Last Updated: August 13, 2018
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The US-China trade war took a turn for the worse this week and could fester for months, potentially denting Chinese economic growth and oil demand well into 2019. That spectre controlled oil market sentiment almost to the exclusion of all other influences this week and had forced Brent to re-test recent support levels around $71/barrel on Friday. 

Decisions by Washington and Beijing on August 7 and 8, to proceed with a second round of bilateral tariffs on $16 billion worth of annual imports starting from August 23, squashed any hopes of a return to negotiations. The Trump administration wants to narrow the $375-billion trade gap the US had with China as of 2017 and has threatened to impose duties on all $500 billion worth of its imports from the Asian giant. China is expected to run out of ammunition in its reciprocal retaliation much before that finish line, and yet, it is hard to see it backing off. 

Chinese oil consumption is still centered around manufacturing despite the economy’s ongoing pivot to a services-led growth model, and there have been other signs of a demand slowdown, especially after the independent refiners or “teapots”, were hit hard by tightened tax regulations in March that had nothing to do with the tariffs dispute. 

Crude imports by China, the largest in the world and a closely monitored proxy for its appetite, slipped two months in a row over May and June. Though there was a slight uptick in July imports to around 8.52 million b/d from a six-month nadir of 8.39 million b/d in June, market confidence in the country’s growth has been shaken. 

Consensus expectations on US economic growth remain sanguine but it may be worth paying closer attention to its oil consumption data. Refined products supplied across the US, a proxy for consumption, averaged around 20.93 million b/d in the week to August 3, a slump of 1 million b/d from the corresponding week of 2017, according to the Energy Information Administration. Gasoline use, which accounts for nearly 45% of US oil demand, slid by 540,000 b/d from a week ago to around 9.35 million b/d, in the midst of the country’s peak summer driving demand season. However, four-week average figures, which smooths out volatility that may be more noise than signal, do not indicate any major downtrends. 

In a curious last-minute twist in the trade war, China dropped US crude from its list of items that will attract 25% import duty from August 23 and included diesel, jet fuel, naphtha and propane, alongside a host of petrochemical products. The about-turn on crude could be aimed at alleviating pressure on Chinese refiners and holding it as a trump card for later use when Beijing’s leverage in terms of the value of remaining goods to tax withers. 

China was the largest overseas buyer of US crude in May, averaging 427,000 b/d of imports, according to the latest monthly data from the EIA. Imports spiked to a record 553,000 b/d in June, according to Reuters. However, Chinese refiners began shunning US crude from July and may not risk resuming imports despite the commodity having been left off the latest tariff list, for fear that it may be reinstated any time. US LNG, which China had left alone but decided to threaten with a 25% import tariff on August 3, is a case in point. 

The broader global economic fallout of a bitter fight between the world’s two largest economies defies prediction, but appears to have invited a general sense of gloom as far as oil demand is concerned. That may have been helped by bearishness closing in from the supply side as well. Growing flows from some of the OPEC/non-OPEC producers who have been ramping up in line with the ministerial agreement in Vienna on June 23 to boost collective output by up 1 million b/d have hit progressively the market since June (the Saudis had likely started ramping up that month, even before the Vienna deal). 

A moderate-sized contango has entrenched itself at the front end of the Brent forward curve since mid-July, a market state that typically signals supply overshadowing demand. However, WTI, Dubai and Oman time spreads are in backwardation. 

What's next for oil? We see no escape from the vortex of bearishness for the next few weeks, though we expect the OPEC/non-OPEC leadership to regroup to shore up prices if Brent breaches the key psychological level of $70/barrel. Looking beyond the next few weeks, the combination of Iran sanctions, moderating US oil production growth, and an exhausted OPEC/non-OPEC spare production capacity could hit the market with a perfect storm in Q4.

US China Oil demand OPEC NON OPEC LNG EIA economy crude
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The United States consumed a record amount of renewable energy in 2019

In 2019, consumption of renewable energy in the United States grew for the fourth year in a row, reaching a record 11.5 quadrillion British thermal units (Btu), or 11% of total U.S. energy consumption. The U.S. Energy Information Administration’s (EIA) new U.S. renewable energy consumption by source and sector chart published in the Monthly Energy Review shows how much renewable energy by source is consumed in each sector.

In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.

U.S. renewable energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Wind energy in the United States is almost exclusively used by wind-powered turbines to generate electricity in the electric power sector, and it accounted for about 24% of U.S. renewable energy consumption in 2019. Wind surpassed hydroelectricity to become the most-consumed source of renewable energy on an annual basis in 2019.

Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.

Hydroelectric power is almost exclusively used by water-powered turbines to generate electricity in the electric power sector and accounted for about 22% of U.S. renewable energy consumption in 2019. U.S. hydropower consumption has remained relatively consistent since the 1960s, but it fluctuates with seasonal rainfall and drought conditions.

Biofuels, including fuel ethanol, biodiesel, and other renewable fuels, accounted for about 20% of U.S. renewable energy consumption in 2019. Biofuels usually are blended with petroleum-based motor gasoline and diesel and are consumed as liquid fuels in automobiles. Industrial consumption of biofuels accounts for about 36% of U.S. biofuel energy consumption.

Solar energy, consumed to generate electricity or directly as heat, accounted for about 9% of U.S. renewable energy consumption in 2019 and had the largest percentage growth among renewable sources in 2019. Solar photovoltaic (PV) cells, including rooftop panels, and solar thermal power plants use sunlight to generate electricity. Some residential and commercial buildings heat with solar heating systems.

