Energy transition topics dominate this week’s Commodity Tracker as S&P Global Commodity Insights editors examine hydrogen prices, wind turbine sizes and voluntary carbon market credits. Also in focus are Germany’s LNG imports capacity and seaborne coking coal prices.
1. North America edges ahead in global hydrogen race
What’s happening? A global market survey of low carbon hydrogen projects shows North America is now leading Europe, the Middle East and China in committed investments, with a “let’s get this done” attitude contrasting with Europe’s bureaucratic quagmire. Final investment decisions in the US amount to $10 billion versus $7 billion in Europe and $5 billion in China and the Middle East. China is on a hot run, with growth in project announcements up 200% in just eight months. North American hydrogen prices as assessed by Platts, part of S&P Global Commodity Insights, are among the cheapest in te world due to low power and as feedstock costs.
What’s next? The bulk of some 1,040 projects globally, however, remain in early development as investors await any evidence of fresh, non-conventional demand. With Germany’s H2Global auction platform in the early days of bidder selection, the prospect of matched, subsidized supply and demand is nearing, with the potential for first green ammonia shipments in 2025. Feedback from developers and offtakers is that the platform is simple, clear and well designed. Along with all new infrastructure, however, the global hydrogen industry is maturing during a time of strong headwinds which could slow deployment, including strained supply chains, labor shortages, increasing inflation and interest rates and permitting delays.
2. Offshore wind supply chain pushes back against constant pursuit for bigger turbines
What’s happening? The offshore wind supply chain is pushing back against the constant pursuit for bigger turbines. In th quest for economies of scale,machines have grown to 15 MW in size – but executives and analysts say this unrelenting innovation is putting pressure on the supply chain and needs to be reined in. Instead of bringing out new iterations of turbine every two years, the major manufacturers and their suppliers are calling for a more sustainable pace of innovation.
What’s next? Even before 15-MW machines make it into the water, turbine-makers from Europe and the US are already said to be touting 18 MW to 20 MW turbines for projects being installed later this decade. Industry observers say future capacity upgrades will require big investments in the supply chain’s manufacturing capacity, given components and installation vessels get exponentially more expensive as turbines get bigger.
3. Germany expands LNG import capacity
What’s happening? Once the biggest buyer of Russian pipeline gas, Germany has moved quickly to build out a significant volume of floating LNG import capaity as part of efforts to compesate for lost Russian deliveries. It already has three operational floating storage regasification units across its northern coast, with more to come by the end of 2023 and several permanent sites also under development. According to data from S&P Global, sendout from the three operational terminals passed the 2 Bcm mark on May 6. The average sendout rate so far in May is 20 million cu m/d — or around 7.3 Bcm on an annualized basis. Total German gas demand in 2022 was around 80 Bcm.
What’s next? The three operational sites have a current combined import capacity of almost 14 Bcm/year, but more capacity is set to be added by the end of 2023. If all developments proceed to plan, Germany LNG import capacity would be at least 40 Bcm/year from summer 2024 onwards. However, the exact configuration of FSRU sites in northeastern Germany is not yet clear, with locations near the tourist island of Rugen under consideration and plans for more FSRUs in andaround Lubmin.
4. Voluntary carbn market credit issuances in April rise more than 30% month-on-month
What’s happening? Credit issuances in the voluntary carbon market exceeded 23 million in April, up more than 30% month on month, with nature-based avoidance projects in Peru accounting for more than 60% of the total. Two projects on Verra Registry were accountable for most of the issuances, with the Cordillera Azul National Park REDD project issuing ~11.4 million credits alone. The surge in Peru REDD project supply comes amid a March 30 Associated Press report disputing the environmental integrity of credits from the Cordillera Azul National Park REDD project, and as Verra released draft consolidated methodologies for REDD projects last month. Credit issuance increases in April have not been matched by an increase in VCM retirements, which fell 9% on the month; resulting in limited price growth for avoidance based VCM credits in April.
What’s next? The higher-than-expected upply in April pushed the total 223 VCM credit balance up to 34 million mt in 2023, 17% higher than the comparable balance increase observed between January-April 2022. Analysts at S&P Global do not expect this to exert significant bearish price pressure on the market, as buyers become selective over credits purchased in the market (with just 5% of the 11.4 million credits issued from the disputed Cordillera Azul National Park REDD project retired last month). Further bullish pressure is anticipated ahead of clarity over Core Carbon Principles due for release in the coming months.
5. Coking coal CFR China import prices weaken below FOB Australia
What’s happening? Coking coal prices in the seaborne markets have declined for a third month. In China, import prices for premium low-volatile quality weakened below FOB prices since May 5. Lower domestic coking coal and met coke prices in China, and weaker demand on lower iron and steel production since April have slashed requiremens. Meanwhile, as FOB spot prices hve fallen 38% from a high in mid-February, Australian exports are seeing support from pockets of restocking demand in markets such as India and Japan. China has yet to boost imports of Australian coking coal to previous levels after a few trades since lifting restrictions led to 357,972 mt in imported over February and March. Price trends currently do not support bookings to China, with a gap of around $35/mt with FOB trade.
What’s next? Chinese demand and pricing for met coal may continue to see import pricing moving in and out of range for delivered FOB prices from Australia and North America. China continues to be more reliant on Russian imports with availability and lower pricing due to sanctions hitting demand elsewhere and as Mongolian imports surge, following easing of COVID-19 transport restrictions. Higher contract volumes of Australian and US coals into India and other markets may limit the urgency to place spot tons in the second halfof the year after stronger global aailability in May and June cargoes. Forward spot export availability may be more dependent on realized shipments through the year under contracts and committed sales volumes, with underlying steel production and demand in India, Europe and South America.
Source: Platts
