power

Bioenergy is a crucial pathway to net-zero emissions by 2050. The bioenergy market in the US has been growing and diversifying, with strong growth potential seen in carbon capture and storage (CCS), renewable diesel, and renewable natural gas. Addressing the environmental impact of bioenergy needs clear monitoring and more innovative solutions Bioenergy is a form of renewable energy derived from organic material   Bioenergy, a form of renewable energy derived from organic materials (or biomass), will play a pivotal role in helping the world achieve net-zero emissions by 2050. With a wide range of application options in sectors such as transport, heating, and electricity, bioenergy is forecast to account for 19% of total energy supply in 2050 and will contribute to 13% of the emissions reduction between 2020 and 2030 under the International Energy Agency's (IEA) Net-Zero Emissions (NZE) scenario. Emissions reductions by mitigation measure in the Net-Zero Emissions scenario, 2020-50 Source: International Energy Agency   In the US, the development of bioenergy has been accelerating and expanding. In the transport sector, the US is home to the world’s largest biofuels market, and the demand for biofuels in North America is expected to grow more than any other region through 2026 under the IEA’s baseline scenario. Growth will continue to be led by a diversification of biofuels supply beyond conventional ethanol, as advanced biofuels like renewable diesel and renewable natural gas (RNG) keep gaining momentum. Sustainable aviation fuels (SAFs) are another point of growth; these will be covered in a later article. Biofuel demand growth by region in the baseline scenario, 2021-2026 Source: International Energy Agency   But the deployment of and investment in bioenergy is rising in other sectors as well, led by mounting action from corporates and investors across sectors to decarbonise their businesses and portfolios. So, let's take a look at the growth prospects of various bioenergy applications in the US, as well as the challenges they face.   Examples of bioenergy-related corporate climate strategies: Oil and gas: ExxonMobil identifies biofuels as one of its core solutions for its net-zero ambition. The company announced in early 2022 that it would acquire a 49.9% stake in Biojet AS, a Norwegian biofuels company, to receive up to three million barrels of biofuels per year. ExxonMobil is also investing $125m in California-based Global Clean Energy to purchase up to five million barrels per year of renewable diesel. Petrochemicals: Dow sees the creation of a circular economy through recycling and using bio-based materials as a focus area to accelerate sustainability. The company is expanding an agreement with Fuenix Ecogy Group to ramp up circular plastics production. It has also signed agreements with Gunvor Petroleum Rotterdam and Texas-based New Hope Energy to purify pyrolysis oil feedstocks derived from plastic waste. Power: Southern Company last year took ownership of the Meadow Branch Landfill Methane Recovery Facility, the renewable natural gas facility located in Tennessee, to strengthen its RNG capacity as part of the company’s strategy to achieve net-zero emissions by 2050. Biofuels: Federal policies will have a net positive effect on US production this year The main federal policy to support the US biofuels market is the renewable fuel standard (RFS), which requires refiners to blend certain volumes of biofuels in gasoline each year. The RFS benefited biofuels production – especially that of fuel ethanol – in the past, although in recent years the RFS has become more susceptible to policy uncertainty. The Environmental Protection Agency (EPA), which is in charge of setting RFS mandates, last December proposed to retroactively lower biofuel mandates for 2020 and 2021 but set 2022 requirements slightly above pre-pandemic levels. This will put pressure on refiners to blend more biofuel into their gasoline production this year, resulting in a net positive impact on the biofuels industry. Read next: Altcoins: What Is Monero? Explaining XMR. Untraceable Cryptocurrency!? | FXMAG.COM In addition, the EPA has proposed the rejection of all outstanding small refinery exemption (SREs) waivers pending for the 2016-20 compliance years. SREs give small refiners that process less than 75,000 barrels per day (bpd) of oil and can demonstrate economic hardship caused by the RFS an exemption from complying with the rules. If implemented, this decision would substantially raise the demand for biofuel credits. A federal policy that will specifically boost the production of ethanol is the Biden administration's plan to allow E15 gasoline, a fuel that uses a 15% ethanol blend, to be sold between June and September. E15 gasoline is typically banned in summer due to worries about air pollution. E15 consumption is low also because of retail availability, automobile compatibility, and safety concerns. But heightened oil prices amid the Russia-Ukraine war have made the case for more E15 gasoline sales to ease prices. State level policies are a powerful addition At the state level, California’s low-carbon fuel standard (LCFS), the backbone of a carbon intensity-based cap-and-trade system, has been playing a substantial role in incentivising biofuels production in and near the state. The LCFS aims to achieve a 20% reduction in the carbon intensity of California’s transportation fuel pool by 2030, with compliance standards set for each year. Carbon intensity (CIs) based on composite of gasoline and diesel fuels under the LCFS Source: California Air Resources Board   Since last year, LCFS credits (supply) generated from low-carbon fuels have increasingly outgrown LCFS deficits (demand), which has led to a 23% fall from the record high LCFS price of $206/metric ton to $158/metric ton in March 2022. This is mainly because the demand for gasoline and LCFS credits has not recovered from the pandemic, whereas the production of low-carbon fuels keeps growing steadily. The biggest driver of recent LCFS credit generation is renewable diesel, followed by electricity, which has been boosted by the continuing adoption of electric vehicles. LCFS total credits and deficits for all fuels reported Note: Cumulative bank refers to total number of banked credits Source: California Air Resources Board LCFS credit generation by fuel type *Hydrogen, Renewable Naphtha, Propane, Innovative Crude & Low Complexity/Low Energy Use Refining, etc.. Note: Project based credits are issued post verification and may not be included. Source: California Air Resources Board   It remains to be seen whether this deficit trend will be temporary or permanent; we also don't know how the expected implementation of similar programmes in adjacent jurisdictions will alter the LCFS system in California. In addition to the Clean Fuels Program in Oregon which is already in place, Washington State is expecting to implement its Clean Fuel Standard in 2023 and a federal fuel standard is set to come into force in Canada in the same year.  