The U.S. Is Running Out Of Coal

1. US LNG Export Slowdown Couldn’t Have Happened at Worst Time

Source: Kpler.

- Netting another month-on-month decline, US LNG exports have been falling for four straight months already, just as Asian LNG prices started shooting through the roof.

- As of today, only 5.3 million tons LNG have departed from US liquefaction terminals, the lowest level since February 2021.

- Production issues have hampered the Freeport LNG terminal as a wax buildup in its pipelines still limits shipments, with Train 3 at Cheniere’s Sabine Pass LNG also down due to technical issues.

- December-delivery Henry Hub futures fell to $5.8 per mmBtu on the back of a temporary easing in European and Asian gas tightness.

2. Mexico Keeps on Dreaming Big

- Crude production of Mexico’s national oil company PEMEX averaged 1.75 million b/d in January-September 2021 and it is eyeing the 2 million b/d mark by 2024.

- At the same time, PEMEX remains the world’s most indebted oil company with overall debt of more than $110 billion and lost its investment-grade status this year, so the financing of such an upstream renaissance remains dubious.

- The Mexican government reduced the tax rate PEMEX ought to pay to 40% from 54% currently, arguing that the NOC still needs support after the liberalization drive weakened it.

- Interestingly, production figures from Mexico’s energy regulator CNH are 100,000 b/d lower than those of PEMEX – the Mexican NOC blames it on temperature differences at the time of measuring.

3. India Needs to Buy More Spot LNG to Meet Demand

- India has tried to shield gas consumers from increasing LNG prices this year by ramping up domestic production, however even accounting for long-term supplies coming in as planned, India would need to ramp up spot purchases of LNG.

- This would mean great pain for Indian buyers as the domestic prices are regulated and calculated on the basis of international benchmarks’ annual average plus a 3-month time lag.

- With the magic of domestic gas output fizzling out, India would need to buy some 0.6-0.7 million tons per month of spot cargoes, over and above its term buying commitments.

- LNG departures en route to India were particularly low this month (at 1.7 million tons), with buyers essentially renouncing on buying any spot cargoes.

4. Most Solar Projects Face Postponement or Cancellation on Soaring Costs

- The rapidly increase cost of manufacturing materials required to produce photovoltaic panels and higher shipping costs could threaten a hefty 50 GW of PV projects planner for 2022, Rystad reports.

- This would mean almost 60% of all projects are under threat as manufacturing costs soared from below $0.2 per Watt peak (Wp) to $0.28 per Wp in the second half of 2021.

- All feedstocks required for PV production have seen their prices surge this year – silver, copper, aluminum – however, the year-to-date tripling of polysilicons hit the hardest.

- Overall, the levelized cost of electricity for photovoltaic panels increased by between 10% and 15% this year alone.

5. New IMO Targets to Boost Ammonia and Hydrogen Shipping

- The UN International Maritime Organization aligned on a target to decrease the carbon emission intensity of the shipping sector by at least 40% by 2030 from 2008 levels.

- According to IMO, overall GHG shipping emissions should halve by 2050, however with most of the shipping industry seemingly ready to accelerate the low-carbon transition, that goal might be revised further.

- There is an increasing pressure to include upstream emissions (also known as well-to-tank) in accounting methods, creating a double whammy for fossil fuels.

- The European Union has already pledged to include shipping in its carbon scheme, compelling all ships above 5,000mt tonnage to pay for their emissions, estimated at some 90 million tonnes CO2.

6. Activist Investor Launches Drive to Split Shell

- The activist hedge fund Third Point has built up a large ownership stake in Anglo-Dutch major Royal Dutch Shell (NYSE:RDS) worth $750 million and is now called for its splitting into two separate companies.

- Third Point advocates spinning the company’s natural gas, renewables and trading businesses into a separate firm, arguing Shell is being pushed in too many different directions.

- Shell’s exchange stature took a beating this Thursday, losing almost 3 per share amidst the commotion caused, despite most other shareholders voicing their opposition to the plan.

- Shell reported a Q3 profit of $4.13 billion this week, helping decrease the company’s overall debt burden to $57.5 billion.

7. The US Starts Running Out of Coal, Too

- Coal stockpiles at US power plants have fallen to their lowest in 24 years, at 84.3 million tons, as demand for the fossil fuel continues to outpace domestic production.

- Whilst aggregate coal production rose 9% year-on-year to 436.4 million short tons in January-September 2021, equivalent to 35 MMst, only some 40% of the increment went for exports.

- US power producers are on track to burn 19% more coal this year yet with stock draws as quick as they are now, year-end inventories might drop to 50 million tons.

- At the same time, the number of coal miners in the US slid 9% since the onset of the pandemic, making it even harder to ramp up production quickly.