Daily Update: March 15, 2023

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.

Return of Freeport Shipments Adds to Global LNG Market Turmoil

A liquefied natural gas cargo sailed Feb. 12 from the Freeport gas terminal on Quintana Island, Texas, marking the first departure from the Gulf of Mexico export facility since an explosion and fire shut it down in June 2022. 

Freeport's return “marked the end of the biggest outage in U.S. LNG export history, a milestone for U.S. natural gas that led to widespread market impacts and illustrated the importance of a U.S. LNG terminal as a cog in the global energy system,” Corey Paul, LNG news editor for S&P Global Commodity Insights, wrote Feb. 22. 

The global LNG market has undergone tremendous upheaval in the nine months since Freeport went offline: The war in Ukraine virtually cut off Europe from flows of Russian natural gas, and the U.S. ramped up exports to make up the supply. Partly because of the shutdown, European LNG prices hit record highs in August 2022 amid fears of shortages over the winter. Increased exports and warmer weather averted those shortages, and prices have tumbled in recent months despite the absence of shipments from Freeport, which normally make up 15% of U.S. supply. 

By mid-February, LNG prices in Europe had fallen to an 18-month low. Gas storage levels approximately doubled in the last year, reaching 66% of capacity, and officials are confident in having sufficient supply for the winter of 2023-2024. 

In a sense, the return of Freeport should have “the opposite effect on international markets compared to the U.S.,” Paul said during a recent “Commodities Focus” podcast by S&P Global Commodity Insights. Freeport LNG exports add significantly to the demand for domestic feedgas and put further downward pressure on LNG prices in Europe. 

"The return of Freeport volumes is a bullish factor for U.S. markets and a bearish factor for international ones," said Michael Stoppard, global gas strategy lead and special adviser at S&P Global Commodity Insights.

So far, however, U.S. traders have responded tepidly to renewed demand from Freeport. 

Wildly varying winter conditions have led to sharp price differences in U.S. markets: Colder-than-normal temperatures in the Western U.S. caused gas prices to spike in the Rocky Mountain states and California, while the Midwest and the Northeast, which enjoyed balmy weather, saw historically low prices. 

The benchmark Henry Hub spot price in Louisiana averaged $2.83/MMBtu from January to February, down 37% from the previous year. This was the fourth-lowest average in 21 years.

The war in Ukraine is changing the global gas market in lasting ways. Russia is developing a road map for increased LNG production and prioritizing LNG projects after its pipeline gas exports to key markets in Europe slowed to a trickle. In a March 7 statement, Russian Deputy Prime Minister Alexander Novak said the country plans to up its capacity to 100 million metric tons per year, which would roughly triple its current output. 

Heightened energy security concerns, along with the drive to decarbonize the world’s energy system, demand increased support by policymakers for pipeline gas and LNG, according to a March 7 statement by a coalition of oil and gas organizations, including the American Petroleum Institute, released at S&P Global’s CERAWeek conference in Houston. 

The Russia-Ukraine war means that the G-7 must "expeditiously act on policies that ensure international commitments to replace Russian natural gas are achieved,” the statement said. 

Today is Wednesday, March 15, 2023, and here is today’s essential intelligence.

Written by Richard Martin.

Economy

Fed Risks More Defaults If Interest Rates Go Higher For Longer

The Federal Reserve's hint that it may impose higher-for-longer interest rates threatens to push up defaults as companies with debt maturing as late as 2025 face potentially higher refinancing costs. Fed Chairman Jerome Powell's comments on March 7 that the central bank is prepared to raise interest rates even faster if economic conditions warrant it fueled fears that rates, which have already climbed at the fastest pace in decades, will go even higher and stay there for longer. While markets are betting the recent failures of Silicon Valley Bank and other banks will keep the Fed from raising rates further, inflation remains stubbornly high with consumer prices rising 6% year over year in February.

—Read the article from S&P Global Market Intelligence

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Capital Markets

HSBC Buying Silicon Valley Bank U.K. Offers Wins All Around

HSBC Holdings PLC's acquisition of U.K.-based Silicon Valley Bank, part of collapsed U.S. group SVB Financial Group, stands to be beneficial for both sides of the deal and for the technology industry as a whole. The deal, which the U.K. Treasury and the Bank of England coordinated after a series of emergency meetings March 11 and 12, protects depositors and client assets at Silicon Valley Bank U.K. It also opens growth opportunities for HSBC at almost no additional cost or risk and could even boost the group's image, market observers said.

—Read the article from S&P Global Market Intelligence

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Global Trade

Shipping Market Outlook — Container Vs Dry Bulk: First-Quarter 2023 Update

After returning to the pre-pandemic level, dry bulk freight rates may recover with mainland China's easing "zero-COVID" policy in the medium term and limited active supply in the long term, while container freight rates are expected to decline further with reduced congestion and heavy investment in new buildings. After historic boom period over the pandemic era, recent average earning of containers and dry bulkers started to deviate below the long-term earnings trend as heavy congestion has declined with lower import demand and the easing of supply-chain issues.

—Read the article from S&P Global Commodity Insights

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Sustainability

European Wind, Solar Output Peaks At Record 186 GW, Pressuring Prices

European solar and wind generation peaked at 186 GW on March 13, the highest combined hourly production peak registered by system data aggregated by S&P Global Commodity Insights. For midday hour 11, wind generated some 121 GW and solar 61 GW across Europe, according to WindEurope and British system data with daily wind generation exceeding 3 TWh for the first time. Germany, which saw combined generation peak around 57 GW, registered two hours of negative prices amid indications of wind curtailment especially during solar peaks.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

OPEC Sees Improved Chinese Oil Demand More Than Offset By Resilient Russian Output

With Russian oil output proving resilient to sanctions, OPEC downgraded its estimate of how much crude it will need to pump to balance the market, despite increasing its forecast for Chinese demand. At its current production rate, more OPEC crude will not be required until the second half of the year, the secretariat said in an oil market outlook published March 14, with volumes from outside the bloc expected to rise more than previously thought.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Tech Accelerating Supply Chain Evolution

Shipping and logistics are the core of the supply chain and digital transformation could have a massive impact, but it’s not a simple transition. Analyst Mark Fontecchio and Eric Johnson from the Journal of Commerce return to discuss study results and the activities taking place at the TPM and TPM Tech conferences with host Eric Hanselman. It’s a business that has been information-heavy, but technology challenged. Perennial problems in skills and scale are holding them back.

—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence

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