Alexander Stahel 🌻 Profile picture
Aug 3, 2022 30 tweets 11 min read Read on X
Let's talk European electricity, shall we?

Thread
Part I (of many more to come); 1/n
European electricity prices are spiking for all major economies except for Spain. But also Spanish consumers pay 3x more compared with only May 2021.

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In fact, most European power prices are 12-15x higher than they were in 2015. Needless to say, the European industry will go into a deep recession at these prices.

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All commodities price at the margin. So do electricity prices. As the EU grid enters an unprecedented phase of change, away from dispatchable baseload power such as nuclear or coal fired power towards Renewable Energy Sources, more price volatility is the only certainty.

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But why are prices high now? Because the EU grid needs a lot of gas. In 2021, 17.3% of Europe’s 3,100 terawatt-hours (for comp: US 3,900TWh) of power production came from gas-fired plants. Gas derived power production is the 2nd biggest energy contributor to the EU grid.

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In other words, EU gas prices set the marginal price for electricity. Therefore, higher EU gas prices also drag up electricity prices.

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Meanwhile (and as most of you know), EU gas is in short supply as Russia cut gas by some 41% YTD when compared with 2021 (more vs 2019). Worse, since July Russia, cut Nord Stream 1 supplies to 30mcm/d (vs. 160mcm/d capacity). That caused gas prices to spike.

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European gas prices don't like it when the largest supplier Gazprom (200bcm of a 500bcm market pa in 2019) does not deliver. Hence, prices have NEVER been higher in recorded history at this time of the season, that is higher by a factor of 10 times!

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You guessed it: coal-fired production will have to replace gas. Subject to coal’s import availability, coal may set the price of electricity as the new marginally dispatched (demanded) atom of the grid. Yes, coal is well & alive. Hydrocarbons = modern life!

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Meanwhile, EU coal prices are more expensive than at any time in recorded history too (25y) as Europe scrambles to replace 58 million tonnes pa of thermal coal it mustn’t source from Russia while coal production came rather unfashionable for the past decade (green shift).

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As is nuclear electricity production. And so slow & steady brain drain from this industry has remifications too. Take France. It's nukes produce 30-40% below its 10-year averages. Given it's overall importance for the EU grid, that is rather concerning...

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…and which is the main reason why French peak load power prices for December 2022 are at €2037/MWh - another all time record!

You see, this entire green shift has consequences which 99% of consumers NOT YET understand. But they will, sooner or later.

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Can EDF, the French operator, fix the maintenance issues? I think so. The thing is: the French state company has a habit of over-promising and under-delivering. Time will tell.

Allez les bleues!

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Fact is, between 2014-2016, France - 2nd largest grid in EU by a wide margin - didn’t import power on a single day.

Last year however, it bought electricity from overseas for 78 days. So far this year, it has been forced to do so on a record 102 days.

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Which brings us to the German grid, Europe's largest.

Can they help France? Unlikely. In fact, they may need help too if the Gov want to save gas in power AND shut-down its nukes by y-end (currently re-considered). Or can German coal save us from the risks in the winter?

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Some basics first. GER coal power production has huge advantages. It provides dispatchable load while 100% of lignite is mined in G. That makes it the cheapest, most reliable electricity other than nuclear.

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The Gov knows that. In July, minister Habeck issued an ordinance to return up to 16 coal- & oil-fired power plants to come out of the “grid reserve”. In addition, 8 hard coal & lignite power plant licenses are prolonged beyond Oct 2022 to help save natural gas. But can it?

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However, so far in 2022 gas-fired power production continues unabated. Why?

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Because switching from gas to coal on industrial scale cannot be easy. Some voices goes as far and say “only one of Germany’s 16 coal fired power plants will restart operations, and only this autumn.” I'm less sure but here are some of the challenges...

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We took a closer look. First, most of German hard coal production (again, lignite is not imported), power or industrial use, has directly or indirectly access to German’s inland river system which transports most of its annual thermal coal imports of some 44 million tonnes.

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The Rhine river alone transports some 75% of Germany’s hard coal imports due to its significant transportation cost advantages.

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A modern Rhine coal barge carries 7kt of coal. At that load, it has a draught of >3 meters. We assume an avg power plant (100 – 1100 MW) requires 400 tonnes of feedstock per MWh of production. This would imply, say, EnBW requires 1-4 barges (class VIb) each day. Can it?

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Well, that comes down to weather. The ongoing heat wave has impacted Rhine water levels. Within 6 weeks, large parts of the Rhine river are well below the required 1.5 meter gauge level for a barge to transport at full capacity.

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According to our calculations, as at 3/8/22, large parts of the middle & upper Rhine river only allow for limited coal loadings (1/3 or less beyond Kaub). Such conditions, while not infrequent, will draw emergency stocks at coal plants.

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Kaub is the “bottleneck” gauge station of the Rhine river in Germany. It reached a new seasonal all time low (antoher one!) and is now well below the required 1.5 meters (150cm) for full loadings.

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And its forecast? A shocker!

Kaub's 14-day forecast is for water levels to approach unsafe levels for transportation. Yes, we like to go the extra mile for you :-)...