Other US states including New Mexico, Colorado, Minnesota, and states in the Northeast and Midwest are also in various stages of developing LCFS-style systems. These programmes will provide effective additions to the federal RFS programme in driving biofuels demand. Renewable diesel takes the lead in advanced biofuel deployment The production of biomass-based diesel – namely biodiesel and renewable diesel – has taken off in the US and is set to increase further. Of the two, biodiesel dominates the bio-based diesel market, but renewable diesel is seeing faster growth. This is partly because renewable diesel is compatible with existing distribution infrastructure and engines. With the same composition as fossil diesel, renewable diesel does not have a blending limit, whereas biodiesel typically accounts for up to 20% of fossil diesel in the US, because of insufficient regulatory incentives despite higher blends being available. Read next: Altcoins: What Is Litecoin (LTC)? A Deeper Look Into The Litecoin Platform| FXMAG.COM Renewable diesel’s ability to lower carbon intensity, particularly in trucking and aviation, has prompted several US refineries to invest in greenfield projects and/or convert traditional plants to process renewable diesel. Refineries set to complete conversion between 2022-23 include Marathon Petroleum’s Martinez refinery in California, CVR Energy’s Wynnewood refinery in Oklahoma, and HollyFrontier’s Cheyenne plant in Wyoming, etc. Planned renewable diesel capacity in the US is expected to reach 6bn gallons by 2025, up from less than 2.4bn gallons estimated for 2021. One major challenge to the growth of both biodiesel and renewable diesel is feedstock availability and costs. It is estimated by Bloomberg New Energy Finance (BNEF) that the demand for bio-based diesel feedstock will more than double from 2020 to 38.3bn pounds (17.4bn kilograms) in 2022, and soar to over 64bn pounds (19bn kilograms) in 2024. Prices for bio-based diesel feedstock have also climbed since 2020, causing some companies to postpone their renewable diesel projects. US estimated bio-based diesel feedstock use and implied future demand from capacity additions Source: Bloomberg New Energy Finance   In the long term, despite the growth momentum for bio-based diesel, the Energy Information Administration forecasts that bio-based diesel will remain a small part of the diesel market, accounting for less than 8% of US diesel production in 2050. This is partially due to competition from food consumption and electric vehicles (EVs), which will be discussed in a later section. Nevertheless, that 8% still translates into roughly 0.23mn bpd of production, a considerable absolute amount. RNG to see demand build up in the power sector Another promising advanced biofuel which is set for growth is renewable natural gas (RNG), or biogas that has been upgraded to replace fossil gas. RNG production capacity in the US increased at a compound annual rate of 35% between 2017 and 2021, thanks to $1.7bn of investment from oil and gas companies. Looking forward, RNG demand is projected to jump from 0.2 trillion cubic feet (Tcf) today to between 2.3 and 3.2 Tcf in 2040, according to BNEF. The fuel is forecast to be capable of displacing 6-12% of the US natural gas demand. RNG can be produced from various sources. Landfill has the strongest supply and cost advantage – most landfill RNG projects can be economical at $10/MMBtu or lower; landfill accounts for more than 60% of the RNG credits generated under the RFS and more than 90% of the RNG credits under the LCFS. In contrast, RNG produced from manure is more costly – at $30/MMBtu or higher – but remains attractive under the LCFS as it offers one of the lowest carbon intensities of less than -300 gCO2e/MJ. Importantly, although RNG demand from transportation dominates now, the majority of demand for RNG by 2040 will come from the power sector. In California, where the LCFS is advanced, RNG already contributes to 98% of natural gas used for transportation, mostly in municipal buses and trucking. The can add risks to future project returns if the produced RNG cannot be contracted in time. There is a potential in the long term for more RNG to be used in shipping, though it will encounter competition from other biofuels or synthetic fuels. RNG producers are starting to pivot their focus away from the transport sector. Archaea Energy is aiming to sell its RNG to natural gas utilities through long-term offtake agreements. The company plans to allocate 65% of its RNG production to non-transport applications. Admittedly, electricity generation from RNG today is more expensive than from conventional gas and the contribution of RNG to the grid is limited. Yet demand is likely to be sustained in the future, driven by climate commitments from commercial/residential customers and precuring requirements set for utilities. California now mandates utility company SoCalGas to increase RNG’s share of gas deliveries from 4% in 2021 to 12.5% by 2030. ­Oregon passed legislation to allow RNG to account for 30% of a utility’s purchases by 2045; the state is also letting utilities recover prudently incurred costs to meet the target. A handful of other states are considering similar policies. Outlook for US renewable natural gas demand Source: Bloomberg New Energy Finance   The favourable outlook for RNG/biogas can also augment the production of bio-fertilisers, which can be generated from the waste from biogas production. This will help meet the rising demand for bio-fertilisers in the US, spurred by growing preferences for organic food, as well as concerns over the likely harmful effects of chemical fertilisers on both health and the environment. US to pioneer in BECCS development The US is poised to lead the deployment of bioenergy with carbon capture and storage (BECCS) technology, a high-potential application of bioenergy. BECCS involves converting biomass to heat, electricity, or liquid fuels while capturing and storing the CO2 that is emitted during the conversion process. Since the growing of plant biomass absorbs CO2, BECCS can achieve net negative emissions when the emitted CO2 from bioenergy generation is permanently stored. Indeed, the UN's Intergovernmental Panel on Climate Change highlighted in its most recent report the need for carbon removal technologies for the world to reach net-zero emissions. The US is already a front-runner in CCS – it is home to 36 of the 71 new CCS projects added worldwide during the first nine months of 2021. On top of this, several BECCS networks are emerging in the Midwest thanks to lower costs of bioethanol production. Summit