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Vopak focuses on hydrogen imports in Rotterdam with German company.

Tank storage company Vopak and German hydrogen company Hydrogenious are starting a joint venture in the storage, transport and supply of hydrogen via hydrogen carrier benzyltoluene.

Through LOHC Logistix, the companies are committing to building a plant in Rotterdam that can initially decouple 1.5 tonnes of hydrogen per day from this carrier.

No final decision on the investment has been made yet. This will first require, among other things, the licensing process to be completed successfully. Both parent companies have, however, committed financially to the project.

In June 2022, Vopak announced that it would invest €1 billion in new energy and sustainable commodities until 2030.

LOHC Logistix’s ambition is to ‘take hydrogen logistics to the next level’. It does so based on the LOHC technology developed by Hydrogenious.

LOHCs (liquid organic hydrogen carriers) facilitate the transport and storage of hydrogen by binding it to a chemical compound, a hydrogen carrier such as a paste or an oil. Without such a carrier, the transport of hydrogen would require a temperature of -253°C.

By comparison, for LNG (liquefied natural gas) this is -160°C. In addition, storing hydrogen without a carrier requires tanks that can withstand extremely high pressures. When using an LOHC, this is not necessary.

By Hydrogen Central, January 19, 2023

First-nearby crude futures contracts, also known as the spot month contract, closed at just over $80 per barrel on the last day of trading in 2022. What might be in store for 2023?

The U.S. benchmark crude oil price, most visibly seen in the CME Group West Texas Intermediate (WTI) Light Sweet Crude Oil futures contract price, settled out 2022 at $80.26 a barrel for the February 2023 contract, which is currently the spot month.

The spot month futures contract represents the closest price of physical crude oil currently traded by the people who buy and sell actual crude oil barrels as producers and consumers.

Eighty dollars a barrel, according to the above referenced December 30, 2022 settlement price on the CME, is about the current price for liquid black gold, as it’s called by some. But what will the price be a year from now at the end of 2023?

Futures prices are just that, they are prices that represent what the collective marketplace believes today the price of crude oil will be at some point in the future.

Interestingly, the price of the February 2024 CME crude oil futures contract, the one that will be the spot contract one year from now on the last day of trading of 2023, settled at $76.30/bbl.

This means that crude oil futures markets expect the price of crude oil to drop by just about five percent over the course of the year to come. That’s good news for inflation and consumers.

But it’s a one-point-in-time snapshot of expectations, not a predictor for the ups and downs that oil markets will surely have between now and next year’s New Year’s Eve.

Some believe crude oil markets are poised to go higher in 2023, back towards the $100/bbl mark, due in part to China’s reopening and Russia’s threatened production cuts.

Others, like this writer, believe that an economic downturn promulgated by Europe’s disastrous wintertime energy costs and the resulting global fallout (all of which will come with the arrival of cold weather) will push crude oil prices closer to $50/bbl.

Based upon last year’s oil price volatility, the most likely scenario is that both of the above price projections will be realized in calendar 2023. Anything can happen and perceptions of the future will change, but as of right now, New Year’s Eve 2022, futures markets are projecting a slight year-over-year crude oil price decline in 2023.

Forbes by Sal Gilbertie, January 10, 2023

Europe’s gas prices are slumping as the combination of mild weather and reduced industrial consumption has produced an unusual seasonal increase in inventories which threatens to overwhelm the storage system.

Inventories in the European Union and the United Kingdom (EU28) are at the second-highest for the time of year in the last decade and on course to end the northern hemisphere winter at an exceptionally high level.

Plentiful inventories at the end of winter 2022/23 will reduce the amount of gas that needs to be put into storage this summer in preparation for winter 2023/24.

There will not be enough storage demand to absorb all the excess production over the summer months if prices remain at high levels.

Left unchecked, prices would fall sharply over summer to encourage more consumption, discourage production and slow imports.

But the futures market is forward-looking and prices are already falling to reduce the pace of inventory accumulation and preserve space for stocks to be added this summer.

SEASONAL NOT STRATEGIC STORAGE

Some policymakers have continued to call for intense gas and electricity conservation to secure supplies for winter 2023/24.

But Europe’s storage is designed to cope with seasonal swings in consumption; it is not a strategic stockpile to cope with embargoes or blockades.

EU28 gas storage is very different from the U.S. Strategic Petroleum Reserve and emergency petroleum stockpiles maintained in other countries.

Given finite capacity in the gas storage system, there is a limit to how much conservation in winter 2022/23 can improve supply security in winter 2023/24.

