The U.S. Might Need To Increase Electricity Generation By 480%

1. Brussels Investigates Traders’ Gas Profit-Making

- According to media reports, the European Central Bank is investigating the use of derivatives by European energy companies to generate huge profits on soaring power and fuel prices.

- German utility company Uniper came under closer scrutiny after it reported a $14 billion loss in H1 2022, setting the stage for its $40 billion markdown in Jan-Sep, the worst result for any German company on record.

- Brussels argues that strict rules applying to banks should be extended to trading firms, especially since market analysts and rating agencies lack oversight over their derivative trades.

- Margin call pressure has subsided in Europe recently as gas prices continue their downward movement, trading around €115/MWh ($36/mmBtu) recently.

2. US Might Need Five Times as Much Power

- If the United States is to reach its 2050 decarbonization goals, the US economy might need to increase its electricity generation capacity by as much as 480% to comply with the Paris Accords.

- According to a study released by the Electric Power Research Institute, firm capacity should increase by 300-400 GW from today’s level of 850 GW and intermittent wind and solar capacity should at least quadruple from the current 200 GW.

- The share of fossil fuels in US electricity generation currently stands at 61%, with natural gas accounting for almost 40% of the national tally, although if carbon storage projects take off that share should drop to as little as 9% by 2050.

- In the low-end scenario the US would need to increase its firm and intermittent capacity by “only” 160% to 1,650 GW, it is the high-end scenario that stipulates the 480% hike.

3. Europe’s Energy Crunch Will Make Poor Nations Even Poorer

- The ongoing energy crunch in Europe has ramped up global LNG prices whilst siphoning off physical deliveries from poorer countries that have traditionally relied on them.

- As can be seen from the recent litigation between Pakistan and trading company Gunvor, traders prefer to pay fees for non-delivery and reroute the LNG cargoes toward Europe.

- Asian countries such as India, Bangladesh, Thailand, and Pakistan have failed to secure long-term delivery contracts this year, even for a 2024-2025 start, implying that the next big thing for them would be Qatar’s 2023 commissioning of new liquefaction facilities.

- The appreciation of the US dollar and tripling of a cargo value to 100 million will most probably stave off Asian nations’ interest and they will likely maximize fuel oil-based power generation.

4. Future Drilling in Gulf of Mexico Remains an Open Question

- The Gulf of Mexico has been one of the most prolific oil basins in the United States, holding lease sales every single year since 1976 until the Biden Administration halted them, amid worsening prospects for its long-term future.

- Federal revenues from oil and gas production in GoM amounted to $8 billion last year, with coastal states also benefiting under a revenue-sharing scheme.

- With the previous 5-year leasing program already expired and the 2023-2028 program still not yet proposed, there is an increased risk the GoM will not see any further licensing activity.

- The White House still needs to hold lease sales 259 and 261, legacy auctions that should have been held two years ago and were revived only thanks to the IRA bill.

5. China Takes the Lead in Gigafactory Capacity

- Global gigabattery production capacity is set to increase almost tenfold from 0.75 TWh last year to 7 TWh by 2030, with Asia dominating the pipeline of future projects.

- Production of gigabatteries is drawing another front of competition between Asia and countries of the Atlantic Basin, with China expected to have as much as 226 by the end of this decade, more than all other countries combined.

- The combined gigafactory capacity planned in Europe and US will be lower than the Asian capacity, with experts assuming that many of the 50+ planned projects in Europe will never materialize.

- Whilst China’s gigafactories are mostly owned by battery makers such as CATL and BYD, 80% of North American plants in the future will be launched by carmakers such as Tesla or GM.

6. Nuclear Needs to Speed Up if It Wants to Meet Future Needs

- Nuclear needs to overcome its history of massive delays and cost overruns if it is to become the non-intermittent backbone of future power generation.

- The building of third-generation EPRs has been replete with cost overruns – Hinkley Point C in the UK costs now 50% more than assumed (22 billion), whilst the price tag for Flamanville in France quadrupled to 12.7 billion.

- Small modular reactors (SMR) are expected to proliferate globally over the upcoming decades as smaller capacities combined with lower operational risks are seen as a safer bet.

- Europe and the US need to catch up with SMR construction as this year alone China’s State Council has already approved 10 new nuclear reactors, doubling last year’s annual total.

7. We Need To Talk About Graphite

- Soaring demand for electric vehicles will triple global demand in battery anode materials (BAM) by 2025, bringing it to 2.9 million tonnes, says Rystad Energy.

- As anodes are primarily composed of natural or synthetic graphite, the next few years will see a flurry of greenfield graphite projects, especially synthetic ones as they are quicker to build.

- China is set to lead the global investment drive, adding some 3.4mtpa of new capacity over the next three years with legacy producers BTR and Shanshan leading the way.

- In relative terms, Europe will see the most sizable growth albeit starting from scratch, with most new projects located in Sweden, Finland, and Austria and adding 200,000 mt capacity by 2025.