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Polyethylene03-Jul-2024
SINGAPORE (ICIS)–Click
here to see the latest blog post on Asian
Chemical Connections by John Richardson.
China’s petrochemical markets might well
respond positively to any new economic stimulus
measures announced during the delayed Third
Plenum government meeting that takes place on
15-18 July.
But the scale of economic reforms required are
such that I believe the more likely outcome is
China remaining stuck with lower growth than
during the 1992-2021 Petrochemicals Supercycle.
Sourabh Gupta – Senior Fellow at the Institute
for China-America Studies in Washington, DC –
wrote in an article for the East Asia
Forum that reforms needed include:
Progressively lifting Hukou restrictions to
make public services more equitable.
Building a unified and portable social
security net more in line with advanced
economies.
A shift from indirect to direct taxes.
Individual income tax revenues comprised 33% of
total revenues in OECD countries compared to 9%
in China.
The tax base must expand as four out of
five Chinese households do not pay personal
income tax.
He cautioned that reform would not be easy in a
country that preferred top-down
capital-intensive approaches and was disdainful
of high welfare spending.
China appears to have doubled-down on its
capital-intensive approach since the end of the
property bubble through investing in
export-focused manufacturing.
This raises the issue of geopolitical threats
to its GDP growth, such as the US and the EU
recently raising tariffs on Chinese electric
vehicles and batteries.
“If China is to maintain growth rates of 4-5%
per year, it can only do so if the rest of the
world agrees to reduce its own investment and
manufacturing levels to less than half the
Chinese level” wrote Michael Pettis, Professor
of Finance at Peking University, in an article
for the Carnegie Endowment for International
Peace.
The Economist reported that as
reshoring accelerated, governments had adopted
over 1,500 policies to promote specific
industries in both 2021 and 2022. This compared
with almost none in the early 2010s.
But this latest Third Plenum could be as
significant as the ones cited by
Reuters in 1978 and 1993. The
1978 Plenum opened China up to foreign
investment. In 1993, the Plenum liberalised
trading in the Yuan and launched “socialist
market” reforms following Deng Xiaoping’s
Southern Tour a year earlier.
How will we know the outcomes? If China’s
polyethylene (PE) and polypropylene (PP) price
spreads return to their Supercycle levels over
the six-to-12-months. If this doesn’t
happen, more reforms will be needed as too much
supply will continue to chase too little
demand.
Despite recent rebounds in spreads, China CFR
high-density PE (HDPE) spreads over CFR Japan
naphtha costs remain 116% lower than during the
Supercycle with low-density (LDPE) spreads 46%
lower and linear-low density (LLDPE) spreads
80% lower. The story is very similar in China
PP spreads over naphtha.
Editor’s note: This blog post is an opinion
piece. The views expressed are those of the
author, and do not necessarily represent those
of ICIS.
Caustic Soda02-Jul-2024
HOUSTON (ICIS)–Hurricane Beryl continued to make its
way west toward Mexico and the US Gulf on
Tuesday afternoon, with landfall possible some
time on Sunday.
Meteorologists at the National Hurricane Center
(NHC) said Beryl was about 125 miles (205 km)
east southeast of Isla Beata, Dominican
Republic, and moving west northwest at 22
miles/hour.
Source: National Hurricane Center
(NHC)
The storm is going back and forth between a
Category 4 and Category 5 hurricane as maximum
sustained winds are at 155 miles/hour but had
been at 165 mile/hour earlier in the day.
According to the Saffir-Simpson Hurricane Winds
Scale, a storm reaches Category 5 when maximum
sustained winds reach 157 miles/hour.
Saffir-Simpson Hurricane Wind
Scale
Category
Wind speed
1
74-95 miles/hour
2
96-110 miles/hour
3
111-129 miles/hour
4
130-156 miles/hour
5
157+ miles/hour
The most recent forecast indicates Beryl could
miss southern Veracruz state in Mexico, where
Braskem Idesa has its integrated polyethylene
(PE) Ethylene XXI complex and where a lot of
Mexico’s petchem capacity is located.