Slumping gas prices imply the limit is close to being reached.

EU28 inventories rose by 9 terawatt-hours (TWh) between Dec. 23 and Jan. 2 compared with an average seasonal depletion of 26 TWh in the same period over the previous 10 years.

Stocks are now 218 TWh (+30% or +1.98 standard deviations) above the prior 10-year seasonal average up from a surplus of 92 TWh (+10% or +0.86 standard deviations) when the winter season started on October 1.

Inventories are on course to fall to around 562 TWh before the end of winter, with a likely range of 435 TWh to 743 TWh, based on seasonal movements over the past 10 years.

This would still be the second-highest winter-end stock in the past 10 years (stocks ended winter 2019/20 at 609 TWh) and far above the average of 345 TWh.

Moreover, the storage surplus has been increasing, not reducing, this winter, as high prices, industrial shutdowns and warmer than average temperatures have curbed consumption and attracted record LNG inflows.

Total storage capacity is only 1,129 TWh so the system is on track to end winter 50% full (with a probable range of 39% to 66%).

This would not leave much volume for additional gas to be added during the low-consumption refill season from April to September.

INVENTORY AND PRICE CORRECTION

The current inventory trajectory is unsustainable.

Traders no longer anticipate inventories might fall critically low before winter ends. Instead, prices are falling to encourage more consumption and redirect LNG to more price-sensitive buyers in South and East Asia.

Futures prices for gas delivered at the end of winter in March 2023 have slumped to 68 euros per megawatt-hour (MWh) from 135 euros on Dec. 15 and 194 euros at the start of winter on October 1.

The end-of-winter calendar spread between March and April 2023 has fallen into a contango of more than one euro from a backwardation of one euro on Dec. 15 and almost 10 euros at the start of the winter season.

Policymakers have criticised very high prices for gas that prevailed for much of 2022 following Russia’s invasion of Ukraine.

But high prices forced reductions in consumption and maximised LNG imports, removing the threat gas supplies would run out in winter 2022/23.

Europe’s gas market worked.

Now the focus has turned to ensuring a smooth transition of prices and stocks ahead of winter 2023/24.

Reuters By John Kemp, January 10, 2023

India has approved an incentive plan of 174.9 billion rupees ($2.11 billion) to promote green hydrogen in a bid to cut emissions and become a major exporter in the field, the information minister said on Wednesday.

The move is targeted to help India, one of the world’s biggest greenhouse gas emitters, achieve net-zero carbon emissions by 2070. Reuters reported last month about India’s plans for a green hydrogen incentive programme.

The country aims for annual production of 5 million tonnes of green hydrogen by 2030, cutting about 50 million tonnes of carbon emissions and saving one trillion rupees on fossil fuel imports, the minister, Anurag Thakur, told reporters.

“Our aim is to establish India as a global hub of green hydrogen,” Thakur said. “We will make efforts to get at least 10% of the global demand for green hydrogen (by 2030).”

Hydrogen, made by splitting water with an electrical process called electrolysis, can be used as a fuel. If the devices that do that, electrolysers, are powered by renewable energy, the product is called green hydrogen.

India also plans to build electrolyser capacity of 60 gigawatts to 100 gigawatts to help produce green hydrogen, Thakur said.

The incentive by the government aims to make green hydrogen affordable and bring down its production cost, currently at 300 rupees to 400 rupees per kg, according to industry sources.

Fertiliser, refining and iron and steel units currently consume grey hydrogen, made through fossil fuels, of 5 million tonnes per annum, according to industry sources.

Grey hydrogen costs around 200 rupees per kg to produce, sources added, as gas costs have pushed the prices from 130 rupees per kg.

To promote the use of green hydrogen, Thakur said obligations – such as mandatory targets for green hydrogen consumption – would be required of fertiliser units, petroleum refineries and city gas distribution networks.

The government expects investments totaling 8 trillion Indian rupees ($96.65 billion) in the green hydrogen sector by 2030, Thakur said, adding that incentives will be given for manufacturing of electrolysers and production of green hydrogen.

The United States and the European Union have already approved incentives worth billions of dollars for green hydrogen projects.

Indian companies such as Reliance Industries (RELI.NS), Indian Oil (IOC.NS), NTPC (NTPC.NS), Adani Enterprises (ADEL.NS), JSW Energy (JSWE.NS), ReNew Power (RENE.BO) and Acme Solar (ACMO.NS) have big plans for green hydrogen.

