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INSIGHT: China hydrogen investments to gain momentum on Energy Law

SINGAPORE (ICS)–China’s Energy Law that will take effect in January 2025 is expected to drive investments in the domestic hydrogen sector as it will provide further policy support, and enable technological developments aimed at expanding the scope of hydrogen applications. Under the law, hydrogen will no longer be classified as a dangerous chemical product, thus, removing restrictions around its applications, production and storage. China’s hydrogen sector is currently in the demonstration phase, mainly focusing on commercial vehicle application. When the new legislation kicks in, hydrogen production and refuelling stations and storage facilities will be allowed outside designated chemical parks, and that is expected to address infrastructure gaps in the sector. Hefty transportation cost due to lack of hydrogen refuelling stations and long-distance pipelines has been one of the key bottlenecks that impede hydrogen adoption in China. Storage and transportation account for about 30% of end-use hydrogen costs, limiting hydrogen applications in urban public transport and long-haul sectors. With the new energy law, development of the Chinese hydrogen sector is expected to gain pace between 2026 and 2030. (See ICIS Hydrogen Topic Page for details) The China Energy Law was approved on 8 November at the 12th session of the Standing Committee of the National People's Congress (NPC), China's top legislature. It fills a legislative gap since China – despite being the world's largest energy producer and consumer – had long lacked an overarching energy law. Currently, there are several standalone energy-related laws and regulations in the country, including the Electricity Law, the Coal Law, the Energy Conservation Law, and the Renewable Energy Law, but lacked a legislation that covers the whole energy industry until now. The recently launched Energy Law will provide a much-needed framework for strengthening the legal foundation of the energy sector, ensuring national energy security and promoting renewable and low-carbon transformation. The law includes nine sections, covering stipulations on energy planning, development and utilization, energy market systems, energy reserves and emergency measures, energy technology innovation, supervision and management, legal responsibilities, supplementary provisions. Insight article by Patricia Tao and Yu Yunfeng

13-Nov-2024

Asia petrochemical shares fall on strong US dollar, uncertain trade policies

SINGAPORE (ICIS)–Shares of petrochemical companies in Asia extended losses on Wednesday, tracking weakness in regional bourses, amid a strong US dollar and uncertainty over trade policies of US President-elect Donald Trump which could fuel inflation. At 04:00 GMT, LG Chem fell by 4.75% in Seoul, while Mitsui Chemicals and Asahi Kasei were down by 2.90% and 0.88%, respectively, in Tokyo. Formosa Petrochemical Corp (FPCC) was down 1.79% in Taipei, while Sinopec Corp slipped 0.47% in Hong Kong. Japan's benchmark Nikkei 225 Index was down by 1.01% at 38,978.11; South Korea's KOSPI Composite fell by 1.91% to 2,435.04; and Hong Kong's Hang Seng Index slipped by 0.63% to 19,721.58. Sentiment toward Asian equities has shifted to caution following Trump's re-election on concerns that his policies will drive up inflation and prevent the US Federal Reserve from cutting interest rates further. The broad dollar index (DXY) rose further on 12 November to its highest since November 2022, according to Singapore-based UOB Global Economics & Markets Research. The DXY, which measures the greenback against six peers, inched up 0.05% on Thursday to 105.97. A stronger US dollar makes imports more expensive for Asia, fueling inflation, and higher borrowing costs for the region. Japan and China rely heavily on imports for their energy and raw material needs. The South Korean won continued to slide against the greenback on Thursday, hovering above the psychologically important level of won (W) 1,400 at W1,406.57 to the US dollar. The Japanese yen (Y) also touched a fresh low since 30 July on Thursday and was trading at around Y154.8 to the US dollar. Thumbnail image: US dollar banknotes, 19 September 2024 (Costfoto/NurPhoto/Shutterstock)

13-Nov-2024

Mexico in strong position to renegotiate USMCA, tariff panic premature – Braskem Idesa exec