Altamira is still in the projected path. The
regions have been experiencing a drought and
rainfall from Beryl could provide the area with
much-needed rain but could also impact
operations at the multitude of chemical
facilities in the area.
Another scenario would be if the storm swings
to the north, which could threaten oil and gas
production in the US Gulf as well as Gulf Coast
petchem operations.
A producer with capacity in the Corpus Christi
area said it was still too early to decide on
operations.
ACTIVE HURRICANE SEASON
The early activity in the Atlantic Ocean is in
line with forecasts calling for a busier than
usual hurricane season.
The US National Oceanic and Atmospheric
Administration (NOAA) is predicting the
greatest number of hurricanes in the agency’s
history.
NOAA forecasters with the Climate Prediction
Center said that the hurricane season – which
started on 1 June and runs through 30 November
– has an 85% chance to be above normal, a 10%
chance of being near normal and only a 5%
chance of being below normal.
Damage from hurricanes can lead to
increased demand for chemicals, but hurricanes
and tropical storms can also disrupt the North
American petrochemical industry because many of
the nation’s plants and refineries are along
the US Gulf Coast in the states of Texas and
Louisiana.
In 2022, oil and natural gas production in the
Gulf of Mexico accounted for about 15% of total
US crude oil production and about 2% of total
US dry natural gas production, according to the
US Energy Information Administration (EIA).
Even the threat of a major storm can disrupt
oil and natural gas supplies because companies
often evacuate US Gulf platforms as a
precaution.
Additional reporting by Mark Milam, Al
Greenwood and Melissa Wheeler
Ammonia02-Jul-2024
HOUSTON (ICIS)–Although Trinidad and Tobago
have seen tremendous rainfall and significant
winds the last two days, the island nation and
its fertilizer operations escaped the heaviest
impacts of Hurricane Beryl.
Rated at a category 4 as of late on Tuesday,
the storm did cause some harm to surrounding
island countries but for most of Trinidad and
Tobago what was felt was an extended stretch of
unfavorable weather, with fertilizers producers
emerging unscathed.
Produces Yara, which manufactures ammonia at
its facilities, said they had been fortunate as
the storm passed by yesterday afternoon with
plants not suffering any damage or having any
production interrupted.
With plant operations also in the same vicinity
on the island producer Nutrien reported similar
positive outcomes with a spokesperson saying,
“Happily, zero impact. All running as usual.”
Going forward Beryl is now expected to be
impacting Jamaica by Wednesday morning.
For now, the domestic fertilizer market is
carefully watching the track as there are
considerable production, storage and
transportation interests which stretch along
the US Gulf Coast.
The current forecast has the storm potentially
downgrading slightly as travels more towards
making an eventual strike in northern Mexico,
or possibly landing further up in southern
Texas by the end of this week.
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Base Oils02-Jul-2024
RIO DE JANEIRO (ICIS)–Base oils supply is to
remain tight in the third quarter but could
lengthen by year end as the US manufacturing
recession and high interest rates take their
toll, an expert at ICIS said on Tuesday.
Amanda Hay, senior analyst for base oils in the
Americas at ICIS, said that high interest rates
in the US and elsewhere are causing that
“no-one is building inventories” due to the
high costs associated to it.
Hay went on to say that only a few months ago
most economists and analysts – including those
at ICIS – were forecasting interest rates cuts
by the US Federal Reserve (Fed) in 2024.
However, that has now shifted to 2025 at the
earliest, as the world’s major central bank
seeks to make sure inflation falls towards its
2% target.
The US’ annual rate of inflation
stood at 3.3% in May.
Hay was speaking to delegates at the 14th
International Summit with the South American
Market 2024 organized by specialized
publication Lubes em Focus, which
focuses on base oils.
ICIS is a partner in the event.
“As the US manufacturing recession continues,
exports from that country continue to be widely
available. Firm crude prices will also be a
factor to keep in mind,” said Hay.
“Meanwhile, major interest rates changes are
not expected in 2024 anymore – as the year went
by, rate cuts have become less and less likely.
That, in turn, causes that no-one is really
interested in building inventories given the
high borrowing costs.”
