Daily Energy Report

Sources of EU gas imports, EPA report on US emissions, carbon capture, oil and gas heating phase-out in Germany, floating wind turbines, EIA inventories, and more

CHART OF THE DAY:

17% of EU Total Gas Imports in March Were Sourced from Russia, an Amount Hard to Replace this Year

Commentary:

Liquefied Natural Gas (LNG) has already established itself as a viable option to help the EU enhance its security of gas supply. Without LNG, it would be impossible for Europe to reduce reliance on Russian gas.  

In March, the EU’s LNG imports increased to 8.1 million tons (equivalent to 11.1 billion cubic meters), up from 7.4 million tons in February, a 13% increase m-o-m, and the highest monthly figure since the start of 2023. The US, Qatar, and Russia remain the EU’s top LNG suppliers.

The European appetite for LNG was high in March thanks to lower spot LNG prices— attracting utilities to maintain high gas stockpiles which stood at 55.6% by the end of March, 30% higher than in March 2022. The European benchmark for gas prices, TTF (Title Transfer Facility), ended March with a 1.6% gain, hitting 47.845 euros/ megawatt hour, compared to 47 Euros/ megawatt hour at the beginning of March.

Russian piped gas supplies to the EU, meanwhile, jumped 22% m-o-m in March. The Kremlin-controlled Gazprom shipped 2.11 billion cubic meters (bcm) of gas to Europe (including Ukraine) via Ukrainian territories and the TurkStream pipeline through Turkey. This figure, however, is sharply down from 10.1 bcm in March 2022.

Commentary

Looking at the full picture, the LNG segment accounted for 45% of the EU’s total gas imports, followed by Norway’s mostly piped gas flows at 32%, while Russia (excluding its LNG exports) has retained a share of 8% of total EU gas imports as shown in Figure (1) above.  With respect to Russian LNG flows, especially from the Yamal LNG plant, they made up one-fifth of total LNG cargoes arriving at European terminals. According to the EOA’s calculations, Spain increased its Russian LNG imports so far this year by 250% y-o-y compared to the same period in 2022. Belgium also boosted its LNG imports from Russia by 75% so far this year, while France’s imports dropped by 28%.

LNG, as well as additional gas supplies from key producers like Algeria, have helped the EU reduce its reliance on Russian gas flows which hit historic lows in 2022. This declining Russian share also would not have been possible without other EU measures aimed at reducing gas demand in member states.

Additionally, and using Gas Infrastructure Europe (GIE) data,  the Financial Times said yesterday that the EU's storage of natural gas "totalled 55.7% of capacity at the start of this month, the highest level for early April since at least 2011." (See Figure 2 below)

“The EU’s gas storages are more than half full, which means we finished this heating season in a comfortable position,” EU energy commissioner Kadri Simson told the FT.

However, Russian piped gas and LNG exports to the EU together still accounted for around 17% of EU’s total gas imports in March, a sign that Europe still needs Russian gas (piped and LNG) in the short term.

STORY OF THE DAY  

EPA’s ANNUAL REPORT: Sources of Greenhouse Gas Emissions

Summary:

In its annual Inventory of US Greenhouse Gas Emissions and Sinks report, the US Environmental Protection Agency (EPA) said greenhouse gas emissions increased 5% compared to levels registered in 2020. However, the EPA noted that the steep drop in emissions in 2020 was due to the COVID-19 pandemic which affected economic activity. Later, and as economic activity rebounded in 2021, CO2 emissions from fossil fuel combustion rose by 7% compared to 2020, while emissions from natural gas consumption increased by less than 1%. 

In what the EPA called a “shift from recent trends,” CO2 emissions from coal consumption increased by 15% from 2020 mainly in the US electric power sector, which the agency said was the second largest source of emissions (25%) in 2021 followed by the transportation sector (28%). The industry sector accounted for 23% followed by the commercial and residential at 13% and the agriculture sector at 10%.

“Although coal use accounted for 59% of CO2 emissions from the [electric power] sector, it represented only 23% of the electricity generated in the United States in 2021,” the EPA said.

Meanwhile, emissions from petroleum use also saw an increase by 9% in 2021, according to the report.

The EPA’s annual report estimates the total national greenhouse gas emissions and removals associated with human activities across the US.