Carbon Solutions, for instance, is progressing with a project to link more than 30 ethanol biorefineries across Iowa, Minnesota, Nebraska, North Dakota, and South Dakota. With a total potential capturing capacity of 8 Mtpa, the network would be the largest of its kind globally. Valero Energy and BlackRock are partnering with Navigator Energy Services to develop an industrial-scale CCS network that would connect biorefineries and other industrial plants across five Midwest states. The challenges facing bioenergy The use of bioenergy is not without controversy. The main challenge is the negative impact of bioenergy generation from excessive land use. From an environmental point of view, growing feedstocks such as soybeans and corn can lead to more deforestation, degradation of soil, and harmful changes to ecosystems. From a social point of view, despite yield growth potentials, the more feedstock is used for biofuels, the less there will be for food production. This has been exacerbated by the Russia-Ukraine war, which has disrupted the global food supply chain as both countries are major exporters of several leading crops. Hence, concerns have arisen in the US that the increasing use of crops for biofuels will limit food supply and add pressure to food prices. To tackle the problem in the long term, there needs to be a switch away from conventional, food-based biofuel feedstocks to advanced biofuels which use non-food crops, municipal solid waste, and agricultural and forest residues. The IEA forests that 60% of the global bioenergy supply in 2050 will need to come from sources that do not need dedicated land use to achieve net-zero emissions. Accelerating advanced biofuel production requires stronger incentives compared to those for conventional biofuels. In the US, the federal Biomass Crop Assistance Program provides financial assistance to producers of advanced biofuel feedstock. The Biden administration has also included in its FY23 budget $245m to accelerate the R&D of next-generation biofuel technologies. Another challenge is that the traditional use of bioenergy (burning wood or traditional charcoal) remains controversial as it can cause more emissions and deforestation. The EU still categorises bioenergy as green in its Taxonomy, but has strengthened the criteria to exclude certain forms of wooden biomass from qualifying as “renewable”. In the US, the EPA sees bioenergy as a cleaner fuel, while also recognising its negative potential if not managed well. Moreover, bioenergy-based solutions face scepticism that the supply chain – which involves biomass growing, transportation, storage, and processing – can emit more CO2 and harm the environment. That is why more precise monitoring and reporting of life-cycle emissions along a bioenergy technology’s supply chain needs to be in place. Finally, competing low-carbon technologies can complicate the growth of bioenergy. In the transport sector, the massive adoption of EVs will be a major threat to the demand for biofuels. As mentioned above, RNG developers are expanding their business footprint to the power sector, though these developers will likely encounter competition from renewable energy. Nonetheless, biofuels are still likely to maintain their niche in transportation, especially in heavy-duty trucks and aeroplanes, as it will be challenging for EVs to provide long-haul services without a step-change in technology. Global bioenergy supply in the Net-Zero by 2050 Scenario, 2010-50 Source: International Energy Agency Read this article on THINK TagsUnited States Renewables Net zero Energy Transition Biofuels Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Follow FXMAG.COM on Google News

Today we’re looking at AVAXUSD as price remains in a solid-looking downtrend. We are watching a consolidation pattern that could be a descending triangle or a wedge type pattern in the existing trend. The key for us is at 28 support. If sellers break this level, the continuation could be on, and we would like to see a new LL set to show normal pattern of trend. If buyers can continue to hold 28 and above, this could be a worry for short term seller momentum that was set with a break of yesterday’s low this morning. This pattern is also seen on SOLUSD, and other coins in the top 10 remain range-bound. It’s really up to sellers now if they want to take this trend lower. The Daily AVAX chart is below and for more information on this idea please feel free to check out our market the video is listed below the chart. AVAXUSD Market Update Video powered by TradingView The post Crypto Update: AVAXUSD, are sellers planning a new bear raid? appeared first on Eightcap.

Today’s update focuses on BTCUSD as price remains fixed in a pennant consolidation pattern. With the Medium-term trend and possibly the longer-term trend lower, you could lean toward this being a potential continuation pattern, but as noted in the video, we defiantly think it’s essential to wait for a clear breakout before thinking about picking a direction. In today’s European session, selling pressure has ramped up, and we see some solid selling across crypto boards. BTC is now 1.76% lower after trading in the positive earlier in the day. Short-term support is seen at 29,000. If you’re looking for a lower breakout and continuation, a break of this level is a step in the right direction. ETHUSD also had the same pattern, but sellers look to be on the way to confirming a new lower breakout. We will keep an eye on the crypto boards today to see if these moves continue. (Please check our market update video power by TradingView below the BTCUSD chart) BTCUSD D1 Chart BTCUSD Video Update The post BTCUSD are we close to seeing some direction? appeared first on Eightcap.

Hello to our readers,  we hope you are all having a great day. Today we have been looking at the US30, and we can’t help but noints the solid-looking trend break on the current upswing. This has us thinking, could we see a 123 pattern that sets up a 2nd upswing and confirms the current leg higher as a new short-medium-term uptrend? We have the V shape pattern that’s nice to see in reversals. Next, if we see further selling develop today and tomorrow, we will start looking for a new move from buyers that breaks the last high, confirms the 123 pattern (HL), and suggests that this upswing could be a new trend. Until we see further selling, we will continue to wait. But if the above does happen, we will be looking for breaks of the high to possibly set up new longs. If we see a new high today’ we will be waiting, and if selling breaks below 31,700, we will also be waiting. Please take a look at the daily chart and today’s US30 video update below the chart (powered by TradingView) US30 Daily Chart US30 Update Video The post CFD News: 123 Pattern building on the US30? appeared first on Eightcap.