SAO PAULO (ICIS)–A potential US import tariff of 10% on Mexican goods is looming large on the country's export and petrochemicals-intensive manufacturing sectors, but it is early days and the worries are premature, according to the head of institutional relations at polyethylene (PE) producer Braskem Idesa. Sergio Plata, who is also the president of the Association of Industrialists of Veracruz State (Aievac), home to a large petrochemicals hub, added that Mexico is not only a supplier to the US – the country exports around 80% of what it produces to the US – but it is also a key consumer of US goods. Plata said this will be a crucial factor that will allow Mexico to renegotiate the United States-Mexico-Canada Agreement (USMCA) from a position of strength when it is up for renewal in 2026. Although the focus in the past week has been on how Mexico could be hit by tariffs when Trump becomes US president – with some analysts forecasting a negative impact of 0.5-1% of GDP in a full year – Plata made a call to stay calm and carry on – for now. He argues that the tariffs will not be imposed overnight, saying that such topics are likely to be addressed within the context of the USMCA renegotiation, in more than a year’s time. Moreover said Plata, in Donald Trump’s first term, he ended up dropping some campaign promises under pressure from different lobby groups, not least businesses which could see input costs spike if new tariffs are implemented. “These [proposals would be] important challenges for Mexico, and I believe 2026’s USMCA renegotiation will be key for the entire North America so we can continue being and become more competitive,” said Plata. “Regarding tariffs, at this time we can only wait until the parties sit at the negotiating table, so we can have a dialogue with the US government. What I can certainly say is that NAFTA first and now USCMA have greatly served the three countries, a success which we should not measure only based on the trade balance.” The US trade balance – or deficit – is a key theme running through Trump’s tariff proposals as he wants to re-invigorate the US manufacturing sector, and produce as much as possible domestically. Indeed, the US consistently runs a large trade deficit with China and Mexico, its two main sources of manufactured goods. In 2022, Mexico exported goods worth $452 billion to the US, according to data from Comtrade via Trading Economics; the US, in turn, exported goods worth $323 billion to Mexico – a difference of nearly $130 billion. According to Plata, nothing is written about tariffs, at least within the USMCA, and issued a reminder of what happened when the USCMA was first signed, as a successor to NAFTA after Trump’s first administration demanded changes to a free trade deal it deemed disadvantageous. Despite the furore, tariffs were kept off the table because the US government eventually saw that tariffs within the USCMA would also negatively affect its own companies. Whether an emboldened Trump, with a clear popular mandate to implement his promises, will also give in this time remains to be seen. “We would be going too far ahead of ourselves if we already think a 10% tariff on Mexico will be imposed. We Mexicans must now make it clear to the US that the commercial relationship should not only be measured on the trade deficit, but rather on what Mexico gives to the US as well, and not just the other way around,” said Plata. “Because Mexico also generates North America-wide economic development. I can speak for what I know best and only in this region, only in the south of the state of Veracruz, we import from the US around 1.3 million tonnes/year of chemicals and petrochemicals, resulting in billions of imports. The figures are important both ways and this will be brought to a potential negotiating table.” SHEINBAUM AND TRUMPA fascinating aspect for the years to come will be the personal relationship between the US and Mexican presidents, if any – Trump and Claudia Sheinbaum could not be more different ideologically. Sheinbaum’s backing of a supermajority in parliament of two-thirds may cause further friction going forward on top of that caused by the approval on 11 September of a controversial judicial reform which is opposed from many fronts. The US ambassador to Mexico has publicly sounded the alarm about Morena’s judicial reform (see statement here), as did the US chemicals trade group the American Chemistry Council (ACC) and nine other industrial peers who wrote to the US cabinet to “convey their concern” about the proposals. “Regarding the judicial reform, we have the basis for the state of law in the Constitution, and that is a framework that provides certainty,” said Plata. “The devil is in the details, and in coming weeks and months we’ll evidently have to pay attention in the secondary stages of the reform’s debate in parliament, which must be open to listen to the specialists,” said Plata. The Braskem Idesa executive preferred to bring the conversation back to Mexico’s 2026 challenge. One-party Morena reforms allowing, Plata said the current Mexican cabinet would head into a potential USMCA renegotiation in a strong position. “We are in a good position to negotiate, now more than ever, and this is because as a country we are in much better place than we were at in 1994, when Mexico signed NAFTA. At the time, the US and Mexico did not have the solid trade relationship they have today,” he said. “On the Mexican side, many things have changed for the better. Since the 1990s, we have signed more than 50 free trade agreements (FTAs) and the state has now excellent trade negotiators. As an industry and as a country, we are well prepared to sit at the table and reach a good outcome in 2026.” – ICIS will publish on Wednesday (13 November) the second part of this interview, focusing on Sheinbaum’s domestic policies towards chemicals. As President-Elect, she approached the industry and travelled to its Veracruz hub, gaining praise from Plata as well as other industrial groups. As President, is she keeping up that focus on fostering chemicals? Plata said she is – Read this Insight article for wider analysis on how new trade policies in the US could hit the Mexican economy Interview article by Jonathan Lopez

12-Nov-2024

Americas top stories: weekly summary

HOUSTON (ICIS)–Here are the top stories from ICIS News from the week ended 8 November. INSIGHT: Pile of chemical assets under strategic review grows. Who’s buying? Dow’s announcement that it will put its European polyurethanes (PU) business under strategic review adds to the growing pile of assets being evaluated for sale, restructuring or shutdown – mostly in Europe. A key question then becomes: Who, if anyone, could buy these assets? US Celanese to slash dividend, idle plants after big Q3 earnings miss Celanese plans to cut its quarterly dividend by 95% in Q1 2025 and idle plants in every region after third-quarter adjusted earnings fell well below guidance, the US-based acetyls and engineered materials producer said on Monday. Sharp auto decline drives massive Celanese earnings and outlook shortfalls; Acetyls plants idled A rapid decline in the automotive market, along with weak industrial demand – particularly in Europe – led to a major earnings shortfall for Celanese in Q3. Continued weakness and customer inventory destocking will drive an even bigger shortfall in Q4. INSIGHT: Trump to bring US chems more tariffs, fewer taxes, regulations US President-Elect Donald Trump has pledged to impose more tariffs, lower corporate taxes and lighten companies' regulatory burden, a continuation of what US chemical producers saw during his first term of office in 2016-2020. INSIGHT: Trump to pursue friendlier energy policies at expense of renewables Oil and gas production, the main source of the feedstock and energy used by the petrochemical industry, should benefit from policies proposed by President-Elect Donald Trump, while hydrogen and renewable fuels could lose some of the support they receive from the federal government. Labor disruptions at Canada West and East coast ports continue The labor disruptions at Canada’s West and East coast ports continued on Friday while the chemical, fertilizer and other industries keep warning about impacts on manufacturers and the country's overall economy.

