EU Backs Down From Russian Gas Price Cap // Can Palisades Be Restarted? // Oil Drops, Dollar Rises

EU Backs Down From Russian Gas Price Cap

The European Union is walking back from considering a cap on Russian natural gas. "A draft regulation on the 'electricity emergency tool' [...] contains neither a price cap on Russian gas nor on imported gas, after member states were unable to agree on restrictions last week," reports the Guardian.

European Commission president Ursula von der Leyen gives will give her speech on the legislation today. The draft language may have changed by the time she takes the stage, but that's doubtful. The draft reveals that European could not come to a consensus on how to balance their dependency on Russian natural gas with their solidarity for Ukraine. Notably, the continent's largest economy, Germany, does not support the price cap.

But some agreement was reached on other matters. The legislation will likely include capping revenues on nuclear and renewables companies at 180 euros per megawatt hour. The legislation will also feature a "temporary levy on companies in oil, gas, coal and refinery industries of at least 33% of their extra profits. Based on pre-tax profits of fiscal year 2022 that are more than 20% higher than the average of the three years starting in 2019. It’s exceptional and temporary and up to member states to apply," reports Bloomberg. Last on the docket is energy austerity, which means cutting overall energy consumption by 10% and forcing down electricity demand by 5% during peak hours.

Can Palisades Be Restarted?

Entergy closed its 805 MW nuclear power plant--Palisades in Michigan--earlier this year after 50 years of operation. Could it be restarted?

"In June, Palisades was purchased by Holtec International for decommissioning," reports World Nuclear News. "According to Whitmer, Holtec submitted an application for funding under the Department of Energy's Civil Nuclear Credit (CNC) programme on 5 July, just days after completing its acquisition of the plant."

Governor Gretchen Whitmer, in a letter to the Department of Energy, wrote, "I will do everything I can to keep this plant open, protect jobs, increase Michigan's competitiveness, lower costs, and expand clean energy production. We know the path ahead is not easy, but we are not going to let that stop us from fighting for economic opportunity for Southwest Michigan and reliable, clean energy for the state. Just because something's never been done before does not mean it cannot be done in Michigan."

Holtec does not have an operating license for nuclear power plants, however. In order for the plant to be restarted, they'll have to find a company that possesses one. Constellation, Exelon's nuclear-specific spinoff, seems like the most obvious candidate. Yet Holtec supports the move to get Palisades restarted.

"We applaud Governor Whitmer for her leadership in recognizing the vital importance of Palisades to Michigan's clean energy future as a source of safe and reliable carbon-free electricity," Holtec International President and CEO Kris Singh said.

Oil Drops, Dollar Rises

Oil dropped as soon as more data came out revealing that consumer prices remained high throughout August. The market now anticipates a rate hike from the Fed when it convenes.

"West Texas Intermediate fell almost 2% to trade near $86 a barrel, with prices falling alongside equities after US inflation was higher than expected in August," reports Bloomberg. "Wall Street sees the data as a sign that the central bank will hike interest rates by 75 basis-points a third straight session, signaling the potential economic slowdown."

Oil has been swinging with the dollar this year. Earlier this month, oil prices sank to their lowest since January as the dollar rebounded. But Saudi production has risen to 11 million bpd for the first time in two years and China's demand for oil has slumped as it wrestles with its zero covid policy.

“We do not expect a sustained rally soon, but estimate the risk/reward outlook has improved again,” Morgan Stanley analysts including Martijn Rats and Amy Sergeant told Bloomberg. “The oil market’s structural outlook remains one of tightness, but for now, this is offset by cyclical demand headwinds.”

But it's also unlikely Iran will see any resolution to its nuclear deal, and thus Europe cannot expect to buy any of its oil directly for the foreseeable future.

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Conversation Starters

1. Ukraine's Zaporizhzhia nuclear plant was captured earlier this year. Great worry and disinformation about the potential dangers the plant posed spread like wildfire. Never was the region in danger of "another Chernobyl," but the situation has improved. "The last operating reactor at the Russian-held Zaporizhzhia nuclear power plant in Ukraine has been put into what is known as a cold shutdown after an external power line was restored, making it possible to shut it down more safely," reports Reuters.

2. Many Germans may switch from gas heaters to inefficient electric ones to spare their gas bills this winter. Doing so could "overload" their electricity grid according to Reuters. "Households have been stocking up on electric fan heaters, including portable devices, sales figures show, amid fears that Russia could cut or further limit gas supplies in the wake of its war in Ukraine," they report.

3. America is decarbonizing, though the pattern varies from state to state. "From 2016 to 2020, the carbon intensity of U.S. power generation fell 18%, driven by a shift in the U.S. electricity generation mix away from coal and toward natural gas and renewables," reports the Energy Information Administration.

Crom's Blessing