Thanks for tuning in, readers. Today we’re looking at USOUSD oil and wondering if yesterday’s price rejection could lead to a new leg higher from buyers. So far this week, we have seen mixed trade with buyers coming close to breaking last week’s high before sellers took hold and set up a two-day retracement. It would have been three, but buyers had other ideas yesterday, stopping sellers once they tested 112.75. Buyers quickly took price back up above 117 and posted a higher close for the session. Today so far price has been on the quieter side. If we can see a new move above yesterday’s high, we will be looking for a new up leg, but if sellers can close below 115.14 this could be a warning that the current retracement could have further to go. If we do see a new leg higher would look for price to possibly get back into the 120/21 area if buyers can maintain momentum. Happy Friday, all. We hope everyone has a lovely weekend and good trading. USOUSD D1 Chart (please see below for our analysis video powered by TradingView) USOUSD Analysis Video The post USOUSD OIL, Yesterday’s buyer fightback to push a new leg higher? appeared first on Eightcap.

Happy Tuesday, thanks for stopping by and checking out our latest analysis and analysis video. Today our focus is on Bitcoin’s 4H chart. Looking at the 4H, we can see that Bitcoin has made the first leg higher, breaking the last lower fast trend and moving above the moving averages. Since that break higher, we have seen the market move into consolidation. The pattern we can see on the 4H is an ascending triangle pattern. These patterns are generally seen as continuation patterns when they are sitting in up legs or up trends. From here, it is all up to buyers. Can they confirm the pattern with a new break higher? If we do see a confirmed breakout, we will be looking to see if buyers can test 22,700 resistance. If buyer momentum really carries forward past 22,700, we would then be looking at 28,500 – 31,000 to come in as resistance possibly. But before we get too far ahead of ourselves, let’s see if bitcoin buyers can first confirm the pattern and get back up to 22,700! If sellers set a new close below 20,100, we will start doubting buyer strength. Bitcoin 4H chart Bitcoin 4H analysis (powered by TradingView)  The post Bitcoin trading in a possible continuation pattern? appeared first on Eightcap.

The Swing Overview - Week 27 2022 The fall in US bond yields, the rise in the US dollar and the sharp weakening in the euro, which is heading towards parity with the dollar. This is how the last week, in which stock indices cautiously strengthened and made a correction in the downward trend, could be characterised. It is worth noting that Germany has a negative trade balance for the first time since May 1991. Is the country losing its reputation as an economic powerhouse of Europe? Macroeconomic data The ISM in manufacturing, which shows purchasing managers' expectations of economic developments in the short term, came in at 53.0 for June.  While a value above 50 still indicates an expected expansion in the sector, the trend since the beginning of the year has been declining, indicating worsening of optimism.   Unemployment claims reached 231,000 last week. This is still a level that is fairly normal. However, we note that this is the 6th week in a row that the number of claims has been rising. The crucial news on the labour market will then be shown in Friday's NFP data.   On Wednesday, the minutes of the last FOMC meeting were presented, which confirmed that another 50-75 point rate hike is likely in July. The minutes also stated that the Fed could tighten further its hawkish policy if inflationary pressures persist. The Fed's target is to push inflation down to around 2%.   The Fed's hawkish tone has led to a strengthening of the dollar, which has reached a level over 107, its highest level since October 2002. Following the presentation of the FOMC minutes, the US Treasury yields started to rise again. Figure 1: The US 10-year bond yields and the USD index on the daily chart   The SP 500 Index The temporary decline in US Treasury yields was the reason for the correction in the bearish trend in equity indices. However, the bear market still continues to be supported fundamentally by fears of an impending recession.  Figure 2: The SP 500 on H4 and D1 chart   The nearest resistance according to the H4 chart is in the 3,930 - 3,950 range. A support is at 3,740 - 3,750 and then 3,640 - 3,670.    German DAX index The German manufacturing PMI for June came in at 52.0 (previous month 54.8). The downward trend shows a deterioration in optimism.    It is worth noting that Germany's trade balance is negative for the first time since May 1991, i.e. imports are higher than exports. The current trade balance is - EUR 1 billion. The market was expecting a surplus of 2.7 billion. Rising prices of imported energy and a reduction in exports to Russia have contributed to the negative balance. Figure 3: German DAX index on H4 and daily chart The DAX is in a downtrend. On the H4 chart, it has reached the moving average EMA 50. The resistance is in the range of 12,900 - 12,960. Strong support on the daily chart is 12,443 - 12,500, which was tested again last week.    Euro is near parity with the USD Even high inflation, which is already at 8.6%, has not stopped the euro from falling. It seems that parity with the dollar could be reached very soon. The negative trade balance in Germany has contributed very significantly to the euro's decline.  Figure 4: EUR/USD on H4 and daily chart The nearest resistance according to the H4 chart is at 1.020 - 1.021. Support according to the daily chart would be only at parity with the dollar at 1.00. Reaching this value would represent a unique situation that has not occurred on the EUR/USD pair since 2002.   Australia raised interest rates The Reserve Bank of Australia raised the interest rate by 0.50% as expected. The current interest rate now stands at 1.35%. According to the central bank, the Australian economy has been solid so far thanks to commodity exports, the prices of which have been rising. Unemployment is 3.9%, the lowest level in 50 years.   One uncertainty is the behaviour of consumers, who are cutting back on spending in times of high inflation. A significant risk is global development, which is influenced by the war in Ukraine and its impact on energy and agricultural commodity prices.   Figure 5: The AUD/USD on H4 and daily chart The AUD/USD is in a downtrend and even the rate hike did not help the Australian dollar to strengthen. However, there has been some correction in the downtrend. The resistance according to the H4 chart is 0.6880 - 0.6900. The support is at 0.6760 - 0.6770.  

