Energy Bills Continue To Climb For U.S. Households

1. Supply Disruptions Ratchet Up Pressure on Coal

- There has been a noticeable uptick in union action this year, and a wage strike at South Africa’s port and rail operator Transneft succeeded in shutting down ports across the country, adding to upside pressure on coal prices.

- Coal flows out of South Africa were as low as 600,000 tons last week, the lowest in more than a year, which is definitely bad news for the EU, increasingly reliant on the African country’s exports.

- Halting a month-long downward slide, API2 coal futures have started climbing back up again and stand currently at $280/mt, whilst Asian Newcastle prices are even $100/mt higher.

- Whilst Russian coal production remains off-limits for the EU, unprecedented flooding in Indonesia and Australia presents further downsides for global coal supply.

2. Asia-Pacific Oil Buyers Seek Guaranteed Gulf Supplies

- Asian refiners have doubled down on efforts to court Middle Eastern oil producers as OPEC+ production cuts and higher prospective demand from Europe create huge supply risks.

- OECD Asia countries such as Japan and South Korea have markedly increased their intake of Saudi and UAE barrels, with Japan relying on Gulf deliveries for 95% of its 2022 crude imports.

- The Asian continent accounts for 80% of Saudi Aramco’s exports, whilst for the United Arab Emirates the same metric stands at a whopping 97% - the entire non-Asia-bound flow of UAE crude is just a mere 100,000 b/d.

- With Asia expected to remain the largest source of oil demand growth going forward, Middle Eastern producers, too, might be incentivized to lock those markets in with long-term deals.

3. Runaway Energy Bills Show No Promise of Easing

- US households have been facing the longest streak of double-digit increases for natural gas and electricity bills in decades as inflationary pressures continue to eat away at people’s savings.

- It has been almost 40 years since electricity prices were increasing in such an unbridled fashion – power bills rose 15.5% last month, rising for the seventh month in a row.

- The average winter gas heating cost is expected to rise to just a tad below $1000, up 28% year-on-year, but still better off than the millions relying on heating oil, the cost of which is expected to soar to $2,354.

- In addition to the above, September data released this week show that US core inflation excluding food and energy jumped 6.6% over the past 12 months, the fastest rate since 1982.

4. As Nuclear Workers Join Strikes, Generation Progress is Slow for France

- Despite initial plans to bring back all nuclear reactors by early 2023, France is still struggling with a double whammy of industry-wide strikes and technological issues.

- The return of three reactors (Paluel 2, Cruas 3, and Cruas 4) has been delayed by recurring strikes that have also compelled the country’s nuclear power plant operator EDF to postpone vital maintenance.

- This being said, EDF has already brought back one reactor and is nearing generation levels of 30 GW, the highest since early June, amid higher-than-average October temperatures.

- Should the trade union-led strikes come to an end, EDF has pledged to return two reactors each week for the remainder of 2022, bringing generation capacity to 45-46 GW by early January.

5. Low Stocks and Shrinking Supply Push Lead into the Limelight

- Lead has become the best-performing base metal in September, in fact, the only one to make gains over the last month in LME trading as low stocks of both concentrate and metal push prices upwards.

- The 3-month LME price of lead soared back above the $2,000/mt mark recently as total inventories in exchange-approved warehouses dropped to the lowest in 15 years.

- Lead is predominantly used in vehicle batteries and considering that almost 80% of battery demand is replacement, the base metal is looking into the winter season with optimism.

- Despite robust demand, the supply side has been suffering recently following the closure of Nyrstar’s (EBR:NYR) Port Pirie smelter in Australia and Glencore’s (LON:GLEN) Portovesme plant in Italy.

6. Charging Infrastructure Massively Lags Spurt in EV Sales

- The growth in electric vehicles being sold in European countries bears no direct correlation with the availability of charging infrastructure which has so far lagged EV sales, Rystad found.

- Countries with higher EV penetration numbers such as France, Denmark, and the Netherlands rank highest in the EV fleet/DC charging point ratio list, all having more than 100 EVs per available charger.

- In contrast to Europe, China is leading the world in total charging points (around 1.15 million by end-2021, 10 times more than the US), with more than 40% being fast chargers.

- The discrepancy in the rollout pace of charging points will get even worse with time – by 2025, China intends to have 20 million DC points whilst the EU aims to have 1 million charging points by the same time.

7. LNG Freight Soars Amidst Physical Tightness

- The European Union is nearing the final stages of developing its own gas price benchmark, one that would be detached from the peculiarities of TTF, aiming for joint gas purchases from the summer of 2023.

- At the same time, internal divides remain in place on the issue of capping the price of gas, not having delineated the limits of such a curtailment, namely whether it would apply to all gas or just the one used to produce electricity.

- Meanwhile, LNG freight has never been this expensive as Europe scrambles to secure any volumes it can – it now costs $397,500 per day to charter an LNG carrier in the Atlantic Basin.

- Despite some buying downside from China, European demand for LNG has risen 65% year-on-year to date, with shipments from the US making up some 70% of those deliveries.