EOA’s Main Takeaway:

We must be careful when using data from 2020 in any sector, and not only energy, due to the COVID-induced lockdowns which greatly slowed down economic activity. The recovery on its own increased activities, especially in the transportation and industrial sectors, and led to a rise in emissions.

We would like to point out that we have seen more competition among energy sources in 2021 and 2022 in a way we have never seen before.  This competition in its turn increased the use of coal and consequently led to higher CO2 emissions. 

Energy-related problems in Europe and Asia, which preceded Russia’s invasion of Ukraine,  contributed to higher energy prices worldwide.  The increase in LNG prices was historic, and this was blamed for higher natural gas prices in the US and which meant a boost in the use of coal. Readers who missed our analysis yesterday on the sources for power generation in the US between 2013 and 2022, can read it here.

NEWS OF THE DAY

1-      REUTERS: Facing brutal climate math, US bets billions on direct air capture

Summary:

The US government has offered $3.5 billion in grants to construct factories for the purpose of capturing carbon dioxide (CO2) from the air and storing it, Reuters reported, noting that this is considered "the largest such effort globally to help halt climate change through Direct Air Capture (DAC)".  Britain for instance has pledged around $124 million for DAC research and development, Reuters said.

However, such a massive project has its own challenges.  Christoph Gebald, the Chief Executive of Climeworks, a Swiss company specializing in CO2 air capture technology, told Reuters that the undeniable challenge was finding talent. "Where are you getting those people in the next 30 years?... there’s no university program on DAC," Reuters quoted Gebald as saying.

Meanwhile, some energy giants have expressed their interest in applying for the US grants, such as Occidental Petroleum.

EOA’s Main Takeaway:

It remains unclear if capturing carbon from the air is economic under any scenario. It makes perfect sense to capture from smokestacks, but not from the air, since the amount of CO2 in the air is minuscule. For now, our view is that this is just a handout to certain industries.

2-      REUTERS: Orsted and Acciona team up to make floating wind more affordable

Summary:

Spanish engineering group Acciona said today that it has signed a memorandum of understanding with Danish energy firm Orsted, a renewable energy company, by which they will join efforts to develop solutions to address the challenge of manufacturing large-scale foundations for offshore wind farms, said a press statement. 

The agreement includes developing foundation models that will offer easily adaptable solutions for offshore wind turbines of different sizes and depths, according to the statement. 

EOA’s Main Takeaway:

While the oil and gas industry would benefit from such projects— by providing expertise and equipment and converting used infrastructure into new projects, we must remember two things:

a- Many environmental groups oppose such projects because they affect marine life.

b- These solutions are expensive although some groups say they are cost-effective.  Those who claim they are effective highlight the great benefits of reducing carbon emissions and improving human well-being.

3-      BLOOMBERG: EU and Norway to Form ‘Green Alliance’ on Carbon Capture and Hydrogen

Summary:

The EU and Norway are planning to cooperate to form a "Green Alliance" that would contribute to the development of European market rules and infrastructure for CO2 capture, transport, utilization, and storage, Bloomberg reported citing a draft document. 

“Both sides intend to work together to bring this key technology to markets to foster the decarbonization of hard-to-abate industrial sectors," the document reportedly said. 

Bloomberg noted that the North Sea is being presented as a key source of renewable power since it "holds the bulk of Europe’s potential to store carbon dioxide."

EOA’s Main Takeaway:

This is an interesting development in the EU’s way of thinking. Energy security cannot be achieved through renewable energy alone.  The bloc needs fossil fuels. However, to achieve climate goals, Europe needs to invest in carbon-capture technologies to control emissions from the use of fossil fuels. This supports our view that the demand for oil, gas, and coal in the future will be higher than any existing long-term forecast.

4-      REUTERS: German cabinet approves bill to phase out oil and gas heating systems

Summary:

The German cabinet gave the green light today for a bill that bans most new oil and gas heating systems starting in 2024, Reuters reported. Although the plan aims to reduce greenhouse gas emissions, critics have pointed out that this will prove costly for households that cannot afford to switch energy sources, according to the report.