11-Nov-2024

ICIS EXPLAINS: Ukraine gas transit agreement: What do we know so far?

LONDON (ICIS)–Discussions related to a new gas transit deal via Ukraine have been drawing significant interest from energy traders. Recent news articles related to the discussions have triggered steep price movements and ongoing market volatility To help the market get a better understanding of discussions to date, ICIS has produced this Q&A. The insight has been collected over recent weeks and verified with multiple sources involved in talks. For background on technical details, the expiry of the current transit agreement and implications for the region, please check our earlier Q&A. What we know so far Discussions started in earnest in spring, when companies from Austria, the Czech Republic, Hungary, Italy, Slovakia and Ukraine met to discuss the possibility  of setting up a regional trading hub, possibly selling Azeri-labelled gas transiting Ukraine from 2025. Since then, talks have focused on: Possible swaps between Russia and Azerbaijan. These may not involve just swaps of physical gas but also swaps of customers or other assets Price discounts offered to possible new customers The actual transit via Ukraine and the company or consortium of companies that could ship the gas from the Russian-Ukrainian border to EU markets The volume of transit The entry point(s) from Russia into Ukraine Possible arrangements to divert some of the gas to Ukrainian storage Transit tariffs What are the options to bring gas to the Ukrainian border? Option A: Physical swaps Depending on how much gas would be agreed for the Ukrainian transit, one option is to swap gas, with Russia supplying the Azerbaijani market and possibly replacing some of the Azeri volumes contracted by Turkey. Although Azerbaijan has imported Russian gas for internal consumption recently, it is questionable it would agree to allow Gazprom to increase supplies. Azerbaijani end consumers benefit from heavily subsidised prices. Although the Russian producer can offer price flexibility because of low production costs, supplies to Azerbaijan could be comparatively more expensive because of added transmission costs than locally produced gas. Turkey may be keen to retain its Azerbaijani imports. The incumbent BOTAS has a 6bcm/year supply contract until 2033 and another short-term contract for 3.7bcm/year which was recently renewed until 2030. Historically, the Azeri sale price to Turkey was around 12% cheaper than the long-term Russian contract price to BOTAS. Currently, the purchase price also includes the transit tariff estimated at $75/1000m3 (€6.50/MWh). Option B: Delivery on Russia-Ukraine border This option might involve a straightforward delivery of Russian gas on the Ukrainian border to a company or consortium of companies looking to transit it. This would be no different from what happens in Ukraine right now, where the incumbent Naftogaz takes receipt of the gas and organises transit from the Russian border in the east to the Slovak border in the west. Option C: Swaps with other producers Another option that has been discussed recently is Turkmenistan. The country’s 5.5bcm/year gas supply contract to Russia expired on 30 June 2024 and it may be invited to consider selling gas for transit via Ukraine. The Central Asia country is keen to diversify its markets in addition to supplying China and has recently been in talks with Turkey for exports. In the early 2010s, it supplied gas to Europe via a scheme involving Ukrainian and Russian companies. The joint venture was dismantled. Furthermore, the actual physical transit of Turkmen, Azeri or any other gas via Russia to Ukraine is blocked by Russia itself. The former Soviet countries had tried to sign an agreement for the free transport of gas via the Russian system as far back as 2013 but Russia blocked it, seeking to retain its regional monopoly over supplies to Europe. Option D: Swaps of clients or assets This option has also been discussed although details remain sparse. Individuals close to negotiations say talks between Gazprom and Azerbaijan’s SOCAR had cooled off in recent weeks, reporting mutual distrust, with Gazprom still aware that Azerbaijan supported and was involved in the construction of the Southern Gas Corridor designed to help Europe diversify away from Russian gas. Option E: Russian flows Although the Ukrainian government had repeatedly denied it would negotiate directly with Gazprom, Donald Trump’s victory in the US election could force Kyiv into bringing the war to a close and resuming negotiations with Russia. This option would be the most straightforward and possibly least costly from Russia’s point of view as any profits raised from the sale of transit gas would no longer have to be shared with intermediaries. However, it would be a very hard sell to the Ukrainian population which has endured significant hardship since Russia invaded. 2. Who would organise the transit via Ukraine? The options that had been discussed involved either one company, possibly SOCAR or a consortium of companies involving Slovakia’s SPP, Hungary’s MVM, Ukrainian companies, as well as other firms active in the region. Replying to questions from ICIS, MVM Zrt denied involvement in talks, noting the ‘group does not conduct the mentioned negotiations about the Ukrainian transit.’ It said that, regardless of what happens to the Ukrainian transit, it can guarantee security of supply for its portfolio. It said termination of the Ukrainian transit would have no impact on its portfolio. Also responding to questions from ICIS, the Ukrainian ministry of energy insisted the country’s official position on transit remained unchanged. It said transmission and storage operators have implemented all necessary measures and training to ensure stable operations in a zero-transit mode for Russian gas. It added it was actively working to expand sanctions for all Russian gas via pipeline and LNG. Gazprom, SOCAR and SPP did not respond to questions. 