October, 20 2020
Natural gas generators make up largest share of U.S. electricity generation capacity

operating natural-gas fired electric generating capacity by online year

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Based on the U.S. Energy Information Administration's (EIA) annual survey of electric generators, natural gas-fired generators accounted for 43% of operating U.S. electricity generating capacity in 2019. These natural gas-fired generators provided 39% of electricity generation in 2019, more than any other source. Most of the natural gas-fired capacity added in recent decades uses combined-cycle technology, which surpassed coal-fired generators in 2018 to become the technology with the most electricity generating capacity in the United States.

Technological improvements have led to improved efficiency of natural gas generators since the mid-1980s, when combined-cycle plants began replacing older, less efficient steam turbines. For steam turbines, boilers combust fuel to generate steam that drives a turbine to generate electricity. Combustion turbines use a fuel-air mixture to spin a gas turbine. Combined-cycle units, as their name implies, combine these technologies: a fuel-air mixture spins gas turbines to generate electricity, and the excess heat from the gas turbine is used to generate steam for a steam turbine that generates additional electricity.

Combined-cycle generators generally operate for extended periods; combustion turbines and steam turbines are typically only used at times of peak load. Relatively few steam turbines have been installed since the late 1970s, and many steam turbines have been retired in recent years.

natural gas-fired electric gnerating capacity by retirement year

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Not only are combined-cycle systems more efficient than steam or combustion turbines alone, the combined-cycle systems installed more recently are more efficient than the combined-cycle units installed more than a decade ago. These changes in efficiency have reduced the amount of natural gas needed to produce the same amount of electricity. Combined-cycle generators consume 80% of the natural gas used to generate electric power but provide 85% of total natural gas-fired electricity.

operating natural gas-fired electric generating capacity in selected states

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Every U.S. state, except Vermont and Hawaii, has at least one utility-scale natural gas electric power plant. Texas, Florida, and California—the three states with the most electricity consumption in 2019—each have more than 35 gigawatts of natural gas-fired capacity. In many states, the majority of this capacity is combined-cycle technology, but 44% of New York’s natural gas capacity is steam turbines and 67% of Illinois’s natural gas capacity is combustion turbines.

October, 19 2020
EIA’s International Energy Outlook analyzes electricity markets in India, Africa, and Asia

Countries that are not members of the Organization for Economic Cooperation and Development (OECD) in Asia, including China and India, and in Africa are home to more than two-thirds of the world population. These regions accounted for 44% of primary energy consumed by the electric sector in 2019, and the U.S. Energy Information Administration (EIA) projected they will reach 56% by 2050 in the Reference case in the International Energy Outlook 2019 (IEO2019). Changes in these economies significantly affect global energy markets.

Today, EIA is releasing its International Energy Outlook 2020 (IEO2020), which analyzes generating technology, fuel price, and infrastructure uncertainty in the electricity markets of Africa, Asia, and India. A related webcast presentation will begin this morning at 9:00 a.m. Eastern Time from the Center for Strategic and International Studies.

global energy consumption for power generation

Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)

IEO2020 focuses on the electricity sector, which consumes a growing share of the world’s primary energy. The makeup of the electricity sector is changing rapidly. The use of cost-efficient wind and solar technologies is increasing, and, in many regions of the world, use of lower-cost liquefied natural gas is also increasing. In IEO2019, EIA projected renewables to rise from about 20% of total energy consumed for electricity generation in 2010 to the largest single energy source by 2050.

The following are some key findings of IEO2020:

  • As energy use grows in Asia, some cases indicate more than 50% of electricity could be generated from renewables by 2050.
    IEO2020 features cases that consider differing natural gas prices and renewable energy capital costs in Asia, showing how these costs could shift the fuel mix for generating electricity in the region either further toward fossil fuels or toward renewables.
  • Africa could meet its electricity growth needs in different ways depending on whether development comes as an expansion of the central grid or as off-grid systems.
    Falling costs for solar photovoltaic installations and increased use of off-grid distribution systems have opened up technology options for the development of electricity infrastructure in Africa. Africa’s power generation mix could shift away from current coal-fired and natural gas-fired technologies used in the existing central grid toward off-grid resources, including extensive use of non-hydroelectric renewable generation sources.
  • Transmission infrastructure affects options available to change the future fuel mix for electricity generation in India.
    IEO2020 cases demonstrate the ways that electricity grid interconnections influence fuel choices for electricity generation in India. In cases where India relies more on a unified grid that can transmit electricity across regions, the share of renewables significantly increases and the share of coal decreases between 2019 and 2050. More limited movement of electricity favors existing in-region generation, which is mostly fossil fuels.

IEO2020 builds on the Reference case presented in IEO2019. The models, economic assumptions, and input oil prices from the IEO2019 Reference case largely remained unchanged, but EIA adjusted specific elements or assumptions to explore areas of uncertainty such as the rapid growth of renewable energy.

Because IEO2020 is based on the IEO2019 modeling platform and because it focuses on long-term electricity market dynamics, it does not include the impacts of COVID-19 and related mitigation efforts. The Annual Energy Outlook 2021 (AEO2021) and IEO2021 will both feature analyses of the impact of COVID-19 mitigation efforts on energy markets.

Asia infographic, as described in the article text

Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
Note: Click to enlarge.

With the IEO2020 release, EIA is publishing new Plain Language documentation of EIA’s World Energy Projection System (WEPS), the modeling system that EIA uses to produce IEO projections. EIA’s new Handbook of Energy Modeling Methods includes sections on most WEPS components, and EIA will release more sections in the coming months.

October, 16 2020