Month: September 2022

A draft proposal by Brussels looks to intervene in the worsening energy crisis by placing a price cap on electricity generated by non-natural gas power producers, according to Financial Times.

The European Commission urged member states to cap the price of electricity via wind farms, nuclear reactors, and coal plants, all of which generate power free of NatGas, at a 200-euro megawatt hour limit. 

Enforcing such a price cap would lead to “market outcomes that could be expected where global supply chains functioning normally and not subject to the weaponization of energy through gas supply disruptions,” the commission said in the draft proposal. 

FT pointed out that wholesale electricity prices in Germany skyrocketed because they’re pegged to NatGas, even though some electric power is generated by other sources. 

The draft also said EU members should reduce electricity consumption by at least 5% during peak hours amid an energy crisis worsening by the week. 

Russia’s latest move against Europe closed the Nord Stream 1 pipeline. Moscow said the critical NatGas pipeline to Europe wouldn’t reopen until the “collective West” lifts sanctions against Russia over its invasion of Ukraine. 

EU energy ministers are due to meet on Friday to discuss historical intervention in the energy market. 

“A leaked EU draft proposal includes an electricity price cap on inframarginal profits… If true, we would see it to be a better-than-expected outcome for generation companies,” Jefferies analysts wrote in a note. 

Following the news, utilities and renewable energy stocks surged in Europe. 

Credit Suisse senior analyst Jens Zimmermann said the draft proposal seems positive for utilities, such as “RWE.” 

“Even under a price cap, upward EPS revisions have now become more likely as RWE’s consensus forecasts were never based on the recent sky-high power prices,” Zimmermann said. 

RBC analyst Fernando Garcia said the electricity price gap “is quite high, clearly above levelized cost of electricity” and could be high enough not to discourage future investment in non-NatGas generators. 

It appears the plan could remove uncertainty for utility companies.  

FT noted: “Several member states have complained that Brussels has not acted fast enough. Some, including Spain and Italy, have pushed for the commission to decouple gas and electricity markets.” 

The proposal for price caps on non-NatGas derived electricity comes as the utilities across the continent face a massive margin call. 

British banks have classified some $1.1 billion pounds (US$1.26bn) worth of emergency pandemic loans as fraud, according to data published Monday by the UK’s Department for Business, Energy and Industry (BEIS).

Of that, Lloyds Banking Group has been hit the hardest – at roughly 300 million pounds (US$346 million) of the so-called “bounce back” loans intended for small businesses.

The bank also saw a higher ratio of likely fraud, with some 3.6% of its 8.5 billion pounds of bounce back loans marked as suspicious, according to Reuters.

Barclays, NetWest, and HSBC fared better, at 2.4%, 1.7% and 1.3% of loans classified as suspected fraud.

“Where fraud has been identified, we have acted promptly and have already recovered the majority of these funds without calling on the guarantee and we will continue to attempt to do so even after a claim has been submitted,” a Lloyds spokesman told Reuters, adding that at least it’s lower than the 7.5% average estimated by the scheme’s administrator, the British Business Bank.

The other banks said the differing levels could partly reflect some lenders having more sophisticated fraud detection measures, as well as different thresholds for classifying a loan as suspect.

The levels of fraudulent loans at the lenders are not final and are subject to change. Under the scheme rules, the government is responsible for the fraud costs if banks can prove they administered the scheme correctly. -Reuters

“These schemes were implemented at unprecedented speed to protect millions of jobs and businesses. If the government didn’t move quickly, more businesses would have failed and many more jobs lost,” said a government spokesperson.

Yet, while the large banks led by Lloyds were able to beat the BBB’s expectations, smaller lenders were hit disproportionately hard by suspected fraud.

New Wave Capital Limited, based in London – and which trades as Capital On Tap, as well as Conister Bank based on the Isle of Man, reported 27% and 24% respectively of their loans reported as fraud, according to a Reuters calculation.

The fraud report may present a headache for Britain’s ruling Conservative party over how the emergency lending program was executed in 2020 – which led to the resignation of junior government minister, Theodore Agnew, who said efforts to stop fraud and abuse on the loans was “woeful.”

Across the pond, the US Justice Department has charged people with about $1 billion in Paycheck Protection Program (PPP) fraud so far, and is investigating cases involving $6 billion more, according to the NY Times. That said, some reports have placed the amount of “improper” unemployment payments to more than $163 billion.

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

The Federal Reserve was no doubt troubled by July’s decline in the US unemployment rate to 4.5 percent and increase in job openings to 11.2 million. This is because the Fed’s strategy for reducing the historic price inflation now plaguing the economy — caused by the Fed’s unprecedented low or zero interest rate policies — is to increase unemployment in order to decrease consumer spending. In his speech to the annual monetary policy conference in Jackson Hole, Wyoming, Fed Chair Jerome Powell reiterated his commitment to increasing unemployment, or, as he puts it, “softening the labor markets.” 