3. What about the transit risk? A first risk facing any company interested in facilitating the transit relates to the delivery point of gas and the measurement of volumes at exit points from Russia. The current interconnection agreement between the Ukrainian gas grid operator, GTSOU and the Russian counterpart Gazprom includes the Sokhranivka and the Sudzha border points. The former is under Russian occupation with the latter under Ukrainian occupation. Gas flows enter the country via Sudzha, in the Kursk province of Russia. Exit measurements on the Russian side are reportedly carried out further north into Russia. Whichever company took receipt of the Russian gas on the Ukrainian border would most likely require accurate readings to ensure they would not face legal disputes in the future. The transit risk via Ukraine itself may be reduced because the transmission system is vast and could allow the operator to divert gas to other routes within the network in case any segments were physically damaged. Gazprom reportedly asked for deliveries via Sokhranivka but if the border point and the associated Novopskov compressor station remain under Russian occupation it is unlikely any agreement would be reached to use this point. 4. Transmission tariffs The regulator NERC published the proposed transmission tariffs  for the upcoming regulatory period covering 2025-2029 on November 7. Under proposals going for public consultation on November 13, long-haul tariffs are set to more than double on current levels. The levels were calculated on a no Russian transit scenario and there are no tariffs included for the Sudzha and Sokhranovka border points with Russia. Nevertheless, a market source conceded  that overall tariffs could be adjusted in case a transit deal is reached at a later date. 5. Bringing gas to Europe Here too, there are multiple discussions involving multiple options. Slovakia: The main beneficiary of the transit would be Slovakia’s SPP which reportedly has a 3bcm/year supply contract with Gazprom until 2034. Yet market sources say the company is still keen to persuade other buyers, for example, Hungary’s MVM or German companies such as Uniper or RWE to secure additional volumes. On the other hand, there are reports that Ukraine has proposed Slovakia offtake higher volumes, some of which could be stored in Ukraine but the offer was declined by SPP because of additional costs the company does not envisage. The information was valid as of the end of October. There were no further details on whether discussions had advanced by the first half of November. Hungary Hungary no longer offtakes Russian gas directly via Ukraine as most of its supplies sold by Gazprom have been rerouted via Turkey and the Balkans. In recent months, companies such as state-owned supplier MVM have been ramping up imports via Serbia and Romania, accumulating gas in Hungary and selling it further to premium markets. Gas sourced in Bulgaria at significant discounts has offered attractive opportunities for Hungarian buyers. Austria The country has ramped up Russian imports entering the country via Ukraine and Slovakia by a third in the first ten months of 2024 compared to the same period in 2023. Market sources say that despite the availability of a compensation scheme  for companies looking to buy non-Russian gas, Austrian consumers continue to prefer Russian gas, possibly because of price discounts embedded in contracts. Moldova There were reports at the end of October that representatives of state company Moldovagaz had travelled to St Petersburg to discuss the possible resumption of Russian flows to the Right Bank of the River Nistru after exports to this region stopped at the end of 2022. The government is keen to keep a lid on gas prices to consumers ahead of parliamentary elections next year and resuming comparatively cheaper Russian gas may help. Representatives of the company, which is majority-owned by Gazprom, were expected to meet counterparts at the Ukrainian gas grid operator GTSOU, but the TSO refused to take part in the meeting, sources close to discussions told ICIS. There is strong opposition from wholesale companies which could be squeezed out if comparatively cheaper gas volumes reach the market. 6. Volumes and duration Sources say counterparties had been mulling anything between 4-15bcm/year. The bracket is wide and provides little indication as to what volumes would eventually be agreed, if at all. The CEE region is already oversupplied and, although many companies are keen to lock in cheaply priced volumes, they also know that surplus volumes would crash the market, limiting premium opportunities. They may also keep an eye on developments further out in 2026 when US and Qatari LNG production is set to double, adding further pressure to prices. Ironically, Gazprom is also aware that possible transit via Ukraine would compete with its TurkStream transit via Turkey and will likely seek to play one against the other in terms of volumes and duration of contracts. On the other hand, if Ukraine will agree to a deal, it may seek to negotiate higher volumes to ensure it covers transport costs. Finally, all counterparties will monitor the incoming European Commission and its commitment to phase out Russian gas by 2027. Depending on the signals they get, any transit arrangements would be short term. 7. Does a Trump US presidency change anything? Yes. Donald Trump has pledged to bring the war to an end, likely forcing Ukraine to resume direct talks with Russia, including possibly over the transit of Russian gas. If Ukraine agrees to the transit it may provide a signal to other buyers that it would be acceptable to restart Russian imports, including via Nord Stream. Unless the EU proceeds with sanctions of its own against Russian gas, it is possible that Gazprom would seek to rebuild its lost European market share. But this would coincide with a surge in US and Qatari LNG production from 2025 and 2026, which would help depress global gas prices and provide real competition including for European buyers. 8. All things considered, will the transit continue after 2024? Possibly, but much will depend on several factors, including the possibility that negotiations would drag on into the new year: Who will supply the gas? How will the transit be organised? What volumes will be involved? What does Ukraine get in exchange? How long will the new deal be signed for? 9. If there was to be an agreement, when should we expect an announcement? Hard to tell, although the upcoming COP29 forum in Baku in the second half of November may be a good opportunity to release further updates.