Base oils, also called lubricants, are used to
produce finished lubes and greases for
automobiles and other machinery.
The 14th International Summit with the South
American Market 2024 runs in Rio de Janeiro on
2-3 July.
Base Oils02-Jul-2024
RIO DE JANEIRO (ICIS)–In just a few years,
global automotive majors have switched their
focus from a quick, all-electric production to
a more hybrid model, an executive at US crude
oil major Chevron said on Tuesday.
Chris Castanien, global industry liaison at
Chevron and lubricant additive expert, said
that most automotive majors who had set up
target to go all-electric or nearly
all-electric by 2030 have dropped those plans
as intake among consumers remains slow.
This has happened even after authorities in
North America or Europe have poured “tremendous
amount of money in trying to force everyone”
into the energy transition.
Castanien was speaking to delegates at the 14th
International Summit with the South American
Market 2024 organized by specialized
publication Lubes em Focus, which
focuses on base oils. ICIS is a partner in the
event.
BILLIONS – BUT THE JUMP IS NOT
HAPPENINGAnyone in the
lubricants industry would be pleased to see the
initially quick transition to electric mobility
some authorities had planned is not happening –
they are an interested party which would lose
out much if ICE engines – combustion engines –
ran on fuels would go out of the market.
Therefore, Castanien was somehow pleased to
list the many plans in the EU and the US which
had planned for a quick electric vehicles (EVs)
implementation, including the US’ $1 trillion
New Green Deal in 2021 or the consequent $67
billion investments contemplated in the CHIPS
Act or the $369 billion in the Inflation
Reduction Act (IRA).
“The US’ EPA [Environmental Protection Agency]
had forced a ruling that by 2032 around two
thirds of cars should be EVs; the EU issued a
ban on ICE engines by 2035 – well, I think
those targets will not happen,” said Catanien.
“Moreover, now we are seeing a lot of
protectionist tariffs against Chinese EVs: we
want people to make and use EVs, but we don’t
want the Chinese to make them.”
The Chevron executive went on to say that the
US is still a “long way” to meet its own
targets on charging points, for instance, which
added to the considerably higher cost of EVs is
putting off consumers.
And this consumers’ reluctance, he went on to
say, is even happening when many jurisdictions
are implementing fiscal incentives and rebates
for EVs.
“In the US, you even get the case of
California, where HOVs [high occupancy vehicle
lanes] are now allowing EVs even if it’s only
the driver inside the car…” he said.
Thus, the initial change planned by automotive
majors – even with thousands of redundancies of
ICE engines engineers – is giving way to a
slower implementation of the EV push and
mentioned the case of Germany’s major Mercedes.
“Only a few years ago, Mercedes said they would
be making all vehicles electric by 2030 – they
don’t say that anymore. Their updated target is
aiming to make 50% of its fleet electrical by
that year,” said Castanien.
“[US major] Ford has said it is losing $64,000
every time they sell an EV. Tesla was planning
a gigafactory in Mexico: they have dropped
those plans. The shift towards more hybrid
vehicles and not purely EVs is happening – this
is a big change.”
The automotive industry is a major global
consumer of petrochemicals, which make up more
than one-third of the raw material costs of an
average vehicle.
The automotive sector drives demand for
chemicals such as polypropylene (PP), along
with nylon, polystyrene (PS), styrene butadiene
rubber (SBR), polyurethane (PU), methyl
methacrylate (MMA) and polymethyl methacrylate
(PMMA).
Base oils, also called lubricants, are used to
produce finished lubes and greases for
automobiles and other machinery.
The 14th International Summit with the South
American Market 2024 runs in Rio de Janeiro on
2-3 July.
Base Oils02-Jul-2024
RIO DE JANEIRO (ICIS)–The US remains the
largest exporter to the Brazilian base oils
market, with the country’s lead widening in
2024, according to an expert on Tuesday.
Pedro Nelson, editor-in-chief of the Brazilian
specialized magazine Lubes em Foco,
said Brazil deficit in base oils is set to
continue for years to come due to the lack of
homegrown supply.
