Japan Goes Full Nuclear // Moody's Upgrades PG&E // Goldman Softens Oil Outlook

Japan Goes Full Nuclear

Japan just put out a bullish nuclear plan to secure its energy supplies and decarbonize its economy.

"The basic plan for green transformation marks a departure from Japan’s policy of reducing its dependence on nuclear energy decided after the 2011 meltdowns at Tokyo Electric Power Company Holdings Inc.’s tsunami-hit Fukushima No. 1 power plant," reports The Japan News. "The plan also includes a target of achieving over ¥150 trillion in public and private investments for decarbonization over the coming 10 years."

The plan calls for building new nuclear reactors to replace decommissioned ones and ending the freeze on reactor projects. The government will allow power companies to operate reactors beyond the current 60-year limit. It also will collect fees from fossil fuel importers and power companies to buy emission credits through emission trading starting in 2033.

Moody's Upgrades PG&E

Good news for PG&E Corp. and its utility subsidiary Pacific Gas & Electric: Moody's Investors Services has upgraded its outlook from stable to positive thanks to PG&E's efforts to reduce wildfire risks.

“PG&E’s positive outlook reflects the potential for a higher credit rating as it continues to invest heavily on wildfire mitigation, improves its relationship with stakeholders, and establishes a track record of limiting large, catastrophic wildfires that are caused by the utility’s equipment,” Jeff Cassella, Moody's vice president – senior credit officer, said.

PG&E's access to the state's $21 billion wildfire insurance fund and supportive provisions of the AB 1054 legislation also played a role in the upgrade.

The utilities credit worthiness depends on its ability to address the wildfire risks and reduce exposure to physical climate risks, according to Moody's.

"In December, the California Public Utilities Commission passed a unanimous resolution removing PG&E from an enhanced oversight and enforcement process, citing improved vegetation management practices," reports Utility Dive. "Also, SB 884, signed into law last September, provides support for PG&E’s plan to bury 10,000 miles of its power lines in areas with fire risks, which would help limit the utility’s exposure to wildfires, Moody’s said."

Moody's left PG&E Corp.'s "corporate family rating" unchanged at Ba2.

Goldman Softens Oil Outlook

Goldman Sachs has cut its oil forecast. Previously, its analysts expected Brent to crest $100 by mid-year, but now they anticipate it won't happen until December.

"The bank is still among the most bullish on Wall Street when it comes to commodities and believes the market has entered a supercycle," reports Bloomberg. "Yet it now predicts a supply surplus of 150,000 barrels a day this year, after lowering demand forecasts for major economies and pushing up production estimates for Russia and the US slightly."

“This adjustment reflects a modest softening to our 2023 balance,” Goldman analysts said.

Goldman predicts an average price of $92 a barrel for Brent crude oil, lower than its previous estimate of $98. It attributes the dip to high interest rates impacting economic growth/energy consumption and lower investor concern about a drastic drop in Russian exports due to sanctions.

But Goldman maintains a long-term outlook for high oil prices, with an average of $100 for Brent next year. The bank believes China's economic recovery will lead to a crude market deficit by June 2023 and that OPEC producers will increase output in the second half of the year to balance supply and demand.

This outlook differs from Citigroup's prediction of a well-supplied market and a $10 per barrel decrease in prices by the end of 2023. But Goldman's outlook to agree the expectations of OPEC members.

Reuters recently spoke privately with several OPEC country officials in regards to the potential of $100 oil. Three of the five see more likelihood in a 2023 rally than a decline; two anticipate a return to $100 oil.

"It should be said that the shadow of the energy crisis will continue to dominate the world and the general trend of global oil prices will increase," one of the sources told Reuters. "In my opinion, the return of Brent crude to above $100 at some time in 2023 is not unexpected."

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1. Freeport LNG exports its first cargo since switch off. "The BP-chartered Kmarin Diamond departed the Texas facility at around 7:30 a.m. local time. It appeared to be at least partially laden, with its next destination set for Port Said, which suggests it would be heading through the Suez Canal, the trade flow data showed," reports S&P Global. "To load the tanker, Freeport used supplies that were in its storage tanks when the fire forced the terminal offline in June, an Atlantic market source said. Production restart was close, sources have said."

2. Russia is slashing its output. "Russia will cut oil production by 500,000 barrels per day, or around 5% of output , in March, Deputy Prime Minister Alexander Novak said on Friday, after the West imposed price caps on Russian oil and oil products," reports Reuters. "The price of Brent crude rose on the news of the output cut from Russia, the world's second-largest oil exporter after Saudi Arabia, increasing by more than 2.5% on the day to $86.6 per barrel."

3. Europe's renewable PPA market remained stable despite last year's turbulence. "Developers signed 8.4 GW of power purchase agreements (PPAs) in Europe in 2022, down 21% by volume from the preceding year, according to Pexapark’s newly published annual report. However, the Swiss consultancy notes that the 161 deals that were actually signed rose by 4.5% year on year, with Spain leading the way," reports PV Magazine. "Corporate PPAs accounted for 80% of the total in 2022, and 83% of the contracted volumes. The contracted capacity of corporate PPAs grew by at least 20%, from just 5.8 GW in 2021."

Crom's Blessing