As the seemingly permanent blanket of snow in my yard lifted this week to reveal the green, green grass below (albeit briefly), I am reminded that seasons change. But it is not just clocks and landscapes that are undergoing a shift, but also a veritable variety of elements in energyland™. So here are some such seasonal shuffles, across continents and commodities.
1) Surely the most fervent flag-waving signal of spring in energyland™ is that of the reversal by natural gas storage from winter withdrawals to springtime injections. While the wave of whopper withdrawals currently have flipped us back into a deficit versus the five-year average (see below), the prospect of exiting the withdrawal season in four weeks or so just shy of 1,500 Bcf and at a ~20% deficit – as opposed to the -55% seen last year – is pressuring prompt month prices to maintain their residence in two-dollardom, while record production continues apace:
2) Switching both commodities and continents, we shift our focus to China. For it is the largest consumer of coal on the planet…but is changing its tune. China is aggressively trying to increase the share of renewable energy in its generation mix to 15% by 2020 to counter pollution and reduce emissions, through a focus on wind and solar generation. Solar and wind currently account for ~5% of the generation mix (while hydro accounts for over 20%).
Coal accounts for ~65% of the Chinese generation mix (and a nutty ~50% of global consumption), and through a growing focus on renewables and natural gas it has lowered both coal consumption and production for the first time in 14 years. Correspondingly, global production of solar panels rose by 30% in 2014 to meet this rising need, while global wind generation capacity rose by 50 GW, up 40% from 2013, driven in large part by China. Pretty cool stuff.
3) Let’s flip back to the US, and black gold, Texas tea. For as we march through March we are passing through the peak of US refinery maintenance season. Refinery utilization is currently at 86.6%; last year saw us bottom out at 85.6%, while the low of recent years been closer to 80%. This higher utilization rate is indicative of the greater profitability available to refiners (h/t WTI), encouraging refinery runs to be kept as high as possible. That said, even though utilization is historically high, it would likely be even higher if it weren’t for recent inclement conditions in the Midwest and Northeast as well as other unplanned outages:
4) Next up we look at the rocky road endured by global LNG markets, for prices globally are tanking due to falling demand and lower oil prices (the majority of contracts are oil-linked), just as a swath of new capacity is coming to market. Global export capacity is only going to continue to ramp up, set to rise by a third to nearly 400 mtpa by 2018, expanding global spare capacity (see chart below).
Qatar is the largest exporter of LNG, but is expected to be surpassed by Australia, who is tripling its capacity to 86 mtpa by 2020. As for those countries who are yet to have started LNG projects, the outlook is grim. As energy economist Kenneth Medlock quipped this week ‘the ship has already sailed in the global race to export liquefied natural gas to Asia…and Canada has missed it‘. LNG exports from Canada may not happen now for at least the next decade.
5) Fifth and finally, we finish with Japan. Four years after the Fukushima disaster, it seems likely that nuclear reactors are going to start to come back online this year. Once Prime Minister Abe’s government get through local elections in April, Japanese courts are the last remaining obstacle between reactors restarting as soon as June. Unless judges put injunctions in place to halt the restarts, safety concerns of local residents will be steamrollered and reactors will restart for the first time in four years.
So, from the US to China, from Qatar to Japan, from coal to solar, and LNG to nuclear, seasons are always changing in energyland™. Thanks as always for reading. Stay strong, my friends, for spring is on its way!