Lubes em Foco is the organizer of the
14th International Summit with the South
American Market 2024, which focuses on base
oils. ICIS is a partner in the event.
In 2023, Brazil imported basic base oils worth
$851 million, said Nelson, totaling 775,084
cubic meters (cbm).
Of those, the US was the origin of 72.4% of all
Brazil’s imports. Second on the list but well
behind was South Korea, with 4.9%.
Malaysia (4.7%), India (3.8%), Qatar (3.4%),
Bahrein (3.3%), Singapore (1.9%) and Taiwan
(1.0%, all of it coming from producer Formosa)
complete the list of countries with over 1% of
market share in the Brazilian import market for
basic base oils.
2024: THE US INCREASES
LEADThe US dominance in the
market share of Brazil’s imports basic base oil
is widening in 2024. According to Nelson, in
the January-May period the US captured 76.2% of
market share, followed by Malaysia (5.0%) and
South Korea (3.5%).
In the five-month period, Brazil imported basic
base oils worth $372.4 million, said Nelson.
“Brazil is likely to remain a net importer of
base oils for years to come due to the
country’s lack of capacity to produce them. The
US is set to continue benefit also for years to
come due geography,” he added.
Despite is trade deficit in base oils, Brazil
also exported 79,583 cbm of lubricants in 2023,
worth $200.3 million, mostly to neighboring
countries Paraguay, Argentina and Bolivia.
Not surprisingly, Brazil’s southeast region was
the highest consumer of base oils in 2023, with
44.8% of market share. That region includes the
most industrialized states of Sao Paulo, Rio de
Janeiro and Minas Gerais.
Base oils, also called lubricants, are used to
produce finished lubes and greases for
automobiles and other machinery.
The 14th International Summit with the South
American Market 2024 runs in Rio de Janeiro on
2-3 July.
Speciality Chemicals02-Jul-2024
BARCELONA (ICIS)–Chemical companies can expect
to pay even more for container space along the
Asia to Europe route as attacks against
shipping persist, port congestion grows, and
demand rises.
Shipping rates soar amid congestion, rising
demand, echoing post-pandemic era
Shipping reliability, customer service
levels have fallen
Shippers reorganizing routes, focusing on
big ports like Singapore
Global container shipping capacity growing
by 20% year on year
Container fleet utilization over 90%
despite rising supply
End of Houthi Red Sea attacks would cause
freight rates to collapse
Demand rising for containers even though
industrial demand is flat
Huge investment in port, road, rail
infrastructure especially in Asia
Logistics problems leave oversupply trapped
in Asia
More trade barriers may protect regional
markets
In this Think Tank podcast, Will
Beacham interviews Thomas Cullen,
chief analyst at Transport Intelligence, ICIS
Business Solutions Group senior executive
Nigel Davis, ICIS senior
consultant Asia John
Richardson and Paul
Hodges, chairman of New Normal
Consulting.
Editor’s note: This podcast is an opinion
piece. The views expressed are those of the
presenter and interviewees, and do not
necessarily represent those of ICIS.
ICIS is organising regular updates to help
the industry understand current market trends.
Register here .
Read the latest issue of ICIS
Chemical Business.
Read Paul Hodges and John Richardson’s
ICIS
blogs.
Crude Oil02-Jul-2024
LONDON (ICIS)–Inflation in the eurozone
resumed its downward trend in June, falling to
2.5% from 2.6% in the previous month, according
to official data on Tuesday.
The rate of inflation has been ticking down
consistently over the past few months, with
the exception of May which saw a 0.2
percentage point increase from April.
June’s annual inflation was mainly driven by
services, followed by food, alcohol &
tobacco, non-energy industrial goods and
energy, statistics agency Eurostat said in its
flash estimate, which is subject to revision.
The European Central Bank (ECB) cut
its key interest rates for the first time
since 2019 on 6 June as inflationary pressures
broadly eased.