Powell is correct that reducing price inflation is urgent. He is also correct that doing so will increase unemployment and slow economic growth. The Fed’s efforts to bring down inflation by increasing interest rates will also make it harder for average Americans to obtain home mortgages, purchase a car, or even pay their utility bills. Those hardest hit by the Fed’s “softening of labor markets” are also the primary victims of the Fed-created price inflation. This demonstrates the insanity and cruelty of the fiat money system, which enriches the elites while improvising the masses.

Well-connected members of the financial elite and crony capitalists benefit from the Federal Reserve’s money creation, as they are the first recipients of the new money. This enables them to increase their purchasing power before the new money has caused general price inflation. By the time the money creation has impacted the middle and working classes, the economy is racked with widespread price inflation. Therefore, a nominal gain in wages is not enough to compensate for the real price increase. So average Americans suffer from both Fed-created inflation and the Fed’s attempts to rein in that inflation.

It is amazing that more individuals do not question the idea that inflation, recessions, unemployment, and booms and busts are necessary features of a sound monetary system. Even many otherwise staunch defenders of free markets maintain a child-like faith in central banking. Some conservatives support “reforming” the Fed by making it follow a “rules-based” monetary policy. These conservatives do not understand that the problem is the existence of a central bank with the power to manipulate the currency.

Many progressives recognize the damage the Fed does to average Americans when it increases interest rates. However, their “solution” is a cure worse than the disease: make the Fed maintain low interest rates (and thus high inflation) in perpetuity—or until the continued devaluation of the currency via inflation causes a dollar crisis, leading to a major economic calamity. The main victims of this crisis will, of course, be the very Americans progressives claim to care about.

The Federal Reserve’s failure to fulfill its dual mandate of producing stable prices and full employment, combined with the damage it inflicts on the American people, make the best case for changing our monetary policy. A stable currency, safe from manipulation by politicians or central bankers, would provide the basis for long term prosperity that benefits everyone, not just the crony capitalists and the power-hungry politicians. The first steps in this transition are to finally pass audit the Fed legislation and continue the efforts to pass state laws recognizing precious metals as legal tender.

Europe’s historic energy crisis is not only disrupting energy-intensive industries and collapsing household finances, but it could soon halt or limit experiments at the European Organization for Nuclear Research (CERN). 

WSJ reported CERN is planning to shutter some of its particle accelerators at peak demand hours and is considering idling the world’s biggest particle accelerator—the Large Hadron Collider (LHC). 

“Our concern is really grid stability because we do all we can to prevent a blackout in our region,” said Serge Claudet, chair of the CERN energy management panel. 

CERN, located near France–Switzerland border, consumes 1.3 terawatt hours of electricity annually and is one of state-controlled French power giant EDF SA’s largest clients. The amount of power it uses in a year can power 300,000 homes. 

Claudet said some of its eight particle accelerators and two particle decelerators could be shut down to conserve power. If necessary, he said the facility could idle LHC. 

For three years, LHC underwent maintenance work and only became operational in July, working at even higher energy levels as scientists fired proton beams at the speed of light around a 17-mile ring, slamming them together to examine what appeared in the aftermath of the collisions. 

These experiments could soon be put on hold as the cold season is just a few short months away and Europe’s energy crisis worsened in the last several days. 

For the first time last month, French year-ahead power prices surged to 1,000 euros per megawatt-hour. Half of the country’s nuclear reactors are offline for repairs and maintenance, further straining the grid that usually receives 67% of power generation from atomic energy. 

Lowering electricity consumption at CERN is Claudet’s objective. Shutting down other accelerators besides the LHC could reduce consumption by a quarter. WSJ noted that if LHC is shut down, it will save another 25%. However, as WSJ explained, it comes at a cost: an enormous amount of energy is used “on superconducting magnets cooled to -456 degrees Fahrenheit to bend the particle beam, requiring a significant amount of power even when the beam is turned off. Allowing the magnets to warm up could set back experiments at the LHC for weeks.” 

Shuttering LHC in Claudet’s view appears to be extreme because he said: “It’s a voluntary action … You don’t want to break your toy.” 

Authored by Paul Joseph Watson via Summit News,

Predicting that cost of living protests in the Czech Republic and Germany will spread around the continent, a prominent economist warns that European citizens are “mad with anger and it will worsen.”

On Saturday, over 70,000 people took to the streets of Prague to demand an end to weapons supplies and neutrality regarding the conflict in Ukraine.