The government’s incentive programme, named the “Strategic Interventions for Green Hydrogen Transition Programme (SIGHT)”, will also need additional government spending of 14.66 billion rupees for pilot projects and about 8 billion rupees towards research and other expenses.

($1 = 82.8000 Indian rupees)

Reuters by Sarita Chaganti Singh, January 10, 2023

Europe has been forced to shore up its energy supplies since Russia invaded Ukraine.

The continent has averted a worst-case scenario for this winter. Now, it’s racing to build new liquified natural gas infrastructure ahead of the next one.

Europe raced to shore up its energy supplies in the wake of Russia’s invasion of Ukraine, and it appears to have averted a worst-case scenario this winter — largely thanks to liquified natural gas.

For years, Europe was heavily dependent on Russian pipeline gas. But when Russia attacked Ukraine, and Europe could no longer count on those gas flows, it pivoted hard to LNG, a flexible energy source that comes largely from the United States, Qatar, Australia and Algeria.

Europe has successfully filled its gas storage capacity to 95%, which means all should be OK this winter. But next winter is a different story.

Because Europe was so reliant on Russia, it has limited LNG import capacity. European countries are scrambling to build new infrastructure to be able to import more of it.

CNBC by Julianna Tatelbaum, January 5, 2023

Rising COVID case counts in China and fears about an impending global economic recession continue to weigh on sentiment and positioning.

Brent time spreads flipped back into contango pointing to a possible surplus in Q1 2023.

But most of these headwinds are going to be transitory, and once China’s reopening digests all of the excess product inventories, crude buying will return, which should result in the physical market flipping back into a shortage.Looking for a helping hand in the market?

Members of HFI Research get exclusive ideas and guidance to navigate any climate.

For most energy investors by now, a casual drop of $8/bbl in WTI in the span of 48 hours is normal.

While there aren’t headlines we can point to that caused such a dramatic selloff, we can tell you based on the data we are seeing that the market is implying Q1 2023 oil market balances to be weak.

If you take a step back from the minutiae of the oil markets, you can’t blame the broader market for wanting to avoid oil and energy exposure in the near term.

China’s COVID case counts are spiking likely leading to further compression in economic activities in the near term.

Brent time spreads have fallen back into contango leading to CTAs being biased to the short side.

Global PMI continues to falter pointing to more slowdowns ahead.

What I can say is that there’s no shortage of worries for investors, and what felt like the exact opposite scenario for energy bulls just 6-months ago now feels like hope is being lost.

However, this is where you have to be calm and collected. Situations like these require investors to really think things through.

For example, if markets are worried about China’s spiking case counts causing a further slowdown in the near term, instead of falling in line with the market, you should ask the simple question, “Doesn’t the rapid spread of COVID imply an even faster recovery down the road?” And the answer is invariably, yes, it does.

And what about the weak Brent time spreads we are seeing? Doesn’t this imply that oil market balances may build in the near term?

Keep in mind also that the weather outlook is very warm in Europe, so there’s been no gas-to-oil switching. In fact, it’s so warm, we think heating oil demand has also been impacted.

The time spreads, in essence, are telling me that demand will be weaker than expected in Q1.

The physical oil market is already starting to trade March barrels, and from the looks of it, things look loose. The COVID case spike coupled with a surplus of product inventories in China just means that it will take a while before we fully digest the excess crude.

This is a reason why you are only seeing contango in the prompt month time spreads and not the latter half of the year.

But we know that this will be a transitory event. Once the case count spike is over, China’s demand will return in a meaningful way.

And the reason we say that is because if you take a look at China’s crude inventories relative to its import levels, there was no spike in inventory despite the steep jump in crude imports.

For December, China imported nearly ~11 million b/d of seaborne crude imports, and Kpler’s satellite inventory data shows that December crude inventories went down.

Now oil bears could attribute this to refineries increasing throughput resulting in a product surplus (another reason why the export quota was increased by ~50% y-o-y).

But we think all of this is still a transitory event. Why? Because the reopening trade was never going to be a smooth line. Cheap crude allows Chinese refineries to run harder causing product inventories to get bloated. Chinese refineries get the ok to export the excess product inventory.

The rest of the world will have to digest this excess. This, in turn, will hit refining margins in the short run, but if demand continues to recover, and China’s reopening is real, then that excess inventory will get used up.

All of this just means that Q1 oil market balances this year will be weak. The question for oil bears and bulls is how weak will balances be. If we build, what do the builds look like?

Using our very conservative demand assumption model, we think the build is somewhere around ~0.51 million b/d.

