Texas Is Preparing for Electricity Demand to Surge

1. Shell Remains on the Right Track to Recovery

- UK-based energy major Shell was one of the rare oil companies to surpass analyst expectations with its Q1 reported profit of $7.7 billion, buoyed by rebounding LNG production.

- Shell’s cash flow rose by 6% from Q4 2023 to $13.3 billion, prompting the oil major to ramp up share repurchases by a further $3.5 billion over the next three months.

- Compared to somewhat disappointing Exxon and Chevron results, Shell timed its refinery maintenance for the last quarter of 2023, allowing its downstream segment to fire on all cylinders lately.

- Under new CEO Wael Sawan, Shell has weakened its 2030 carbon targets and costs across the oil and gas business, as a result of which the company’s shares have gained 14% this year.

2. One Year On, WTI Midland Becomes a Brent Mainstay

- Exactly a year ago, WTI Midland was added to the world’s most important oil benchmark, the Dated Brent, prompting a surge in physical crude transactions in both forward and dated markets.

- Since the inclusion of WTI Midland in May 2023, 214 cargoes with a total volume of 149.8 million barrels have traded in the Platts window, with 138 of them being WTI Midland, boosting liquidity in the contract.

- Being the first non-North Sea blend to be included in the Brent basket, Midland has also had a slightly depreciative effect on the benchmark, being the lowest-priced grade on 130 pricing days out of the 253 total over the past year.

- The inclusion of WTI has brought back several market players that were absent from Brent trading, including US conglomerate Koch Industries, Saudi Aramco, Reliance, and Macquarie Group.

3. Chinese Air Gets Clearer Thanks to Emission Caps

- China’s reintroduction of a pollution action plan this winter has halted a gradual decline in air quality, with Beijing’s notoriously smog-prone air recording its first year-over-year improvement in years.

- Beijing started introducing emission caps in the winter season of 2017/2018 to combat higher particle concentrations from all the extra coal burned and has been limiting polluting industries in all years apart from the winter of 2022-2023 when it was dealing with the end of COVID-19 controls.

- National levels of PM2.5 small airborne particulates dropped 3.6% in the first three months of 2024, suggesting that Beijing’s air quality can improve even with a recovering economy.

- The landlocked region of Xinjiang, home to extensive coal production and polysilicon plants, remains the dirtiest in terms of air quality whilst regions that have been switching to gas saw notable improvements.

4. Texas Needs Any Source of Electricity There Is

- The Texas power grid operator ERCOT is bracing for peak electricity generation season between May and August as power generators ramp up backup capacities of natural gas and coal to meet air conditioning spikes.

- ERCOT expects 2024 to witness another string of all-time highs with simultaneous records coming from solar power but also natural gas and coal, with total generation in January-April 2024 up 7% year-over-year.

- In contrast to rising fossil and solar generation, nuclear and hydropower plants have been underperforming so far in 2024, both down 5% compared to the same months in 2023, requiring Texas to tap into its coal-powered reserves.

- According to initial forecasts, ERCOT power generation should be 6% higher in May-August 2024 than it was during last year’s peak season, sending total power sector emissions to 75 million tons of CO₂. 

5. EU Starts Building Gas Inventories Ahead of Risky Summer

- Europe has started the injection season with the highest level of gas inventories on record, coming in 59.1% full as of April 1, with expectations of a tighter summer gas balance and warmer temperatures prompting a sooner-than-usual restocking.

- With some 4.5 Bcm more natural gas in stock than last year, Europe is well-positioned to build its gas inventories ahead of winter, barring any disruption in Norwegian pipeline supply or field maintenance.

- Demand for LNG is picking up across the Asian continent, with Thailand, Vietnam, and the Philippines struggling with protracted heatwaves, whilst Egypt has evolved into a net LNG importer, suggesting LNG imports could also come in handy whilst TTF is still only at $9-10 per mmBtu.

- The TTF natural gas futures remain in contango, although the extent of the contango is much less marked than last year as the June contract price trades at a discount of $1.7 per mmBtu to the Winter-2024 contract; last year this time around the same spread stood at a whopping $5.8/mmBtu, greatly incentivizing storage.

6. US Ban on Russian Uranium Boosts Nuclear Fuel Prices

- The US Senate has passed the Prohibiting Russian Uranium Imports Act, banning the imports of low-enriched uranium that is produced in Russia or by a Russian entity, giving a new impetus to uranium prices.

- US President Joe Biden is expected to sign the bill into law relatively soon, with PRUIA coming into effect 90 days after enactment and allowing temporary waivers until January 2028.

- Uranium prices have reacted immediately, rising to $92.5 per pound (up 5/lb from a month ago), with spot prices of UF6, the gas form of uranium needed for enrichment, surpassing the $300 per kgU mark.

- Russia has been providing some 24% of the United States’ uranium needs, therefore if the sanction waivers would not be put in place, uranium prices could surge by a further 20-25%.

7. Falling Zinc Supply Restores Faith in Base Metals

- The outlook on zinc has markedly improved after several European smelters have restarted operations, with prices ignoring higher supply and continuing their upward drive to a 13-month high of $2,975 per metric ton this week.

- Trafigura-controlled Nyrstar reactivated the Budel zinc smelter in the Netherlands, two months after Glencore refired its Nordenham smelter in Germany, both coming back thanks to lower European electricity costs.

- Zinc prices have been buoyed by a continuously worsening supply outlook – following a 2.3% year-over-year drop in 2022 and another 1.2% decline in 2023, this year will see a marginal supply growth of 0.7%.

- The zinc market was supposed to see a surplus of 367,000 tons, although by now that has been downgraded to 56,000 tons, prompting hedge funds to come back to the zinc markets with long positions of 59,391 contracts being the highest since June 2022.