Regulations Hamper Freeport's Restart // What Happened to Great Oil Rally? // UK Energy Suppliers Face Tsunami of Bad Debt

Regulations Hamper Freeport's Restart

The Freeport LNG terminal, which closed in June after a fire, faces several regulatory hurdles before it can restart. The 15 million tonne-per-year facility was hoping to restart some of its production by mid-December, returning to full operation by March.

But the Federal Energy Regulatory Commission has other plans. "But now, the U.S. energy regulator FERC has notified the company of a rather long list of regulatory conditions that must first be met before the plant can be restarted," reports Oilprice.com. "FERC, along with the Coast Guard and the Pipeline Hazardous Materials Safety Administration, visited the facility on November 30. On Monday, FERC responded to that visit by sending a request to Freeport for information or documents for a list of 64 different items."

FERC has made it clear that Freeport will not restart until the commission is satisfied that the facility has responded to its request and has taken "acceptable measures" to guarantee safety.

What Happened to Great Oil Rally?

This year saw shocking surges in crude prices. When Russia invaded Ukraine in March, Brent crude futures hit $139. Then another spike came when two years of refinery closures caught up with the market. Many expected crude to stay north of $100. What happened?

The first reason is depressed demand. "China is the world's largest crude importer and second- largest oil consuming nation, second only to the United States," reports Reuters. "But in 2022, strict government intervention to contain coronavirus cases starkly reduced industrial and economic output as well as demand for travel. China's measures depressed oil demand by as much as 30% to 40% in China, according to analyst estimates."

Europe's winter came in mild and economic activity across the globe cooled off.

The second reason is central bank rate hikes in response to rising inflation. "Rising interest rates increased the value of the U.S. dollar, which pressured oil prices as a strengthening dollar makes the greenback-denominated commodity more expensive for other currency holders," Reuters reports.

Third, supply fears were overblown. "OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, angered the United States and other Western nations in October when it agreed to cut its targeted output by 2 million barrels per day (bpd), or about 2% of world demand, from November until the end of 2023," reports Reuters. "OPEC+ said it cut output because of a weaker economic outlook, but the move did not shore up prices. About half of OPEC's cut was on paper only, as the producing group has been routinely falling short of its targets."

American production also picked up over the course of the year, rising to 12.2 million barrels per day. Though that's a drop from the pre-pandemic 13 million barrels per day, it was enough to keep prices low.

The fear of supply constraints was premised the concerns about the consequences of cutting off Russian supplies from the market. But Russia's production hasn't slipped as much or as fast as people anticipated.

Lastly, speculators fled. "Hedge funds and other money managers built big positions in crude contracts in the wake of Moscow's invasion, but have swiftly exited the market, removing some of the support for oil's rally," reports Reuters.

UK Energy Suppliers Face Tsunami of Bad Debt

British consumer bills are saddling UK energy providers with a dangerous amount of bad debt.

"Household energy suppliers in the UK could be exposed to as much as £1.9 billion ($2.4 billion) of debt, of which a significant portion could be unrecoverable," reports Bloomberg. "The debt could lead to more supplier failures in a worst-case scenario, new research from energy consultants Cornwall Insight and Complete Strategy, published on Tuesday, concluded."

As debts pile up, consumers will see their bills continue to rise at a time when many Brits already teeter on the precipice of fuel poverty.

Since the summer of 2021, nearly 30 energy suppliers have failed. Ofgem (the UK's energy regulator) has failed to handle problems in the supplier market and cost consumers $3.35 billion since July 2021. "Meanwhile, the cost of Bulb Energy Ltd.’s collapse alone is expected to rise to £6.5 billion that will be shouldered by Britons struggling to make ends meet," reports Bloomberg. "The so-called bad debt will likely only grow, with the support provided by the government’s energy price freeze package changing from £2,500 to £3,000 for an average household, exacerbating the risk of supplier failures from April 2023, according to the consultancy firms."

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Conversation Starters

1. Tesla's stock continues to tumble. "It doesn't look like anyone can stop the recent selling in Tesla, and Goldman Sachs doesn't seem interested in stopping that party. Ever since Elon Musk has been diverting his attention to Twitter, shares of Tesla have suffered. They are down about 10% in just the last 5 trading days and the company is trading near 52-week lows that are about 60% lower than the company's 52-week high of $402.64," reports Oilprice.com. "Shares of the automaker are down again about 1% in the Wednesday morning session - following a plunge of about 15% over the last month - after the investment bank downgraded the name on "softer supply and demand" worries."

2. TerraPower's advanced nuclear reactor in Wyoming is already seeing delays. "The advanced nuclear reactor proposed for southwestern Wyoming will likely be delayed at least two years, its developer announced Tuesday," reports the Casper Star Tribune. "With Russia, the only commercial source of the more highly enriched fuel the plant requires, no longer an option, TerraPower will have to wait for the U.S. supply chain to catch up. The chances that can happen by the company’s 2028 target now look almost impossibly slim." Its tentative start date has been moved to 2030.

3. Tanker rates for refined petroleum products hit multi-year highs this year. "Rates for petroleum product tankers that carry low-sulfur petroleum products, including refined petroleum products such as motor gasoline, diesel fuel, jet fuel, and naphtha, reached multiyear highs this summer. Rates for these tankers, known as clean tankers, remained elevated through November, driven largely by the effects of Russia’s full-scale invasion of Ukraine," reports the Energy Information Administration. "Historically, tanker rates increase when petroleum demand is low because tankers begin to be used as flexible, floating storage. In April 2020, an oversupply of crude oil and refined petroleum products, resulting from decreased demand during the COVID-19 pandemic, drove both clean and dirty tanker rates to record highs. Dirty tankers mostly carry crude oil, but they can also haul high-sulfur petroleum products such as residual fuel oil."

Crom's Blessing