11-Nov-2024

Dutch government launches consultation on HWI RFNBO demand-side obligation for industry

Additional reporting by Jake Stones LONDON (ICIS)–On 31 October 2024, the Dutch government launched for consultation its proposal for an industrial obligation to use renewable fuels of non-biological origin (RFNBO), marking one of the first measures in Europe to encourage the use of renewable hydrogen associated with the renewable energy directive's (RED III) targets for industrial decarbonisation. The scheme, renewable hydrogen industry units (HWI), focuses on setting obligations for the use of RFNBO for particular industrial participants, such as those who use more than 0.1kt of hydrogen per year, and broadly aligns with recent guidance from the European Commission. The exception is that hydrogen use associated with ammonia production does not fall under the obligation under the Dutch scheme. The HWI scheme awards RED III obligated market participants an HWI credit for each unit of renewable hydrogen, RFNBO, used in industry. The HWI can then be used to reflect a market participant has met its obligation over the year, or the party can trade the HWI with another obligated party that is yet to meet its quota. To provide a full overview of the proposal's framework, ICIS has produced the following infographic explainer: For any further information regarding ICIS hydrogen content, please reach out to jake.stones@icis.com or sebastian.braun@icis.com

08-Nov-2024

INSIGHT: UK budget ups industrial spending, but little direct focus on chems

LONDON (ICIS)–“Cut the debt burden, don’t decimate the economy” This was the message in miniature from IMF chief economist Pierre‑Olivier Gourinchas when several reporters posed questions about the then-upcoming UK budget at a press conference on 24 October. Reporters from both sides of the political aisle raised questions over the potential impact of the budget, which had been expected to focus on aggressive cost-cutting after weeks of the ruling Labour government fulminating about Conservative debt. Widening the scope of the question beyond the UK, Gourinchas noted that high debt levels left countries more exposed to fiscal shocks that could precipitate the need to cut services dramatically and quickly. “When countries have elevated debt levels, when interest rates are high, when growth is OK but not great, there is a risk that things could escalate or get out of control quickly,” he said. “Most countries have important needs when it comes to spending, whether it's about central services, what we think about healthcare, or if we think about public investment and climate transition. So we need to protect also the type of spending that can be good for growth,” he added. UK Chancellor Rachel Reeves seems to have kept that balance in mind with a high-tax, high borrowing, high spending budget, with increases targeting businesses through higher per-employee tax contributions, farmers through tighter inheritance tax rules, and the wealthy through more tax on private schools and private planes. The measures are expected to modestly goose economic growth in the short term but less so further ahead, according to the Office for Budget Responsibility, which estimates that national GDP will grow 2% next year. This slows down after, back to the prevailing trend of 1.5% per year. The budget represents one of the largest increases in taxation ever seen in the country, but the UK is far from alone in this. With borrowing costs high over the last few years and economies still paying the bill on pandemic and energy crisis-era borrowing, taxation is high across much of the developed world at present. Debt as a share of GDP is not expected to rise through to the end of the decade on the back of the budget, but nor is it expected to fall, standing at just under 100%. UK debt as a proportion of GDP Higher spending is likely to drive higher inflation in the short term, with levels now expected to firm from 1.7% in September 2024 to a quarterly peak of 2.7% in mid-2025, according to the OBR. The core UK sector trade body, the Chemical Industries Association (CIA), cautiously greeted the increase in investment spending, something that has been sorely lacking in the UK for decades. “We are pleased to see increases in investment after the UK has been in the bottom of the G7 for investment as a share of GDP for 24 of the past 30 years,” said CIA head of economics Michela Borra. That persistent low ranking has endured despite the decline for other western European economies in the G7 club in the face of weakening international competitiveness. Whether the level of public industrial investment is sufficiently substantial to drive growth remains to be seen, however. The budget earmarks £2 billion for the automotive industry for zero-emission vehicles and related supply chains, and £975 million for aerospace research, to be eked out over five years. Life sciences spending  is also set to get a bump, with £520 million to go to the creation of a Life Sciences Innovative Manufacturing Fund “to build resilience for future health emergencies”, the UK Treasury said. Automotive, aerospace and life sciences are key end markets for the upstream chemicals sector and all additional growth investment is a welcome surprise when the expectation in the run-up was for no new funding or spending cuts. That said, the electric vehicle market has slowed to a cruise after years of steady year-on-year growth, with still-developing technologies and charging infrastructure availability continuing to spook consumers. Charging infrastructure remains a Catch-22 problem, with consumers put off by limited availability and providers sceptical of demand growth levels. Firms have moved to take the first step but the level of investment in electric vehicle charging networks remains below what is needed. Another significant milestone is the recognition of a fuel-exempt mass balance approach for content in chemical recycling, which could help to map out the landscape for the sector as it matures. Under fuel exempt mass balance accounting rules, volumes used in fuel applications would not be attributable as recycled material, but material not ending up in fuels would be freely attributable across the value chain. Far larger than all the chemicals end market funding outlined in the budget is the nearly £22 billion for carbon capture and blue hydrogen announced earlier in October. With an aim to strengthen two of the country’s regional industrial clusters, the funding is expected to develop two carbon capture projects in Merseyside and Teesside, as well as two clean hydrogen production plants. Chief among the benefits of the budget is the hope that this will represent a stable longer-term roadmap for business investment, after a period of substantial changeability for government priorities during the ministerial and leadership churn of the last few years of Conservative government. “Capital intensive sectors such as chemicals will welcome this Government’s commitment to longer term policy stability – be it through its industrial strategy; its corporation tax roadmap or its full expensing regime to encourage investment in plant and equipment,” said CIA chief Steve Elliott. Despite the stronger than expected focus on capital investment, there is little direct uplift for the chemicals sector, which remains the UK’s third-largest industry in terms of GDP contribution. The only reference to the sector in the full budget text is to the mass balance recognition and, while greater focus and clarity on carbon, hydrogen and renewable power remain vital for the evolution of the sector, it remains difficult to hold policymaker attention. With the number of strategic reviews of European chemicals footprints by large global players continue to pile up, the lack of impetus to shore up a sector that has been mired in low and declining growth continues to pose a threat to its future viability. “It’s now all about delivery as the UK and wider Europe has become increasingly unattractive to global investors in manufacturing,” said Elliott. “Urgent action – and in many cases partnership between industry and government – is required if UK chemical businesses are to boost their already significant contributions to the macro-economy; strengthen their resilience in supporting the nation’s critical infrastructure and enable the country’s transition to a net zero future,” he added. Insight by Tom Brown.

