Goldman Now Says the Euro Area Will Avoid a Recession

Inflation easing to 3.25%

Economists at Goldman Sachs no longer predict a euro-zone recession after the economy proved more resilient at the end of 2022, natural gas prices fell sharply and China abandoned Covid-19 restrictions earlier than anticipated.

Gross domestic product is now expected to increase 0.6% this year, compared with an earlier forecast for a contraction of 0.1%. While growth will still be weak during the winter due to the energy crisis, the first quarter of 2023 will likely see expansion of 0.1%, according to economists led by Jari Stehn.

They also see inflation easing faster than thought — to about 3.25% by end-2023.

The $40 Trillion Nuclear Fusion Push

Historic breakthrough in the quest for nuclear fusion 

For the first time ever, scientists have achieved a net energy gain in fusion tests. According to three people with knowledge of preliminary results from a recent experiment, US government scientists have made a breakthrough in the pursuit of limitless, zero-carbon power by achieving a net energy gain in a fusion reaction for the first time.

The federal Lawrence Livermore National Laboratory in California, which uses a process called inertial confinement fusion that involves bombarding a tiny pellet of hydrogen plasma with the world’s biggest laser, had achieved net energy gain in a fusion experiment in the past two weeks, the people said. Fusion reactions emit no carbon, produce no long-lived radioactive waste and a small cup of the hydrogen fuel could theoretically power a house for hundreds of years.

The fusion reaction at the US government facility produced about 2.5 megajoules of energy, which was about 120 per cent of the 2.1 megajoules of energy in the lasers, the people with knowledge of the results said, adding that the data was still being analyzed.
Bloomberg Intelligence has estimated that the fusion market may eventually be valued at $40 trillion.

Russia’s income from energy hit a 14-month low in August

Moscow dumps discounted oil

Russia’s energy revenues shrank in August to the lowest in more than a year as Western sanctions over Ukraine prompted the Kremlin to sell discounted oil and squeeze gas flows to Europe.

The refusal to buy Russian oil by some traditional customers in Europe means Moscow has been forced to sell oil at a steep discount in Asian markets, depriving it of the full benefit of higher prices. While August saw record-high spot gas prices in Europe, gas levies, which take up a smaller share in the budget, couldn’t fully offset lower oil revenues. State-run Gazprom PJSC has significantly cut gas exports to Europe this summer, blaming sanctions for capped flows.

Russia’s oil and gas revenues, which account for more than a third of nation’s budget, fell to 671.9 billion rubles ($11.1 billion) last month, the lowest since June 2021, according to Finance Ministry’s data published Monday. That’s a drop of almost 13% from July. It’s also a 3.4% decline from a year ago, even though Urals crude prices rose almost 10%.

Another blow to the Kremlin’s coffers could come from the price cap that Group of Seven nations plan to set for Russian crude and oil products. While President Vladimir Putin pledged to halt exports to countries that introduce such a measure, the price cap could further increase the discount for remaining buyers of Russian fuel.

Solar Stocks Are Soaring

New funding frenzy

Over the past two years or so, the clean energy sector has emerged as a major laggard with investors giving it a wide berth. The iShares Global Clean Energy ETF (ICLN), a catch-all bet on clean energy, is trading 30% below its January 2021 peak after a major rally fueled by ESG optimism drove many stocks in the sector to record highs and stratospheric valuations.

Luckily for the sector, the passing of the historic climate bill dubbed the Inflation Reduction Act has given it a much-needed shot in the arm. IRA allocates $369 billion to renewable energy with the American Clean Power Association estimating it could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs. A major goal of IRA–the largest federal government spending increase on alternative energy in U.S. history–is to strengthen energy independence, reduce dependence on Chinese imports, and reinvigorate the industrial sector.

Investors are loving it: according to Jon Hale, global head of sustainability at Morningstar,  clean energy funds attracted net inflows of about $433.6 million in the two weeks after the July 27 disclosure of Congress’ IRA agreement compared to net outflows of $223 million in the two weeks prior to the deal.

US inflation hit 40-year high in June

Record gas prices

Inflation surged to a new pandemic-era peak in June, with US consumer prices jumping by 9.1% year-over-year, according to fresh data released  by the Bureau of Labor Statistics. That’s the highest level in more than 40 years and higher than the previous reading, when prices rose by 8.6% for the year ended in May. It is also much higher than the 8.8% that economists had predicted, according to Refinitiv.