Numerous demonstrations are also set to take place in major German cities over the next month as energy bills and inflation soar as a result of sanctions on Russia and over dependence on green energy.

“The demonstrations in Prague and Germany are only the beginning. The price of gas and consequently of electricity are driving the European citizens mad with anger and it will worsen,” French economist Charles Gave told Sputnik.

Gave went on to assert that many Europeans aren’t buying the narrative that the situation, which culminated in the shut down of gas supplies to Europe via the Nord Stream 1 pipeline, is all Vladimir Putin’s fault.

“The European governments and the European Commission speak of a ‘manipulation’ by Russia, but people perceive very well that the decision to stop importing Russian gas and oil was a European decision, taken by Brussels without even thinking of the impact it will have on the European economy,” he said.

The economist blasted European leaders for their obsession with net zero and climate change hysteria, which has left the continent totally lacking in self-sufficiency.

“For the last 15 years, our European leaders have gone into a climate craze, promoting magic mirrors and windmills as the solution. It does not work. These solutions demand the same capacity in gas power plants,” Gave said.

The economist firmly blamed globalist technocrat leaders for sacrificing the interests of Europeans on the altar of prolonging a war that will cause economic devastation.

“They [Europeans] even believe that it is the bad Russians that have closed the tap of oil and gas, while it is our own leaders in Europe that have stupidly imposed these sanctions that are destroying the European economy. We, Europeans, are bringing stagflation onto our head. Before the people realize it, it will be too late. Macron, [German Chancellor Olaf] Scholz, von der Leyen and the like will never admit they were wrong and present excuses,” he asserted.

As we highlighted yesterday, police in the UK are preparing for a widespread “breakdown in public order” caused by the cost of living crisis if new Prime Minister Liz Truss doesn’t authorize a big enough government handout.

Truss is set to freeze all energy bills for at least two years at a cost of hundreds of billions of pounds, an expense that will inevitably be passed on to the taxpayer at a later date.

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JP Morgan has developed emergency measures to shift a unit of German traders into London offices as the Wall Street bank is preparing for dark winter in Frankfurt following Russia’s suspension of natural gas flows via the Nord Stream 1 pipeline.

The Telegraph reported that JPM “is preparing a raft of emergency measures so that it can continue trading if there are power outages this winter,” following Russian state-owned energy giant Gazprom’s decision last Friday to halt NatGas flows on the critical pipeline into Europe until the EU lifts sanctions against Moscow.

A source said JPM considered the options to shift its Frankfurt office to London or other locations in Europe if Germany is hit with rolling blackouts. 

“Work transfers could also be to and from any location, not just involving the UK,” the source added:

The plan has yet to be activated but is in place due to threats that the Nord Stream 1 pipeline shutdown will exacerbate Europe’s energy crisis in the months ahead. 

The source continued: “It would take a perfect storm of a complete shutdown of Russian gas supply, no reduction of gas use at all and little alternative sourcing for gas before it would have real impact on our business.”

Germany is unlikely to reach its target for filling NatGas storage to 95% by November, even though the rest of Europe is ahead of schedule to boost winter reserves. Germany’s failure not to hit the target would mean trouble for utilities to secure power for industries and households.

Klaus Mueller, president of the Federal Network Agency energy regulator, recently warned that if Russia stopped NatGas flows with storage at the target level, it would only cover 2.5 months of demand. 

JPM seems to be spooked by Nord Stream’s zero flows and the rising probabilities of a dark winter in Germany. 

By Alex Kimani of OilPrice.com

In the current year, the United States boasts status as the world’s biggest liquefied natural gas (LNG) exporter as deliveries to both Europe–in the throes of a severe energy crisis–and Asia surge. So far in 2022, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG or roughly 4 Bcf/d, to energy-starved buyers in Europe and Asia. 

Europe’s desperate attempt to rid itself of Russian gas became even more urgent this week, as Moscow announced that flows through Nord Stream 1 to Germany would remain cut off until the West lifted sanctions. That desperation has resulted in Europe displacing Asia as the top destination for U.S. LNG. In fact, Europe now receives 65% of total U.S. LNG exports.  But there are growing concerns that trading one dependency for another carries another kind of risk. Putting all your eggs in the U.S. LNG basket means banking on Mother Nature. U.S. LNG supplies might not be vulnerable to Russia, but they are vulnerable to extreme weather and harrowing hurricane seasons that disrupt output and exports. Europe cannot afford any more disruptions. 

Vulnerability in the Gulf of Mexico

The bulk of LNG export facilities in the United States–including proposed facilities–are housed along the Gulf Coast, and much of the gas that feeds those facilities comes from nearby inland reserves, from New Mexico and Texas to Louisiana, and beyond. This is a region prone to hurricanes, meaning that when hurricanes come roaring inbound, everything from liquefaction to shipping and extraction to processing is at risk of disruption.

