Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Americans faced with yet another round of surging gasoline prices have no one to blame but themselves because – gee willigers – they could have bought an electric car! In fact, that point was driven home by non-other than Energy Secretary Jennifer Granholm that wanted to remind us that, “In all 50 states, it’s cheaper for the everyday American to fill up with electrons — and much cheaper in some regions such as the Pacific Northwest, with low electricity rates and high gas prices.” So there. It is your fault. You would not have to worry about gasoline prices that according to Triple A surged to a new, year high of 3.828 or that dirty diesel that hit $4.235 a gallon. The Administration is warning to go electric or go broke and Biden said that if you voted for him oil prices would go up so it’s your fault if you did not heed the warning. Shame.
The Energy Secretary sited “Advice by Michael J. Coren Climate Advice Columnist” from the Washington Post that wanted to bust a myth that he has heard but I had not that “Gasoline cars are cheaper to refuel than electric vehicles. He said, “I’ve heard this claim pop up everywhere from Massachusetts to Fox News over the past two years. My neighbor even refuses to plug in his hybrid Toyota RAV4 Prime over what he calls ruinous electricity rates. What gives? The basic argument is that electricity prices are so high it has erased the advantage of recharging over refilling. This cuts to the heart of why many people buy EVs, according to the Pew Research Center: 70 percent of potential EV buyers report “saving money on gas” as among their top reasons. He says that, “The average EV sells for $4,600 more than the median gasoline car, but by most calculations, I’ll save money over the long run. It costs less to refuel and maintain the vehicle — hundreds of dollars less per year, by some estimates. That’s before government incentives, and any consideration of never visiting a gas station again.”
He goes on to say that, “nailing down a precise number is tricky. The average price of a gallon of gasoline is easy to calculate. Since 2010, the price, in inflation-adjusted terms, is virtually unchanged, according to data from the Federal Reserve. The same applies to a kilowatt-hour (kWh) of electricity. But the cost of recharging, by contrast, is far more opaque. Electricity rates not only vary by state, but by the time of day and even EV owners may plug in at home or work and then pay a premium to fast-charge on the road. That makes comparing the cost of a “fill-up” for a gasoline Ford F-150, America’s best-selling vehicle since the 1980s, and its electric counterpart’s 98-kWh battery challenging. It requires assumptions about geography, charging behavior and standardizing how the energy in batteries and gas tanks convert into miles. Such calculations must then be applied to different vehicle classes, such as sedans, SUVs and trucks. So Mr. Coren still calculates that, “In all 50 states, it’s cheaper for the everyday American to fill up with electrons — and much cheaper in some regions such as the Pacific Northwest, with low electricity rates and high gas prices.”
Yet I do wonder if it that would be true if everyone took Secretary Granholm’s advice and bought an electric car. I am assuming the billions it would take to upgrade the electric infrastructure would be passed on the electron buying public, to charge their cars that are limited in range. This come just after U.S. power plant owners warned the Biden administration on Tuesday that its sweeping plan to slash carbon emissions from the electricity sector is unworkable, relying too heavily on costly technologies that are not yet proven at scale. But what does matter is you’re going to save the planet.
Yet what if electric cars are not good for the planet? My buddy, oil analyst Anas Alhajji, pointed out that, “According to a study by the Indian Institute of Technology Kanpur, Electric Vehicles produce more emissions than ICE vehicles! Looking at the life cycle, including the scrapping of batteries, EVs causes 15-50% more greenhouse gas emissions than internal combustion engines. India Today reported that the recent IIT Kanpur study suggested that electric vehicles are doing more harm to the environment. Battery Electric Cars (BEVs) emit 15-50 per cent more greenhouse gases in different categories than other vehicles, according to the study. The manufacturing, use and scrapping of electric cars produces 15 to 50 per cent more greenhouse gases (GHGs) than hybrid and conventional engine cars, according to the report by IIT Kanpur’s Engine Research Lab. Darn, what are you going to do with all of those spent electric car batteries? I wonder how many greenhouse gas emissions it will take to recycle them, if that is possible or scalable in the long run.
Yet in the meantime the global diesel shortage that we warned about has not gone away and is raising real fears of shortages once again. Last year a warm winter bailed us out, but can we be that lucky again. In the US the Energy Information Administration reported that, “Distillate fuel inventories fell by 1.7 million barrels last week and are about 17% below the five-year average for this time of year. Globally we are below the 10-year average and based on current demand trends may be the tightest diesel market globally that the world has ever seen.
US Oil Industry Data pointed out that, “Although there was a decline in US combined crude and petroleum product imports and exports this week, on average they have reached record high levels. According to EIA data, combined US imports and exports reached 20 million barrels a day earlier this yr. for the 1st time ever. This is an 11% increase from the 2019 highs of 18mbd. Raw crude and product exports have made up for the majority of the increase since 2016. Exports have increased from 5mbd to almost 11mbd over that time. More than doubling. This was mainly from the growth of raw crude exports. Combined imports over that time have slightly decreased from 11mbd to the current 9mbd average. The result is the US has become a net exporter of total combined crude and petroleum products.”
Yet while we export to the world, we continue to see the US rig count fail mainly as a result of a more hostile regulatory environment as well as market distortions created by the global SPR release.
Of course, even when prices were under pressure earlier in the year on recession fears and U.S. banking fears, we were warning that the market was ignoring historically bullish fundamentals. We feared that at some point supply and demand would matter and prices would reflect one of the tightest global petroleum markets we’ve ever seen. And why we’re weary because oil prices have been on such an incredible run that we might see a correction in our base case is that we’re still on a super cycle in oil and that hasn’t changed. We still believe the main reason we are in this situation is because the global elite failed to create energy policies that were workable and based in reality. We also were concerned that this green energy movement globally would destabilize the global economy and increase the gap between the rich and the poor and sadly we’re seeing signs that those predictions have come true.
Natural gas is once again a global problem. Here in the US prices have surged on predictions of hot weather. Globally inventories have been built due to a warm winter but are still going to be dependent on Russia for supply if there was a disruption anywhere in the world. Reuters reported that, “Workers at Woodside Energy Group (WDS.AX) and Chevron’s (CVX.N) liquefied natural gas (LNG) facilities in Australia voted to strike on Wednesday, industry sources and Australian media reported, sending European gas prices higher on concern over supplies. Collectively, monthly exports from the facilities equate to around 11% of exports globally, according to analysts at RBC, who warned of a possible supply squeeze despite healthy gas storage levels in Europe and elsewhere.
The Wall Street Journal reported that, “European natural gas prices weaken after surging as much as 40% on Wednesday. TTF gas futures drop 5.8% to EUR37.45 a megawatt hour. Reports that workers at key LNG export facilities in Australia were planning strike action meant the contracts closed up over 28% on Wednesday. The sharp jump highlights how volatile the market remains to supply disruption. Still, prices remain sharply lower than last winter and Wednesday’s gains only marked a two-month high. “Despite some supply and demand side factors indicating a tighter market, Europe’s gas stockpiles will ultimately determine how shortage fears materialize in coming months,” says CBA in a note. European gas storage is well above average level.
After a string of bullish natural gas injection reports, we’re looking for another below average injection and it should come somewhere around 21. If the injection comes in below 21 get ready for another price spike on natural gas.
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