Tuesday, October 5, 2021

GWPF Newsletter: Europe asking Russia for more coal to survive winter energy crunch


Britain's energy sector in meltdown as leading energy supplier faces collapse

In this newsletter:

1) Europe asking Russia for more coal to survive winter energy crunch
Bloomberg, 30 September 2021
2) Britain's energy sector in meltdown as leading energy supplier faces collapse
The Guardian, 30 September 2021

3) Renewable energy output drops almost a third

Financial Times, 29 September 2021
4) China braces for a chilly winter as its home-grown energy crisis intensifies
The Sydney Morning Herald, 30 September 2021
5) Gavin Mortimer: Boris should beware his Red Wall doesn't become a Yellow Vest
The Daily Telegraph, 30 September 2021
6) Kate Andrews: Britain’s weak energy security puts net zero in doubt
The Daily Telegraph, 29 April 2021
7) And finally: Will Net Zero bring down Joe Biden?
The Wall Street Journal, 29 September 2021

Full details:

1) Europe asking Russia for more coal to survive winter energy crunch
Bloomberg, 30 September 2021

It’s not just extra natural gas that Europe’s struggling energy markets are finding tough to get from Russia. Power producers in the continent are being forced to ask Russia for more coal to ease an energy crunch with winter approaching and record-high gas prices denting profitability, according to officials at two Russian coal companies.
But they may be left stranded as any increase in exports from the country won’t be substantial, they said.

Having largely turned away from coal for years in an attempt to green its electricity generation, Europe is now in a conundrum. The region’s gas storage sites are only partially full, liquefied natural gas suppliers are favoring Asia, and intermittent renewables aren’t able to fully meet demand. With the winter heating season approaching, the dependence on Russia to keep the lights on is growing. 

“If all the European utilities switch to coal, it will result in a huge spike in coal demand that Russia alone cannot provide for on such a short notice,” said Natasha Tyrina, a principal research analyst at Wood Mackenzie Ltd. in Houston. “That would need supply from other countries as well, from the U.S. for example, but the situation there is similar to everywhere else.”
Europe’s plight highlights the energy supply crisis that’s gripping the world as countries emerge from the pandemic. Demand for oil, gas and electricity is surging, while coal is making a comeback, driven in part by China. The fuel’s resurgence, and countries’ recent dependence on it to keep their economies running, makes critical climate talks much more complicated with the COP26 meeting just weeks away.    

European utilities are in desperate need to get their hands on more coal, a strategist at one European utility said, asking not to be identified. But Russia, the world’s third-biggest exporter of the fuel, is mainly targeting sales to the largest buyers in Asia.
“Russia has been cutting coal exports to Europe for years as the European Union was closing thermal coal power stations,” said Kirill Chuyko, head of research at BCS Global Markets. It’ll be hard to re-route to Europe “as there are existing contracts with Asian clients. On top of it, transportation capacity is anyway limited.”

Also complicating matters is Europe’s stringent environmental standards for burning coal, making it much more difficult and time-consuming for Russia to prepare supplies that meet the quality requirements, the officials at the country’s coal companies said.  
Russian supplies to Asia could pick up further in the fourth quarter once rail availability improves, WoodMac’s Tyrina said. Maintenance works will have ended, and there will be less competition from other traffic, she said. The end to the summer will lower passenger traffic toward the Black Sea, home to resorts but also major export ports.
There are fewer transport bottlenecks to the west, with about 35% to 45% of thermal coal supply typically exported through the northern and southern ports, including to Europe, according to the data from companies. The infrastructure can handle about 133 million tons of coal toward the west this year, said Kirill Nikoda, deputy head of the center for economic forecasting an Gazprombank. That’s almost 40 million tons higher than capacity in 2020, following several expansion projects, he said. 

Still, coal exports, including for power generation, to Europe are forecast to be flat this year at about 48 million tons, a spokeswoman for the Energy Ministry said. It edged up 2.4% to 22.5 million tons in the first half of the year.

