1. China-Russia Relations Continue To Improve
- The visit of Chinese President Xi Jinping to Russia this week highlighted increasing volumes of energy trade between the two countries as the latter was shunned by Europe.
- February Chinese customs data shows that China's crude oil imports from Russia rose to an all-time high of 2.01 million b/d, equivalent to almost 20% of all incoming oil.
- Having already risen 42% year-on-year, steadily overtaking second-largest supplier Saudi Arabia, Russian exports into China are set to grow even further as state-owned refiners ramp up their buying.
- The Putin-Xi meeting was notably silent on commercial terms for Power of Siberia 2, with Gazprom saying they want to clinch the deal by year-end and start delivering gas by 2030.
2. Premium Gasoline Prices Spin Away from Regular Trends
- The spread between premium and regular keeps on widening as refiners across the Atlantic Basin are scrambling to get enough octane to produce high-quality gasoline.
- As refiners now have to produce summer-quality gasoline, meaning they need to cut down on butane content and increase the share of more expensive alkylates and reformates, the costs are ballooning.
- Apart from higher feedstock costs, US producers are also mandated to comply with Tier 3 regulations that require lower sulfur content in gasoline, meaning gas needs to be hydrotreated more severely, lowering the end product's octane levels.
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1. China-Russia Relations Continue To Improve
- The visit of Chinese President Xi Jinping to Russia this week highlighted increasing volumes of energy trade between the two countries as the latter was shunned by Europe.
- February Chinese customs data shows that China's crude oil imports from Russia rose to an all-time high of 2.01 million b/d, equivalent to almost 20% of all incoming oil.
- Having already risen 42% year-on-year, steadily overtaking second-largest supplier Saudi Arabia, Russian exports into China are set to grow even further as state-owned refiners ramp up their buying.
- The Putin-Xi meeting was notably silent on commercial terms for Power of Siberia 2, with Gazprom saying they want to clinch the deal by year-end and start delivering gas by 2030.
2. Premium Gasoline Prices Spin Away from Regular Trends
- The spread between premium and regular keeps on widening as refiners across the Atlantic Basin are scrambling to get enough octane to produce high-quality gasoline.
- As refiners now have to produce summer-quality gasoline, meaning they need to cut down on butane content and increase the share of more expensive alkylates and reformates, the costs are ballooning.
- Apart from higher feedstock costs, US producers are also mandated to comply with Tier 3 regulations that require lower sulfur content in gasoline, meaning gas needs to be hydrotreated more severely, lowering the end product's octane levels.
- The US price gap between regular and premium gasoline has been around 75 cents a gallon, some 15-20% higher than last year, a trend aggravated by closures of refineries that produced octane upgrading feedstocks.
3. Headwinds Abound Iron Ore as Price Surge Fizzles Out
- The iron ore price surge that has lifted metal markets in Q1 2023 seems to be running out of steam as expectations of a Chinese economic rebound are fading on still meager construction data.
- With construction accounting for a third of China's domestic steel demand, recent news of declining property investment (-5.7%) and falling new housing (-9.4%) poured cold water on growth prospects.
- Chinese iron ore prices have fallen back to $120 per metric tonne, the lowest since January, on the back of this, aggravated by rumors of mandated steel output cuts.
- With Kpler data still showing iron ore imports into China on par with January-February levels, at 102.7 million tons this month, the fear is that prices will fall further in the second half of 2023 as demand is front-loaded.
4. India's Hunger for Power Stretches Limits of Generation
- As Indian electricity demand is reaching all-time highs, the country's government has asked electric utility companies to guarantee full capacity generation over the key summer months.
- From March to June, power demand across India is expected to grow by 9-11% compared to last year due to robust economic growth and a triple-dip La Nina year that has already brought an unprecedentedly warm February.
- Even though India's coal inventories remain healthy, reaching the highest level since March 2021 at more than 30 million tons, the government mandated all imported coal-based power plants to run at full capacity from 16 March 2023.
- The power ministry has also demanded that all coal power plants defer their maintenance schedule beyond June 2023 and that no coal-based power plant is to be retired until 2030.
5. Graphite Fears Remain Heightened Amidst Geopolitical Spats
- Graphite might become one of the commodities most imperiled by a potential meltdown in relations between China and the West, being a crucial component in EV batteries.
- Even though China does not wield the largest graphite resource base (believed to be Turkey), it controls 60% of natural graphite mining and almost all of the graphite refining for EV battery anodes.
- Any supply disruption, due to geopolitical events or else, would devastate EV production as graphite constitutes the single largest component of lithium-ion batteries, up to 50% of their weight.
- China dominates the market of synthetic graphite, mostly produced from petroleum coke, so buying into graphite stocks might be a handy way of hedging against political escalation.
6. Dominating Solar, China Also Commands New Wind Power Projects
- Growth in the wind power industry declined to the lowest level in three years in 2022 as rising turbine prices and growing insecurities around electricity tariffs hinder wind's development.
- China was by far the largest market for new capacity additions last year, with 37.6 GW of new projects being commissioned, to be followed by a further 61 GW installed in 2023.
- The expansion of wind power in the US was hamstrung by the declining value of production tax credits for wind farms, seeing a 37% year-on-year decline below the 10 GW mark.
- Starting off from a lower base, Europe's capacity additions rose in 2022, but the 40% hike in wind turbine production costs and lack of government subsidies for future projects paint a dark picture.
7. Africa Set to Become Leader in Green Hydrogen
- As Europe is seeking to develop its own hydrogen production facilities, lower-cost and higher-efficiency projects in Africa might see substantial
investment over the next years.
- According to Rystad Energy, Africa's total announced electrolyzer pipeline capacity has reached 114 GW, although only 13 MW of the planned projects have seen an FID.
- Most African projects will be producing ammonia for export to Europe as countries like Germany intend to import 50% to 70% of their hydrogen needs by 2030.
- With 21 projects being currently appraised, Egypt tops the list of biggest hydrogen production capacities in Africa, followed by Morocco and Mauritania, all of which enjoy geographic proximity to Europe.