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  • Chinese LNG Demand Could Make Things Worse // Weakening the Grid: A Vignette // Batteries Are For Arbitrage

Chinese LNG Demand Could Make Things Worse // Weakening the Grid: A Vignette // Batteries Are For Arbitrage

Chinese LNG Demand Could Make Things Worse

Everyone knows energy prices in Europe are high. Gas especially--which also means their electricity is expensive because, after decades of green policy, their over-investment in renewables has left them dependent on the single fuel type (gas) that can ramp up to maintain reliability. LNG, largely from America, is keeping the continent together. But what happens when China decides it needs more LNG?

"A sudden rebound in Chinese demand for gas would force importers back into the cutthroat competition to procure LNG, exacerbating a worldwide shortage and sending prices -- already at a seasonal high -- to stratospheric levels," reports Bloomberg.

Right now, things are quiet. China's demand for natural gas has dipped. Toby Copson over at Trident LNG told Bloomberg that it's "an anomaly" for China's LNG demand to dip ahead of winter. “It means China isn’t stressed about supply - what they have available via gas pipeline and their domestic coal production seems to be sufficient for the time being," Copson said. China's demand dropped by 20% for the first half of this year. 

Part of the flagging demand has to do with China's covid lockdowns which have stunted industry output. But if demand and production rebound after lockdowns--as has been the trend--then Europeans will have to deal with a hungry new buyer on the market. That would send the prices even higher, putting the squeeze on European industries and households.  

And if it gets colder than China anticipates, they might start buying more. "That’s what happened in January 2021, when a cold blast caught many Chinese importers flat-footed, draining inventories and forcing a flurry of spot buying that sent prices soaring."

Weakening the Grid: A Vignette

Iowa's Utility Board just approved a new NextEra project in the state: 200 MW of solar, 75 MW of storage. It will be built on the site that once belonged to the Duane Arnold Energy Center, a nuclear power plant. It's the perfect vignette of what's going wrong with the American grid. 

Duane Arnold shuttered in 2020. It was built in 1974. Why did it close? Iowa is awash in cheap subsidized wind. Warren Buffett's MidAmerican (which build wind turbine for the tax credit that gets awarded to Berkshire Hathaway) along with NextEra were muscling in on the territory. "Duane Arnold," wrote Rod Adams at the time, "a mature nuclear plant that reliably produces 615 MWe of emission-free electricity, is apparently considered to be a grid block that is in the way of fully using the cheaply priced wind power."

Alliant, which owns the poles and wires linked to DAEC, didn't re-up their purchased agreement with the nuclear plant. It could have kept generating power for another several decades. Hundreds of people lost their jobs. 

And now it is being replaced by an inherently unreliable solar farm and some batteries (see below on those) with a fraction of the capacity and few jobs. 

When asked for comment, Mark Nelson of the Radiant Energy Fund said, "It's like seeing mold grow over a delicious wagyu steak. It's just a hideous waste."

Batteries Are For Arbitrage

The story goes that we need big battery fleets to help with the energy transition. Wind and solar are notoriously intermittent. And they can also overwhelm the system when the wind keeps flowing and the sun beams brightly down. Batteries are supposed to handle their excess generation to make up for when they switch off. 

It's a nice story. It makes the energy system seem like an elegant symphony. 

Well, it's bullshit. Batteries are for price arbitrage, baby! 

It's all about storing low and selling high.

"During 2021, 59% of the 4.6 GW of utility-scale U.S. battery capacity was used for price arbitrage, up from 17% in 2019," reports the Energy Information Association. "In certain markets, price arbitrage is more common than in others. For example, more than 80% of the battery capacity added in 2021 in the California Independent System Operator service territory was used for price arbitrage."

None of this is about reliability or even generating electricity. The energy transition is about rent-seeking and arbitrage. Great for financiers and traders; bad for industries and households. 

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