Rising demand from Europe could potentially lure more Russian coal, “but the question is how much additional supply rail infrastructure would allow,” Tyrina said. 
2) Britain's energy sector in meltdown as leading energy supplier faces collapse
The Guardian, 30 September 2021

A City firm has been put on standby to take control of a large energy company amid fears that one could collapse soon, overwhelming the existing safety net put in place by the regulator, Ofgem.

The management consulting company Teneo is understood to have held talks with the regulator about acting as “special administrator” under a government scheme, as yet untested, for handling large energy company failures.

In theory, the company would take on the operations of a failed energy supplier to ensure no interruption of service or supply to customers.

The backup option, first reported by Sky News, is being readied in light of mounting concern that Ofgem’s “Supplier of Last Resort” system, under which a healthy energy supplier agrees to take on customers from a collapsed rival, is at breaking point.

Three more energy companies collapsed on Wednesday, taking the total number of failures to 12 this year, in a deepening crisis that has forced Ofgem to find new providers for more than 2.2m customer accounts.

Full story
3) China braces for a chilly winter as its home-grown energy crisis intensifies
The Sydney Morning Herald, 30 September 2021

The seeds for China's energy crisis were largely sown within the five-year national strategic plan that ran from 2016 to 2020. Within that plan was the ambition of capping China’s energy requirements and carbon emissions and reducing the energy intensity of its economy.

The energy crisis engulfing the UK and Europe is being driven by the global shortages and soaring costs of gas and oil. In China, it’s coal-driven and is largely the result of decisions made in China.

Two-thirds of China’s provinces are now rationing power. Factories have closed or have reduced production. Households are going dark and street lights have been turned off. Demand for candles has soared. The impact on food processors is creating a threat to food security.

Heading into a winter that is typically extremely cold, China is facing threats to its people and its economy that have no quick or easy solutions.

While there is some commonality in the issues confronting the UK, Europe and China – the interaction of responses to climate change with a shortage of oil and gas supply relative to the rebound in demand as the world bounces back from the worst impacts of the pandemic (and the consequent surge in LNG and oil prices) – the core elements of China’s difficulties are homegrown.

Nearly 60 per cent of China’s power is generated by coal, with about 90 per cent of that coal sourced domestically.

It was coal that powered China’s remarkable acceleration in economic growth over the past half century, which helped turn it into the world’s manufacturing base and which fuelled the decades-long construction and property booms at the heart of its domestic economy.

The seeds for the current crisis were largely sown within the five-year national strategic plan that ran from 2016 to 2020. Within that plan was the ambition of capping China’s energy requirements and carbon emissions and reducing the energy intensity of its economy.

Those goals were imposed at the same time as China was trying to reduce pollution, lift the productivity of its industrial base and reduce a horrific rate of deaths and injuries in its coal mines by forcing the closures of smaller and low-quality domestic coal producers.

The more recent introduction of non-negotiable emissions-reduction targets to try to deliver Xi Jinping’s commitment to reducing energy intensity by three per cent this year, achieving peak carbon by 2030 and reaching carbon neutrality by 2060 has overlaid a shortage of coal supply and the rising cost and declining quality and volume of China’s domestic coal resources.

To try to achieve those targets, mines were closed or ordered to reduce production and heavy energy users like steel mills and aluminum producers were also forced to cut their output (hence the collapse in the iron ore price and the highest global prices for aluminium in more than a decade).

Local governments have struggled to comply with Beijing’s directions – many are said to have ignored them in pursuit of energy-intensive growth and the revenue and employment that generates – and are now resorting to power cuts and blackouts because of the shortage of coal.
4) Renewable energy output drops almost a third
Financial Times, 29 September 2021
SSE’s renewable energy output over spring and summer was almost a third lower than planned, as low winds and dry weather combined with high gas prices to push up energy prices.

The FTSE 100 energy supplier said on Wednesday its wind and hydro output between April 1 and September 22 was 32 per cent beneath its target — equivalent to an 11 per cent hit to its full-year production forecast.

The summer was “one of the least windy across most of the UK and Ireland and one of the driest in SSE’s hydro catchment areas in the last 70 years”, the company said in a statement.

SSE’s update is the latest sign of how unfavourable weather conditions are hitting the renewables sector.

