The Energiewende and the Damage Done // CAISO Board Okays Western Day Ahead Market // EU Leaders Discuss New Russia Sanctions

The Energiewende and the Damage Done

Natural gas prices in Europe have dropped, but not in time to save major German industries.

German chemical and pharmaceutical companies, including BASF SE, Dow Inc., and Lanxess AG, plan to cut domestic investment and move to more hospitable climes, like America, due to Germany's lack of reliable, affordable energy.

A survey from Germany's VCI chemical association revealed that nearly half of chemical companies plan to slash investment in Germany due to energy costs and some companies are even considering closures. The German chemical and pharmaceutical industry has a significant impact on the country's economy, employing 466,500 people and generating an annual turnover of over €200 billion ($216 billion).

Other German industries are also reconsidering their national allegiance. "Industry group Aluminium Deutschland said a recent survey of metal producers showed that two-thirds confirmed a slight improvement in energy prices in recent months, while 86% of the companies described the prospect of long-term gas and electricity supplies in Germany as 'not good,'" reports Bloomberg.

CAISO Board Okays Western Day Ahead Market

The California Independent System Operator approved a proposal for a new day-ahead market, which will allow Western utilities access to California's electricity market. Many believe this will provide access to additional economic, environmental, and reliability benefits.

The extended day-ahead market (EDAM) will begin next year (pending Federal Energy Regulatory Commission approval). CAISO hopes that the EDAM will better account for net load variability and uncertainty. In other words, they hope the coal, hydro, and nuclear plants that Western utilities have held onto will stabilize California's chaotic energy portfolio awash with just-in-time natural gas and intermittent alt-energy like wind and solar.

Or, in CAISO speak: "imbalance reserves would optimize the scheduling of flexible reserves across the EDAM footprint to meet each EDAM participants’ net load uncertainty and real-time ramping needs while maximizing the diversity benefit of a large market footprint."

CAISO expects to launch EDAM next year. All proposed benefits are contingent on whether or not enough western utilities join in.

EU Leaders Discuss New Russia Sanctions

The leaders of the European Union and Ukraine met in Kyiv to discuss the EU's support for Ukraine against Russia's invasion and Ukraine's bid for EU membership.

Here are the takeaways:

• EU leaders assured Ukraine of their unwavering commitment and vowed to support Ukraine "for as long as it takes."

• EU leaders announced a fresh batch of sanctions against Russia--the 10th since the beginning of the war.

• Ukrainian President Volodymyr Zelenskiy said Ukraine deserves to start EU accession talks this year, but Brussels has demands before the country can begin the admission process--namely implementing reforms and rooting out corruption. EU leaders complimented Ukraine on its efforts on the latter.

• European Commission President Ursula von der Leyen announced another price cap on Russian petroleum products to be introduced with the G7 partners by February 24, the one-year anniversary of the invasion.

"The summit comes after the EU commissioners met their counterparts in the Ukrainian government for the first-ever joint meeting on February 2," reports Radio Free Europe/Radio Liberty.

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1. The Saudis are warning the West about its Russian sanctions. "Saudi Energy Minister Prince Abdulaziz bin Salman warned on Saturday that sanctions and underinvestment in the energy sector could result in a shortage of energy supplies. The European Union has imposed a series of sanctions against Russia, reducing Russian energy exports, and other Western powers have also imposed measures as they seek to further limit Moscow's ability to fund its war in Ukraine," reports Reuters. Bin Salman said, "All of those so-called sanctions, embargoes, lack of investments, they will convolute into one thing and one thing only, a lack of energy supplies of all kinds when they are most needed."

2. America's drilling activity has continued to slow. "The total number of total active drilling rigs in the United States fell 12 this week, according to new data from Baker Hughes published on Friday. The total rig count fell to 759 this week—146 rigs higher than the rig count this time in 2022 and 316 rigs lower than the rig count at the beginning of 2019, prior to the pandemic. Oil rigs in the United States fell by 10 this week, to 599. Gas rigs fell by 2, to 158. Miscellaneous rigs stayed the same at 2. The rig count in the Permian Basin fell by 3, while rigs in the Eagle Ford stayed the same," reports Oilprice.com. "Primary Vision’s Frac Spread Count, an estimate of the number of crews completing unfinished wells—a more frugal use of finances than drilling new wells—rose during the week ending January 27. The frac spread count is now 278, up 20 from the previous week. This is 20 fewer crews than a month ago and 17 more than a year ago."

3. China is cutting clean oil exports due to a boom in its domestic demand. "China's refineries will cut clean oil product exports in February as domestic demand in January was better than expected," reports S&P Global. "Market sources expect the country's gasoline, gasoil and jet fuel exports to stand at about 3.9 million mt (1.1 mil b/d), below the previous estimate of 4.3 million mt for February. S&P Global had previously projected China's clean oil product exports for the month at about 3.5 million mt, down from over 4 million mt in January. Among the three products, most of the reduction in exports is expected to be for gasoline, the yield for which declined to a multi-month low in January amid a stronger-than-expected demand rebound during the Lunar New Year."

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