Energy Market Scan - June 28th 2022

A Ukrainian kamikaze drone strike has caused a massive explosion at a Russian refinery, causing a huge fireball to engulf the facility.

Posted on Jun 28, 2022 by Prakash Kini (PK)

Geopolitics & War

Russian refinery on fire after Kamikaze drone strike 

A Ukrainian kamikaze drone plowed into a major oil refinery inside Russian territory, sparking a huge fireball explosion.

Global Macros 

GS & Nomura have raised their probability estimates of a US recession 

Goldman Sachs and Nomura have raised their probability estimates of a US recession. Nomura is expecting the US to get into recession in Q4. 

Supply & Demand 

Massive refining capacity idle in China as gasoline prices soar 

As gasoline prices soar and the US considers invoking Cold War-era laws to boost production, there’s a massive pool of oil refining capacity on the other side of the Pacific Ocean that’s sitting idle. 

Around a third of Chinese fuel-processing capacity is currently out of action as Asia’s largest economy struggles to put the coronavirus behind it.

Even if this capacity is tapped, the chances of China exporting gasoline is unlikely as these assets are meant to serve the domestic market.

EU scrambles for mitigations against Russian supply cuts 

European natural gas prices creep up as Russia tightened its squeeze on gas exports to Europe, despite a lower demand and high fuel costs curbing industrial demand.

The IEA warned that Russia could cut off gas supply to EU completely and that the EU countries need to be prepared for such an eventuality and plan contingencies accordingly. 

Gazprom PJSC’s shipments through the Nord Stream pipeline remain at about 40% of capacity.

Russian gas giant Gazprom has announced that it will stop gas delivery via both strings of the Turkish Stream pipeline due to “planned maintenance”.

Italy, one of the biggest buyers of Russian gas, is temporarily increasing coal-fired generation, joining nations such as Germany, Austria, and the Netherlands in reviving mothballed power stations or removing limits on the dirtier-burning fuel. 

The Netherlands is choosing to utilize nuclear power. 

Countries like Norway are increasing their natural gas production. 

A French nuclear power crisis is worsening the situation. A recent flurry of unexpected issues at the Électricité de France (EDF), the state nuclear power operator representing the largest nuclear fleet in Europe, has caused French nuclear energy output to tumble to its lowest levels in 30 years. Around half of the EDF’s massive nuclear fleet has been taken offline, delivering a massive blow to the EU’s energy independence and security in the midst of a worldwide energy crisis. 

Governments are also making attempts to inform consumers to curb consumption. 

Russian oil now accounts for over 10% of India's imports 

India's Russian oil imports jump 50 times. 40% of these imports are done by #Reliance and Nayara (Rosneft). This takes Russian oil to over 10% of India's imports. 

Along similar lines, Russia has overtaken Saudi Arabia to be China's largest crude oil supplier.

Iraq seeks to raise oil production to 8 mn bpd by 2027 

Iraq seeks to raise oil production to 8 mn bpd by 2027 

Discoveries & Launches 

Tanzania launches mega gas and LNG project 

The Government of Tanzania & its partners Equinor, Shell & ExxonMobil have announced the signing of the historic Host Government Agreement, which will greenlight a gas and LNG mega project. 

The US$30 billion project aims to produce 10 million tons per annum of LNG for export with transformational potential for industrialization by bringing investment, technology, skills, and infrastructure to the country, which will benefit Tanzanian businesses and its citizens. 

Merchant Economics

Asian Refiners focus on jet fuel as air travel surges 

As Covid restrictions recede, air travel has seen a surge. 

Jet Fuel crack spreads have hit record highs. 

This has pushed Asian refiners to adjust Q3 product slate in favor of jet fuel.

Henry Hub and Dutch TTF Natural Gas Prices are diverging as of now 

For a while, the Henry Hub prices were converging with the Dutch TTF Prices because of the US LNG export potential and the Europe gas crisis. 

As of now, the two price indexes are diverging, due to limited LNG export and import capacity and the Freeport fire. 

Conoco sees volatility in the natural gas market to last for a few years and is making LNG investments in Qatar with this in mind. 


European coal prices have surged to $424/tonne 

European coal prices have surged to $424/tonne. 

The main reason for this is the restart of coal-fired power plants by several EU countries. 

To put things in perspective, just a year ago, they traded at $100/tonne. 

Brent price can move up another $40, says Goldman Sachs economist

Goldman Sachs economist Jeff Currie, who rose to prominence during the 2000s by forecasting the commodity super-cycle and oil spiking above $100 a barrel, predicts that we are 18 months into a 10-year-long oil supercycle regime and that Brent prices can move up another $40 in the coming months. 

The reasons given include lack of investments in oil (due to ESG concerns) and shortage of refining capacity. 


US Inflation has just hit a 40-year high 

In the US, inflation just hit a 40-year high: 

Gas +69.8% + 

Fuel Oil +108.7%

Meat, Poultry, & Fish +15.1% 

Milk +17.9% 

Eggs +34.2% 

Coffee +17.3% 

Used Cars +18.1% 

Airline Fares +39.8% 

Rent +33.8% 

It is a similar story across the world.

The German PPI jumped by 33.6% in May YoY (the highest increase since 1949, when this index was set up): 

Electricity prices +90.4% 

Fertilizers 100.9% 

In Other News 

Eni, Conoco Win Prized North Field East Stakes in Qatar 

Eni, Conoco Win Prized North Field East Stakes in Qatar. 

Glencore pleads guilty to seven counts of bribery 

Glencore pleaded guilty to seven counts of bribery in connection with oil operations in five countries.