It comes as a global gas shortage, a rebound in energy demand after coronavirus lockdown restrictions and some of the poorest wind conditions in the North Sea for more than two decades have propelled UK and continental European energy prices this month to their highest ever levels.

SSE expects to report adjusted earnings per share in the range of 7.5p to 10p for the six months to September 30. It remains confident “due to the resilience of SSE’s business mix” that it will deliver a “solid financial performance” for the full year.

It expects to recommend a full-year dividend of 80p plus inflation, with an interim payout of 25.3p in March 2022.

The shortfall has prompted at least one analyst to forecast a hit to the full-year consensus. “Overall we see at least 5 per cent downside risk to the current full fiscal year adjusted earnings of 88p a share,” said Ahmed Farman, analyst at Jefferies, in a note.

SSE has overhauled its operations to focus on low-carbon businesses such as electricity networks and renewables, and has the largest renewable electricity portfolio in the UK and Ireland.

“SSE is currently building more offshore wind than any company in the world, expanding internationally and investing in the decarbonising infrastructure that society needs,” it said in its statement.

The company is expanding into Japan, where it said it had created a joint venture with renewables group Pacifico Energy, taking an 80 per cent stake in an offshore wind development platform.

“SSE’s very deliberate mix of economically regulated and market-based businesses provides resilience against seasonal variability,” said finance director Gregor Alexander. “The operational issues we’ve faced in the first half are, by their nature, time-limited and the key months of our financial year are still to come.”
5) Gavin Mortimer: Boris should beware his Red Wall doesn't become a Yellow Vest
The Daily Telegraph, 30 September 2021
If the Prime Minister pursues his Green industrial revolution to the bitter end, he will lose the blue collar vote

If it's any consolation to Boris Johnson, Emmanuel Macron is facing a fuel crisis of his own this winter. The price of petrol in France has soared in the last few weeks, breaking the symbolic bar of €2 a litre, household gas bills are increasing by an average of 12.6% from October and electricity bills will soar by 10% at the start of 2022.

A great many of the French are restless and their president is in the firing line. In June he was slapped in the face by an angry young man during a walkabout in the south-east of the country and on Monday an egg was thrown his way as he toured Lyon.

This is nothing new for Macron. Three years ago the Yellow Vest movement took to the streets, and the president was obliged to spend his Saturdays barricaded in the Elysée Palace behind a cordon of heavily-armed police as tens of thousands of furious French protested against a fuel tax rise.

The eco-tax, billed by Macron's government as a means of facilitating the transition to cleaner fuel, was the last straw for those in the provinces who felt ignored by the political class. Five years earlier the then Socialist government, of which Macron was part, was forced to drop a environmental tax on heavy goods vehicles following weeks of angry protests.

“Nobody thinks about the people on the city fringes, in the provinces, in rural areas,” said Priscillia Ludosky, one of the instigators of the Yellow Vest movement. “They tell them to use alternative transportation but the reality is that's not possible."

The government had initially treated the malcontents with contempt. Macron's official spokesman, Benjamin Griveaux, declared  that ‘people who smoke cigarettes and drive diesel cars’ are ‘not the 21st-century France we want’.

Griveaux didn't last long in his position once the protests began, and nor did the eco-tax survive. It was scrapped in December 2018 but the people's anger didn't subside. They carried on protesting, voicing their resentment at a president that they perceived to be out of touch. I attended those early marches in Paris and I talked to several protestors. Most were in their thirties and forties, employed in sectors categorised as the classes laborieuses. 
They had come to the capital to protest from afar but they brought with them no strong political convictions. What united them was a despair at being taken for granted by a parliament that passed laws totally at odds with the reality of life outside the big cities.

The Yellow Vests have reappeared on the streets this summer, marching as part of the weekly protests against the implementation of the Covid Passport. At their height there were a quarter of a million people on the streets, and although this number has diminished, some 60,000 took part in Saturday's protest. The discontent extends beyond the Covid passport to a general frustration and disillusionment with life under Macron; everything seems to be on the increase: petrol, utility bills, supermarket prices. Everything except their purchasing power.

