. LNG exports and accounted for 74% of total U.S. LNG exports during the first four months of 2022. LNG exports will average 12.6 Bcf/d in 2023. Expected growth in LNG exports in 2023 results from LNG export terminals that came online in mid-2022 being operational for the whole year in 2023.
U.S. consumption of natural gas in our forecast averages 85.3 Bcf/d in 2022, up 3% from 2021. Rising U.S. natural gas consumption reflects increased consumption across all sectors. In the residential and commercial sectors, increasing consumption results from colder temperatures in 2022 than in 2021, and in the industrial sector, rising economic activity contributes to higher consumption. Limited natural gas-to-coal switching in the electric power sector, despite high natural gas prices, results in increased consumption of natural gas for power generation. For 2023, EIA forecasts that natural gas consumption will average 85.1 Bcf/d, about the same as 2022.
The EIA forecasts that U.S. dry natural gas production to average 95.7 Bcf/d in June and to average 97.9 Bcf/d in 2H22, which would be 2.7 Bcf/d more than in 2H21. Dry natural gas production will average 101.6 Bcf/d in 2023.
Electricity, coal, renewables, and emissions
The largest increases in U.S. electricity generation in the next two years are likely to come from renewable energy sources, driven by expanded generating capacity from these sources. EIA said that renewable energy will provide 22% of U.S. generation in 2022 and 24% in 2023, up from a share of 20% last year. Solar capacity additions in the electric power sector total 20 gigawatts (GW) for 2022 and 22 GW for 2023. Solar PV installation delays from 2022 to 2023 account for about 1 GW of the expected installed solar capacity.
Small-scale (systems less than 1 GW) solar capacity will grow to a total of 39 GW by the end of 2022 and to 46 GW in 2023. Wind capacity additions in the U.S. electric power sector will total 11 GW in 2022 and 5 GW in 2023.
The continued retirement of coal-fired generating capacity in the United States contributes to our forecast that the share of electricity generation from coal will decline from 23% in 2021 to 21% in 2022 and 20% in 2023. The coal fleet has been facing constraints in raising its share of generation despite high natural gas prices. The constraints include limited rail capacity for fuel delivery, low coal stocks at power plants, reduced coal mining capacity, and rising generation from renewable sources.
Although annual U.S. natural gas fuel costs for electricity generators is expected to increase 59% in 2022, there will be no significant decline in generation from natural gas-fired power plants because of the limited ability of coal power plants to act as an alternative source of generation. U.S. natural gas generation share will average 37% in 2022, about the same as last year. The forecast natural gas share averages 36% in 2023 as the share of generation from renewable sources increases.
“We forecast the U.S. residential electricity price will average 14.6 cents/kWh between June and August 2022, up 4.8% from summer 2021. The forecast summer commercial sector price averages 12.0 cents/kWh (up 4.7%) and the forecast industrial sector price averages 7.7 cents/kWh (up 3.2%). Higher retail electricity prices largely reflect higher wholesale power prices and higher natural gas prices. We expect the summer increases in retail residential electricity prices will range from an increase of 2.4% in the West South Central region to a 16.1% increase in New England,” EIA added.
U.S. coal production in the forecast increases by 23 million short tons (MMst) (3.9%) in 2022 to 601 MMst and then declines by 13 MMst (2.1%) to 588 MMst in 2023. The forecast increase occurs despite our expectation that coal use in the electric power sector will decline. EIA said that the rising coal production will replenish electric power sector inventories and contribute to U.S. coal exports.
“We expect energy-related carbon dioxide (CO2) emissions in the United States to increase 1.3% in 2022 and fall by 0.7% in 2023. Forecast emissions increases in 2022 primarily reflect growth in transportation demand,” EIA concluded.
OIL:
First turbine installed at world’s largest floating offshore wind farm – which will power oil and gas
Michelle Lewis, Elektrek, June 7, 2022
Four wind turbines have been fully assembled by Norwegian power giant Equinor, which is developing and will operate Hywind Tampen. It’s located around 140 km (87 miles) off the Norwegian coast in a water depth of between 260 and 300 meters (853 to 984 feet).
The substructures are cast in concrete and are 107.5 meters (353 feet) tall. Equinor writes:
It will also be the world’s first floating wind farm to power offshore oil and gas platforms.
The 94.6 MW, €488 million ($522 million) floating offshore wind farm will provide electricity for the Snorre and Gullfaks oil and gas fields in the Norwegian North Sea. It will cover around 35% of the five platforms’ annual power needs.
Equinor asserts that the wind farm will reduce the need for locally produced gas power and “thus reduce annual emissions from the fields by about 200,000 tonnes of CO2, which is equivalent to emissions from 100,000 vehicles.”
Hywind Tampen is scheduled to start producing power in the third quarter of 2022.
GAS:
Feds: U.S. now exports 74% of LNG to Europe
Mike Lee, Energywire, June 8, 2022
The U.S. Energy Information Administration said that gas exports to Europe have doubled since last year.
Almost three-fourths of U.S. liquefied natural gas exports are headed to Europe as high prices and the Russian invasion of Ukraine reshape international energy markets, according to the Energy Department.
During the first four months of 2022, 74 percent of U.S. LNG exports went to the United Kingdom or European Union members — more than double the average of 34 percent in 2021, according to a research note yesterday from the U.S. Energy Information Administration.
