Key decisions from OPEC+’s first physical meeting since March 2020 as well as the international aviation industry’s long-term climate plan are top of mind for the analysts this week. Gas flows into Europe, China’s power consumption and the UK’s net-zero goals are also in focus, reports SP Global.
1. Oil ministers head down to Vienna for first in-person meeting since the start of COVID-19 pandemic
What’s happening? OPEC and its allies will hold physical talks on Oct. 5 as the 23-country alliance seeks to halt a slide in oil prices to nine-month lows in recent days, with production cuts of up to 1 million b/d potentially on the table. But with the alliance underproducing its quotas by a collective 3.6 million b/d in August, any announced cuts would likely be much smaller in practice. The question is whether Saudi Arabia, the UAE and Kuwait, who have maintained their ability to pump at or near their quotas, would be willing to bear most of the burden of the cuts and allow their underperforming counterparts to freeride on their efforts.
What’s next? The OPEC+ Joint Technical Committee, an advisory panel, meets Oct. 4 to assess market conditions. Its forecasts of oil supply and demand will guide the negotiations. Then a nine-country Joint Ministerial Monitoring Committee will convene on Oct. 5 and likely issue a recommendation on production policy, which will then be considered by the full 23-country OPEC+ alliance that will meet right after.
2. Norway, LNG step up to replace lost Russian gas in Europe
What’s happening? Russia’s share of European gas imports has plunged over the course of 2022 after Gazprom halted flows via Poland, slashed deliveries through Ukraine and gradually brought Nord Stream exports to a halt. This has led to record high prices in recent months, with Norwegian producers and LNG exporters stepping up to fill the gap left by Russia and making the most of the high prices.
What’s next? Nord Stream is now extremely unlikely to resume operations in the near term following the reported deliberate damage caused to the pipeline on Sept. 26. In addition, Gazprom has threatened that Moscow could impose sanctions against Ukraine’s Naftogaz over the latter’s arbitration claim over gas transit, leading to fears that all Russian gas flows via Ukraine could be halted. That would leave TurkStream as the only supply route for Russian gas into Europe and mean that Europe’s other suppliers — including Algeria and Azerbaijan — will enjoy a bigger share of the European market than before.
Bookmark this: Europe’s gas imports tracker
3. ICAO Council seek to strengthen long-term climate ambition on international aviation emissions
What’s happening? The International Civil Aviation Organization is holding its 41st general assembly, which runs through Oct. 7. Among the agenda items are adoption of the baseline for the Carbon Offsetting and Reductions Scheme for International Aviation beyond the pilot phase of the scheme, which runs from 2021-2023. The baseline will set the level above which aircraft operators will need to acquire CORSIA eligible credits to offset their carbon emissions, to deliver ICAO’s goal of carbon neutral growth from 2020. The ICAO Council has proposed a baseline of 85% of 2019 emission levels to be applied between 2024 and 2035, to increase environmental ambition of the scheme.
What’s next? ICAO looks set to adopt this proposal as opposition has weakened during recent days’ negotiations. Analysts at S&P Global calculate the proposal would reduce demand for CORSIA eligible credits by 25% between 2021 and 2035 compared to CORSIA’s original baseline (set using an average of 2019-2020 emissions), but increase demand by 340% compared to a baseline set using 100% of 2019 emission levels. This would bring aircraft operator obligations above the baseline to commence from 2025, offering upside support to near-term CEC prices, which recently stabilized and moved above USD$4/mtCO2e in September following a steady decline since January.
4. China’s Aug power demand shatters all records
What’s happening? Chinese power demand for August was 1145 aGW, reflecting an increase of 123 aGW or 12% year on year. The rise came as the country experienced much higher than normal temperatures, effectively increasing demand for cooling. Estimated coal-fired power generation for August was 726 aGW, while gas-fired power generation was 48 aGW, both setting new record levels for any month.
What’s next? For Q4, thanks to continued robust output from renewables and limited power demand growth, the thermal gap should only show a small increase on the year. Analysts at S&P Global Commodity Insights expect coal-fired power generation for 2022 to end up close to last year’s level of 590 aGW. Gas-fired power generation should end the year at about 32 aGW, which is only marginally lower year on year.
5. Everything’s back on the table in UK’s net-zero review
What’s happening? The UK government has launched a three-month review of its 2050 net-zero climate commitment to ensure it is “pro-growth and pro-business.” The review, to be carried out by former energy minister Chris Skidmore, has been commissioned by new Business Secretary Jacob Rees-Mogg, who in 2013 warned of “climate alarmism” and has since questioned the costs of the energy transition. Since taking office, Rees-Mogg has lifted a ban on gas fracking and urged his department to ensure maximum extraction of natural gas from the North Sea.
What’s next? The review comes as the UK struggles to get on trajectory with its 2050 net-zero goal. Climate emissions are only due to fall from 343 million mt this year to 179 million mt by 2050 under S&P Global’s central reference case. A two-degree trajectory would see these emissions fall to 90 million mt over the period. “Nominally the government remains committed to its 2050 Net Zero target, which is legally binding, but with the appointment of Jacob Rees-Mogg it is arguable the UK’s green ambitions will be less of a priority – particularly as his first action was to end the ban on fracking,” said S&P Global’s head of European power analysis Glenn Rickson.
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Source: SP Global