Boris Johnson should take note. It would be a grave mistake on the Prime Minister's part to blithely assume that the British people will accept his Green Industrial Revolution without a murmur of protest. In 2000, the year before Johnson entered parliament as the MP for Henley, there were nationwide protests against the rising cost of fuel. The Conservatives, then in opposition, supported the protestors but now as the party in power they are perceived as the problem by the British people.

It's not just Brexit that is to blame for the current fuel shortage; it's a post-Covid phenomenon that is having a global impact. Nevertheless it should serve to focus minds within the government.

The car is as important to the average Briton as it is to a French person. Without it they can't live. Not everybody can WFH (work from home) or take public transport to work. And not everybody will be able to afford an electric car once the ban on new petrol and diesel cars takes effect as part of Johnson's Green Industrial Revolution.

It's safe to assume that there are a number of politicians in Westminster who share Benjamin Griveaux's conviction that people who smoke cigarettes and drive diesel cars are not compatible with the 21st-century. But governments ignore these people at their peril. That was Macron's mistake in 2018 and as a consequence he has lost the blue-collar vote.

So will Johnson if he pursues his Green Industrial Revolution to the bitter end. The Red Wall will surely crumble, perhaps to be replaced by one of Yellow Vests. It wouldn't be the first time that the French have started a fashion trend.
6) Kate Andrews: Britain’s weak energy security puts net zero in doubt
The Daily Telegraph, 29 April 2021
Our failure to maintain supplies of gas makes it more difficult to embrace greener alternatives
Wishful thinking has always been a problem in politics; even more so, it turns out, in the recovery phase of a pandemic. Some misguided folk have been operating under the assumption that we have avoided the serious economic consequences that come with shutting down the world economy for months on end. Unfortunately, many of them sit in Whitehall.

The energy crisis we are experiencing now is directly linked to our pandemic response. Lockdowns stifled both the production and consumption of fundamental resources, including gas. Now we’ve kick-started our economies worldwide: lo and behold, demand has skyrocketed.

Unlike the unexpected, airborne virus that swept across the world at rapid pace, there is virtually no excuse for the Government not being fully prepared for what we’re experiencing now.

Yes, there have been a few surprises. No one expected a key power cable from France to catch fire, worsening our shortages. But the reawakening of the global economy, the ebbs and flows in energy produced by wind and solar renewables – none of this is new information.

The basic laws of supply and demand have gone overlooked in the recovery process so far – or, perhaps even less generously, those in government who understand this basic principle have also been operating with the hubris that such things are in the state’s control.

It has only taken a few years for the energy price cap to fall apart: by forcing an increasingly competitive industry to cap what it could charge consumers, it tied smaller companies’ hands when prices rose.

As the number of smaller players proliferated over the years, there was increasingly no justification for it. And with wholesale prices reaching up to 11 times normal levels, the cap has become a coffin, killing off smaller players in the market who are not allowed to raise their prices to reflect their increasing costs.

And Britons are soon to pay the price. Even in the better-case scenarios, where gas supplies are ramped up and demand from Asian markets (who are paying big bucks to secure first priority) levels out, energy bills are now all but guaranteed to spike in the coming months.

For all the lofty promises made by successive governments to protect consumers from rising costs, it’s now being unveiled – in a financially painful way – just how empty such promises are, in the face of uncontrollable global pressures.

Yes, UK residents will be joining people worldwide paying higher energy prices. But the problem will be especially acute here, where gas reserves are merely several days’ worth, making Britain especially vulnerable in the case of shortages.

The decision not to push on with lower-carbon shale gas alternatives means looming fears of a 1970s-style energy crisis; whereas countries like the US are, for now anyway, fairly confident they can handle the spike.

Perhaps it’s dawning on officials why the Kremlin supported anti-fracking protests in Europe. Undermining the imperfect but far cleaner form of energy through disinformation campaigns wasn’t just about keeping its hold on gas supply (which it’s using to its advantage now, to try to push through Nord Stream 2). It was also a game of stability and security – one which the UK seems to be losing.

As the problems of incompetence build, there’s another question to ask too: how exactly the Government got its energy priorities so wrong.

We are lucky enough in the UK that our political climate is so enlightened: all major parties – and their voters – support efforts to tackle climate change and want to make the world a greener place.

