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About Commodity Insights
LNG, Natural Gas, Agriculture, Energy Transition, Refined Products, Biofuel, Renewables, Jet Fuel
January 14, 2025
Featuring S&P Global Commodity Insights
With wildfire risks subsiding, Southern California power prices climb, while Norway confronts exploration challenges driven by environmental concerns. S&P Global Commodity Insights editors explore aluminum supply constraints in Europe and Asia's escalating costs of sustainable aviation fuel.
What's happening? Over a million utility customers faced preventative power outages as extreme winds fueled wildfires, which burned over 40,500 acres since Jan. 7 and required federal assistance. California Independent System Operator peakload averaged 8% lower year on year. Increased wind generation and reduced demand pushed spot prices down to the low $20s/MWh.
What's next? As conditions improved and utilities made progress on power restoration efforts over the weekend, spot prices rebounded. The SP15 on-peak day-ahead traded around $40/MWh for Jan. 14 delivery on the Intercontinental Exchange, a 25% increase from CAISO's Jan. 13 locational marginal price. However, extreme winds and wildfire risk are forecast to return through Jan. 15. Utilities warn that additional outages may occur as they continue to monitor conditions.
What's happening? Norwegian oil and gas exploration yielded 252 million barrels of oil equivalent in 2024, a 24% drop despite increased drilling, according to the regulator. Finding fresh supplies is vital if Norway is to remain Western Europe's largest hydrocarbon producer. The authorities want to sustain this lucrative industry, despite environmental pressures, and are trying to cut emissions. The upstream regulator emphasized companies must keep exploring, especially in the Barents Sea, which may still yield fresh resources.
What's next? The Johan Sverdrup field, which accounts for a quarter of current North Sea oil production, is expected to start declining in 2025. Norway's next big oil development, Johan Castberg, in the Barents Sea, comes on stream in the coming weeks. Although it has capacity of 220,000 b/d it won't match Johan Sverdrup but should help stem the decline and encourage new developments. S&P Global analysts expect Norway's oil output to start dropping in the second half of the decade.
What's happening? The European P1020 aluminum market faces growing pressure as dwindling supplies and uncompetitive premiums fail to attract crucial flows. High freight costs, exacerbated by Red Sea disruptions, along with the rising premiums in Asia, have curtailed exports from the region. As a result, Europe struggles to secure the necessary supplies. This situation raises concerns about future shortages, even as demand remains subdued from key sectors.
What's next? If current conditions persist -- with elevated freight costs and rising Asian premiums, the European market may experience further supply tightening and subsequent upward pressure on premiums. However, the geopolitical landscape under US President-elect Donald Trump complicates the outlook. Potential tariffs on Canadian aluminum could redirect supplies to Europe, while a resolution to the Russia-Ukraine conflict might reintroduce duty-unpaid Russian aluminum into European markets, easing supply constraints.
What's happening? Market sources expect Asia used cooking oil prices to rise further. Indonesia has restricted UCO exports to support its new B40 biodiesel blending mandate, effective Jan.8. Additionally, China faces limited supply amid the winter season, coupled with increased buying activity from local sustainable aviation fuel plants.
What's next? According to S&P Global Commodity Insights data, the RefuelEU mandates will introduce an additional demand of 1.3 million mt for SAF in the European market. China's competitive production costs and abundant feedstock supplies are anticipated to significantly influence the global SAF supply. However, political uncertainty in the US, along with the price disparity between China and EU production costs, may lead to tensions in international trade.
What's happening? US LNG exports to Latin America and the Caribbean surged by 40% in 2024, reaching 426 Bcf, up from 303 Bcf in 2023. Brazil emerged as the top importer with 110 Bcf, a 176% increase, followed by the Dominican Republic and Colombia. This growth signals a return to reliance on US LNG after a couple of years of lower exports to the region. Exports peaked in August 2024, with major supply hubs like Sabine Pass and Freeport driving shipments. The trend highlights a rebound in demand and steady supply, with 168 cargoes shipped in 2024, up from 130 in 2023.
What's next? With additional US LNG export capacity coming online since late December, the momentum in US LNG exports to Latin America is expected to continue into 2025. Demand is likely to stay strong, particularly in Colombia and the Dominican Republic, where import levels are expected to maintain or even increase compared to 2024. As LNG demand continues to rise in the region, the growth in export capacity, paired with the return of higher export volumes, positions the US to further strengthen its role as a key LNG supplier to Latin America. This trend is expected to continue as long as market conditions remain favorable.
Reporting and analysis by Kassia Micek, Nick Coleman, Khaula Bhatti, Shien Ern Tan and Angeles Rodriguez.