Daily Update: January 10, 2024

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Winter Energy Emergency Risk Rises in Texas

Winter has arrived in the Northern Hemisphere and with it comes the threat of snowstorms and cold snaps, which can pose significant risk to energy supply. In Texas, the odds of an energy emergency occurring in the winter months have increased as extreme weather events have become more frequent and intense, and the state’s population and economy have boomed.

The Lone Star State — so named for its history as an independent republic prior to joining the US as the 28th state in 1845 — has become increasingly vulnerable to exceptionally cold weather conditions in recent years. The state grabbed headlines in February 2021, when a severe weather event precipitated a deep freeze that paralyzed power plants and generating units, causing widespread blackouts and skyrocketing gas prices. Millions of residents were left without heat and electricity, and many lives were lost as a result.

In December 2022, another winter storm caused a shortfall in power supply, as electricity demand was far greater than forecast. If a similar storm strikes again in winter 2023–24, Texas faces a 20.6% chance of an energy emergency and a 16.8% chance of rotating power outages, according to the latest forecast for January. This reflects a higher probability of energy emergency compared to the forecast for December 2023.

In addition to extreme weather events, the rapidly growing population and booming economy contribute to escalating electricity demand. Texas’ unique energy model lures more residents and businesses to the state, the second most populous after California. Unlike other US states, Texas has its own independent power grid run by the Electric Reliability Council of Texas that supplies 90% of the state’s electric load and is not subject to federal regulation.

Thanks to deregulation, Texas has increased its power generation, electric rates are more competitive, and the energy mix is more diverse. Because of this, the state has been a magnet for renewable energy developers and has seen an influx of bitcoin miners and datacenter operators seeking to tap into its relatively cheaper and cleaner energy. This has elevated power demand and usage, which can cause thermal generation outages. As some of the state’s power supply comes from wind, solar and other renewable energy sources that rely on the weather, they are also limited in terms of the electricity they produce. All of these contribute to supply tightness in the state’s deregulated power market.

Having an independent power grid also has downsides. Because the ERCOT-operated grid is largely isolated from the national grid, its ability to import electricity across state lines is limited. This can make the state vulnerable to power outages and generation failures during adverse weather conditions. To ensure adequate resource availability, winterizing gas-fired power plants and increased investment in battery storage to back up renewable capacity will be crucial. 

As winter sets in, all eyes are on ERCOT and the reliability of the state’s power grid. Since the February 2021 winter storm, regulatory and legislative reforms have been implemented to help avoid a repeat disaster. ERCOT has taken measures to safeguard the grid’s reliability, including winter-proofing power plants, using reserve power, bringing more generation online sooner, encouraging investment in dispatchable generation and asking customers to conserve electricity.

While generation capacity is expected to be sufficient this winter, the possibility of power outages is still present due to unpredictable weather. As the physical effects of climate change accelerate, the struggle to prevent another power crisis poses long-term problems that require sustained solutions over time.

Today is Wednesday, January 10, 2024, and here is today’s essential intelligence.

Written by Pam Rosacia.

Economy

APAC Economic Outlook For 2024 Remains Bright

After rapid expansion in 2023, the Asia-Pacific (APAC) region is expected to be the fastest growing region of the world economy in 2024, underpinned by resilient domestic demand in East Asia and India. Some improvement in East Asian exports will also support economic expansion, helped by a recovery in electronics exports and continued strong growth in exports of new electric vehicles (EVs) from key Asian auto manufacturing hubs.

—Read the article from S&P Global Market Intelligence

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Capital Markets

January US And Canada Summary Report: Leveraged Finance

Borrowers across all asset classes will need to adjust to restrictive financing conditions and softer economic growth. Borrowers have reduced their near-term maturities, though the share of speculative-grade debt coming due rises significantly in 2025, making 2024 a pivotal year. S&P Global Ratings expects the US trailing-12-month speculative-grade corporate default rate will reach 5.0% by September 2024. In 2023, there were 96 US and Canadian defaults, which lifted the default rate (4.4%) above its long-term average (4.1%). Negative bias for speculative-grade issuers has increased from 19% in Dec. 2022 to 24% in Dec. 2023.

—Read the report from S&P Global Ratings

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Global Trade

Trade Conditions Remain In Decline At End Of 2023

The worldwide Purchasing Managers' Index (PMI) surveys compiled by S&P Global Market Intelligence indicated a further deterioration of global trade in December, thereby extending the sequence of decline to 22 months. The rate of contraction remained moderate, despite picking up from November, with the seasonally adjusted PMI New Export Orders Index posting 48.3, down from 48.5. The latest reading also matched the 2023 average.

—Read the article from S&P Global Market Intelligence

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Sustainability

Financing The Energy Transition

The energy transition is being advanced by an unprecedented level of investment in projects, innovation and new technologies. Focusing on energy transition financing further reinforces the tremendous complexity and uncertainty on the path to net zero. In the details of the deals, however, we can start to see what will shape the "decade of deployment," which kicked off with the passage of the 2022 Inflation Reduction Act in the US.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Listen: Is The Oil, Gas Patch M&A Hot Streak Here To Stay?

According to S&P Global Market Intelligence data, oil and gas deals topped $271 billion in value in 2023, more than doubling the value of deals made in 2022. Bruce On, EY’s energy strategy and transactions leader, joined the podcast to discuss this wave of consolidation, whether it will continue and just how the oil sector is managing to pull off these deals in uncertain economic times. He also gave his take on how the surge in dealmaking will play out and the role politics could play as the US gears up for a major election.

—Listen and subscribe to Capitol Crude, a podcast from S&P Global Commodity Insights

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Technology & Media

CES 2024 Preview

Artificial Intelligence has quickly become one of the automotive sector's hottest topics, and that will continue into CES 2024. General Motors and Stellantis have already implemented AI solutions and are experimenting with more use cases for the technology. Mercedes-Benz will debut its AI-powered Virtual Assistant, which is part of the Mercedes-Benz Operating System (MB.OS), at the show. Perhaps the biggest use case for AI in automotive is for virtual personal assistants (VPAs) to improve the performance of using speech in the vehicle.

—Read the article from S&P Global Mobility

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