Gas02-Jul-2024
UPDATED:
On 27 June 2024, ICIS updated this analysis
to include a review of the impact that
manifesto pledges could have on UK power prices
On 24 June 2024, ICIS updated this
analysis to include a review of the renewable
capacity pledges from manifestos and their
likelihood of being met
On 21 June 2024, ICIS updated this
analysis to include a breakdown of the impact
of new gas licenses on British gas
supply
On 20 June 2024, ICIS updated this
analysis to include the Scottish National
Party’s manifesto plans for energy. The
manifesto table now includes these
details
Initial analysis published with detailed
table reviewing energy policies from
announced manifesto pledges, original
analyses covering nuclear power and gas-fired
power generation, a UK election special
episode of the ICIS Hydrogen Insights
podcast
LONDON (ICIS) — On 4 July 2024 the UK public
will elect a new government, but what do the
different parties have in store for energy? The
following analysis reflect core pledges from
manifestos and reviews those pledges in detail
using ICIS data and insights.
This analysis of UK political pledges and
announcements will be continuously updated by
the ICIS energy editorial team. Lead authors
include: UK power reporter Anna Coulson,
British gas reporter Matthew Farmer.
UK ELECTION PLEDGES UNLIKELY TO IMPACT POWER
PRICES
UK power prices out to 2030 could remain
relatively unchanged regardless of which party
wins the UK election
ICIS analytics forecasts UK power prices to
range between £46-85/MWh in 2030
LONDON (ICIS)–UK power prices could remain
relatively unchanged to 2030 regardless of
which political party wins in the UK’s general
election on 4 July, ICIS analysis shows.
The development of the power market and new
capacity faces continued hurdles, despite
numerous parties intending to rein in energy
prices according to their manifestos.
An analysis of the Conservative, Labour,
Liberal Democrat, Green Party, Reform UK,
Scottish National Party (SNP) and Plaid Cymru
manifestos shows that all parties present
different policies aimed at helping manage
energy bills.
Some policies presented by the main parties
suggest direct consumer initiatives, such as
Labour’s plan to issue grants and loans for
insulation, or the Green Party policy pledge to
develop an insulation scheme, or the SNP’s
financial relief for consumers in the Highlands
and Islands of Scotland.
However, some policies seek to address the
wholesale power market through measures such as
new licenses for gas-fired power generation or
the build-out of renewable capacity.
Renewables, volatility and risk
Broadly speaking, energy policies proposed by
UK parties present three different paths.
Firstly, there are policies focused primarily
on expanding renewable capacity as ageing
gas-fired and nuclear power plants are
decommissioned. Such policies would lead to
periods of lower power prices, but balancing
this would drive more volatility across
short-term power prices.
This pathway is most closely resembled by the
Green Party, which has ambitious targets for
renewable deployment by 2035.
As the party plans to phase out existing
nuclear power and stop the development of new
plants, this would increase price volatility as
nuclear would no longer operate as a baseload
source of generation. The Green Party’s
manifesto did not specify a timeline for the
nuclear plans; therefore, it is difficult to
determine when this could affect UK power
prices.
However, the party states it would rapidly
expand energy storage capacity, which would
balance renewable energy intermittency,
although more detailed plans are not specified
in the party’s manifesto.
The SNP also intends to develop renewable
energy, outlining “significant growth” in
renewables alongside expansion in storage for
energy.
The Liberal Democrats also lean towards
renewable development but present a
decentralized approach when considering solar.
The party would seek to build solar panels on
new homes, therefore reducing power demand for
residential offtake.
A more central approach can be seen from both
the Conservative and Labour parties, which both
present clear plans for renewable growth, but
also consider building new nuclear capacity or,
in the case of Labour, also extending the life
of the existing nuclear fleet.
Furthermore, the Labour party intends to
maintain a strategic reserve of gas-fired power
plant which could limit price volatility but
would result in higher power prices linked to
natural gas prices.
The Conservatives plan to build new gas power
stations which would also reduce price
volatility but would create an even stronger
link to gas prices. However, the party’s
manifesto did not state how much capacity would
be added and when, therefore it is hard to
determine when this could impact prices.
Finally, the third pathway is presented by
Reform UK, which presents plans to fast-track
small-modular reactor (SMR) build out for
nuclear capacity while reviewing the potential
for tidal power, both baseload
generation-supporting activities. Further, with
the party’s intention to explore new UK gas
field licenses, gas-fired power supply could
remain in the mix into the future.