Hello, and thanks for stopping by. Our US30 market update video is just below the US30 d1 chart. In today’s report, we break down the US30 on an overall longer-term view and the current short-term view. Overall the trend remains down, and we are watching to see if the short term can complete the current pattern of trend and maintain a normal trend with a new LL. Sellers are in control on the short term but they have a bit to do to confirm that. On the short-term, sellers continue to hold sway with a break of yesterday’s low in today’s out-of-hours session. We’re seeing two keys moving forward. 1, sellers break 30,500 demand and set off back to 29,683 low. If demand holds and we see a new move above 31,500 resistance, we will jump off the seller train and look at the possibility that the uptrend from the 20th of June has further to run. Good trading and we hope you enjoy your day. US30 D1 Chart US30 Update Video (powered by TradingView) The post US30 pressure continues. Could the short-term run be over? appeared first on Eightcap.

Welcome to Thursday’s update. So far today, we have been watching the EURUSD as buyers have started to fight back after some demand crept in yesterday. We are watching the current price to see if a new continuation can confirm on the 4H chart as price continues to sit on its new fast uptrend. We can see the latest trend forming after buyer’s first leg higher broke the last downtrend, but we still need to see price confirm with a new push higher from this point. We would like to see a test of 1.0250 resistance, and a break of that level could confirm that we have a new trend underway. The ECB meets later today, and rates are expected to increase by 25 basis points. This is a special occasion as rates have not moved in the EU for some time now. Attention will always be on the statement and if there are hints of more to come. Will this give the EUR a short-term boost? We want to see price continue to trade firm until the decision. If we see a break of the current trend or a move below 1.0155 this could be a bad sign for buyers on the short term. Ensure you tune in for today’s ECB meeting at 8:15 am EST. Enjoy the rest of you your day and good trading. 4H EURUSD Chart Today’s EURUSD update video (powered by trading view) The post EURUSD, buyers starting to set up a new continuation? appeared first on Eightcap.

  While weaker oil prices in recent months have provided some relief to consumers, the same cannot be said for European natural gas. Gas prices have seen significant strength as fears over how Russian gas flows evolve only grow as we move closer towards heating season In this article Oil market more comfortable for now No respite for the natural gas market A perfect storm for power markets Oil market more comfortable for now Oil demand has disappointed so far this year. Higher prices helped lead to some demand destruction, evident when looking at US implied gasoline demand over the summer. However, the big drag on demand this year is China and its insistence on following its zero-Covid policy. There had been expectations that oil demand would bounce back following the easing of lockdowns in Shanghai and Beijing in towards the second half of the year. However, clearly, we continue to see restrictions across parts of China weighing on demand. Global oil demand is expected to grow by around 2MMbbls/day this year, which is quite a bit lower than the more than 3MMbbls/d growth expected at the start of 2022. Russian oil supply has held up better than expected and Russian oil exports are down only marginally from pre-war levels. This is despite a number of countries imposing sanctions on the country. Several buyers have taken advantage of the large discounts available for Russian oil. This is particularly the case for China and India, which have both increased their Russian purchases significantly. In addition, the EU ban on seaborne Russian oil and refined products only comes into full effect early next year, so we have not seen a significant drop in flows just yet, but this will obviously happen once the ban is in place. As a result of slower than expected demand growth and sticky Russian oil output, we expect that the oil market will be in surplus for the rest of this year and into early 2023.  Therefore, we have revised lower our oil forecast. We expect that ICE Brent will average US$97/bbl in 4Q22 vs. a previous forecast of US$125/bbl. And for 2023, we lowered our Brent forecast from US$99/bbl to US$97/bbl. Upside risks to this view are if Russian oil flows to the likes of China and India slow from current levels, US supply growth falls short of expectations and demand surprises to the upside - not impossible given that high natural gas prices could lead to some gas-to-oil switching. The key downside risk for the market is a positive outcome in Iranian nuclear negotiations. Discussions appear to be progressing well and a deal could see in the region of 1.3MMbbls/d of supply added to the market over the course of next year. Although, recent comments from the Saudi Energy minister about the possible need to reduce output, suggest that the floor for the market is not too much further below the recent lows. Russian oil exports holding up better than expected Russian oil exports (MMbbls/d) Source: IEA, ING Research No respite for the natural gas market The European natural gas market has seen significant strength over August, up more than 70% at one stage over the course of the month and hitting record levels (on a settlement basis). Concerns over Russian gas flows have only intensified after Gazprom made a surprise announcement that flows along Nord Stream will be stopped for three days for maintenance. The pipeline is only operating at about 20% of capacity right now and there are fears over whether flows will actually restart. Strong LNG inflows into Europe continue to ensure that storage fills up, despite lower Russian flows. European gas prices trade at a significant premium to Asian LNG, whilst the same trend is seen along the forward curve, which suggests strong LNG imports should continue through the winter. European storage is still filling up at a good pace and the EU has already hit its 80% storage capacity target ahead of the actual date of 1 November. However, if Russia were to end its gas flows to the EU completely, this would still leave the market extremely tight as we approach winter. We can expect some countries to continue increasing storage levels by as much as they can in the coming months despite that 80% target being reached.  