The Consumer Price Index for June also showed that overall prices that consumers pay for a variety of goods and services rose by 1.3% from May to June. Much of the June increase was driven by a jump in gasoline prices, which were up nearly 60% over the year. Americans faced record-high gas prices last month, with the national average topping $5 a gallon across the country. Electricity and natural gas prices also rose, by 13.7% and 38.4%, respectively, for the 12-month period ended in June. Overall, energy prices rose by 41.6% year-over- year.

Energy Prices Rose 59% In 2021

Economic recovery from the Covid-19 pandemic

Energy prices at the end of 2021 were 59% higher than they were at the beginning of the year, according to a new report by the Energy Information Administration (EIA).

The boom in energy prices—which was more than the gains seen by other commodities—was largely the result of economic recovery from the Covid-19 pandemic. Most other commodity prices in the S&P Goldman Sachs Commodity Index (GSCI) saw about a  20% increase, with the exception of precious metals, which saw a decline.

Within the energy portion of the commodity index that tracks the performance of global commodities markets, RBOB (wholesale gasoline) saw the largest gain at 67%, followed by heating oil, then WTI and Brent. Gasoil and natural gas rounded out the energy segment of the GSCI.

China Energy Curbs Could Cut Economic Growth to 6%

Power-rationing will continue into next year

China’s targets to decrease the energy-reliance of its economy means power-rationing will continue into next year, and if strictly enforced, could reduce economic growth in 2021 well below consensus forecasts to 6%, according to Barclays Plc.

“The government faces a tough choice between a more significant economic slowdown and relaxing its dual targets for overall energy use,” Barclays economists led by Jian Chang said in a report. Most economists expect gross domestic product to expand by about 8% this year. China set a nationwide target of decreasing the “energy intensiveness” of its economy — the amount of energy used per unit of GDP — by 3% this year as it seeks to reduce pollution. Beijing warned in August that most provinces were not on track to meet the target, leading some to cut power use to energy-intensive sectors like aluminum and steel production.

A Very Predictable Global Energy Crisis

Emissions of carbon dioxide are not the planet’s single biggest problem

Gas prices in Europe are breaking record after record. The UK is facing supply shortages reminiscent of the late 1970s winter of discontent. Chinese factories are shutting down because of power shortages, and the outlook is grim. In fact, it may be the first crisis of many.

When gas prices in Europe started rising faster and faster last month as the continent prepared for winter and found out it was not the only one, gas suddenly became important. That’s after being excluded from the list of low-carbon energy sources and after the EU’s green transition chief Frans Timmermans said gas had no place in the transition. It now appears Timmermans and his fellow Brussels bureaucrats could not have been more wrong.

For years Europe has been retiring coal plants and building solar and wind farms as it strived to become the greenest continent on earth and lead the energy transition on the premise that emissions of carbon dioxide are the planet’s single biggest problem because they lead to unfavorable climate changes. This has been coupled with investment declines in oil and gas production, as this only made sense. Now, the EU has got the first bill for its low-carbon feast.

Elon Musk says he’s ‘pro-nuclear’ power

Elon Musk is surprised by some of the public sentiment’ against nuclear industry

Musk’s comments came in response to a question about rising energy demands that may come with a shift to electric vehicles. Despite his support for nuclear power, Musk said meeting this increased demand will depend on “large sustainable power generation developments, primarily wind and solar.”

While utilities will need to boost their production capacity, they can only do so much because power lines also have a limited capacity to distribute electricity to homes and businesses, he added.

“This is why I think it’s actually very important that a necessary part of the solution is local power generation,” Musk said, referencing Tesla Energy’s solar roof and battery products.

The U.S. Could See Record Natural Gas Production In 2022

Increased interest from investors and markets

Natural gas production in the US is set to grow to a new record in 2022, at 93.3 billion cubic feet per day (Bcfd) and will continue to rise further, exceeding 100 Bcfd in 2024, a Rystad Energy analysis shows. As a result, the performance of the country’s key gas basins is going to attract increased interest from investors and markets, with CO2 emissions intensity, capital efficiency and potential bottlenecks drawing close scrutiny.

The country’s output reached a record in 2019, at 92.1 Bcfd, but production declined subsequently to 90.8 Bcfd in 2020 as a result of the Covid-19 pandemic. Rystad Energy expects that 2021 volumes will fall even further, to 89.7 Bcfd but the trend will quickly change as the effect of the pandemic subsides and activity builds up across the country’s major gas basins.