08-Nov-2024

More battery capacity needed to eliminate negative prices – expert

With growing occurence of negative prices amid renewable penetration, more battery storage capacity will be needed Wide intra-day spreads to remain top revenue option for BESS, but margins can tighten as more capacity comes online Cross-markets optimization, battery degradation among key challenges for operators LONDON (ICIS)–Batteries can help mitigate negative wholesale power prices and wide intraday spreads but there is currently not enough capacity installed to eliminate them, Pierre Lebon, director of analytics at cQuant.io, told ICIS in an interview. Nevertheless, as new battery energy storage system (BESS) capacity comes online, it is likely that the occurrence of negative power prices will decrease, the expert noted. ICIS Analytics showed increased flexibility will be crucial in the long-run to improving solar capture prices, though expansion of battery and electrolyser capacity will remain far below the level of renewable expansion in the next few years. The latest ICIS analytics models predict 63.3GW battery storage capacity for EU countries by 2035. The European resource adequacy assessment, ENTSO-E's annual assessment of the risks to EU security of electricity supply for up to 10 years ahead, showed Germany would be a leader in battery capacity growth across the bloc, while outside EU, the UK has the highest available capacity. It is difficult to identify an optimal ratio of renewable capacity to BESS, as many factors must be taken into account and the supply balance will ultimately depend on each country’s generation mix and demand profile, as well as variable weather conditions. As of September, the number of hours with negative prices in Germany more than doubled to 373 compared to 166 in 2023.  These could have been mitigated by an adequate battery storage capacity, in turn reining in some price spikes in times of lower renewable supply. DURATION The vast majority of battery systems in Europe are currently two- to four-hour batteries and “that's mostly for economic reasons,” Lebon said. “If you have a four-hour battery, if you divide the power by two, you get an eight-hour battery. So you can change the duration if you change the capacity, it then becomes a matter of financial optimization,” he explained. There are currently new technologies such as iron salt battery (ISB) – also known as iron redox flow  battery (IRFB) – which can allow to build battery storage plants with a duration of up to 12-24 hours, however Lebon noted that, while the market is already looking into these technologies, they are still in early development. This seems confirmed by calculations from ICIS based on ERAA data, showing short (one hour) and medium (four hour) duration batteries will remain the preferred technology for the coming years.   REVENUES OPTIONS Operators don't necessarily need to have a negative power price to have a profitable battery, since BESS make money on the spread between the lowest price of the day or based on the duration that they can capture, Lebon explained. “It [negative power prices] adds the extra cherry on top of the cake, which is that you get paid to actually charge the battery,” he said. In markets with a strong ‘duck-shaped’ intra-day curve, the battery operators “can see a lot of value in intra-day trading” and less so on the ancillary services markets, Lebon added. Ancillary services like frequency regulation, voltage control, reserves and black start capabilities are needed to maintain power grids stability and guarantee an uninterrupted supply of electricity. Lebon noted that while battery operators typically consider the potential revenue from both intraday power markets and ancillary services, the stability of the revenue structures associated with the ancillary markets is often questioned. This is because transmission system operators (TSOs) and regulators tend to frequently change the rules and conditions of these markets. While cross-markets optimization – operating both on intraday and ancillary markets to maximize revenue sources – is possible, technical constraints or the legal paperwork needed to access ancillary markets can lead some operators to prioritize only one of these depending on the company’s structure and resources, the expert noted. INVESTING NOW? Penetration of batteries into European markets can reduce intra-day spreads, tightening margins for battery operators. Experts have previously told ICIS that early investors could benefit more from current wide power prices spreads than waiting for cheaper technologies. “The longer it takes for that technology to come in, the more likely it is that this technology will come [online] at a time where the spreads are crushed [by more battery storage capacity being installed],” Lebon added. BATTERY DEGRADATION The degradation of current lithium-ion utility-scale battery systems depends on several factors, including technology, number of cycles and temperatures. ICIS understands the typical yearly degradation can range between 2-5% and plants lifespan between 10-20 years, as reported in the lifetime warranty provided by some producers. A study by the US National Renewable Energy Laboratory indicated 15 years as the median lifespan based on several published values. Degradation is a key challenge in the optimization of battery assets, Lebon noted, adding that operators need to ensure their cycles strategy is compatible with manufacturers’ instructions and warranty.

