David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Norway Targets Record Gas Sales This Year as Europe Shuns Russia

    This article from Bloomberg may be of interest to subscribers. Here it is in full:

    Norwegian gas sales are on course to test a record high this year as Europe seeks to reduce its dependence on top supplier Russia as soon as possible. 

    Total exports from fields in the Nordic nation are poised to jump about 8% this year to 122 billion cubic meters, the government said in its updated outlook on Wednesday. The country sold similar volumes in 2017, a record year for exports.

    The continent’s second-biggest supplier is pumping at full tilt, benefiting from record prices and higher demand than ever for its fuel. The European Union aims to curb imports from Russia by two thirds this year because of the war in Ukraine.

    European prices spiked after Russia’s invasion in late February, deepening an energy crisis that started last year. Costs have since eased but they remain historically high and traders remain on the edge because of the uncertainty of flows and payment regimes. 

    “High prices give the companies strong incentives to utilize the production capacity on the fields,” Petroleum and Energy Minister Terje Aasland said. “Companies are producing at full, or near full capacity.” 

    Norwegian producers have tweaked operations at some fields, including reducing gas injections for oil recovery. Energy major Equinor ASA will also restart its Hammerfest LNG plant this month. The facility has been shut after a fire in late 2020.  

    The extra volume would amount to an increase of about 9 billion cubic meters this year compared with 2021 sales. While every molecule counts, it’s just a fraction of Russia’s flows to the European Union, which exceeded 155 billion cubic meters last year. That was about 40% of the bloc’s total consumption. 

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    Ride of the 'Volkyries'

    Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section:

    As I see it, the risk of recession, whether it is real or merely implied by an inversion of the yield curve, won’t deter the Fed from hiking rates higher faster or from injecting more volatility to build up negative wealth effects, and signs of a recession might not mean immediate rate cuts to ramp demand back up …

    …cuts may have to wait until the Fed is certain that inflation is surely dead.

    Back to the level of the stock market under the Fed call.

    According to President Daly’s comments, the recent stock market correction and the rise in mortgage rates is “great”, but not enough (“want to see more”). Chair Powell also noted in his press conference that he wants to see further tightening in financial conditions still. At face value, that implies that the Fed won’t stop shaping expectations until we see more damage to stocks and bonds.

    Rallies could beget more forceful pushback from the Fed – the new game…

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    Dollar Won't Be Haven Currency of Choice for Long

    This note from Bloomberg may be of interest to subscribers. Here is a section:

    This in turn takes us to an interesting observation by George Saravelos, Deutsche Bank AG’s global head of currency research, who says that “we are perhaps now reaching the tipping point where further financial conditions tightening will start to place more severe headwinds to how much more we can reprice the Fed.” This will result in the dollar becoming less responsive to risk-off due to more dovish implications for the Fed path. And while it’s still early stages, Saravelos argues that “the market is starting to behave as if we may be approaching this tipping point.”

    Now, even if inflation does peak this year, that won’t mean central banks will exit their tightening path, but will adjust it accordingly. Just look at the Bank of England’s latest forward guidance and the divide within the voting committee. At the same time, and if we talk stagflation or recession, we should consider that the yen may attract haven flows once again given its low inflationary readings, Japan’s current surplus and so forth.

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    EU Squeezes Hard on Russia, Sweeping In Oil, Bank, Business

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The European Union plans to ban Russian crude oil over the next six months and refined fuels by the end

    of the year as part of a sixth round of sanctions to increase pressure on Vladimir Putin over his invasion of Ukraine.

    “This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined,” European Commission President Ursula von der Leyen said in remarks to the European Parliament. “We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets.”

    Hungary and Slovakia, which are heavily reliant on Russian energy and had opposed a sudden cut-off of oil, will be granted a longer timeframe -- until the end of 2023 -- to enforce the sanctions, according to people familiar with the matter.

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    GS, Doosan and Samsung to Cooperate in SMR Power Plant Business

    This article from BusinessKorea may be of interest to subscribers. Here is a section:

    A signing ceremony was held at GS Energy Headquarters in Gangnam-gu, Seoul, on April 26 with the presence of representatives from the four companies. They included GS Energy president Huh Yong-soo, Doosan Enerbility vice president Na Gi-yong, Samsung C&T vice president Lee Byung-soo, GS Energy vice president Kim Seong-won, and NuScale Power president John Hopkins.