EOA’s Main Takeaway:  

Technology enables us to move forward and further embrace energy efficiency without jeopardizing living standards because with energy efficiency comes a cleaner environment.  Sounds good so far. But at what cost?

Critics of the German bill are right that while this is a long-term process and has to be market-based, it is extremely costly because it requires major changes in households, and to city infrastructure.   Money doesn’t grow on trees.  The US can print money, but Germany cannot. But this is not the end of the story, check this article: The Sales of Chinese Heat Pumps Surges in Europe.

5-      REUTERS: Australia introduces vehicle pollution rules to boost EV uptake

Summary:  

Australia said today it would introduce new standards related to vehicle emissions to increase the use of electric cars, Reuters reported.

"Fuel-efficient and electric vehicles are cleaner and cheaper to run - today's announcement is a win-win for motorists," the report quoted Australia's Energy Minister Chris Bowen as saying in a statement.

According to data carried by Reuters, only 3.8% of cars sold in Australia in 2022 were electric, a sign that the country is lagging behind other developed economies. In Europe, for instance, electric cars constituted 17% of sales, Reuters said.  

EOA’s Main Takeaway:

We have seen such efforts before, and we also discussed them when the US EPA proposed new rules to achieve similar goals.  The impact on emissions at the end is limited as companies will produce small electric cars and large ICE SUVs and light-duty trucks.  The average meets the government goals, but the impact on emissions is way less than desired.  In addition, the cost is extremely high. 

6-      REUTERS: Oilfield firm Baker Hughes beats profit estimate on strong oil prices

Summary:

As a result of more robust oil prices encouraging demand for its equipment and services, "oilfield firm Baker Hughes Co beat first-quarter profit estimates on Wednesday," Reuters reported.

According to the report, the firm is expecting "double-digit spending growth by upstream oil and gas companies" in 2023, as it aims at revenue between $24 billion and $26 billion by the end of the year, an increase from $21.2 billion last year.

EOA’s Main Takeaway:

Activities have picked up significantly since 2022, as we discussed in our Weekly Newsletter on December 11, 2022. We expect activities to be robust this year, especially offshore. 

7-      UPSTREAM: Cyprus pipeline and LNG facility back on agenda after Israeli gas discoveries

Summary:  

Gas producer Energean is expected to decide later this year on how to expedite the development of 1 trillion cubic feet of gas that was discovered offshore Israel in 2022, eyeing exports to Cyprus, Upstream reported.

The report noted that plans to send gas from Israel to Cyprus via pipeline did not materialize in the past given the low demand on the Mediterranean island and the need to construct an LNG plant to reexport gas from there.

EOA’s Main Takeaway:

We think that Chevron’s shopping for a rig to drill in the region is part of this idea. We discussed this in yesterday’s Daily Energy Report.  Nothing will happen without Chevron’s involvement.  Additional discoveries could justify the construction of a pipeline from a financial point of view, but regional politics make it extremely difficult to build such a pipeline, especially amid ongoing disputes over maritime borders.  Building an LNG facility in Cyprus is more feasible considering such political circumstances.   

8- EIA: Crude Inventories Decreased by 4.6 mb

Summary:

The US Energy Information Administration (EIA) reported a draw in crude oil inventories by 4.58 million barrels (mb) to 466 mb.  It also reported a draw in distillates by 400,000 barrels.  The good news is that gasoline inventories increased by 1.3 mb after several weeks of continuous decline as shown in Figure (4) below. 

The US Strategic Petroleum Reserve (SPR), meanwhile, declined by 1.6 mb as part of the 26 mb releases mandated by Congress.

EOA’s Main Takeaway:

Crude exports recovered, while crude into refineries increased by about 260,000 barrels per day (b/d).  While this reflects an increase in demand for crude, the adjustment number (the difference between estimates of supply and demand) remains high.  This means that despite the EIA’s recent investigation and recommendations, the problem persists. The irony is that the recommendations that were published a few weeks ago were known since 2017, and was also posted on Twitter for everyone to see!

Meanwhile, the total demand for petroleum products increased by 263,000 b/d to 19.317 mb, which is higher than the level during the same week last year. We will be keeping an eye on this in the coming weeks to see if this becomes a trend.  So far, and on a cumulative basis, the demand this year is lower than that of 2022.  

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