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  • FERC Approves Texas Transmission Cancellation // Bank Chaos Comes for Biden’s IRA // Trafigura: Commodity Price Volatility “Here to Stay”

FERC Approves Texas Transmission Cancellation // Bank Chaos Comes for Biden’s IRA // Trafigura: Commodity Price Volatility “Here to Stay”

FERC Approves Texas Transmission Cancellation

The Federal Energy Regulatory Commission has approved the Midcontinent Independent System Operator’s request to cancel a NextEra Energy subsidiary’s transmission project.

“FERC dismissed arguments made in February by NextEra and the Southern Renewable Energy Association that MISO’s request should be rejected. MISO followed its rules in deciding to terminate the contract for the roughly $129 million Hartburg-Sabine project in Entergy’s service territory, according to the commission,” reports Utility Dive. “A central factor in the case is a Texas law that bars the Public Utility Commission of Texas from issuing permits for transmission lines to non-incumbent utilities such as NextEra.”

The commission found that MISO had followed the rules while deciding to cancel the $129m project in Entergy’s service territory. “While NextEra and Southern Renewable disagree with MISO’s choice of outcome, we find that MISO appropriately exercised the discretion provided by its tariff in arriving at that outcome,” FERC said.

Bank Chaos Comes for Biden’s IRA

American clean energy start-ups and companies could face difficulties getting financing after the collapse of Silicon Valley Bank and Signature Bank, endangering some of the Inflation Reduction Act’s goals.

But when SVB went caput the aftermath rattled US regional banks and nearly brought Credit Suisse to its knees. It also endangered Biden’s climate ambitions. The IRA has around $370 billion in climate and clean energy provisions: investment and production credits for solar and wind power generation, storage, critical minerals, funding for energy research, and credits for manufacturing wind turbines and solar panels. SVB had over 1,550 clean technology firms as clients and had loaned billions to them, as reported by The New York Times.

American regulators stepped in to guarantee the deposits of clean energy companies in SVB, but now renewable energy companies are scrutinizing their exposure to the banking sector. “Some of those firms may find it harder to access funding, and it’s not only the high-interest rates that will be the hindrance according to investment managers,” reports Oilprice.com.

Afsaneh Beschloss, founder and CEO at investment firm RockCreek, pointed out that a large part of the IRA is to bring renewable energy to low-income communities. “One of the biggest places that was supposed to happen was through local community banks . . . That is going to be hugely impacted,” Beschloss said.

Commodity Price Volatility “Here to Stay”

Head honchos from global commodity trading firms believe that commodity prices are going to stay choppy.

According to Christophe Salmon, the CFO of Trafigura, persistent geopolitical risks and the transition towards renewable energy are set to cause greater price volatility in global commodity markets in the coming years. In 2022, many commodity traders saw a third year of record earnings due to market dislocations caused by the COVID-19 pandemic, plus a surge in market volatility following Russia's invasion of Ukraine.

"I believe that volatility in the commodity market is here to stay in terms of the consequences of the geopolitical situation,” Salmon told the FT Global Commodities Summit in Lausanne.

But Salmon didn’t just have Russia and China in mind—he was specifically talking about the energy transition because it is creating massive demand for minerals like cobalt and copper while supply remains constrained.

"I'm talking about the energy transition, which intrinsically will probably trigger more volatility into a number of markets,” Salmon continued. “More and more electricity will be produced from renewable sources which means that this is more volatile intrinsically.”

But Mercuria's CFO Guillaume Vermersch, said that even if they and their peers profited from “extreme” price volatility, 2023 wouldn’t be quite as volatile.

“[T]he fundamental problems are not solved. We are still facing a war situation in Ukraine, we have lots and lots of projects that didn't really come on stream and in terms of the production of renewable electricity, we have a certain level of inventory and those levels really will evolve... so volatility and intrinsic volatility remains,” Vermersch said, according to an article in S&P Global.

Vitol's CFO Jeff Dellapina agreed, adding that 2022’s market price chaos was triggered by panic over energy supplies. Now that those supply fears have been alleviated, volatility could ebb.

"I think a lot of that knowledge by the markets, that demand destruction will occur and buyers can respond to high prices, probably put a lid on things. So there's a lot of volatility compression now," Dellapina said.

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Conversation Starters

  1. America’s flagging gasoline stockpiles signal a repeat of last summer’s high prices. “U.S. motorists face a repeat of last summer's high gasoline prices, analysts warned on Wednesday, with fuel stockpiles heading towards multi-year lows ahead of the peak summer driving season that begins in two months,” reports Reuters. “Last week's 6 million-barrel drawdown was the biggest since September 2021, leaving inventories at 229.6 million barrels, their lowest for this time of the year since 2015, according to weekly government data. After Wednesday's data, U.S. gasoline futures climbed about 2% to $2.59 a gallon and so far this month, the contract has averaged $2.61, compared with a five-year March average of $2.01 through 2022.”

  2. Republicans criticized New Jersey’s offshore wind ambitions at a recent event in the state. “Four Republican lawmakers criticized offshore wind farms planned for waters off the East Coast at a New Jersey event, marking the latest sign of mounting pushback against the fledgling energy source,” reports Bloomberg. “The lawmakers said the federal approval process for the farms had been hurried and sloppy and raised multiple complaints about the industry, ranging from foreign ownership of wind developers to a rash of whale deaths to fears of higher power bills. The Biden administration wants to build 30 gigawatts of offshore wind by 2030.”

  3. Europe was the primary destination for American LNG in 2022. “U.S. exports of liquefied natural gas (LNG) averaged 10.6 billion cubic feet per day (Bcf/d) in 2022, increasing by 9% (0.8 Bcf/d) compared with 2021,” reports the Energy Information Administration. “The increase in U.S. LNG exports was driven by strong LNG demand in Europe, high international natural gas prices, and expanded U.S. liquefaction capacity. U.S. LNG exports to Europe increased 141%, or 4.0 Bcf/d, compared with 2021.”

Crom’s Blessing