Trafigura Signs $3 Billion Gas Loan With Germany // Vanguard Quits Net-Zero Climate Alliance // America: Coal to Gas in Twenty Years

Trafigura Signs $3 Billion Gas Loan With Germany

Trafigura Group, a commodities trader, just secured a German-government backed loan for $3 billion to secure LNG supplies as winter starts to deepen.

"It’s the second such deal in recent months, after Trafigura in October announced it had secured an $800 million loan to supply metals to Germany," reports Yahoo! News. "Increasingly, trading companies that have historically been major off-takers of Russian energy, grains and metals are now being tapped by governments to find alternatives from international markets."

With sky-high commodities prices, deals like this are vital for firms like Trafigura to secure financing. Deutsche Bank plus another bank arranged and underwrote the four-year loan, which was syndicated to over 25 other lenders.

This trend extends beyond Europe. Japan's also cutting big deals for natural gas. Japan Bank for International Cooperation made a lending deal with private banks to give the country's biggest utility, JERA, a $900 million loan to procure LNG.

"One thing worth remembering: The developing world is unable to compete for fuel when governments like Japan and Germany can pull together billion dollar loans," Bloomberg's Stephen Stapczynski tweeted.

Vanguard Quits Net-Zero Climate Alliance

Vanguard exited the world's largest climate-finance alliances this week in response to Republicans stepping up their retaliation against the ESG movement. Vanguard's defection is the biggest setback the coalition has faced to date.

"Vanguard’s decision followed a 'considerable period of review,' according to a company statement Wednesday," reports Bloomberg. "Withdrawing from the Net Zero Asset Managers initiative, which is a sub-unit of the Glasgow Financial Alliance for Net Zero, 'will help provide the clarity our investors desire' about everything from the role of index funds, to financial risks in the context of climate change, the firm said."

The GOP has staked out its turf: pro-ESG is anti-American energy. The House Republicans plan to hold congressional hearings on the topic and several Republican-led states have already retaliated against financial firms committed to net zero strategies. GFANZ handles some $150 trillion in assets and has 550 members.

Politics aside, ESG has inherent problems. "Lawyers advising the finance industry have warned that concerns around legal risks are justified," reports Bloomberg. "If a bank or asset manager has 'proclaimed' an intention to reach net zero by a given date, 'but now realizes it won’t make that goal,' it’s in danger of Federal Trade Commission enforcement action, DLA Piper said on its website back in August. That 'could result in significant investigative and litigation costs, large financial penalties, and negative publicity,' it said."

America: Coal to Gas in Twenty Years

Natural gas has overtaken coal generation in America.

"In 15 U.S. states last year, coal was used to generate electricity more than any other energy source. Twenty years earlier, in 2001, coal was the largest source of electricity generation in 32 states. The United States has shifted away from coal-fired generation since it peaked in 2007 and toward natural gas and renewables," reports the Energy Information Administration.

When coal was king in 32 states, natural gas was the largest source of electricity generation in seven states. Twenty years later, in 2021, natural gas became dominant in 23 states. Coal's downfall came in a wave of retirements just as gas plant construction picked up. Coal found itself priced out of the electricity markets due to the one-two punch of cheap natural gas generation supplemented by heavily subsidized wind and solar.

"In three states—Iowa, Kansas, and South Dakota—where coal-fired plants generated the most electricity in 2001, the largest shares of electricity generation shifted to wind turbines by 2021. All three states are located in the blustery Great Plains, where the country’s most abundant onshore wind resources are located," reports the EIA.

Coal still provides over 70% of power in four states--West Virginia (91%), Missouri (75%), Wyoming (74%), and Kentucky (71%). West Virginia, Wyoming, and Kentucky are some of the largest coal producers in America.

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Conversation Starters

1. Correction: Yesterday, I featured a piece by the Daily Mail on wind turbine life expectancies. Embarrassingly for me, the article was quite old. Thank you to the readers who pointed this out to me and I apologize for my mistake. Yesterday's newsletter will be edited on our website, linking to today's url pointing out the correction. For a more recent look at the problems in wind turbine life expectancy and energy costs, see this 2020 research by the DOE's Berkeley Lab on the American wind fleet. "The lab found that after the first 10 years of operation, wind turbines tended to experience an 'abrupt decline' in performance, which continued as time went on. They produced less electricity than possible given wind conditions at a specific site," writes EnergyWire. The researchers suggest that the termination for tax credits after ten years may disincentivize necessary maintenance among other possibilities. "Often," the researchers write, "[the rate of performance decline] is not accounted for by investors, energy modelers, and policy makers."

2. Unit 1 of South Korea's Shin Hanul nuclear power plant has entered commercial operation according to Korea Hydro & Nuclear Power. "Commercial operation refers to the start of power generation in earnest after confirming final safety through commissioning tests and receiving approval from the government," KHNP said. KHNP CEO Hwang Ju-ho said, "We will operate Shin Hanul unit 1 with safety as our top priority so that we can contribute to electricity supply and demand in winter."

3. Will America expand shale gas production next year? Prepare to be disappointed. "Despite the fact that U.S. crude oil production has recently hit the highest level since the pandemic low of below 10 million barrels per day (bpd) in May 2022, the growth rate has markedly slowed this year as the shale patch struggles, labor shortages, supply chain delays, and the high cost of supplies while producers focus on returns instead of drilling," reports Oilprice.com. And those trends don't seem likely to change by next year. The Energy Information Administration forecasts that crude production will average 11.7 million barrels per day this year with a slight increase to 12.4 million b/d 2023. And even though that would surpass 2019's record high, the global market looks to remain tight.

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