    NuScale’s SMR is the only one of its kind to receive design certification from the U.S. Nuclear Regulatory Commission (NRC). It is regarded as the most advanced SMR in the world. It can be used for hydrogen production, seawater desalination, and heat supply to industrial complexes in addition to electricity generation.

    The MOU is expected to generate huge synergies by combining NuScale’s SMR technology, GS Group’s power plant operation capabilities, Doosan Enerbility’s expertise in nuclear power plant equipment production, and Samsung C&T’s power plant construction capabilities.

    A power plant using NuScale SMRs will be built and put into commercial operation in Idaho of the United States in 2029.

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    Sahara solar could soon rescue Britain's broken energy system

    Thanks to a subscriber for this article by Ambrose Evans Pritchard for the Telegraph. Here is a section:

    Such long cables would have leaked too much power to be viable in the past. Modern HVDC technology at 515 kilovolts has shaved the total loss to 15pc, including the conversion of electricity at both ends.

    The coming generation of 800 or 1,000 kilovolts will shave the loss rate further. New methods of laying cables will open up the most direct deep-sea routes instead of having to hug the coasts, cutting transmission lines from Morocco by a quarter.

    “We are going to see an explosion of long-distance interconnectors criss-crossing the seas. You could even link up the US and UK, since it is a similar cable distance,” said Mr Morrish.

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    Oil Sinks as Dour IMF Forecast Sparks Global Growth Concerns

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Oil extended losses after the International Monetary Fund downgraded its global growth forecast, intensifying market concerns of an economic slowdown in the wake of hawkish comments from U.S. Federal Reserve officials.
     
    West Texas Intermediate fell more than $5 on Tuesday to trade below $103 a barrel, the sharpest drop in more than a week. The IMF slashed its world growth forecast by the most since the early months of the Covid-19 pandemic and projected even faster inflation. The market opened on a downbeat after Fed Reserve Bank President James Bullard said late Monday the central bank needs to move quickly to raise interest rates to quell inflation.

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    The Big $hort

    Thanks to a subscriber for this report from Zoltan Pozsar for Credit Suisse. Here is a section from the conclusion:

    Paraphrasing Herodotus…

    …”circumstances rule central banks; central banks do not rule circumstances”.

    Inflation is a complex phenomenon, and it has nothing to do with DSGE models. Free-flowing commodities and commodity traders guarantee price stability, not central banks, and deflationary impulses coming from globalization shouldn’t be mistaken for central banks’ communication skills as anchors of price stability.

    Luck is luck. Luck isn’t structural…

    Luck is running out; central banks were lucky to have price stability as a tailwind when they had to fight crises of FX pegs, par, repo, and the cash-futures basis. Those were the easy crises. The ones you can print your way out of with QE.

    But not this time around…

    Inflation borne of shortages (commodities [due to Russian sanctions], goods [due to zero-Covid policies], and labor [due to excessive positive wealth effects]) is a whole different ballgame. You can’t QT or hike your way out of it easily…

    …and if you can’t, credibility gets damaged, a decline of the U.S. dollar is inevitable, and shorting U.S. rates, the U.S. dollar, and some FX pegs make logical sense.
     

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    Stocks Rise as CPI Bolsters Bets on Inflation Peak

    This article from Bloomberg may of interest to subscribers. Here is a section:

    While the U.S. consumer-price index climbed by the most since late 1981, excluding volatile food and energy components, the gauge increased 0.3% from a month earlier and 6.5% from a year ago -- due in part to the biggest drop in used vehicle prices since 1969. The March CPI reading represents what many economists expect to be the peak of the current inflationary period, capturing the impact of Russia’s invasion of Ukraine.

    Comments:
    “There were some green shoots in the data that suggest March could potentially be the peak for inflation,” said Lindsey Bell, chief markets and money strategist for Ally. “When you couple this with the recent retreat in oil prices, improving shipping costs, a potential reduction in demand from higher prices, and the cycling of higher inflation comparisons, it’s possible that inflation could be topping out.”

    “While today’s inflation print hit a four-decade high, there was a sigh of relief as some components of core inflation weakened,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Regarding peak inflation, we have been at this juncture before where subtle shifts within the data make it appear that the level of inflation has reached its peak for the cycle only to keep marching higher.”

    “It’s a red-hot number, but the market’s reaction for now suggests it’s priced in, especially with the month-over-month core read coming in below expectations,” said Mike Loewengart, managing director of investment strategy at E*Trade from Morgan Stanley.

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