Asian Jet Fuel Demand Bounces Back

1. All Russian Grades Are Now Running Afoul of the Price Cap

- For the first time since the December 5 implementation of the Russian oil price cap, the price of Russia’s flagship Urals grade breached the $60 per barrel threshold according to Argus Media, a price reporting agency.

- As the idea of the ceiling was to stop Russian exporters from using Western ships to transport their oil, simultaneously using Western insurance, this would come as a blow to Western sanctions efforts.

- The risk of running afoul of the oil price cap might make matters complicated for the key buyers of Russian oil, India, and China, as banks would require more stringent checks that the FOB price of the cargo was indeed compliant with the G7 regulations.

- The oil price cap in its current form does not include any additional shipping costs, freight, and insurance, meaning the 60 per barrel in the port of loading is not the final price that the buyer pays.

2. The Second Wave of New US LNG Projects Won’t Be As Smooth As the First

- North American nations are set to commission 86 million tonnes worth of liquefied natural gas export terminal capacity over the next 5 years, with eight large-scale export projects currently being developed.

- Industry analysts are warning of labor shortages as project developers seek to build their own projects in the same timeframe as their immediate competitors, raising the risks of soaring worker costs.

- LNG-focused construction firms such as Bechtel expect to increase their US workforce sevenfold by mid-2020s, to some 20,000 professionals, warning of schedule risks as they’re contracted to deliver several projects simultaneously.

- Following the example of Venture Global LNG with its 18 modular liquefaction units at Calcasieu Pass, several of the newer plants will be modular as they seek to avoid inflationary pressures.

3. Asian Jet Fuel Demand Bounces Back on Strong Flight Data

- The aviation industry in Asia, arguably the most impacted by the Covid-19 pandemic and subsequent restrictions, continues to normalize further as international flights pick up steam.

- Asia-Pacific airlines carried a total of 105.4 million international passengers in 2022, up sixfold from the mere 17.2 million in 2021, and that number should increase further this year as Japan and China have fully opened.

- Consequently, rising jet fuel demand is one of the key drivers of Asian demand growth, even if still below 2019 levels – in China alone demand for kerosene will increase 50% year-on-year to 720,000 b/d.

- In January-May 2023, China’s Civil Aviation Industry reported a total transport turnover of 43 billion tonne-kilometers, up 79% year-on-year, with passenger traffic accounting for all the growth (cargo is slightly lower than in 2022).

4. China Retains Rare Earths Dominance Despite Plunging Prices

- Prices for rare earth metals in China sank to their lowest since the peak COVID period of late 2020 as demand from renewable energy firms and automobile producers dropped drastically.

- The cost of the Praseodymium Neodymium alloy fell to $73.50 per kilogram this week, down almost 70% since January 2022 when weaker supply and higher demand pushed it to a record high of $220/kg.

- Despite the weakness, China is expected to retain its dominant position in rare earths because the government offers a 13% rebate to magnet manufacturers on export

- This is confirmed by export data that show Chinese rare earth exports jumping to the highest monthly reading in the post-pandemic period in June, just as producers were allowed to increase output by 20% year-on-year.

5. AI Takes Over European Power Trading

- In the increasingly complex world of power trading, when traders need to digest hundreds of data points ranging from cloud covers to temperatures, algorithms have become the main dealmakers.

- According to data provided by Europe’s largest exchange for short-term electricity trading Epex Spot, 60% of deals concluded this year were driven by algorithms, up from 55% in 2021.

- Increasing reliance on AI might result in bigger price swings in times of high renewable generation, such as Germany’s -€500 per MWh intraday prices seen earlier this month when solar output soared.

- With AI being much quicker than human traders, too, the volume of intraday trading at Epex jumped to 7 million trades a day from less than 1 million in 2018.

6. South Africa’s Renewable Reality Fall Short of Plans

- South Africa will remain one of the least de-carbonized major economies globally as Rystad Energy predicts that renewable energy is to account for just 20% of its power mix by the end of this decade.

- Marred by power outages, power generation in the African country stands at 210 TWh and is expected to increase by 40% by 2030, but due to the slower roll-out of renewable projects Pretoria is set to underperform its own targets.

- Wind should become the key sector for South Africa’s renewable capacity build-up, with the 2010-2030 IRP setting the capacity goals at 17.7 GW, whilst solar and hydro should reach 8.3 GW and 4.6 GW, respectively.

- Coal represents more than 80% of the country’s power generation currently, despite the fact that the coal plants of state utility firm Eskom have exceeded their projected 40-year lifespan and should be switched off.

7. Touted As the Fuel of the Future, Hydrogen Confronts Problems of the Past

- The IEA’s Clean Energy Progress report reported that despite the progress made in dedicated hydrogen production in recent years, the rate of capacity additions slowed by 45% in 2022.

- New hydrogen production capacity came in at just 130 MW last year, whilst the IEA’s own Net Zero Emissions scenario says global installed capacity should rise to 550 GW by 2030, indicating the NZE scenario will most definitely be underperformed.

- If all the projects in the hydrogen pipeline were realized, global installed capacity would reach 170-365 GW by 2030, but the vast majority of projects set to be commissioned in 2024-2025 have still not secured financing.

- At the same time, the IEA reported a 25% increase in electrolyzer manufacturing capacity with annual additions of 11 GW in 2022, indicating a hydrogen ramp-up could be sped up if required.