Higher prices are already leading to a large amount of demand destruction. EU gas consumption over the first half of the year is down around 6% from the 5-year average for the same period. And this will fall further. In recent weeks, several metal smelters and fertilizer producers have announced further production cuts. If these higher prices are sustained, it is clear that we will see even further demand destruction, particularly as power/gas hedges expire for some industrials, leaving them exposed to higher spot prices. So, the strength of the market comes with increasing economic costs. The most recent strength in the gas market has not only been driven by Gazprom’s announcement regarding Nord Stream. The power market in Europe has also dragged natural gas prices higher. This is evident when looking at clean spark spreads, which have strengthened. Despite rallying gas prices, it is still profitable to burn gas as power prices are also sky high. This will not help lower gas demand from the power sector. It is clear that the gas market will remain extremely volatile in the coming months; not only is there uncertainty over Russian gas flows, but also around the demand outlook (in the absence of mandatory demand cuts). Low liquidity caused by volatility in markets has led to only further volatility. This is unlikely to change anytime soon and makes it near impossible to come up with sensible price forecasts. However, we believe that European gas prices will need to continue to trade at elevated levels so that the market can balance itself through the winter, by ensuring an adequate amount of demand destruction from industrials and households. EU hits 80% storage target early as demand comes under growing pressure Source: GIE, Eurostat, ING Research A perfect storm for power markets If a gas crisis were not enough for Europe, the region is also dealing with a broader power crisis. Yes, this is partly a result of what is going on in the gas market but there are a number of other factors which have helped to see power prices skyrocket. France has experienced prolonged periods of nuclear capacity outages. This is partly due to regular maintenance and refuelling, but reactors have also been taken offline due to more serious weld issues and signs of corrosion. Nuclear output now stands at around 25 GW as a result, well below levels of more than 40 GW seen in August last year. In addition, nuclear output is not helped by high water temperatures limiting the amount of cooling water that can be returned to waterways. Heat restrictions are expected to continue to depress nuclear output as river temperatures are forecast to remain above seasonal norms. France is now facing the highest power prices in Europe, while it used to have the lowest when nuclear power operated at full capacity. The distress in the French power market is also impacting Germany due to lower exports of electricity to the industry-rich southern part of the country. Forward prices for the winter recently reached €1,000/MWh as a result, but have come down strongly in the past days after the President of the European Commission, Ursula von der Leyen informed the market that the EC is working on “an emergency intervention and a structural reform of the electricity market”. Although details are not yet known, the announcement had a sizeable impact with winter prices now trading around €600/MWh. Europe’s hydropower market is also negatively impacted by severe droughts that limit replenishment and increase the evaporation of water reservoirs. Hydro stocks in France, Spain, Italy and Portugal are all below the 5-year average. Hydro stocks in the Nordics are still at decent levels historically. But countries are taking steps to preserve hydro reservoirs ahead of winter as fears of a long dry period mount. Norway for example is taking steps to limit electricity exports to the northern power markets on the European continent. And operators of hydropower plants have been told to preserve reservoir stocks. Finally, Rhine water levels are now below the record lows last seen in 2018. Water levels also came down much earlier in the year compared to 2018. As a result, some river-based coal plants are facing supply issues and cannot generate as they would like. All in all, record low nuclear power production, hydro stocks and Rhine water levels aggravate an already tight power market with power prices settling at all-time highs. This further fuels the gas market, as power plants continue to be profitable. Power prices have reached new highs this summer and Norway is now following the rest of Europe Base load power price in euro per MWh on a weekly basis Source: Refinitiv   Russia-Ukraine Power Crisis Oil Natural gas Electricity   Source: https://think.ing.com/articles/hold-for-monthly-energy-worries-intensify/?utm_campaign=September-01_hold-for-monthly-energy-worries-intensify&utm_medium=email&utm_source=emailing_article&M_BT=1124162492   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

In this article our power market experts Gerben Hieminga and Nadège Tillier discuss the energy price cap recently proposed by the European Commission and detail the 10 things they will be monitoring closely in the run-up to, and after, the introduction of the cap State of the Union introduces a price cap On 14 September 2022, Ursula von der Leyen, president of the European Commission (EC), announced in her State of the Union speech a set of proposals to mitigate the impact of high energy prices. These are:   Joint gas storage: On average natural gas storage capacity across Europe stands at 84%, with the goal to reach maximum capacity in the coming months. Hydrogen: €3bn funds to facilitate hydrogen development in order to switch from a niche market to a mass market product. Energy savings: Member states are asked to reduce gas and electricity consumption by 10% with an additional 5% during peak hours. Taxes on fossil fuel companies: The EU will apply additional taxes to fossil fuel suppliers given that the current crisis partly fuels higher profits from surging oil and gas prices. Price cap on electricity: The EU proposes a €180/MWh day-ahead wholesale price cap for low-cost technologies. The scheme is expected to bring some €140bn in excess revenues that would be redistributed to the final energy consumers.   This article is about the price cap on electricity. Von der Leyen previously said: “Skyrocketing electricity prices are now exposing the limitations of our current electricity market design… We need a new market model for electricity that really functions and brings us back into balance”. Which price cap to implement? It is not clear what a new market design would look like, but many politicians have called for price caps, albeit in many different forms. Some have argued for a price cap on Russian gas, which is essentially a trade policy that would likely result in a full stop to gas deliveries by Russia to Europe. Others have called for a price cap on all the gas that Europe imports, but that would limit the ability to import liquefied natural gas (LNG) and threaten our energy security as a result. Yet others have called for a price cap on retail energy bills, like the ones that exist in the UK, which could be a game-changer for utilities and might trigger support schemes in order to keep delivering energy to households and businesses. All these price caps, for good reason, did not make it to the final EC proposal. The proposal introduces a price cap on power generated by non-fossil fuels, in particular from solar panels, wind turbines, hydropower and nuclear power plants. Capping the price of low-cost technologies The proposal splits the merit order into