07-Nov-2024

Plans to scrap German gas storage fees may fall through as government coalition collapses

LONDON (ICIS)–Germany’s controversial gas storage fee may be rolled forward into January 2025 as plans to scrap it may not be approved following the fall of the coalition government. The German government announced earlier in June the charge levied on gas exported from the country would be scrapped from January 1, 2025. But the fee abolishment has not been formally approved by the German parliament yet, and traders now fear that following the collapse of the government on 7 November, and plans for snap elections, proposals to scrap the fee would drop off the agenda before the end of the year. The fee was introduced in 2022 and has been increased every six months, raising discontent from regional countries pinning their hopes on imports from or via Germany. It was raised from €1.86/MWh to €2.5/MWh from 1 July 2024. The German Federal Ministry for Economic Affairs and Climate Action did not immediately reply to ICIS's questions related to proposals to scrap the fee. It is unclear whether the proposals were part of a wider Ukraine assistance package, which was expected to be adopted in the upcoming weeks. “This is already having an impact on a decision involving gas flows,” Doug Wood, gas committee chair at Energy Traders Europe, told ICIS on 7 November. “We hope this can be resolved before the end of the year.” Wood said that if the proposal to scrap the fee is included in the Ukraine assistance package it may have greater chances to be approved before the end of the year. The fee was strongly opposed by companies and regulators in central and eastern Europe, because since its introduction, the cost to import gas from or via Germany had risen significantly, Markus Krug, deputy head of gas department at the Austrian regulator E-Control, told ICIS the watchdog was "very much concerned in which direction the situation is going. " He said E-Control may have to take a decision to approach the European Commission and the Agency for the Cooperation of Energy Regulators once again and raise their concerns about the impact of the fee on gas flows in central and eastern Europe.

07-Nov-2024

INSIGHT: Trump to pursue friendlier energy policies at expense of renewables

HOUSTON (ICIS)–Oil and gas production, the main source of the feedstock and energy used by the petrochemical industry, should benefit from policies proposed by President-Elect Donald Trump, while hydrogen and renewable fuels could lose some of the support they receive from the federal government. Trump expressed enthusiastic and consistent support for oil and gas production during his campaign. He pledged to remove what he called the electric vehicle (EV) mandate of his predecessor, President Joe Biden. Trump may attempt to eliminate green energy subsidies in Biden's Inflation Reduction Act (IRA) BRIGHTER SENTIMENT ON ENERGYRegardless of who holds the presidency, US oil and gas production has grown because much of it has taken place on the private lands of the Permian basin. Private land is free from federal restrictions and moratoria on leases. That said, the federal government could indirectly restrict energy production, and statements from the president could sour the sentiment in the industry. During his term, US President Joe Biden antagonized the industry by accusing it of price gouging, halting new permits for LNG permits and revoking the permit for the Keystone XL oil pipeline on his first day in office. By contrast, Trump has pledged to remove federal impediments to the industry, such as permits, taxes, leases and restrictions on drilling. WHY ENERGY POLICY MATTERSPrices for plastics and chemicals tend to rise and fall with those for oil. For US producers, feedstock costs for ethylene tend to rise and fall with those for natural gas. Also, most of the feedstock used by chemical producers comes from oil and gas production. Policies that encourage energy production should lower costs for chemical plants. RETREAT FROM RENEWABLES, EVsTrump has pledged to reverse many of the sustainability policies made by Biden. Just as Trump did in his first term, he would withdraw from the Paris Agreement. For electric vehicles (EVs), Trump said he would "cancel the electric vehicle mandate and cut costly and burdensome regulations". He said he would end the following policies: The Environmental Protection Agency's (EPA) recent tailpipe rule, which gradually restricts emissions of carbon dioxide (CO2) from light vehicles. The Department of Transportation's (DoT) Corporate Average Fuel Economy (CAFE) program, which mandates fuel-efficiency standards. These became stricter in 2024. The EPA was expected to decide if California can adopt its Advanced Clean Car II (ACC II) program, which would phase out the sale of combustion-based vehicles by 2035. If the EPA grants California's request, that would trigger similar programs in several other states. Given Trump's opposition to government restrictions on combustion-based automobiles, the EPA would likely reject California's proposal under his presidency or attempt to reverse it if approved before Biden leaves office. According to the Tax Foundation, Trump would try to eliminate the green energy subsidies in the Inflation Reduction Act (IRA). These included tax credits for renewable diesel, sustainable aviation fuel (SAF), blue hydrogen, green hydrogen and carbon capture and storage. In regards to the UN plastic treaty, it is unclear if the US would ratify it, regardless of Trump's position. The treaty could include a cap on plastic production, and such a provision would sink the treaty's chances of passing the US Senate. For renewable plastics, much of the support from the government involves research and development (R&D), so it did little to foster industrial scale production. WHY EVs AND RENEWABLES MATTERPolicies that promote the adoption of EVs would increase demand for materials used to build the vehicles and their batteries. Companies are developing polymers that can meet the heat and electrical challenges of EVs while reducing their weight. Heat management fluids made from base oils could help control the temperature of EV batteries and other components. If such EV policies reduce demand for combustion-based vehicles, then that could threaten margins for refineries. These produce benzene, toluene and xylenes (BTX) in catalytic reformers and propylene in fluid catalytic crackers (FCCs). Lower demand for combustion-based vehicles would also reduce the need for lubricating oil for engines, which would decrease demand for some groups of base oils. Polices that promote renewable power could help companies meet internal sustainability goals and increase demand for epoxy resins used in wind turbines and materials used in solar panels, such as ethylene vinyl acetate (EVA) and polyvinyl butyral (PVB). Insight article by Al Greenwood Thumbnail shows the White House. Image by Lucky-photographer.