But for years, the green agenda has been paid far more attention than energy security, largely because both goals still often clash.

These competing interests are vital in our green energy debate. It’s how we discover the best ways to pursue decarbonisation without compromising on living standards and national security.

But these trade-offs are increasingly unpopular to mention, especially within a Tory party which has made its climate change conference in Glasgow next month – Cop26 – the centrepiece of its domestic agenda.

But as inconvenient as they may be, the trade-offs are coming to a head, as the Prime Minister learned last week: when giving a speech in New York encouraging the UN general assembly to follow in the UK’s footsteps on climate change, his business secretary was simultaneously negotiating taxpayer subsidies to increase CO2 production, to tackle the shortages caused by a lack of forward planning.

And far worse consequences may be around the corner for British consumers, who are facing an uphill battle this winter against rising inflation and an energy shortage.

The irony, of course, is that the Government’s unstable energy strategy makes it harder to plan ahead, and thus more difficult to embrace greener alternatives if and when they become available.

This is hardly the message the Prime Minister plans to sell at Cop26, but it is a more honest one – and it is a reality he will be forced to confront if this crisis worsens.
7) And finally: Will Net Zero bring down Joe Biden?
The Wall Street Journal, 29 September 2021
His policies are already contributing to global oil supply shortages.

Crude prices hit $80 a barrel on Tuesday, and the Organization of the Petroleum Exporting Countries (OPEC) warned oil could skyrocket without increased investment in new production. So much for the claim that the death of fossil fuels is nigh.

Europe’s climate follies have created fuel shortages and price spikes that are rippling through global energy markets. Demand for liquefied natural gas in Europe has soared due to waning wind production, the shutdown of coal and nuclear plants, and lower Russian gas deliveries. But there’s not enough LNG to supply Europe and the world.

Asia and Europe are having to burn more coal to keep their lights on. But coal is also in short supply, and factories in China are shutting down as local governments ration power. Gas-powered generators in Asia are switching to burning oil, which is also pushing up crude prices.

Goldman Sachs projects that crude could hit $90 a barrel by year end, which could add 10 to 20 cents a gallon to gasoline prices at the pump. White House Press Secretary Jen Psaki on Tuesday assured Americans that the Administration is speaking “to international partners, including OPEC” about “doing more to support the recovery.” How about encouraging more U.S. production?

OPEC and Russia are gradually ramping up supply, but U.S. oil production remains 15% below pre-pandemic levels. About 20% of production in the Gulf of Mexico remains knocked out from Hurricane Ida. Even before the storm, U.S. oil and gas producers were curtailing investment amid a hostile political climate.

On Monday energy companies scrapped a 116-mile pipeline to deliver gas from Pennsylvania to New Jersey due to regulatory obstructions. Pipeline blockades by Democratic states in the Northeast have depressed gas prices and investment in the Marcellus shale in Pennsylvania. One ironic result is that, with gas in short supply, New York and New Jersey may wind up burning more oil for electricity this winter.

Meantime, permits issued by the Interior Department for drilling on federal land declined to 171 in August from 671 in April. Democrats’ $3.5 trillion-plus spending bill includes royalty and fee increases that would make U.S. oil and gas producers globally uncompetitive. Less U.S. production will make global oil and gas prices higher for longer than necessary.

OPEC and Russia might compensate for reduced U.S. supply. But there could still be an enormous oil shortage if U.S. and European giants scale back global production under pressure from green investors. That’s the takeaway from OPEC’s annual report on Tuesday, which projects $11.8 trillion in new oil investment will be needed through 2045 to meet demand growth and compensate for production declines at existing fields.

OPEC estimates that global oil demand will increase 28% over the next two decades from pre-pandemic levels as low-income countries industrialize. Even as the West pushes renewables and electric cars, oil and gas are forecast to make up roughly the same share of global energy in 2045 as they do today. Nigerians and Guatemalans won’t be driving Teslas.

OPEC predicts the Middle East will make up 57% of crude exports by 2045, up from 48% in 2019. Liberals will dismiss the OPEC report as self-serving, but today’s energy shortages and price spikes are a blaring reminder that the world needs more, not less, oil and natural gas.

The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at

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