It has happened before–and recently.

In recent years, multiple hurricanes have resulted in varying degrees of disruption for the LNG market, with impacts stretching across the supply chain from brief outages to long layoffs of processing and shipping. 

Hurricane Laura in 2020 resulted in a two-week disruption at the Sabine Pass LNG export facility and well over a month at Cameron LNG. 

Last year, Hurricane Ida resulted in a major and long-lasting curtailment of offshore gas production. 

This year, a June explosion at the Texas-based Freeport LNG facility knocked nearly 20% of US LNG export capacity offline, sending LNG markets into a tailspin. 

Scientists say the Gulf coast hurricanes are becoming increasingly severe, causing record-breaking compound flooding and placing critical infrastructure at risk.

Meanwhile, whereas the United States has the world’s largest lineup of new LNG projects in the works, there are also limits to how far this can go without more pipeline capacity to accommodate this wildly expanding energy segment. 

In the Appalachian Basin, the country’s largest gas-producing region churning out more than 35 Bcf/d, environmental groups have repeatedly stopped or slowed down pipeline projects and limited further growth in the Northeast. This leaves the Permian Basin and Haynesville Shale to shoulder much of the growth forecast for LNG exports. Indeed, EQT CEO Toby Rice recently acknowledged that Appalachian pipeline capacity has “hit a wall.”

Analysts at East Daley Capital Inc. have projected that U.S. LNG exports will grow to 26.3 Bcf/d by 2030 from their current level of nearly 13 Bcf/d. For this to happen, the analysts say another 2-4 Bcf/d of takeaway capacity would need to come online between 2026 and 2030 in the Haynesville.

“This assumes significant gas growth from the Permian and other associated gas plays. Any view where oil prices take enough of a dip to slow that activity in the Permian and you’re going to have even more of a call for gas from gassier basins,” the analysts have said.

Mozambique To The Rescue

Though it may be rather late in the game, Europe is beginning to seriously consider Africa for its future energy supplies. Most notably, Mozambique is poised to ship its first cargo of liquefied natural gas (LNG) to Europe at this critical time. 

This, too, is fraught with vulnerabilities in the form of political instability and insurgency. 

French TotalEnergies’ Mozambique LNG project has been sidelined by insurgency. Italian Eni’s Coral-Sul FLNG is safe from the violent flashpoint and on track to help serve Europe, with BP already having inked a deal to buy all of the output for 20 years from the $7-billion Coral-Sul project, designed to produce 3.4 million metric tons of LNG. The Italian company is already planning a second floating export platform in the southern African country that could be completed in less than four years. 

But nothing is certain here.

In the heart of the insurgency, TotalEnergies has announced plans to resume its massive $20 billion project toward the end of the year, with the terminal expected to churn out 13.1 million tons of LNG annually. That is, if it ever gets past the insurgency that led to a declaration of force majeure. The project hopes to restart in the first half of next year.  

Optimism runs high, despite all. ExxonMobil says it will make a final decision for an even larger project in the near future. Meanwhile, the European Union has planned a five-fold increase in financial support to $15 million to fight militants near Mozambique’s gas projects. The EU has already pledged to provide the country’s army with an additional 45 million euros ($45 million) of financial support, and has so far given a SADC mission in the country 2.9 million euros of funding.

Over the short-term, Europe is making headway in filling up its gas storage, and is now nine weeks ahead of where it was this time last year–even if it has come at a hefty premium. European gas storage levels are above 70%, and have even surpassed the 5-year average, according to data from Gas Infrastructure Europe (GIE). 

By November 1st, the EU will likely hit 80% natural gas storage capacity–just in time for peak winter demand. Germany is even aiming for 95% capacity, and is already at 85%. 

“The EU already surpassed its September 1 interim filling target in early July and is still on pace to reach the November 1 target,” Jacob Mandel, senior associate for commodities at Aurora Energy Research, has told Reuters. Indeed, analysts at Standard Chartered Plc are saying that President Vladimir Putin’s gas weapon will be effectively blunted by the inventory build, with Europe set to go through winter “comfortably” without Russian gas.

This, however, poses two different problems. First, Europe will have to pay a heavy price: the cost of replenishing natural gas stocks is estimated at over 50 billion euros ($51 billion), 10 times more than the historical average for filling up tanks ahead of winter. Second, the bloc can’t survive on storage alone unless it severely reduces consumption for the winter. 

Europe, as it stands, is vulnerable on every energy front, and if it’s not geopolitics and insurgency, it’s Mother Nature at her wildest.