Energy Markets: Is Electricity The Next Black Swan?
Simply stated, crude oil does not actually make electricity in today's environment (see power generation by fuel source here). However, power is needed to make oil. Said another way, a failing power grid COULD BE the next oil chain supply problem.
The loss of basic electricity services in Texas cascaded down to the production of energy, transportation systems, water distribution and the performance of telecommunications.
A recent assessment of summer electric grid reliability by the US Chamber of Commerce shows the clean energy transition may be getting ahead of the technologies available to keep the grid reliable.
A power grid failure on any scale larger than a local one like we saw in Texas, would be, and could be potentially catastrophic. The potential problem with power grids would be a catalyst for chaos in energy in general and oil specifically. The problem is systemic, but the solution is not. There appears to be no plan in place. The power grid, therefore may be the soft underbelly of the entire economy.
It doesn't come as much of a shock then that electricity futures have more than tripled across the country since the beginning of the year. Like other commodity futures, electricity futures represent the wholesale price of electricity. The price before additional costs like transportation, taxes and other production costs are assigned.
A recent report by the US Chamber of Commerce shines a spotlight on this issue.
This isn't just an isolated issue the US faces. In fact, the US is probably faring better at the moment than other countries.
As of Saturday morning there are new fears that Moscow could entirely halt all NatGas flowing through Nord Stream within weeks, which would cause energy chaos in Germany and across the continent.
Oil, Gasoline, Heating Oil, Coal, and Natural Gas are all markets with little room for supply-side error right now due to war, sanctions, and other supply chain impediments. Power isn't even mentioned. Electrical power is assumed even while the inputs that generate it trade at multi year highs and are constrained on several fronts. Power grid reliability is taken for granted. We have had a problem on almost every segment of the energy supply chain these past 6 months. So far there have not been problems at the last stop on the chain, power generation and transmission. Regardless, the supply chain is vulnerable.
Simply stated, crude oil does not actually make electricity in today's environment (see power generation by fuel source here). However, power is needed to make oil. Said another way, a failing power grid COULD BE the next oil chain supply problem.
The loss of basic electricity services in Texas cascaded down to the production of energy, transportation systems, water distribution and the performance of telecommunications.
A recent assessment of summer electric grid reliability by the US Chamber of Commerce shows the clean energy transition may be getting ahead of the technologies available to keep the grid reliable.
A power grid failure on any scale larger than a local one like we saw in Texas, would be, and could be potentially catastrophic. The potential problem with power grids would be a catalyst for chaos in energy in general and oil specifically. The problem is systemic, but the solution is not. There appears to be no plan in place. The power grid, therefore may be the soft underbelly of the entire economy.
It doesn't come as much of a shock then that electricity futures have more than tripled across the country since the beginning of the year. Like other commodity futures, electricity futures represent the wholesale price of electricity. The price before additional costs like transportation, taxes and other production costs are assigned.
A recent report by the US Chamber of Commerce shines a spotlight on this issue.
The U.S. Chamber strongly supports the transition of our electric generation fleet and the overall economy to cleaner, less carbon-intensive energy sources. Recognizing that pretty much everything we make, sell, or do depends upon a reliable and affordable supply of electricity, we have also been clear that this transition must occur consistent with the pace of innovation so that American competitiveness can continue to flourish during this necessary evolution. Unfortunately, a recent analysis by the official watchdog of America’s electric grid indicates that the electric power transition may be getting out over its metaphorical skis.
This isn't just an isolated issue the US faces. In fact, the US is probably faring better at the moment than other countries.
As of Saturday morning there are new fears that Moscow could entirely halt all NatGas flowing through Nord Stream within weeks, which would cause energy chaos in Germany and across the continent.
Oil, Gasoline, Heating Oil, Coal, and Natural Gas are all markets with little room for supply-side error right now due to war, sanctions, and other supply chain impediments. Power isn't even mentioned. Electrical power is assumed even while the inputs that generate it trade at multi year highs and are constrained on several fronts. Power grid reliability is taken for granted. We have had a problem on almost every segment of the energy supply chain these past 6 months. So far there have not been problems at the last stop on the chain, power generation and transmission. Regardless, the supply chain is vulnerable.
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