1. There’s No Good Way to Solve US Fuel Shortage
- When Valero (NYSE:VLO) kicked off US refiners’ Q3 earnings call with a $2.82 billion net income, it said margins were boosted by gasoline and diesel demand levels being higher than pre-pandemic levels.
- Despite all the talk of demand destruction taking place amidst still-elevated gasoline prices, stocks continue to falter as the US finally confronts its lack of refining capacity.
- Even though average refinery utilization has been trending at 94-95%, the US supply of petroleum products has been a solid 1 million b/d lower than October 2019 levels, primarily a consequence of lacking capacity.
- All this is increasing the likelihood of a US product exports ban – a measure that could save US consumers some $5 billion and erase $30 billion in earnings from US refiners, according to Wood Mackenzie forecasts.
2. Europe May Drop Natural Gas as Bridge Fuel
- As Europe’s TTF spot natural gas prices have tripled this year from an average of 46 per MWh in 2021 to 134/MWh this year so far, the long-term sustainability of gas demand is called into question.
- According to Rystad, with recent gas prices it would be 10 times more expensive to operate gas-fired power plants in the long term than to build new solar PV capacity in Europe.
- For gas-fired plants to become competitive against renewables by 2030, spot prices would need to fall to at least 17/MWh…