EIA: Crude Prices to Sag in Second Half of 2023 // Energy Storage Costs Creep Upward // Europe: No Snow? Big Problem

EIA: Crude Prices to Sag in Second Half of 2023

The Energy Information Administration expects crude prices to drop in the latter half of the year, according to a recent report. 

They cite several factors:

• Implied inventory builds, i.e. more production than consumption.

• An increase in global petroleum production of 1% from 2022 to 2023. "The United States and OPEC account for most of the increase in global production," reports the EIA. "We forecast that U.S. production will grow by 5% (1.0 million b/d) in 2023, and OPEC liquid fuels production (which includes crude oil) will increase by 0.5% (160,000 b/d) in 2023."

• Offsetting Russian production. "We forecast that Russia’s petroleum production will fall from 10.9 million b/d in 2022 to 9.5 million b/d in 2023 as a result of sanctions related to Russia’s full-scale invasion of Ukraine," the EIA reports.

Looking to 2024, the agency expects production to overtake consumption. 

"We forecast that global petroleum production in 2024 will increase by 2% (1.7 million b/d), driven by increases in U.S. and OPEC production. In 2024, we forecast that U.S. petroleum production will increase by 3% (650,000 b/d), and OPEC production will increase by 2% (680,000 b/d). Russia’s petroleum production is expected to be nearly flat in 2024," the agency reports. 

The EIA's 2024 forecast for petroleum consumption outpaces consumption in 2019 due to increased demand in China and India. 

Energy Storage Costs Creep Upward

Batteries are supposed to be the great white hope for the grid. Allegedly, they will help offset wind and solar's intermittency. Regardless of whether or not that will play out, they cost a pretty penny today. BloombergNEF conducted a study that summarizes survey data from 185 submissions to look at where storage facility costs are headed.

And, in a word, they're headed upwards. 

"We found that the cost of a four-hour turnkey energy storage system increased by 27% from 2021 to 2022. This is higher than the 7% increase in battery pack prices published in our 2022 Battery Price Survey, which included pricing data from automakers," writes BloombergNEF's Helen Kou. "The differences highlight the difficulties for stationary storage companies to compete for supply with large automakers and the additional cost increases found in other parts of the stationary storage components (like higher PCS costs)."

Kou expects storage costs to increase over the course of this year and then to drop off in 2024. Current problems include constraints on raw materials, higher labor costs, and the transport industry's demand for similar materials. "However," she writes, "competition from new entrants could reduce system integration and developer margins, pushing project costs down slightly from 2022 to 2023."

Europe: No Snow? Big Problem

Europe is currently celebrating a mild winter that has let it replenish its gas storage. "Russian President Vladimir Putin’s plans to squeeze Europe by weaponizing energy look to be fizzling at least for now," Bloomberg reports. But what if the good news is more gilded than gold?

Meteorologists told Reuters that the Danube and Rhine river regions are in danger of drought. If the river levels get too low, it will obstruct shipping logistics. 

"The combination of low snow and a drier 2022 has already hit hydro power production, with Refinitiv noting that France saw 41% lower hydro power production last year, based on long-term averages," reports Oilprice.com. "France is also threatened this year (as it was in 2023) with higher river water temperatures that prevent it from access to cooling water for nuclear reactors–a main source of energy for the country." 

Low snow totals after a bone dry 2022 summer leave hydropower producers looking anemic. A lack of rainfall is expected to sap hydropower in Germany, Switzerland, Italy, Austria and the Danube region.

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Conversation Starters

1. Texas is about to take on a whopping amount of wind and solar. "Robust generation capacity growth in the Electric Reliability Council of Texas may be weakening the outlook for wholesale power prices in the summer of 2023, which had more than doubled between summer 2021 and summer 2022," reports S&P Global. "ERCOT approved almost 654 MW of generation, all renewables, for commercial operation in December, and another 2.9 GW of capacity neared commercial operation, increasing the grid's total operational capacity to 142.6 GW, up 9.1 GW from the end of 2021. Another 2.5 GW, evenly divided among wind, solar, and battery storage, have signed interconnection agreements and financial security posted with start-up planned by the end of May, according to ERCOT's Capacity Changes by Fuel Type Charts, released Jan. 5."

2. Sweden plans to expand its nuclear power fleet. "Sweden’s government is proposing changes in the current legislation to allow the construction and operation of more nuclear reactors as it looks to strengthen its energy security, Swedish Prime Minister Ulf Kristersson said on Wednesday," reports Oilprice.com. "'We are now changing the legislation, making it possible to build more reactors in more places than is possible today,' Kristersson said. Expanding nuclear power generation was a key campaign goal for Kristersson last year, and he has said that Sweden’s goal of '100% renewable' electricity generation would change to '100% fossil-free' power generation."

3. A new Chinese nuclear reactor has just come on. "Unit 3 of the Fangchenggang nuclear power plant in China's Guangxi Autonomous Region has been connected to the grid for the first time, China General Nuclear (CGN) announced. The unit - the first of two demonstration Hualong One (HPR1000) reactors at the site - is scheduled to enter commercial operation in the second half of 2023," reports World Nuclear News. "First concrete was poured for the nuclear island of unit 3 of the Fangchenggang plant - 39% owned by Guangxi Investment Group and 61% by CGN - in December 2015, while that for unit 4 was poured a year later.  Unit 3 was originally expected to start up in 2019, with unit 4 scheduled to start up in 2020. Both their start-ups were subsequently postponed until 2022."

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