two; one part for power-generating technologies with low marginal costs (wind, solar, nuclear power, hydropower and lignite power plants) and a part for technologies with high costs (plants that run on brown coal, oil and gas). Once the wind is blowing, the sun is shining, or a nuclear or hydro plant is running, it costs very little to produce an extra MWh of electricity. But coal and gas-fired power plants and oil aggregates need to buy expensive fuel. The merit order ensures that the cheapest technologies enter the market first but implies that the price is set by the most expensive technology to meet power demand. In the current market, those are the gas-fired power plants as gas prices have increased tenfold. What follows is an extremely high power price for all the technologies in the merit order. A price that meets a lot of resistance; why should technologies get a power price of hundreds of euros per megawatt-hour (MWh), while they were already profitable at power prices between 50-100/MWh? The working of the merit order: the power plant that meets demand sets the power price for all the technologies Source: ING Research   The best solution to solve this problem and bring down power prices is to reduce power demand to the extent that gas-fired power plants are no longer needed to meet demand. Unfortunately, this is not realistic in the short term as, on average, 23% of all the power in the European Union is generated with gas-fired power plants. And the shares vary considerably across Europe. It ranges from 42% to up to 65% in the Netherlands in the past 10 years, while it ranges from 2% to just 8% in France. Given that European nuclear output volumes are expected to remain far below average for some more months and that hydropower reserves remain depressed, gas power plants are expected to continue to set the average market price. Setting the cap at €180/MWh A second-best solution is capping the power price for low-cost technologies (solar, wind, nuclear and hydropower). The EU proposes a €180/MWh day-ahead wholesale price cap for these technologies. The market still clears at the high power price set by the gas plants, but utilities need to pay back the difference between the market price and the price cap to a fund. If the market clears at €400/MWh, utilities have to pay back €220/MWh, which is called the inframarginal price. So, in essence, this proposal is not a price cap for end-users, but a revenue cap for utilities with low marginal cost technologies (or inframarginal technologies) like wind, solar, hydro and nuclear plants.  The justification for this market intervention is that operators did not anticipate these revenues in their investment decisions and that they were profitable at power prices between €50-100/MWh. Governments also seek sources of funding to alleviate the burden of high energy prices for consumers. At a European level, this scheme is expected to generate up to €140bn that will be used to compensate households and businesses. Note that Germany has proposed a technology-specific price cap instead of a general price cap of €180/MWh. It is still unclear if this will be adapted on a European level or if countries can choose their own method. The current EC proposal sets a maximum cap of €180/MWh, so technology-specific caps seem to be allowed if a revenue cap does not exceed €180/MWh. The cap of €180/MWh is likely to fit most low-cost technologies, but not all projects Unsubsidised life-cycle-costs of electric for solar, wind, nuclear and hydro power projects: Source: ING Research based on Bloomberg New Energy Finance (BNEF) and Trinomics   In the long run, the price from the merit order needs to be high enough to cover the full costs of power-generating assets, not only the marginal costs. While the marginal costs cover the fuel costs, they don’t capture capital costs and operational costs. The life-cycle cost of electricity (LCOE, or Levelised Cost of Electricity) is a measure of the average total electricity costs of an asset over its full life cycle. The proposed cap of €180/MWh is sufficient to cover most solar and wind projects without subsidies and even for some projects with battery storage attached. But the cap does not cover the full and unsubsidised costs of new nuclear and hydro projects. These tend to be very capital intensive and have a history of large budget overruns. This could pose a problem for the ‘nuclear renaissance’ that French President Emmanuel Macron recently called for.  The proposed cap only covers a small portion of the large and complex power market A single or one power market does not exist. In fact, power markets are multi-headed-beasts that consist of many segments which all serve a purpose to keep the physical complex power grids working. European power grids are among the most reliable grids in the world and power users, small to large, take it for granted that power is always available. In liberalised power markets this can only be done by a complex system of power markets, where vast amounts of power are traded within seconds and years in advance. The proposed price cap only applies to the day-ahead market The power market is in fact a collection of many complex sub-markets: Source: ING Research   The proposed price cap only applies to the day-ahead market in which approximately 20-30% of the power is traded. So, most of the power is not subject to the price cap. European power generators, for example, tend to pre-sell about 80% of their future power production in one-year ahead future contracts or through Power Purchase Agreements. Hence, most of their revenues won’t be impacted by the cap. Furthermore, supply is currently hedged at prices well below the cap (in the range of €30-85/MWh). Utilities tend to pre-sell most of their power in future markets at prices lower than the cap Share of power generation sold upfront through exchanges or purchasing power agreements and the average power price: Source: ING Research based on annual reports Potential drawbacks: 10 things we will be looking out for Market intervention is bound to run into drawbacks, especially in markets as vast and complex as power markets. The wholesale market cap in the Spanish power market provides a point in case. Due to power leakages and increased power generation from gas-fired power plants, gas use in the months following the introduction of the cap went up not down. These are the 10 things we will monitor closely in the run-up to, and after, the introduction of the proposed price cap. 1   Power leakage A price cap in the day-ahead market might trigger generators of renewable assets to sell their power abroad, for example in non-EU markets like Britain and Norway. The power market in continental northwest Europe is well connected with these markets through the Britnet cable and North Sea Link. There were already plans for a EuroAfrica interconnector that connects Greece and Cyprus with Africa in a couple of years’ time. And this energy crisis is likely to speed up investment in new interconnectors. 