November 18
Oil's no good, very bad week. Carbon pricing. And, Alberta's winter electricity concerns.
Happy Friday. Weekly charts are posted at aleach.ca/charts
Apologies for the late posting - I tried to ‘push to production’ on a Friday with some new features and broke the charts compiler. It’s fixed now, but with only one new chart. More to come soon.
This week, we’ve got an update on Chinese flow batteries from Yousaff Habib, and Erica Beattie’s got you covered on the differences between the IEA and OPEC world oil outlooks, with an assist from David Yager.
This week has been a down week on crude markets. When things change in the oil market, my first read is Rory Johnston’s Commodity Context which always lays out what’s new and interesting very clearly, and with great graphics. My story for the week is a pull from today’s post from Rory, along with a reminder that the front-end of the WTI forward curve is back in contango. This lets me use my favorite word in energy markets in conversation all weekend.
A few other notes for the week.
Earlier today, NERC released its Winter reliability outlook for North American electricity and, while the news was mostly good for Alberta, there were some warnings regarding the potential for extreme cold and low wind events to compromise internal reliability. The alarm bells aren’t that loud, however, since you’d need that to coincide with reduced import capacity for there to be real issues on the reliability front.
Still, we should probably expect some dicey weeks ahead for the AESO, as shown below in their most recent supply cushion outlook. Zeros are bad.
And, all of this market tightness continues to be reflected in ever-increasing AESO power price forwards. The current settlement for the December regulated rate option for Alberta is well over 20c/kWh, and January looks like it could be higher still. This market tightness is really going to hit home for many Albertans this winter.
Speaking of power markets, I did a little bit of graphing this week trying to summarize why Alberta has seen such a rapid coal-to-gas transition. The answer is in the particular design of carbon pricing as implemented in Alberta (and yes, I had a hand in designing it this way). The carbon price system gives a fixed allocation of emissions credits per unit output to all producers. This is a change from the previous system which allocated free emissions based on historic emissions intensity. The change, along with an increase in carbon pricing from $15/tonne to $50/tonne is striking.
The previous system gave natural gas a $1.08/MWh ($1.80 per tonne) advantage over coal generators, and provided a slightly larger advantage still to emissions-free generation. The new system, adopted in 2018 under Rachel Notley’s CCIR program and preserved under Jason Kenney’s TIER program, allows a $30/MWh ($50/tonne) advantage for gas over coal, and a $50/MWh ($50/tonne) advantage for emissions-free generation over coal. Is it any wonder that we’ve see a rapid decline in coal along with a rapid rise in renewables and gas since the carbon pricing system was ratcheted up, beginning to 2016?
Some might say it was by design!
Have a great weekend.
This over-reliance on Gas and of course Wind, Solar = gas, is a recipe for disaster, the very disaster they are experiencing in Europe, and very reminiscent of what happened in the early 70's in the US, when gas producers were unable to meet demand, in spite of a decade of rosy projections of the EIA and industry execs. Alberta needs to smarten up and make a hard and fast move to nuclear, they were idiotic to cancel that NPP build for Peace River. Now we know ordinary CANDUs can be turned in to thorium burning, fuel stingy, waste stingy & even nuclear waste consuming super reactors.
Thorium + HALEU = Clean Core Thorium Energy: Mark Nelson @ TEAC11:
https://www.youtube.com/watch?v=nAUDuaqpVW8