But the surplus is not expected to last. Q2 oil market balances should flip back into a deficit in a hurry, and once the reopening hiccup is over, China’s excess product inventory will turn into a shortage, which will fuel crude buying down the road.

So while the oil market is starting off with a whimper, we think the headwinds that are keeping prices down will dissipate.

The signal to watch for readers will be when Brent time spreads flip back into backwardation and headlines saying the excess product inventories in China turn into a deficit.

By Seeking Alpha, January 6, 2023

That would require an improvement in global growth, as well as a change in Chinese domestic conditions. Neither will happen any time soon.

Amid the doom and gloom of a crude oil market that looks like it may end this tumultuous year with prices below where it started, there’s been one glimmer of hope: China.

The country consumes roughly one in six barrels of oil in the world, and for most of this year has been stumbling from lockdown to lockdown as it attempted to uphold Covid Zero.

Now that policy has been unceremoniously junked, we’ll surely see an immediate demand surge comparable to what happened when the rest of the world reopened in 2021, sending energy markets into overdrive.

Up to a point. But assuming a direct correlation with other countries risks misreading the crucial ways in which China’s oil consumption is different.

For one thing, transport simply isn’t as dominant as it is elsewhere. Gasoline, diesel and jet kerosene use up 72% of the oil barrel in the US and 68% in the European Union.

In China, it’s just 54%. Petrochemicals, broadly defined to include everything that’s not a liquid fuel, account for another quarter of the barrel in the US and Europe. In China, it’s 42%. 1

That should put a dampener on the notion that 2022 has been a bust year for China’s oil demand. Gasoline and jet fuel output, as one might expect from the lockdowns, has been in the doldrums: 146 million metric tons were consumed in the 10 months through October, down 17 million tons on 2021.

Other products, however, have been booming, in line with the surging value of export trade. When foreign countries buy more Chinese imports, that tends to be bullish for the plastic feedstocks that go into making them, as well as the diesel that’s used to transport goods from factory to port, to fire up generators at industrial plants, and to help power the ships carrying products to foreign harbors.

In the same 10 months, output of the feedstocks of LPG, naphtha and ethylene was 112 million tons, up 9.1 million tons on the previous high.

Diesel consumption was 153 million tons, up a whopping 23 million tons (possibly due to some change in how China’s statisticians define diesel).

In fact, the only factor that’s prevented China’s crude oil consumption from hitting a fresh record this year has been a precipitous collapse in asphalt production. Output through October fell 16 million tons from a year earlier, a drop of nearly a third that subtracted more from total demand than any other single product.

That parallels the bust in the country’s real estate sector: bitumen is mainly used for surfacing the roads that connect new property developments to towns, as well building materials such as roofing.

Oil demand is always a more complex story than a direct relationship between driving behavior and crude consumption, but in China that’s more the case than in any other large economy.

Petrochemicals are not just a huge share of the barrel, but a sector unusually exposed to exports, and thus the state of demand beyond China itself.

Even diesel, the largest slice of the barrel, is less transport-exposed than in other countries, thanks to its role providing feedstock to chemical plants and powering on-site generators in the vast construction sector.

That’s reason to think even a rapid removal of Covid-Zero restrictions now won’t be sufficient to cause a sudden rebound in demand early next year. This would require an improvement in global growth, as well as a change in Chinese domestic conditions.

Don’t hold your breath. The US Federal Reserve is still pushing interest rates higher to stamp out lingering signs of inflation, and the World Trade Organization is forecasting a sharp slowdown in trade next year, with volumes forecast to rise just 1% compared to 3.5% this year.

This is consistent with where major forecasters see things. The Organization of Petroleum Exporting Countries expects oil demand to continue falling by about 55,000 barrels a day in the first quarter of 2023, before starting to climb through the rest of the year as travel resumes alongside resilient feedstock demand.

The International Energy Agency reckons consumption will run at relatively subdued levels comparable to 2019 until the middle of the year, when it should finally overtake its 2019 highs.

It’s a sign China’s long period as a driver of oil growth is near its end. Apparent domestic oil demand hasn’t appreciably expanded since hitting a plateau in early 2021.

Most of the rise in consumption we’ve seen this year went into exports of products from the country’s refineries and factories. India, which consumes about one barrel for every three used in China, is often these days a more important contributor to marginal demand.

A nation that’s long seen its addiction to foreign crude as a national security risk may be on the brink of kicking the habit.

By The Business Standard, December 28, 2022