Trudeau Ditches O&G Windfall Tax // Fire at Australian LNG Plant // Russia's Baltic Exports Could Drop 20%

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Trudeau Ditches O&G Windfall Tax

Canadian Prime Minister Justin Trudeau has dismissed the idea of hitting the energy and grocery sectors with a windfall tax. He described the idea as "simplistic."

"The last thing we want to do is put on a tax that people then just pass along to the consumers," Trudeau said. "I don't think that the simplistic solution, as satisfying as it might sound, is necessarily the right approach here."

"Statistics Canada reports that the annual food inflation rate hit 11.4 per cent last month, up from 11 per cent in October. Gasoline prices declined by 3.6 per cent but are still up 13.7 per cent compared to where they were a year ago," reports CBC. "Those averages conceal some price spikes for specific consumer items — such as edible fats and oils (up 26 per cent), coffee and tea (up 16.8 per cent), eggs (up 16.7 per cent) cereal products (up 15.7 per cent) and baked products (up 15.5 per cent)."

Canada's inflation rate has slightly mellowed. In October it was 6.9% and last month it was 6.8%--gasoline and furniture prices dropped, but food and rent rose.

And though Trudeau is ditching the windfall tax, the Liberal government has imposed one on big banks and insurers--a 15% tax on profits north of $1 billion for the 2021 tax year. The government expects to raise $4 billion through the windfall tax.

Fire at Australian LNG Plant

A fire broke out at an Australian LNG plant, knocking it offline. According to Shell, the owner of the Prelude plant, the "small fire" was contained. An investigation has been launched into the fire's cause.

"This is another setback for the world’s biggest floating LNG plant, which has struggled with ongoing technical issues since it started in 2019," reports Bloomberg. "The disruption also threatens to exacerbate the global energy shortage as winter demand for LNG from Shell’s Asian customers hits its peak. The London-based oil and gas major did not say when production would start again at the facility, which has the capacity to produce 3.6 million tons of LNG per year."

Prelude had just come back online after two months of maintenance. The plant's outage will likely force Shell to buy natural gas off the tight and pricey spot market to fulfill its contracts.

Russia's Baltic Exports Could Drop 20%

Russia's crude from Baltic Sea ports is projected to drop by 1 million tonnes from last month down to 5 million tonnes due to the EU's oil embargo and the Western price cap. Some say that the fall could be even steeper at 4.7 million tonnes.

"The $60 per barrel price cap introduced by the European Union, G7 nations and Australia allows non-EU countries to import seaborne Russian crude oil, but prohibits shipping, insurance and reinsurance companies from handling cargoes of Russian crude unless it is sold for under $60," reports Oilprice.com. "Traders have reported to Reuters that Russia is struggling to fully redirect Urals exports from Europe to other markets such as China and India India and is also having a hard time finding enough suitable vessels."

Only a handful of countries are still willing to buy Russia's Urals crude--China, India, Bulgaria, and Turkey. But China's demand remained weak throughout the year due to the productivity drops incurred by the country's zero Covid policy.

Will the price cap continue to pose a problem?

"Citi’s Global Head of Commodities Research Ed Morse has dismissed the price cap, terming it as silly, impractical and unlikely to work in tight gas markets because gas markets are global and not bifurcated into individual countries, meaning the forces of demand and supply are more likely to prevail in determining gas prices," reports Oilprice.com.

Plus, this year saw workarounds like the "Latvian blend" wherein Russian oil was mixed with Latvian oil in a proportion that could dodge sanctions. Iran and Venezuela use similar maneuvers to bring their sanctioned oil to market. Oil is a master resource. It is non-negotiable. People will find a way to get what they need.

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Conversation Starters

1. A Bulgarian nuclear plant signed a ten year deal for Westinghouse fuel. "Kozloduy nuclear power plant's unit 5 is to switch from Russian fuel with a decade-long contract for Westinghouse to fabricate and deliver VVER-1000 nuclear fuel," reports World Nuclear News. Tarik Choho, Westinghouse President of Nuclear Fuel, said: "We are proud to support Bulgaria on its path to ensure diversification and energy security. This long-term partnership will also reinforce the plant's operational efficiency and high standards of safety."

2. America's rig count has slipped. "The US oil and gas drilling rig count fell nine to 863 in the week ended Dec. 21, S&P Global Commodity Insights data showed Dec. 22. An eight-rig slide in the number of gas-focused drilling rigs to 184 comprised the bulk of the weekly decline, while the number of rigs chasing primarily oil dipped one to 679," reports S&P Global. "Most of these idled gas rigs were found outside the major plays, however. Rig counts in the eastern Marcellus and Utica shale play declined by two and one, respectively, to 33 and 14, but the number of rigs active in the southern Haynesville basin was steady at 81. In contrast, Permian basin rig counts climbed to 354, testing the top of its recent range, and Bakken drillers added three rigs for a total of 44—a six-week high."

3. Solar took a major loss in Ohio. "Local opponents have succeeded in killing plans for a solar array in rural Ohio that now becomes one of the largest renewable energy projects in the country canceled because of resistance from nearby residents and their elected leaders," reports Inside Climate News. "The company decided to withdraw its proposal to build the 400-megawatt Chipmunk Solar project in the face of a grassroots campaign and in light of state regulators’ recent rejections of projects that have local opposition." Chipmunk is the second-largest renewables power project in America to be cancelled due to local opposition.

Crom's Blessing