Weekly News Review - 14th April 2023
OPEC announces surprise cuts in oil production
The Organisation of the Petroleum Exporting Countries (OPEC) have announced additional production cuts of about 1.15m barrels per day in order to support market stability. In a meeting last week it was expected that the panel would stick with the 2m barrels per day cuts agreed last October. However, they announced that additional voluntary reductions would start from May.
The largest contributor to the cuts will be Saudi Arabia who have agreed to lower production by 500,000 bpd. There will also be significant reductions by Iraq (211,000 bpd), UAE (144,000 bpd), and Kuwait (128,000 bpd) with smaller cuts by Kazakhstan (78,000 bpd), Algeria (48,000 bpd) and Oman (40,000 bpd).
OPEC have stated that concerns over summer oil demand were behind the decision. “It should be noted that potential challenges to global economic development include high inflation, monetary tightening, stability of financial markets and high sovereign, corporate and private debt levels,” OPEC said.
However, the International Energy Agency (IEA) have said that the most recent OPEC cuts risk exacerbating an oil supply deficit expected in the second half of the year and could hurt consumers and global economic recovery.
In its monthly oil report, the IEA said: “Oil market balances were already set to tighten in the second half of 2023, with the potential for a substantial supply deficit to emerge. The latest cuts risk exacerbating those strains, pushing both crude and product prices higher. Consumers currently under siege from inflation will suffer even more from higher prices.”
Since the announcement on 2 April the price of Brent crude has increased by around 10% from $80/barrel to $88/barrel on Wednesday. Brent prices reached $130/barrel in March and June last year following the Russian invasion of Ukraine. However, prices fell steadily over the winter and reached a low of $71/barrel last month.
Germany to switch off last remaining nuclear plants
Germany are set to close their three remaining nuclear reactors on Saturday, ending nuclear power generation in Europe’s largest economy. Nuclear power has been in decline in Germany for the past two decades but their decommissioning plans were escalated following the Fukushima nuclear disaster in Japan in 2011.
A series of anti-nuclear demonstrations across the country led to the decision by then chancellor Angela Merkel to shut down all plants by 2022. However, the Russian invasion of Ukraine and subsequent restrictions on Russian oil and gas imports resulted in the extension of the remaining three nuclear reactors to meet electricity demand through the winter.
The nuclear plants at Isar 2 in Bavaria, Emsland in Lower Saxony and Neckarwestheim in Baden-Württemberg will all close on 15 April, removing 4GW of capacity. Before the Fukushima disaster in 2011 nuclear capacity in Germany was 20.5GW, however the immediate closure of eight reactors reduced this to 12GW. Much of the closed nuclear capacity in recent years has been replaced by an increase in renewable generation.
The closures have been met with a mixed response in Germany with many feeling that extending the nuclear plants was a better option than the continued reliance on coal. Jens Spahn, a member of parliament of the opposition Christian Democrats (CDU), said: “If I had to decide which to keep — coal or nuclear — in these times of crisis when we need something to substitute gas, I would always choose nuclear,”
However, Ottmar Edenhofer, director of the Potsdam Institute for Climate Impact Research, said that while “it might be necessary to use a little bit more coal”, extending the lifetime of nuclear plants would “cause enormous political costs” and discourage investors from putting money into renewables and gas-fired plants.
Economy minister, Robert Habeck, said: “Energy supply security in Germany has been ensured during this difficult winter and will continue to be ensured.” On the move away from nuclear he added: “Our energy system will be structured differently: We will have 80 percent renewable energies by 2030.”
World’s deepest offshore wind turbine installed off Scottish coast
Energy company SSE has installed the deepest offshore wind turbine in the world at its £3bn Seagreen offshore windfarm. The 2,000 tonne turbine was installed on Sunday at a depth of 58m at the windfarm located 17 miles off the coast of Angus, Scotland.
There are now only two turbines out of 114 left to install at the first phase of the 454MW windfarm, with further phases expected to increase capacity to over 1GW. The windfarm began generating electricity August last year and will be fully operational by the summer.
However, it is not expected to begin its Contract for Difference (CfD) accreditation until March 2026. This is due to a previous loophole in the CfD framework which will allow joint owners SSE Renewables and TotalEnergies to benefit from the current high wholesale prices. Seagreen Phase 1 was awarded a CfD contract in 2019 with an initial strike price of £41.61/MWh which is less than half the current wholesale electricity price.
Graham Stuart, the minister of state for energy security and net zero, said: “This is another terrific milestone for both Scotland and the UK’s world-leading offshore wind industry. As I saw first-hand last week, Seagreen is making history with the world’s deepest wind turbine foundation which, once operational, will play an invaluable role in powering more of Britain from Britain.”
Chief Executive of SSE, Alistair Phillips-Davies, said: “Thanks to a strong and stable policy framework, the UK has established itself as the world leader on offshore wind and SSE Renewables is building more offshore wind than anyone on the planet. But we want to do more and now is the time to accelerate if we are to achieve the UK’s target of 50GW of offshore wind by 2030.”
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