India and China Surge in Coal Production // Premature Refinery Closure in Houston Might Tighten Energy Crunch // Energy Austerity Comes to Japan

India and China Surge in Coal Production

India and China's coal production is surging by 700 tons per year. "[O]ver the past few weeks, China and India have announced plans to increase their domestic coal production by a combined total of 700 million tons per year. For perspective, US coal production this year will total about 600 million tons," reports Robert Bryce.

Bryce writes that the increase in coal demand demonstrates two things:

• "The Iron Law of Electricity has not been broken." Bryce's Iron Law is that “people, businesses, and countries will do whatever they have to do to get the electricity they need.”

• It's easy to talk the talk of decarbonization, but far harder to walk the walk.

Bryce argues that coal persists 140 years after Edison used it to light up his first service area in New York because "it can be used to produce the gargantuan quantities of electricity the world’s consumers need at prices they can afford. Indeed, coal’s share of global electricity generation has stayed at about 35%, since the mid-1980s."

I draw two conclusions from this observation. The first comes from a recent paper that explains why "why vast expansion in 21st-century coal consumption should not be used to describe any plausible reference case of the global energy future."

"Illustrating coal as a practically unlimited backstop supply is inconsistent with the current state of coal markets, technology, and reserve estimates. Future coal production faces many uncertainties, but the key uncertainty for long-term scenarios is the recoverable portion of reserves, not how many total geologic resources will eventually become reserves," the researchers argue.

We can't expect massive leaps in coal production, but we shouldn't discount its importance. Of course, it's a huge emitter, but facing the trade-off between having reliable electricity and not, almost everyone on Earth will pick having it even if it means burning coal.

So, the second point is that we shouldn't catastrophize about these coal expansions in the developing world. What America should do is try to work with developing countries to build nuclear instead.

Premature Refinery Closure in Houston Might Tighten Energy Crunch

America's refining capacity is likely to take a hit from the premature closure of the LyondellBasell-owned refinery in Houston.

Oilprice.com reports that LyondellBasell "could close the facility prematurely if a major equipment failure affects processing units" according to "two sources with knowledge of the chemicals giant’s operations." Originally, the refinery was supposed to close late next year.

The firm says that they "have determined that exiting the refining business by the end of next year is the best strategic and financial path forward for the Company.”

This couldn't come at a worse time. According to Oilprice.com, the "268,000-bpd Houston refinery has the ability to transform very heavy high-sulfur crude oil into clean fuels, including reformulated gasoline and low-sulfur diesel. Other products include heating oil, jet fuel, olefins feedstocks, aromatics, lubricants, and petroleum coke."

Operable refinery capacity in 2021 was at its lowest level since 2021.

The industry still hasn't recovered from the pandemic, during which many refiners shut down their facilities or converted them to biofuel production.

"Motor gasoline inventories in the U.S. are now about 9% below the five-year average for this time of year, the EIA’s latest data from last Wednesday showed. Distillate fuel inventories, which include diesel, are about 24% below the five-year average for this time of year," reports Oilprice.com

According to the EIA, the most recent significant refinery built in America was completed in 1977.

Losing this one could really hurt.

Energy Austerity Comes to Japan

Japan has called on both households and businesses to conserve their energy consumption to stave off a power crunch this summer.

Reuters reports, "The measure was set at a meeting of cabinet ministers on Tuesday as three regions, including Tokyo, are expected to see their excess generation capacity - the level below which supply shortages and blackouts are possible - falling to near 3% in July."

The Japanese government has not made such a request since 2015. Between July 1 and September 30, "the public will be asked to turn off unnecessary lights and to set air conditioners at 28 degrees Celsius [82 F]."

Japan, a resource-poor country, has struggled during the energy crunch. Last week a district court stopped a Japanese utility from restarting a nuclear plant that would help the country widen the margins.

It looks bleak going into winter as well. It's estimated that excess capacity will decline below 3% in 70% of the country in January and February. This area includes Tokyo, where excess capacity is expected to slip below 0%.

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Conversation Starters

• The Hammerfest's first LNG cargo since September 2020 just departed. The Norwegian export facility has been down since a fire broke out two years ago.

• South Korean steelmaker Posco says that increasing environmental regulations will damage domestic industry and benefit India and China.

• EIA: "During the first four months of 2022, the United States exported 74% of its liquefied natural gas (LNG) to Europe, compared with an annual average of 34% last year."

Crom's Blessing

"To Protect Our Way Of Living."