ICIS analyst view
Despite multiple power market pledges, the
potential for manifesto points to translate
into price movements appears limited, according
to ICIS analyst Robbie Jackson-Stroud.
Jackson-Stroud notes that the development and
construction of new capacity, such as gas-fired
power plants, requires time to agree upon at a
policy level, plan and then construction.
Adding to this, “cost constraints in the
current climate are the driver of investment in
renewable capacity, and a change of party does
not shift that,” he added.
Regardless of the party to come out as winner
of the 4 July elections, there may simply not
be enough time to deploy new capacity for
wholesale power prices to ease, be that
renewables or fossil-fuel based generation.
Considering the challenges facing parties in
delivering power-market change ahead of 2030,
it is unlikely that they would present notable
shifts to forecasted power prices before the
next decade.
ICIS long-term power data indicates that in
2030, depending on the development of the
carbon price, UK power prices are expected to
range between £46-85/MWh.
In comparison, ICIS price assessments show that
the UK power front-month baseload price
averaged £66.62/MWh between January to June
this year, which is £49.34/MWh lower than the
same period last year.
The drop in price is due to more stable market
conditions this year in the UK and on the
continent.
UK PARTIES COULD STRUGGLE TO MEET RENEWABLE
CAPACITY ELECTION PLEDGES – Added to analysis
24 June 2024
UK parties unlikely to meet capacity
targets
Key to onshore wind would be change to
regulation
Offshore wind could struggle following
recent CfD round
LONDON (ICIS)–For the UK general election,
Labour, the Conservatives and the Green Party
are the only three of the main parties to
present outright capacity targets for renewable
energy deployment across their manifestos.
However, ICIS data and analyst insight suggests
that meeting such targets could face
difficulties due to recent setbacks in the UK’s
Contracts for Difference (CfD) bidding process
and restrictive regulation for onshore wind.
The Labour party manifesto states it will
double onshore wind, triple solar power, and
quadruple offshore wind by 2030. To present an
idea of this, ICIS has multiplied its
forecasted capacity for these technologies in
the UK by the end of 2024 by their respective
factors according to Labour’s pledges. Actual
intended capacity may vary. ICIS had contacted
the Labour party for comment but received no
response by the time of publication.
Onshore wind
Labour plans to double onshore wind capacity by
2030, while the Green Party would deploy 53GW
of capacity by 2035.
The Liberal Democrats would ‘remove the
Conservative’s unnecessary restrictions on new
wind power’, likely referring to the
requirements the current government introduced
in 2015 and changes to the law in 2016.
Planning policies were updated in September
2023 to allow locations suitable for new wind
farms to be identified in several ways, rather
than only in the area’s development plan.
However, decisions continue to be made by local
planning authorities which differs to the
process for other infrastructure projects where
decisions on major projects are made by the
Secretary of State.
The current government does not have an onshore
wind capacity target and the Conservative’s
manifesto has no mention of one however, it
does state that the party will ensure
democratic consent for onshore wind.
ICIS analytics forecasts 25.85GW of onshore
wind capacity in 2030 and in 2035, under a base
case scenario, which is below Labour and the
Green Party’s targets. ICIS analyst, Robbie
Jackson-Stroud, stated that planning permission
is one of the main challenges onshore wind
projects face.
“Costs for turbines have also risen and so they
are then squeezed into a CfD funding pot where
they have to compete with solar”, he added.
Jackson-Stroud noted that onshore wind could be
a key component to the development of renewable
capacity in the UK, changes to regulation
permitting.
“One aspect that is likely to change is
regulation and approval of onshore wind
projects, which require less budget and time to
build. However, it is difficult to envisage a
new government being timely enough to
sufficiently improve the approval process and
have enough projects apply to shift onshore
capacity before 2030. It should be noted,
however, how much potential a change to
regulation would have to long term capacities,
and you can expect more capacity in the 2030s”,
Jackson-Stroud said.