07-Nov-2024

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Tom Marzec-Manser, Head of Gas Analytics

Tom leads ICIS qualitative analysis on European gas hubs and global LNG markets, promoting TTF as a global benchmark. Tom’s work supports the ICIS LNG Edge platform offering pre-trade analysis plus granular LNG supply-demand forecasts. 

Alice Casagni, European Spot Gas Editor

Alice’s specialist expertise lies in the gas pricing methodology that underpins ICIS gas assessments and indices, for which she is responsible. Alice joined ICIS in 2016 covering European gas markets including Italy and the Netherlands.

Ed Cox, Global LNG Editor

Ed manages the ICIS global LNG editorial team, analysing LNG markets at a granular level, from individual cargoes to broader trade flows and global trends. Ed joined the ICIS LNG team in 2014, prior to which he led ICIS European gas coverage.

Alex Froley, Senior LNG Analyst

Alex is a specialist in European gas and LNG, publishing regular commentary on LNG market trends. His team maintains and develops market fundamentals data on the ICIS LNG Edge platform, including real-time ship-tracking and import/export trade flows.

Barney Gray, Global Crude Oil Editor

Barney specialises in upstream oil and gas Exploration & Production and valuation modelling, with an extensive industry network. His role encompasses price discovery and insight, including managing ICIS tri-daily World Crude Report.

Aura Sabadus, Energy and Cross-Commodity Specialist

Aura works to develop integrated ICIS coverage of energy, petrochemicals and fertilizer markets, explaining the impact of energy price movements on energy-dependent sectors. She also covers emerging gas markets including the Black Sea region. ​

Jake Stones, Global Hydrogen Editor

Jake leads on price discovery for hydrogen as a tradeable commodity, engaging with European energy market participants to refine ICIS’ hydrogen pricing methodology. ​Jake joined ICIS in 2019 as a UK gas market reporter, moving to hydrogen in 2020.

Matt Jones, Head of Power Analysis

Matt overseas the output of ICIS’ power team across 28 European markets, from short-term developments to long-term forecasting out to 2050. ​He provides quantitative and qualitative analysis, with particular focus on EU regulatory developments. ​

Lewis Unstead, Senior Analyst, EU Carbon

Lewis is an expert on EU and UK ETS legislation and market design, regularly advising ETS compliance players and market regulators. He manages ICIS‘ weekly and monthly carbon commentary, analysing carbon’s interplay with wider energy markets.

Andreas Schroeder, Head of Energy Analytics

Andreas is responsible for quantitative modelling and data-based analysis products within ICIS’ energy offer, covering carbon, power, gas, LNG and hydrogen. His expertise lies in energy economics, focusing on traded energy commodities.

Matteo Mazzoni, Director of Energy Analytics

Matteo has extensive analytics expertise in power, gas, carbon and energy planning. Matteo has responsibility for ICIS energy analytics strategy and operations including research and analysis, product ideation and development, and market engagement.​

Jamie Stewart, Managing Editor, Energy

Jamie manages ICIS’ 50-strong energy editorial team, covering European gas, power and hydrogen markets alongside global LNG and crude oil. Jamie is responsible for ICIS’ coverage of energy news, analysis, price assessments and indices.

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