Texas Natural Gas Demand Surges

1. Buoyed by SPR Replenishment, US Sour Grades Roar Back to Strength

- The end of US SPR releases and firm demand from Gulf Coast refineries have strengthened the differentials of medium sour grade Mars, gaining some $6 per barrel since the start of the year.

- With Mars currently trading at a $0.30 per barrel premium to WTI, the region’s main benchmark, it has almost closed the gap with the USGC favorite Light Louisiana Sweet.

- US gasoline demand figures have been consistently above 2022 readings, averaging between 9.2 and 9.3 million b/d, boosting the need for medium-density grades such as Mars.

- Even though Mars production was boosted by Shell’s Vito platform starting up in February, the US refining system is buying all the volumes that it can – in both April and May there was only cargo of Mars exported abroad.

2. Shunned by Europe, Asia Remains Coal Exporters’ Only Hope

- Asian coal prices plunged to their lowest in two years as falling LNG prices have outweighed strong demand for King Coal, with Australian 5,500 kcal/kg coal now trading at $84-85 per tonne.

- High energy content grades of coal, such as Australia’s Newcastle benchmark, have seen the biggest price decline as they are the most exposed to LNG replacement in Japan and South Korea, with Indonesia’s lower calorific value prices suffering less.

- Amidst waning regional demand, coal stockpiles in Europe’s ARA region have risen to 5.1 million tonnes, the highest since May 2020, with several European traders re-routing their cargoes to Asian buyers.

- According to Kpler data, Asia’s May and June imports of thermal coal will be the two highest months on record, soaring to 80 and 76.5 million tonnes, respectively.

3. Unambitious US Biodiesel Mandates Anger Agriculture Producers

- Producers of bio and renewable diesel expressed their disappointment with the US Environmental Protection Agency’s biofuels mandates for 2023-2025, saying they’re well below the industry’s expectations.

- The finalized volumes include just 15 billion gallons of conventional biofuels such as corn-based ethanol all the way through 2025, with only modest increases to biomass-based diesel (2.82 billion gallons).

- Calling the mandates “inexplicable”, biodiesel makers argue that multi-billion-dollar investments that went into new production facilities have been jeopardized by the Biden administration’s lack of ambition.

- Prices of soybean oil, a key element in biomass-based diesel, have lost 5% in the wake of the EPA decision, falling to $56 per pound and cutting short three weeks of anticipatory growth.

4. China’s Control of Graphite Markets Has Carmakers Seek New Supply

- Similar to the lithium rush of past years, the world’s leading carmakers are rushing in to secure graphite supply from countries other than China, seeking to satisfy roaring demand for the mineral.

- For a standard EV battery, graphite is the largest component by weight with some 50-100 kg needed for the battery’s anodes, resulting in more than 50% of global graphite demand coming from the automotive industry.

- Industry analysts expect graphite shortages to worsen in the upcoming years, rising to 777,000 metric tonnes by 2030 as some 100 new mines would be needed to meet growing demand.

- Wary of future US-Chinese tensions, the likes of Tesla and Stellantis seek to source their graphite from Madagascar or Mozambique, however China still accounts for 61% of graphite production and 98% of the final processed material.

5. Texas Heat Triggers Gas Demand Surge

- Texas has been going through a prolonged period of intense heat which triggered a surge in electricity generation from natural gas, tightening up prices at the Permian Basin’s Waha hub.

- Total gas demand in Texas has risen to a new monthly record of 19 BCf per day, up 11% compared to the previous high of 17.1 BCf/day, with triple-digit heat expected to remain in place next week, too.

- Some 7 BCf per day of gas demand in the Lone Star State is now going towards power generation, 1 BCf/day above any historical yardstick, despite robust wind and solar utilization.

- Prompt natural gas prices at Waha are trading at just $0.25 per mmBtu behind the Henry Hub benchmark, but July and August forward prices are back to the usual $0.55-0.65/mmBtu discounts.

6. Leading Solar Panel Producers Feel the Heat of Overcapacity

- Despite the solar industry’s outstanding growth over the post-pandemic years, China’s leading solar producers have lost more than 40% of their market capitalization in the past 12 months.

- The plight of China’s solar panel makers has been a massive build-up in polysilicon production capacity, with future consolidation fears prompting Citigroup to downgrade Longi Green to “sell” recently, despite it being the world’s largest solar producer.

- With most of capacity concentrated in China, global solar module production capacity now stands at 657 GW, even though total installations in 2023 are expected to hit only 344 GW.

- The last wave of capacity consolidation in the solar industry took place in 2014-2015, then-leading panel makers Suntech and Yingli Green went effectively bankrupt amidst the concurrent price slump.

7. Singapore Steps In to Halt Unseen Power Price Surge

- Singapore’s Energy Market Authority will cap wholesale electricity prices from July 1, ending a period of soaring prices that went up by as much as 3000% despite falling LNG prices.

- The peninsular country currently relies on importer natural gas for more than 95% of its power generation, with renewable capacity capped by lack of physical scape in the densely populated city.

- May marked the peak of the Singapore power price explosion, with a megawatt-hour of electricity reaching $2,680 in daily trading after a power plant at Jurong Island went offline for maintenance.

- With power retail companies wary of investments into new generating capacity, Singaporean authorities will seek to stimulate the industry and cap power prices using a formula tied to their actual generation costs.