Spare Capacity Is A Myth -- Bison Interests -- February 8, 2022

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A decade of underinvestment in traditional energy supply chains has finally caught up to world economies. Surging demand, tightening inventories, and soaring prices are causing energy shortages and blackouts. Coal and natural gas inventories are at dangerously low levels, diesel power generation is switching on, factories are shutting down, and blackouts are already happening in China.

 

The situation has deteriorated materially since Bison’s “The Myth of OPEC+ Spare Capacity” was published, yet the consensus remains that OPEC+ can tame oil markets at any time by unleashing its abundant spare capacity. In this context, it is timely to provide more insight into OPEC+’s spare capacity shortfall relative to consensus, to share our estimation methodology and to highlight recent developments that support our findings.

 

The global energy situation is increasingly dire. Limited natural gas exports from Russia have pushed European prices to all-time highs, with UK and other European alternative energy power generation disappointing and proving unreliable. Shortages of thermal coal and liquefied natural gas (LNG) are forcing major Asian economies to shut down power plants and blackout cities. Additionally, soaring oil prices are exacerbating inflationary pressures across supply chains and reducing affordability of already inefficient diesel power generation. A cold winter could aggravate the situation, and low global inventories of natural gas and coal increase the risk.

Bison Interests is quickly becoming a companion link to RBN Energy.

Crude oil quality matters: HSFO. If you are unfamiliar with this acronym, it speaks volumes about your understanding of this issue.