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Power Up:  Price Cap on Russian Oil Looms

(Power Up is published on Mondays and Thursdays. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.) David Gaffen Editor-in-Charge, Energy Markets Hello Power Up readers! Markets are bracing for the coming price cap by the United States and Europe on Russia’s oil sales worldwide, and OPEC has once again trimmed its demand outlook, which if nothing else justifies its decision to cut output in tight markets. We’ve got news on Indonesia, Canada and much in between. Here’s what’s going on. CHINA SLOWS DOWN RUSSIAN CRUDE PURCHASES Moves Come Ahead of Western Price Cap With the United States and European Union-imposed price cap on Russian oil approaching, Chinese refiners are slowing down Russian crude purchases in December given the surrounding uncertainty. China’s moves are causing Russian prices to slip, which is pretty much the desired effect by the United States and its allies following Moscow’s invasion of Ukraine in February. The ban on Russian crude is on Dec. 5, followed by a February ban on Russian refined products. So far, five to seven December-loading ESPO Blend cargoes have been sold to Chinese end users - compared with the usual of more than 30, traders told Reuters. Here’s the scoop on what’s happening from reporters Muyu Xu and Chen Aizhu. In the meantime, U.S. Treasury Secretary Janet Yellen told India - another giant buyer of Russian oil - that it could buy as much Russian oil as it wanted, just not use the largely EU-controlled shipping fleet to do it. JP Morgan analysts estimate that India and China’s fleets - plus Russia’s - should be enough to move most of the country’s oil, and now only see Russian oil output dropping by 200,000 to 500,000 barrels per day. Here’s our exclusive on Yellen’s remarks. ECB PROBING DERIVATIVES USE A destabilizing factor for the EU? The European Central Bank is looking into the use of derivatives by energy companies to make big bets on power and fuel prices - after tumultuous months that have seen wild gyrations in markets and collapses by major European energy providers. Germany was forced to rescue its top gas importer Uniper, which had tens of billions of euros in derivatives on the books, and there’s a lot of worry that these companies were basically acting as traders. Policymakers are even looking at extending banking rules to energy companies that trade derivatives. How bad was it for Uniper? The company wrote down 3 billion euros ($3.1 billion) and another 9-billion-euro loss from derivatives used for hedging. Here’s our story on the ECB’s alarm. NIGERIA, CANADA PLEDGE TO DEAL WITH METHANE Laws to reduce emissions of damaging gas Both Canada and Nigeria joined a group of countries passing laws to tackle methane, which is a much more damaging gas to the atmosphere than carbon dioxide, but exits the air more quickly, making it more imperative to go after this problem now. The focus is: Canada aims to cut methane by 75% by 2030, while Nigeria, among the world's top 10 methane emitters, announced new requirements for leak detection and repair, limits to flaring and controls on venting equipment. Mexico, meanwhile, which had a plan for years to reduce emissions that it largely abandoned, now says it will work with the U.S. Environmental Protection Agency to cut methane as well. "It's kind of a big deal for us, we are the fourth biggest producer of oil and gas," Canadian Environment Minister Steven Guilbeault said at the U.N. climate summit on Friday. IN CONVERSATION: PATTI POPPE, PG&E UTILITY HEAD TALKS GRID RESILIENCE, CALIFORNIA HEAT Patti Poppe, CEO of California’s PG&E, the largest utility in the state, appeared at the Reuters Energy Transition conference last week. She sat down with Reuters after addressing the conference. How do you think the state did overall in the September heat wave? “The state has much better coordination now. I’ll also say the storage that has been added to the grid in California - over 3,000 megawatts have been added since the last heat event in 2020 that caused the grid instability. We could see the storage do its job. I don’t think the emergency alerts should be part of life. I think because of the supply chain constraints, adding new storage is going to be slower than people would have liked.” What kind of supply issues are you seeing with installation of renewables? “Both solar and batteries are constrained with a variety of factors - both materials and logistics challenges have slowed the delivery of and delayed implementation of many projects systemwide. Battery installations in particular are just slower and more expensive so we were able to modify our plans given the Diablo extension.” What other constraints are being seen? “A constraint on labor that others are experiencing is in transformer availability. Transformers are in high demand worldwide; they’re definitely constrained by lack of steel. Manufacturers are competing with automotive and appliances to get that steel so it's a very competitive marketplace for transformers. And I think they’re seeing some labor shortages which then in fact impact us in availability for transformers as opposed to us being short on labor.” Up and Away With IRA “We expect to have another 30,000 Megawatts installed by 2035 under the IRA (Inflation Reduction Act). And we’re just one company - now scale that to the whole nation.” Brian Savoy, chief financial officer at Duke Energy, at the Reuters Energy Transition conference INDONESIA TO WIND DOWN COAL PLANT Agreement is First Under Emissions Reduction Plan Indonesia, along with the Asian Development Bank and a private power firm are getting together to prematurely retire a coal-fired power plant in what is the first project under a big ADB carbon emissions reduction program known as the Energy Transition Mechanism (ETM). This initiative is meant to pull together private funds, public finance and others to buy coal plants and shut them down early - and in this case, the West Java plant would get taken out of service 10 to 15 years before the end of its useful life. The deal could cut as much as 30 million tonnes of greenhouse gas emissions over a 15-year period. "The problem of legacy coal-fired power in Southeast Asia qualifies as one of the single biggest problems for the energy transition, if not the world," ADB regional vice president Ahmed M. Saeed, told Reuters in an interview.

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