Energy Week Review

Oil

Crude oil prices have been volatile this year, which is probably also due to speculation, as the price moves with almost any news related to Ukraine or Russia. However, the trend in oil prices remains upward, even though the price of WTI crude fell 3.6% this week to close at $97.90 per barrel. The price of Brent crude fell 3.5% to $102.49 per barrel.

The IEA and its member states have agreed on the second round of oil releases from strategic reserves. This was announced by the IEA in a press release on April 7. Accordingly, 120 million barrels of oil are to be withdrawn from the reserves. The US has the largest share with 60 million barrels, followed by Japan with 15 million barrels. For the US, this release amount is only part of a larger release that the US President had already approved last week. With this, a good 1 million barrels per day more are to appear on the world market over the next 6 months.

OPEC+ decided at its last meeting not to change the current production policy, so only a slight increase in additional production was decided. Starting in May, additional production will increase from 400,000 barrels per day to 432,000 barrels.
Since then, one OPEC member has raised his finger and said that OPEC is currently already producing at its limit. Nigerian Petroleum Minister Timipre Sylva told Anadolu Agency on Friday,

“It is not something that you can open a tap for at this point. You must have the additional capacity, the idle capacity to bring on, but it takes a lot of work and a lot of investment for it to have additional production. If there is anything we can do to produce more, OPEC will be the first to produce more. But unfortunately, this capacity doesn’t exist in most OPEC countries.”

He added that many OPEC member countries, including Nigeria, are pumping at the limit. In addition, OPEC is said to be unhappy with high crude oil prices and prefers a price level that does not make crude oil too expensive for consumers. However, it said it cannot provide additional capacity at this time, even though it would like to do so.

Another OPEC country, Saudi Arabia added a fat premium to the selling price of its main benchmark grade for the Asian market. The official selling price for Arab Light, Saudi Arabia’s flagship grade, rose above the Oman/Dubai benchmark at a premium of $9.35, a record increase.

In China, the lockdown of the financial metropolis of Shanghai is going into overdrive. City officials have begun large-scale tests that have shown case numbers continue to rise instead of fall. China continues to pursue a zero-tolerance strategy that has had little success in other countries. Shanghai was not the first major city in China to be placed under lock and key. Earlier, Shenzhen, China’s technology hub, was placed under lockdown for a week. As the metropolis of 26 million people is sealed off, oil demand in China, the world’s largest crude oil importer, is expected to decline to some extent.

Natural Gas

Natural Gas (Henry Hub) finished this week up 9.6% and currently stands at $6.32 per MMBtu. The European benchmark TTF Dutch is currently at 108.14 Euros. Since the beginning of the year, the price has increased by 54.34%.

In the EU, which is highly dependent on Russian gas, the full impact of rising gas prices will probably not be felt until next year. Nevertheless, electricity and gas bills will already rise this year. Eon, a major electricity producer in Germany, has already announced that electricity prices will rise by an average of 35%. This is due to the fact that gas prices have skyrocketed. Wholesale prices for natural gas have increased 20-fold since the beginning of 2020, and electricity prices have increased 8-fold. The German Consumer Center, therefore, warns that the full extent of the price increases will not be felt until next year.

Meanwhile, the Russian gas company Gazprom announced that the ordered gas volumes will continue to flow to Europe. However, the payment must now go through Gazprom Bank, because the Kremlin has already announced that it will sell its gas to unfriendly countries only in rubles. Gazprom Bank is a subsidiary of Gazprom. Accordingly, companies should transfer the foreign currency to an account of the bank, which will then exchange the foreign currency into rubles.

Coal

Europe is desperate for coal. The EU has voted for the fifth round of sanctions against Russia. The release states that starting in August 2022, the EU will ban the “import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as from August 2022.”

Imports of Russian coal into the EU have a total value of around 8 billion euros per year. European customers have already started buying more coal from around the world to compensate for the current gas shortage. With the ban on coal imports from Russia, the situation will get even worse. According to Braemar, coal imports from Russia to the EU rose to 3.5 million tons in March, the highest level since October 2020. Replacing this could be a costly endeavor. The world’s largest coal exporters, Indonesia and Australia have reached their production limits. Imports from Colombia and South Africa, on the other hand, have increased. But Russia is the world’s third-largest coal exporter, and the EU gets 45% of its coal from Russia. Therefore, the EU sanctions are likely to affect mainly EU citizens and less Russia.

Meanwhile, China has approved a new coal mine that will apparently produce coal for the next 97 years.

China’s largest coal mining town of Ordos in Inner Mongolia is to open another coal mine. The mine is expected to produce 15 million tons per year over the next 97 years. The mining license for the 170-square-kilometer area was awarded to Lianhai Coal Industry Co. The Chinese government has been encouraging coal mines to operate at full capacity since last year to secure energy.

Futures for Newcastle Coal have therefore gained again this week, rising by 12.59%. Currently, the price per ton is $ 291.60. Over the year, prices have thus already increased by 85.14%.

Uranium

The uranium hype and uranium shares have become somewhat quieter after the prices of uranium producers rose sharply last year. However, investors in the uranium sector should not lose their calmness. Uranium is a game with enormous upside potential in the coming years. The factor that will play into uranium’s cards is climate change and the associated decarbonization. What demand increasing factors are currently seen?
For one, when Japan restarts its nuclear fleet, a lot of uranium will be needed quickly in Japan.
Then, France has already announced further expansion of the nuclear fleet and further investment.
The U.S. and the UK also want to invest in new reactors.
The factor that could bring prices down again would be a nuclear disaster.

The UK has now stated that nuclear power will be expanded as quickly as possible. This includes 8 new reactors and new small modular reactors. These are to provide a capacity of 24 GW by 2050, which would correspond to a 25% share of the UK’s energy mix. British Prime Minister Boris Johnson commented on this issue,

“We’re setting out bold plans to scale up and accelerate affordable, clear, and secure energy made in Britain, for Britain – from new nuclear to offshore wind – in the decade ahead. This will reduce our dependence on power sources exposed to volatile international prices we cannot control, so we can enjoy greater energy self-sufficiency with cheaper bills.”

At the moment, nuclear power accounts for about 16% of the current UK energy mix.

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