The Unstoppable Flow Of Russian Gas

1. US Shocks Market with Largest Ever SPR Release

- US President Joe Biden announced the release of 180 million barrels of crude from the strategic petroleum reserve over the next six months, equivalent to 1 million b/d.

- Most American SPR stocks are medium sour barrels held in salt caverns across Louisiana and Texas, so the release would be primarily interesting for sophisticated refiners.

- This is six times larger than the previous outright SPR sale and will reduce the remaining strategic inventories to a mere 388 million barrels by the end of the stock draw.

- Should the SPR release be done as an exchange, the deal might push oil prices even higher as refiners have to replace the barrels plus interest in the form of extra crude, effectively taking away barrels from the market, Bloomberg writes.

2. Russian Gas Still Flowing to Europe Amid Currency Spat

- Russia’s President pledged to cut off its gas supplies to customers unwilling to pay for their deliveries in Russian roubles, alarming most of Europe’s business community.

- Under the presidential decree, buyers must open accounts in Gazprombank and pay directly, instead of the previous practice of using European banks to wire the funds.

- Despite the media hullabaloo, European customers continue receiving stable supplies, pushing spot TTF prices down by some €15/MWh on Friday (trading at the equivalent of $40/mmBtu).

- Analysts claim that the new Russian scheme is primarily a means of de-risking Gazprom and its bank subsidiary from further sanctions, rather than being driven by Moscow’s drive to punish European buyers.

3. Renewables Excel in the US Energy Mix

- US electricity generation has been stagnant for a decade, trending at around 4300-4400 TWh, with most sources of electricity either plateauing or falling.

- Renewables, on the other hand, have seen their share double over the past decade and are set to rise to 44% of total electricity generation by 2050.

- Solar will be the main driver of growth, overtaking today’s most preferred option - wind - at some point in the mid-2030s, despite most of the federal tax credits and subsidies expiring beyond 2026.

- The only fossil fuel to see significant increases this century has been natural gas, brushing aside a 1978 prohibition on the construction of new gas-fired plants at the time of widespread coal plant building.

4. OPEC+ Rubberstamps Another Monthly Increase

- OPEC+ nations agreed on another monthly increase for May 2022, looking to bring another 432,000 b/d into the markets amidst a stiffening geopolitical background.

- At the same time, OPEC+ compliance with assumed production targets is bound to move above 1 million b/d in March as both Kazakhstan and Nigeria remained constrained by force majeure events.

- Both Saudi Arabia and the UAE, which hold most of the spare production capacity within the oil group, have resisted calls to increase production quicker than the initial OPEC+ deal.

- OPEC stopped using IEA data and replaced it with Wood Mackenzie and Rystad Energy, in a move triggered by the international organization’s repeated criticism of OPEC+ policy.

5. Bigger Ships Lead to Better Profits

- The shipping market has been increasingly tilting towards larger ships, even if the cargoes to be transported remain small.

- The Cape T4 index, an aggregated cost assessment of key Capesize routes (vessels lifting 180,000 metric tons), has declined to almost half of Panamax and Supramax freight costs.

- Larger vessels are spread out across the globe, whilst the availability of smaller vessels carrying oil products is limited, with most Supramaxes currently stationed in the Atlantic Basin.

- Despite an overall declining trend in late 2021, shipping costs have doubled this year to date, primarily on the back of the Russia-Ukraine war and China’s COVID lockdowns.

6. India Really Needs the Coal

- Indian coal buyers had been waiting on the sidelines for coal prices to drop, but shrinking inventories ahead of peak summer season have now compelled them to start buying.

- Thermal coal stocks at Indian power plants stood at 25.5 million tons at the end of March, 13% lower year-on-year, sufficient for a little more than nine days of production.

- Although India’s national coal producer Coal India has ramped up production over the past fiscal year, up 5% year-on-year, the logistics of supply is still lagging behind production itself.

- Thermal coal imports to India have reached 15.7 million tons last month, the highest level since October 2020, with almost half of the inflows coming from Indonesia.

7. Nickel Market Is Still Susceptible to Short Squeezes

- Ever since Russia invaded Ukraine, nickel markets have seen unprecedented volatility, having quadrupled to $100,000 per metric ton earlier this month only to settle around a still-elevated level of 33,000/mt.

- With Russia accounting for roughly 15% of global nickel supply, market participants halted all non-essential cargo bookings from Russia and triggered a scramble for alternative supplies.

- Following a short squeeze coming from a huge short position of China’s Tsingshan Holding, trading was suspended from March 07-16 and was resumed with a pre-set daily limit.

- S&P Global Platts expects that another short squeeze might be around the corner as many players, Tsingshan included, still wield short positions in the market.