2   Power demand The market reform aims to redistribute revenues from high power prices, but the scheme could trigger an increase in power demand. For example, bakeries are switching from gas-fired ovens to ovens that run on power. And in some countries, there is a run on electric heaters as households try to save on gas. The size of this feedback loop is hard to anticipate as it will depend on future gas and power prices. In any case, it remains to be seen to what extent the goal of lower power prices can be combined with the goal of power savings of 10% in overall demand and 5% in peak demand. Overall, savings tend to require high prices, while lower prices tend to increase demand. 3   Gas use in power sector Northwestern European countries might need to generate more electricity with gas-fired power plants in case of sizable power increases and/or leakages. Hence gas use could go up instead, while this market design is intended to save gas and reduce the impact of high gas prices on the merit order. 4   Interference with longer-term power markets Generators might shift from selling on the spot market (day-ahead market) to longer-term markets. For example, by selling power above the cap of €180/MWh for months ahead through in the futures market or through a purchasing power agreement (PPA). Liquidity in the important day-ahead market needs to be monitored closely in order to keep this important part of the power market functioning. 5   Interference with shorter-term power markets (flex-market) European power grids increasingly face congestion problems as the share of wind and solar power increases. Batteries can be a solution, both large-scale batteries and homesize batteries. The big question is to what extent the €180/MWh revenue cap in the day-ahead market is high enough to spur growth in battery capacity, for example by combining solar panels and wind turbines with batteries (so-called co-location business models). 6   Profitability of energy providers In an earlier report published in June 2022, we concluded that a price cap can be a game changer for European utilities and their profitability. As a result, utilities have been outspoken about their scepticism regarding price caps. Price caps are intended to minimise the windfall profits of utilities and to provide governments with a revenue source to compensate households and companies for high energy bills. But they should not reduce the profitability of utilities as that will limit the much-needed and increasing amount of investments in the energy transition. 7   Implementation risk The aim of this market intervention in the merit order of the day-ahead market is to provide short term relief in European power markets. Will it be implemented quickly enough to provide relief this winter? History is not supportive as previous energy market reforms took years to be implemented. In that respect, a timeline of a couple of months seems ambitious but would mean that it is implemented at the end or after the winter period when energy prices are likely to be high. On the other hand, history also shows that policy interventions can be implemented quite fast in a crisis. 8   Regulatory risk As more renewables enter the power system, gas and coal-fired power plants become increasingly important to act as a backup. In Europe’s predominant energy-only-markets generators with gas and coal-fired power plants are usually not paid to stand idle for the short term but important moments that the system needs them. Hence, the business case of investing in backup power is built on high and flexible prices, albeit for short periods of time. This form of policy intervention introduces a regulatory risk for the business case: a risk of governments intervening when prices are high. This might make investors wary to provide finance for much-needed backup capacity. 9   Legal risk Will this policy intervention trigger lawsuits and hold up in court? It is not uncommon that major changes in market design are taken to court or that parties will call for ‘force majeure’ under existing contracts. This is not something we can assess as economists, but it is likely that market players will reassess their legal risk premiums in the business case for renewables. 10   Cost of capital and investor return If regulatory and legal risks are deemed sizable, investors will require a higher return on their investment for low carbon and/or fossil fuel power generation. This might impact the high ambitions of governments to solidify, extend and transform European power systems and grids. This energy crisis calls for an even faster speed of the energy transition. Utilities and investors are needed to invest billions of euros. They will only do so as long as the risk-return profile is acceptable.   All in all, price caps sound appealing but in practice they are hard to implement and not without potential drawbacks. Since the State of the Union speech, we know the price cap is aimed at a specific segment of the power market, but many details have to be worked out. EU energy ministers will meet again on 30 September, so more details are expected in the coming weeks. Read this article on THINK TagsRussia-Ukraine Gas Energy Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

In 2022 Europe not only faced a major gas crisis, it also had to cope with a broader power crisis. Yes, this was partly a result of what was going on in the gas market, but there are a number of other factors which have helped to see power prices skyrocket. High power prices across Europe Lower nuclear capacity First, France experienced prolonged periods of nuclear capacity outages. This is partly due to regular maintenance and refuelling, but rea ctors are also taken offline due to more serious weld issues and signs of corrosion. Nuclear summer output in 2022 stood at around 25 GW, well below the levels above 40 GW seen in the summer of 2021. Nuclear output was also down because of heatwaves which limited the amount of cooling water for nuclear power plants. As a result, France experienced the highest power prices in Europe, while it used to have the lowest when nuclear power operated at full capacity. The distress in the French power had knocklower exports of electricity to the industryon e ffects on Germany due to rich southern part of the country. Unusually hot weather Second, Europe’s hydropower market was also negatively impacted by severe droughts. Reservoirs started drying up. Hydro stocks i below the 5year average. n France, Spain, Italy and Portugal were all Finally, Rhine water levels recorded record lows in 2022. As a result, some river coal plants are facing supply issues and cannot generate as they would like.based We expect power markets to remain very tight in 2023, with benchmark APX prices averaging €375/MWh. The height of the summer price peak will depend on whether Europe will experience another drought and whether it can keep existing nuclear capacity running while maximising output from coal always, power markets remafired power stations. And as in local markets with large variations in the level of power prices across European bidding zones . Read the article on ING Economics   Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more