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

    Lumber prices have risen 50% since August, and 2 experts say the resurgence will continue through early 2022

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

    A reason for the price increase in lumber is a modest increase in renovation demand after price-sensitive buyers proceeded with home improvement projects now that wood prices have seen a substantial correction, Dustin Jalbert, senior economist at Fastmarkets, told Insider.

    Though Jalbert does not expect the kind of runup in lumber prices seen earlier this year - a period when there was a backlog of homes waiting to be built and a shortage of key construction supplies - as pandemic-related supply constraints continued to ease.

    "The market has finally transitioned to a more balanced state compared with being severely oversupplied in the summer months, which ultimately drove the massive correction in prices from record-high levels set in May," Jalbert told Insider.

    And even if Americans wanted to build and renovate homes, the field consumption of lumber is being bogged down by shortages of other complementary materials such as windows, siding, cabinet appliances, and garage doors, he added.

    The supply side, meanwhile, continues to face challenges, Jalbert said. Log costs in British Columbia, which accounts for about 16% of North American lumber capacity, remain elevated.

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    Global: The one on Tsars, Muftis, Weathermen and Energy Prices

    Thanks to a subscriber for this report from Nordea which may be of interest. Here is a section:

    How low are inventories? Germany is already under water
    German inventories of natural gas are scarily low ahead of the winter. We have taken a deep look at Gazproms major storage sites in Germany (Katharina, Jemgum, Redhen and Etzel), and were almost shocked by the severity of the issue. Current inventories will run frighteningly close to zero by Mid-March 2022, if usual seasonal patterns unfold over winter.

    The current 16900 MCM/D inventory in Gazproms German facilities is barely enough to survive the winter, as the inventories usually drops by between 17500-20000 MCM/D between late October and mid-March. This is too much of a knife-edge situation to be truly comfortable with. Remember that natural gas makes up around 25% of the total energy consumption in Europe still. We are counting on you Vladimir!

    The situation is about as bad in China, if we just replace natural gas with coal in the charts, which could prove to be even more problematic as coal makes up around 60% of the energy consumption in China. Per anecdotal evidence China has now re-allowed Australian coal shipments to reach Chinese land-territory despite the ongoing geopolitical dispute between the two countries.

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    Beijing Blinked First in China's Energy Crisis

    This article by David Fickling for Bloomberg may be of interest to subscribers. Here is a section:

    It looks like the government has blinked first. Miners, after months of being ordered to stick closely to capacity limits, are now being ordered to produce as much as they can, people familiar with the matter told Bloomberg News. That should help to take the wind out of surging thermal coal prices and prevent the current crisis from extending into the winter, when sufficient energy supply can be a life-or-death matter.

    There is, to be sure, an attempt to make this retreat look like a withdrawal. The latest advice from Beijing’s economic planners last week focuses on protecting individuals but continuing the crackdown on industry, especially when it’s most energy-intensive and polluting. Allowing generators to raise prices to end-users, as is happening in Guangdong province, will also help create a more commercial power market. Electricity consumption controls have even been loosened in a way that would permit potentially unlimited volumes of cheaper renewable power into the market.

    The risk, as with the rapidly fading fears over Evergrande, is that Beijing has simply deferred a pressing problem again. If China doesn’t reform a system that refuses to face up to its internal contradictions, the problems of an economy fed by credit and carbon will only fester and grow. 

     

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    Oil jumps 2%, hits 3-year high as OPEC+ sticks to output plan

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

    Despite the pressure to ramp up output, OPEC+ was concerned that a fourth global wave of COVID-19 infections could hit the demand recovery, a source told Reuters a little before the vote.

    "The (price) move looks a bit outsized given the ministers just reaffirmed the decision announced in July, but it shows how tight the market is, reinforcing our view of asymmetric price action with risks skewed to the upside at these inventory levels," Barclays said in a note. 

    Investors will closely watch Wednesday's crude inventory data from the U.S. Energy Information Administration for further direction.

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    World's biggest clean energy project to power Singapore from Australia

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

    The Australia-Asia PowerLink project, led by Australia's Sun Cable, plans to create a mammoth "Powell Creek Solar Precinct" on 12,000 hectares (29650 ac) of arid land about 800 km (500 miles) south of Darwin. The site, chosen because it's one of the most consistently sunny places on Earth, would be home to a mind-boggling 17-20 gigawatts of peak solar power generation and some 36-42 GWh of battery storage.

    To give you a sense of scale, that's nearly 10 times the size of the world's current largest solar power installation, the 2.245-GW Bhadia Solar Park in India, and more than 30 times more energy storage than the last "world's biggest battery" project we covered in February. It's a bit big.

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    Email of the day on China's energy challenges

    You mentioned the energy shortages in China. These two articles from the Daily Telegraph spell out the scale and the implications globally. Best wishes to you and family

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    Email of the day on investing for inflation:

    Dear Eoin, Many thanks for your comment on inflation as a solution for the massive public debts. In these circumstances how would you structure your portfolio? In which sectors would you invest your funds?

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    Email of the day on slower Chinese growth:

    Think, you may find interesting this Financial Times story that looks into the longer-term consequences of Evergrande saga - https://on.ft.com/3io45gH (open link). It seems that the Chinese real estate market finally (at long, long last) is crumbling, not without help of the country leaders. If it is so and given the fact that the property market accounts for 29% of the Chinese GDP (and land sales to developers, for the third of local governments’ revenues), the economic growth seems to slow dramatically in the coming years. What could be implications, in your view? We all remember that China and its industrialization were the major drivers of the global commodities supercycle in the 21st century. Also, every time China has got into trouble, the Communist party used the same recipe “more investments in infrastructure and construction, more leverage. If now China and its property sector grow much more slowly, not to mention possible contraction of the latter, it will need much less metals and materials, and also possibly less gas (to power plants and send it to homes) and even oil (fewer working trucks and construction equipment). What do you think?

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    IEA Says Russia Could Do More to Boost Europe's Gas Supply

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

    Europe is facing gas shortages, but Russia has a crunch of its own. Gazprom has boosted production this year, but it’s directing the additional output to refill depleted storage sites at home. Russia has been producing close to its maximum capacity, but its domestic needs have curbed availability to Europe, according to the Oxford Institute for Energy Studies.

    “Russia is not running out of gas and its prolific gas reserves allow Russia to meet much higher overall demand, but this requires time, money, and contractual assurances of offtake,” said OIES Senior Research Fellow Vitaly Yermakov.

    Some analysts have argued that Russia has capped flows to Europe as a way to get its controversial Nord Stream 2 pipeline to Germany online. Flows through the link could improve supplies, but the start of commercial operations will depend on regulatory certification -- first in Germany, then at the European Commission. That could run well into next year. U.S. sanctions have also created challenges for the project.

    The IEA stressed that it’s wrong to blame the shift away from fossil fuels for the surge in gas prices. The comments came a week after Frans Timmermans, the EU’s climate chief, warned that the record spike in energy prices must not undermine the European Union’s resolve to cut emissions.

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