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Lower loadings mean higher rates for merchants to break even. At some point, such rates may make purchasing coal uneconomic or simply restrict power production as the required daily feedstock supplies cannot be delivered. Barging may also be stopped due to safety concerns.

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In short, barging a tonne of coal to a power plant in GER reached €600. Meanwhile, Coal Importers forecast 30mt for 2022 & then some for 2023 while the brokers promise to transport "to it point of nautical-technical impossibility." I believe them.

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But can they? Our assessment for theoretical annual coal shipping capacities is based on many assumptions but suggests 75 days of low water may reduce shipping capacities to 24 million tonnes pa in 2022. Rail will have to do the rest. Can it? We will see.

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Meanwhile, other waterways have low water issues too.

Maybe the weather gods want to give green party members one more time to reflect why they want to replace the best nukes in Europe with coal, given EU commitments to reduce CO2 emissions to 0 by 2050?

30/n End - thx! Image

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More from @BurggrabenH

Apr 28
Here is my theory how the major incident - a so called blackout - occurred at 12:30 CET today in the power system of Spain & Portugal:

1/n Image
At the time of the incident, Spain and Portugal operated the grid at very high renewables share of about 66% - i.e solar (55%) and wind (11%; eolica)

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While this isn’t unusual for Spain, it does mean that the grid operates with little inertia (resistance to change) during such time. The grid is therefore vulnerable to external effects…!

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Read 10 tweets
Apr 3
On this platform, certain perma bulls keep pushing a bullish crude narrative based on relative U.S. inventories—day after day, for three years now.

Their logic: Total U.S. crude inventories (including the SPR) are at 838 million barrels (orange line), 200 million barrels below the 10-year average → bullish!

Yet, inventories keep falling, and prices remain stuck in a range. Clearly, they are wrong.

1/9 @UrbanKaoboy @Iris62655179 @BrentRuditLeoImage
The problem with their logic?

a) The U.S. is no longer the marginal importer of crude oil—Asia is (or was).

b) U.S. inventories are artificially high on a 10-year average due to the shale boom, which took off in 2014. Shale growth and Covid distort the data, keeping inventories (ex SPR) elevated. So any 5- or 10-year comparison is meaningless—period.

2/n US Crude Oil Inventory ex SPRImage
Including SPRs, the picture looks more normalised - but not tight. But does the US really need 700mb of strategic reserves in 2025? I don't think so.

3/n US Crude Inv incl SPRs Image
Read 9 tweets
Mar 23
Yesterday, I shared a few thoughts that I’d like to expand on, especially given how volatile the current tariff landscape under this admin has become.

Navigating it isn’t just difficult—it’s nearly impossible to avoid missteps. Hopefully some traders will expand on my thoughts...

1/n
What do we know?

As at 23 March 2025, Comex copper price in New York is trading at 14% premium to LME in London. Buying a tonne of copper in NY costs $11,213 versus 9,842 in London, $1,371 per tonne more than in London.

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Why is that? Because of tariff FEARS, not tariffs.

Traders are hedging future risk of potential tariffs on all forms of the raw material, such as cathodes, concentrates, ores, and even scrap. But there aren't such tariffs in place for copper yet (unlike alumnium).

3/n
fastmarkets.com/insights/us-ta…
Read 9 tweets
Mar 22
A few thoughts on copper.

The current Comex price action in the U.S. is basically a Trump tariff trade mirage and is otherwise as misleading of fundaments as the May 2024 price action of which I warned on multiple occasions.

1/n $/pound Image
In May 2024 however, U.S. price action was more in synch with London. But it didn't reflect weak Chinese housing & construction fundamentals which has been 15-30% of GLOBAL copper use for the past two decades. Today, U.S. prices trade as if borders close tomorrow.

2/n Comex - LME arb in $/tImage
Unlike May 2024, copper blue chips like $FCX, however, do not buy the rally. So at least it seems that the equity market understands the tariff aspect of the copper price mirage.

3/n Change in % Image
Read 15 tweets
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In this episode, we discuss China's 2nd of 5 economic paths it can follow.

This episode will also focus on Xi the leader. To understand Xi means to better understand China's economic path forward.

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Can China replace malinvestment with more consumption?

Answer: Maybe a little bit & over a long time frame, but President Xi does not want to focus on this path. Instead, he wants to implement his socialist utopia.

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Yes, China’s rising entrepreneurs were welcomed by the Communist Party for at least two decades. But all of that is in reverse.

Under Xi Jinping, China has moved full circle: from low growth & low freedom in the pre-reform era back towards something similar today.

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Read 7 tweets
Oct 29, 2024
Let's talk China, shall we? Episode 4 of 7

In this episode, we discuss China's investment-led growth model & the first of 5 economic paths China can follow.

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Starting in 1990s, China’s economic engine has been fueled by capital investments.

Its central planning bureau defined GDP targets, picked winners and drove growth from debt-driven capital formations (green line).

2/n Image
Has any other nation tried this before, ever? Not to our knowledge.

We checked at ALL G20 economies and their respective growth models for past 70 years. 45% capital formation share is a unique experiment in economic history.

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Read 6 tweets

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