Europe's Insatiable Thirst For Natural Gas

1. OPEC+ Agrees on Lowest Monthly Increase in Years

- In a move widely perceived as the undoing of the widely publicized Biden-MBS fist bump, OPEC+ has agreed to a 100,000 b/d production quota increase for September 2022.

- The likelihood that the oil group will fulfill the output target seems somewhat slim, considering that members’ compliance rate stands at 320% as of June, equivalent to an underproduction rate of 2.85 million b/d.

- Even though the likes of Saudi Arabia and UAE have acknowledged having issues with readily available spare capacity, this time around OPEC+’s limitations even made it into the meeting’s communique.

- Attesting to the group’s demand worries, OPEC+ is gradually cutting its forecast for this year’s average supply surplus – a mere two months ago it stood at 1.9 million b/d, by now the Joint Technical Committee lowered it to a mere 0.8 million b/d.

2. Extremely Low Rhine Levels Send Shockwaves Across Europe

- Water levels on one of Europe’s largest inland arteries, the Rhine River, are so low that navigation might be banned completely, jeopardizing the energy security of central Europe.

- Coal-fired power plants situated along the Rhine and further to the south have already voiced concerns about low stocks as for weeks already tankers can only reach them with partial loads.

- A reference water level at Kaub, where tankers need to have at least 1.5 meters of clearance to sail fully loaded, dropped to a mere 55 centimeters this week.

- Similarly, the warming of the Rhine and adjacent rivers has been curtailing nuclear power generation in France as cooling water becomes harder to come by, pushing continental electricity prices even higher.

3. Global Energy Crisis Rekindles Hope in Nuclear

- Just as the 1970s oil crises buoyed the development of second-generation nuclear power plants across the world, the ongoing surge in fossil fuel prices has the potential of starting a new wave of nuclear construction.

- As of today, however, new nuclear capacities are almost exclusively focused on Asia with China alone seeing 21 GW of capacity under construction.

- With 41 nuclear projects across Asia, the share of nuclear in regional power generation is expected to rise to 8% from the current level of 5%.

- Western nuclear projects are prone to cost overruns and hefty delays, as could be seen with two reactors at Plant Vogtle that are set to launch next year after a 6-year delay and a budget doubling to $30 billion.

4. The Glencore Strategy Has Finally Worked Out

- Glencore's H1 2022 earnings have surpassed analysts’ expectations and more than doubled year-on-year to $18.92 billion, boosted by the company’s mining operations.

- Whilst many other miners focus on coking coal, too, Glencore’s strict focus on thermal coal has allowed coal profits to skyrocket as global benchmarks are still trading at $350-400 per metric ton.

- Sticking to an industrywide trend, Glencore has pledged to buy back a further $3 billion in stock, with another $1.5 billion invested towards a special dividend.

- The bumper profits come despite Glencore paying out $1.5 billion to authorities in the US, UK, and Brazil to settle charges of bribery and price manipulation, as well as concurrently taking a Russian asset impairment of similar value.

5. Expensive or Not, Europe Is Trying to Stock Gas

- Europe is facing a soaring energy bill for replenishing gas inventories ahead of the winter season, with total costs estimated at $51 billion, 10 times more than previously.

- For the first time this year, gas storage levels have moved above the 5-year average this week by reaching a 70.54% replenishment rate, mostly thanks to increased LNG imports.

- EU countries have imported 21.4 million tons of LNG in the first half of 2022, up 160% year-on-year, with most of the incremental deliveries coming from the United States.

- With EU rules mandating that gas storage reach 80% of capacity by November 01, member countries will be compelled to continue buying more even though spot TTF prices remain above €200 per MWh ($67/mmBtu).

6. Venezuela Remains Hamstrung by Endless Power Cuts

- Venezuela’s crude production declined last month amidst ongoing logistics-related bottlenecks, averaging some 675,000 b/d, an almost 100,000 b/d drop month-on-month.

- Witnessing ever steeper decreases in crude exports, falling almost 30% from June to 460,000 b/d, loading operations were hamstrung by pipeline explosions and a widespread power cut around the Jose export terminal.

- With crude upgraders also seeing a downturn following the power cut, Venezuela’s state oil company PDVSA will be partially reinvigorated by the arrival of two tankers full of Iranian condensate, a key diluent to render local heavy viscous crude transportable.

- Venezuela has recently restarted its crude exports to Europe, with Italy’s ENI and Spain’s Repsol both seeing a delivery each in June-July.

7. Despite Limited Export Opportunities, US Gas Inventories Still Low

- Freeport LNG will be allowed to resume operations in early October at almost full capacity, Bloomberg writes, potentially increasing the pressure on US inventories of natural gas.

- Gas stocks held in US salt caverns and depleted aquifers are currently 12% below the 5-year average, at 2.46 TCf, some 260 bcf lower than year-ago levels.

- At the same time, production has been surprisingly robust recently, trending around 98 Bcf, leading to a bigger-than-expected gas inventory build this week at 41 bcf.

- With bullish production and bearishly low stocks offsetting one another, front-month Henry Hub gas futures have been seen slightly above the $8 per mmBtu mark.