Offshore wind
The Conservatives, Labour and the Green party
all position offshore wind as a key technology
to support the decarbonization of the UK’s
power system. However, achieving such targets
appears difficult following an unsuccessful
fifth auction of the CfD scheme in 2023, in
which there were no bids for offshore wind amid
a low strike price.
The current government increased the strike
price for the upcoming sixth auction round,
raising the maximum strike price from £44/MWh
to £73/MWh.
Jackson-Stroud highlighted the difficulty
facing the next wave of auctions when
considering 2030 targets.
“Both parties [Labour and the Conservatives]
have pledged unachievable targets without a
huge budget increase for the CfD. Taking into
account the time it takes to build offshore
wind sites (that are getting increasingly
larger on average) there are only two CfD
auctions at most that can fund capacity to come
online by 2030.
“There is roughly 27GW of offshore wind already
under CfD, under construction or operational,
suggesting the need for a further 23GW across
two auctions, which would be a record at a time
where costs are higher than they have ever
been. While the budget for the latest round has
been raised to an all-time high of £800m for
offshore and £1.2bn total, this would still
procure only 12GW of wind in even the most
conservative estimates.
“This means regardless of Labour increasing
2030 targets for offshore, even the 50GW
already in place will not be met, and a change
of party doesn’t change the blockers to this,”
Jackson-Stroud said.
ICIS analytics forecasts that offshore wind
capacity will be 39GW in 2030 under a base case
scenario, therefore falling short of the
Conservative and Labour party targets.
Similarly, offshore wind capacity is forecast
to be 48.04GW in 2035 under a base case
scenario, well below the Green Party’s target.
Solar
Labour plan to triple solar capacity by 2030,
while the Green Party and Conservatives have
set targets for 2035, 100GW and 70GW
respectively based on manifesto and recent
policy announcements.
However, reaching such targets may prove
challenging based on recent CfD results. ICIS
analyst Matthew Jones
previously noted that for the UK to meet
its 70GW by 2035 target, CfD capacity awards
would need to average 4.5GW/year. However, over
the last two CfD rounds, just 2.2GW was awarded
in each.
Further, ICIS analytics forecasts 42.97GW of
solar capacity by 2030, and 48.54GW by 2035,
under a base case scenario, therefore missing
the Labour, Conservative and Green Party
targets.
Since the closure of the renewable obligation
and feed-in tariff schemes, the CfD scheme is
the only subsidized route to market for solar.
The forecast models cited in this
story are available as part of ICIS Power
Foresight. If you would like to learn more
about ICIS Power Foresight, please contact head
of power analytics Matthew Jones at
Matthew.Jones@icis.com
UKCS LICENSING – Added to analysis 21 June 2024
Several parties have committed to end the
issuing of new licenses for extraction of oil
and gas on the UK continental shelf (UKCS),
however ICIS analysis shows the inclusion of
new licenses may have a minimal impact in
mitigating output decline.
Gas production on the UKCS started declining in
2000, but held steady during the 2010s. It
currently accounts for approximately 40% of
Britain’s gas supply mix, with the bulk of
remaining volumes coming through Norwegian
imports and LNG. From the late 2020s, UKCS
production is expected to decline by
approximately 6% per year.
Licenses on new discoveries would not reverse
the decline in British production expected in
coming years. However, they would have
accounted for another 0.80 billion cubic meters
(bcm) of British gas production in 2030,
increasing to 1.5bcm in 2035.
In contrast to the other parties, the
Conservatives and Reform UK have committed to
annual licensing rounds and “fast-track”
licenses, respectively. Both have done so with
a justification of maintaining British energy
independence, citing the rising price of energy
caused by the full-scale Russian invasion of
Ukraine.
GAS-FIRED POWER DEMAND LIKELY UNMOVED
Both the Conservatives and the Labour party
show support for the continued use of gas for
power generation, bolstering a key area of
demand for British gas market participants.
However, of the two parties, the Conservatives
presented a more bullish mentality by noting
intensions for new gas plants,
aligning with previous announcements to
support new capacity.
Labour meanwhile take a muted approach, noting
the need for a strategic reserve of gas for
power generation.