The U.S. is now the largest gas supplier to the U.K. and E.U., the federal agency said. Previously, Asia was the top destination for U.S. exported gas. Before the war in Ukraine, Russia provided as much as 40 percent of Europe’s total gas via pipelines, but many E.U. nations have begun looking for alternatives. Now, the U.S. provides 49 percent of the region’s liquefied gas, while Russia and Qatar provide 14 percent of its LNG apiece, EIA said.
Prices in Europe began rising last year, and international sanctions on Russian gas shipments drove up the price even further. The high prices made it economic for American companies to ship their gas overseas, EIA said. Most of the world’s gas is transported by pipelines, but LNG terminals use massive cooling systems to chill the gas until it liquefies, reducing its volume so it can be economically stored on seagoing tankers.
The growth in shipments to Europe came as American exports to Asia fell by 51 percent during the first four months of the year, compared to the 2021 average, EIA said. Shipments to China fell in part because of the country’s ongoing Covid-19 lockdowns.
The shift in trading patterns occurred as U.S. exports increased 18 percent in comparison to last year to an average of 11.5 billion cubic feet a day, EIA said. The agency has previously said that 2021 was a record year for U.S. LNG exports.
Exports have helped push up natural gas prices for U.S. consumers, EIA said in its short-term energy outlook, which was also released yesterday. Gas will average $8.69 for the third quarter of 2022, more than double last year’s price, the agency said. The higher prices will be reflected in electric rates, too, EIA said.
MINING:
US seeks $4.3 billion for uranium to wean off Russia supply
Bloomberg News, June 7, 2022
The Biden administration is pushing lawmakers to support a $4.3 billion plan to buy enriched uranium directly from domestic producers to wean the US off Russian imports of the nuclear-reactor fuel, according to a person familiar with the matter. Shares of uranium companies surged.
Energy Department officials have met with key congressional staff, where they said such funding is urgently needed, said the person, who wasn’t authorized to publicly discuss the information. Energy officials made the case that any interruption in the supply of enriched Russian uranium could cause operational disruptions at commercial nuclear reactors, the person said. US nuclear energy industry participants have also been briefed on the proposal, said a second person familiar with the details. The plan requires approval from Congress.
The proposal aims to spur development of more domestic enrichment and other steps needed to turn uranium into reactor fuel, the person said. It would create a government buyer directly purchasing enriched uranium, including the type used in a new breed of advanced reactors now under development.
Still, it won’t be easy for the US to jump-start the domestic uranium industry. The country has only one remaining commercial enrichment facility — a New Mexico plant owned by Urenco Ltd., a British-German-Dutch consortium.
Uranium shares surge
The Global X Uranium ETF, an exchange-traded fund focused on the industry, jumped as much as 7.4% to its highest intraday price in a month on the news. Shares of uranium miners including Cameco Corp. and Energy Fuels Inc. soared along with nuclear fuel provider Centrus Energy Corp.
The talks come as the Biden administration contemplates slapping sanctions on enriched uranium imports from Russia in response to the Kremlin’s invasion of Ukraine while considering prospects that Russia could also decide to halt imports. Russia accounted for 16.5% of the uranium imported into the US in 2020 and 23% of the enriched uranium needed to power US commercial nuclear reactors.
The Energy Department didn’t immediately respond to a request for comment. Energy Secretary Jennifer Granholm has called the US reliance on Russian imports a “vulnerability” for national and economic security, while drawing attention to the fact that US enrichment capacity has waned in part because of competition from state-subsidized sources.
The proposal dovetails with legislation introduced earlier this year by Senator Joe Manchin, the West Virginia Democrat who serves as a key swing vote, and Senator Jim Risch, an Idaho Republican, that would authorize billions of dollars in funding to increase the country’s domestic uranium enrichment capabilities. Other congressional backers of expanding US enrichment capabilities include Senator John Barrasso, a Wyoming Republican who serves as the top GOP member of the Energy and Natural Resources Committee.
Companies that could benefit from such a plan include Centrus Energy, the Bethesda, Maryland-based firm that is building an enrichment facility in Ohio, and ConverDyn, a joint venture between Honeywell International Inc. and General Atomics that provides uranium conversion services.
POLITICS:
From the Washington Examiner, Daily on Energy:
KERRY: ‘PUSH BACK HARD’ ON POLICIES FAVORING MORE FOSSIL FUELS: Climate envoy John Kerry is staying out in front of policies that favor new fossil fuel development, arguing that while world leaders need to get through the energy crisis in the short-term, they also must not do so by permanently compromising on climate change mitigation efforts.
“You have this new revisionism suggesting that we have to be pumping oil like crazy, and we have to be moving into long term [fossil fuel] infrastructure building, which would be absolutely disastrous,” Kerry said yesterday at Time’s TIME 100 event. “We have to push back, and we have to push back hard.”
Kerry also acknowledged Russia’s ongoing war in Ukraine could stall international efforts to fight climate change, noting that it had “interrupted the momentum” world leaders had developed at last year’s UN climate summit in Glasgow.
“We left Glasgow in what was much more [of a] forward leaning accomplishment than most people have caught on to,” Kerry said of the COP26 summit.
And while the war has prompted leaders, including President Biden, to support increasing fossil fuel exports to Europe, Kerry warned that they should not make such changes permanent: “We have to get through the crisis,” he said. “To get through the crisis you need to obviously maintain political stability.”
The surge in global energy costs “will change politics,” Kerry said. “And that’s probably exactly what Putin wants. We have to stand strong and fight back.” Read more from the interview here.