Will OPEC Increase Production?

Numbers Report - February 16, 2024

In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.
Let's take a look.

1. OPEC Plays the Bullish Tune, Hinting at Need to Increase Production

- Even though the IEA cut its 2024 demand forecast to 1.22 million b/d this month, OPEC remains vehemently bullish about the oil markets, expecting them to rise 2.25 million b/d.
- Expecting global liquids consumption to reach 104.4 million b/d this year, OPEC has been creating leeway to influence oil prices should its bullishness materializing, saying the call on OPEC production is set to hit 28.38 million b/d in 2024.
- Such a call on OPEC would be 2.04 million b/d higher than the current output of the 12-member producers' group, creating some food for thought ahead the much-anticipated June 1 meeting in Vienna.
- Saudi Arabia, having recently lowered its long-term production target to 12 million b/d, is still pumping 9 million b/d, whilst the likes of Iraq and Kuwait are reportedly producing above their quotas, setting the stage for another compliance row.

2. European Shipping Enters Carbon Markets

- As part of Brussels' mandate, Europe's shipping industry is compelled to cover shipping emissions via the continent's Emissions Trading System from this year, entering the market when it's at its lowest in 28 months.
- European carbon prices have plunged to €56.5/mtCO2 (or $60/mtCO2) by mid-February, a far cry from the €100/mtCO2 seen a year ago when both gas prices and power prices were significantly higher.
- Analysts expect carbon prices to remain depressed as the EU is front-loading carbon allowances from 2027-2030 to 2023-2026, prompting market participants to buy EUAs for future compliance needs.
- Greece will have the largest representation in the shipping sector's carbon emission compliance, with 707 shipping companies, followed by Spain with 450 companies.

3. Texas Has a Wind Power Problem

- Wind power generation in Texas dropped a whopping 22% year-on-year in January 2024 as low wind speeds continue to stymie output from renewable generation.
- According to ERCOT data, wind generation in the Lone Star State amounted to 356,000 MW last month, well below the 455,000 MW in January 2023, whilst coal and natural gas boomed by 56% and 48%, respectively.
- Even though wind power generation is intermittent by default, US cumulative wind output rose to 4,500,000 MW last year, up 2% year-on-year, suggesting that production is increasing at a lower rate than generation capacity.
- Natural gas is expected to remain the backbone of ERCOT power generation, boasting a generation capacity of 68,000 MW, with solar growth most probably overtaking wind energy over 2024-2025.

4. Power Grid Investment Still Lagging Low-Carbon Ambition

- Inadequate electricity grids might become the largest stumbling block for renewable energy projects worldwide as Rystad Energy estimates $3.1 trillion of grid infrastructure investments are required before 2030.
- Some 18 million kilometers of grid network would be required by 2030, a 20% increase compared to existing power grids across the world, also necessitating nearly 30 million tonnes of copper.
- Global grid investments are set to reach $374 billion this year, with China accounting for a third of that, a general trend seeing Asian countries taking the lead in grid expansion.
- Across the Atlantic, grid expansion is still lagging, despite the US IIJA bill allocating $65 billion for upgrading power infrastructure and the European Commission calling for $626 billion in grid investment by 2030.

5. Red Sea Disruptions Create New Hubs of Fuel Demand

- Bunkering fuel sales in Singapore have soared to the highest ever level in December, totalling 5.1 million tonnes, keeping the same momentum into January as well, as Red Sea disruptions upended usual shipping flows.
- With tankers now compelled to make longer voyages, the price of marine fuel has also been perking up, climbing to as much as $670 per metric tonne last month, up 10% compared to end-2023 levels.
- Seeking to avoid delays because of the longer routes around the Cape of Good Hope, tankers are now increasingly resorting to fast steaming, i.e. sailing even quicker than nameplate speeds, especially when it comes to containerships.
- Singapore, being the last major port before the openness of the Indian Ocean, has been particularly benefitting from tanker diversions, similarly to South Africa's Durban, the first large bunkering hub on the African coast.

6. Mexico's Energy Transition Is Back to Fossil Fuels

- Mexico's electricity generation has seen an all-time high in fossil fuel-based output last year as the country needed to make up for a 40% plunge in hydroelectric output and flat wind power generation.
- In times of trouble, Mexico has been relying on natural gas, the share of which rose to 57% in nationwide power generation, with coal accounting for another 7%, whilst diesel and oil derivatives added another 14%.
- Fossil fuels-based generation rose 4% year-on-year to 270.5 TWh, sending the country's power emissions up 11% to more than 175 million metric tonnes of CO2, the highest level in more than five years.
- Mexico maintains a target of sourcing 35% of its electricity from renewable sources by 2025, with clean generation capacity expanding by almost 10% per year since 2018, however droughts and low winds could jeopardize that goal.

7. When Will the Collapse of Lithium Prices Stop?

- Lithium prices have been in freefall for the past seven months, dropping to their lowest levels since mid-2021 with Chinese lithium carbonate prices potentially bottoming out at $13,500 per metric tonne lately.
- The upside remains limited for lithium, considering even with mine closures across the world the market remains oversupplied as industrial demand for the transition metal softened on weaker Chinese macroeconomic data.
- The world's largest lithium miner Albemarle indicated that lithium prices are "unsustainably" low, seeing that production halts seen across Australia and elsewhere are not enough to stop the decline in prices.
- Albemarle posted better-than-expected Q4 earnings, posting a net loss of $617.7 million which was greatly alleviated by the company's aggressive cost-cutting spree, estimated to have saved $750 million in cash flow.

That's it for this week's Numbers Report. Thanks for reading, and we'll see you next week.