Both Labour and the Conservatives have
therefore presented policy that could reduce
power-market price volatility as renewable
capacity grows, with gas offering baseload
generation at periods of low renewable output.
Gas demand for power to remain
From a gas-market perspective, the use of gas
for power amounts to a large share of overall
demand. In 2023, gas offtake for power
accounted for 26% of total gas demand.
The UK is heavily reliant on gas-fired power
generation, with it contributing 26% of the
UK’s electricity mix in the period 1 January to
31 May 2024, according to data from National
Grid.
Similarly, gas-fired generation provided an
average 36.3% of the mix over the 2019-23
period, therefore making a significant
contribution to the UK’s electricity stack.
While the capacity of new gas generation is not
mentioned in the Conservative party’s
manifesto, ICIS analytics forecast data
indicates that gas capacity is set to increase
through to 2026, under a base case scenario.
This would suggest that offtake for power
generation could well remain a key share of
overall gas demand under either a Conversative
or a Labour government.
Further, ICIS data shows that there will be
7.92GW of gas capacity in 2050 under a base
case scenario, which itself raises uncertainty
around the prospect of pledges to decarbonize
power grids by around the 2030s.
NUCLEAR
Nuclear power represented a large focus for the
Labour, Conservative and Reform UK parties,
which each announced plans to increase nuclear
capacity through a mix of measures, such as
plant life extensions, new large-scale
projects, or Small Modular Reactors (SMRs).
Despite this, the overall pledges presented for
the election suggests need for further capacity
build-out in the run up to 2050 in order to
meet the government’s target.
While the Conservative’s manifesto did not
mention a specific nuclear capacity target, the
current government has a target to reach 24GW
of nuclear capacity by 2050.
ICIS analytics forecasts that, under a base
case scenario, nuclear capacity will be 12.76GW
by 2050.
Plant life extensions
Although Labour’s manifesto did not provide
details on which nuclear plants it intended to
focus on for life extensions, or for how long,
the intension is in line with former market
announcements from EDF, which stated plans
in January 2024 to extend the lives of five
UK nuclear plants.
EDF plans to invest an additional £1.3bn in
these power stations over 2024-26, with the aim
to maintain output from the four advanced
gas-cooled reactors (AGR) for as long as
possible, and for the Sizewell B plant to
operate for an additional 20 years.
The lifetimes of the four AGR stations would be
reviewed by the end of 2024.
New capacity
From a new capacity perspective Labour pledged
to get the 3.2GW Hinkley Point C project over
the line and that new nuclear power stations,
such as the 3.2GW Sizewell C project, will play
a key role in helping the UK to achieve energy
security and clean power.
In January, the Conservatives announced
plans for a new large-scale nuclear power
plant, which would be as large as Hinkley Point
C or Sizewell C, which are both 3.2GW in
capacity.
The current government announced in May that
Wylfa would be the preferred site for this new
plant however, a commissioning date is still to
be confirmed. This aligns with the party’s
manifesto pledge to deliver a new gigawatt
power plant at the same location.
The new plant in Wales could well boost UK
nuclear capacity, but it would still present a
capacity gap between the current ICIS forecast
for 2050 and the government’s target of 24GW.
Small modular reactors
Labour, the Conservatives, and Reform UK all
mention SMRs in their manifestos however, the
Conservatives will approve two new fleets of
SMRs within the first 100 days of the next
parliament.
This is likely through the competitive process
that Great British Nuclear (GBN) launched in
2023 to select SMR technologies best placed to
be operational by the mid-2030s.
GBN plans to announce successful bidders for
the competition by the end of 2024 and to take
two SMR projects to a final investment decision
by 2029.
However, it must be noted that SMRs are a new
technology, and none are commissioned yet in
Europe.
HYDROGEN
In this UK general election special, ICIS
hydrogen editor speaks with Rob Dale, founder
and director of UK consultancy Beyond2050,
which aims at supporting market participants in
achieving their energy and sustainability
goals.
Over the course of the episode, Jake and Rob
review which parties have committed to hydrogen
for the election and what makes this election
the biggest for hydrogen so far.
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