Global polyvinyl chloride markets face uncertainty going into 2023 with sluggish demand seen lingering across the regions. PVC prices in Asia and the US fell hard through much of 2022 and may enter 2023 having hit a bottom, market participants in both regions said. However, Chinese demand has yet to rebound from periodic shutdowns despite minor steps to ease its zero-tolerance COVID policies. The US may see more interest rate hikes to combat inflation, which have suppressed domestic PVC demand. Both regions stepped up exports amid thin global demand. And Europe enters the new year facing a recession amid high energy prices and inflation, and no end in sight to the Russia-Ukraine war. "We don't see anything in the next year that will have a sustainable margin recovery other than shutting down," said Rob Stier, senior lead of global petrochemical analytics at S&P Global Commodity Insights. "If there is a recovery, it will be led by the US." Europe faces recession impact Sentiment for European caustic soda and PVC in 2023 was expected to depend on the severity of the recession and its impact on demand. Along the chlorine chain, producer margins were driven by a balancing act between caustic soda and vinyls, with one compensating for the other's losses. Demand for both was strong in 2021 with PVC ahead, but in 2022, PVC demand softened amid economic pain and high energy costs that forced chlor-alkali production cutbacks amid surging caustic soda prices. Chlorine production issues tightened caustic soda availability, prompting hurried orders of US material that briefly pushed US export prices to an all-time high since Platts first began assessing the market in 2004. At the same time European spot PVC prices plunged but remained among the highest in the world going into 2023. Market participants expected further weakness for European caustic soda and PVC in the first half of 2023 as consumers rein in spending and shun big-ticket purchases. "High [caustic] prices are causing demand destruction," a caustic soda trader said in November. Another trader said "a kind of normalization" was emerging in 2023, while in the interim, European producers benefitted from high caustic prices that cross-subsidized PVC. US domestic demand slides prompting more exports Integrated US producers were also entering 2023 running chlor-alkali plants at high rates to capture strong caustic soda prices, while PVC prices and demand softness were expected to linger amid mortgage interest rates inching below 7%, but remained volatile, market sources said. US export PVC prices fell nearly 62% from May 2022, while export caustic soda prices climbed nearly 32% from May to November before retreating. US caustic soda capacity has fallen 9% since March 2021, largely on Olin's string of shutdowns, which has also supported caustic soda pricing. However, the strength in caustic soda prices was expected to soften as well going into 2023, though a decline could be slow. Caustic soda demand and pricing took months to catch up to rising prices in the PVC production chain that began in mid-2020. "It usually comes late to the party, and it stays a little longer," Westlake COO roger Kearns said in November. "We expect to see that again this time." Westlake is among resin producers that have reduced rates and hiked exports in response to softening demand for durable plastics. While a slowdown in US interest rate hikes could prompt an uptick in domestic demand, market participants said a global recovery depends on whether domestic Chinese demand rebounds. That would prompt China to reduce exports, giving US outflows less competition in global markets as customers enter 2023 having destocked inventories in the final months of 2022. "The real driver on this, though, is China. China demand is still quite slow," Kearns said in November. All eyes on potential China demand recovery Asia's PVC market could rebound in early 2023, but market sources said a comeback would likely be limited without a full demand recovery in China . Asian PVC prices dropped sharply through 2022, and December offers came at the lowest since June 2020. Market sources said those levels appeared to spur spot buying, raising expectations that the slide could have reached its bottom. Sources also pointed out spot Asian PVC supplies could hold at lower levels in 2023 compared with 2022 with operations running at reduced rates in line with lesser output by upstream steam crackers. Trading sources expected US-origin PVC flows to Asia to slow down in early 2023. However, US sources said those flows could increase if China's demand rebounds, leading to fewer Chinese PVC exports. China's PVC exports reached a record high 278,374 mt in April, according to customs data. Those outflows slowed later in the year as US PVC export prices fell in tandem with lower Asian PVC prices as well as plunging freight rates, which restored Asian PVC's global competitiveness. By October, China's PVC exports stood at 96,630 mt, the lowest since August 2021, the customs data showed. Some Asian market sources said China was expected to relax strict measures in 2023, but awaited any such official announcements beyond some minor changes in late 2022. Together with high utility costs, China's PVC plant operations declined from 70% to 56% in late 2022.

As the G7's closely-watched price caps for buying Russian crude and oil products come into effect, uncertainties over the implementation and potential circumvention of the measures continue to cloud the likely market impact on Russian oil flows . The G7 price cap takes effect at the same time as the EU's embargo on seaborne Russian crude imports and, together, the curbs are expected to trigger further upheaval in global oil flows while curtailing Russian output. While key importers China and India are not joining the cap , the US hopes the move will allow Asian refiners to negotiate steeper discounts for Russia's oil and limit any supply loss to the market. Click here to see the full-size infographic.

US EPA looks to boost renewable fuels Japan’s Kansai seeks multiple hydrogen supplies EU shakes up carbon markets with shipping inclusion The US Environmental Protection Agency unveiled a proposal that would require refiners to annually raise the volume of renewable fuels mixed in gasoline and diesel products over the next three years. The proposal would require refiners to blend 20.82 billion gallons of renewable fuel in 2023, up from 20.63 billion gallons today, before stepping that requirement up to 21.87 billion gallons in 2024 and 22.68 billion gallons in 2025. Meanwhile, some of the world’s largest airlines are solidifying hydrogen into their net-zero plans in recognition that sustainable aviation fuel won’t be able to decarbonize the industry on its own. In Asia Pacific, Japan's Kansai Electric is poised to launch what will likely be the country's first trial of producing hydrogen from nuclear power in December, and is participating in a project in Australia to import liquefied hydrogen to Japan from around 2027. The move signals multi-pronged efforts to build a hydrogen supply chain that could end up having multiple sources. South Korean steelmaker POSCO Group said it is planning to invest $40 billion in Australia for renewable hydrogen and green steel in what would result in 1 million mt production of renewable hydrogen by 2040. The Australian government last week also introduced legislation in parliament to establish a new type of carbon credits, which will be circulated among entities covered in the nation’s compliance emission trading scheme. In Europe, the EU has taken steps to shake up carbon markets, bringing shipping under the Emissions Trading System for the first time. Ship operators will have to start surrendering carbon allowances for 40% of their 2024 emissions from 2025, ratcheting up thereafter. The European Commission also proposed a new certification of carbon removal credits to counter accusations of greenwashing in the sector. Elsewhere, RWE signed an MOU for green ammonia from the planned Hyphen Hydrogen Energy plant in Namibia, eyeing up to 300,000 mt/year from the 3-GW electrolyzer project. Platts newly-launched green ammonia prices show renewables-derived production out competing conventional gray ammonia on cost, delivered to Northwest Europe – James Burgess North America SPGlobal.com British Airways, United aim to use hydrogen-powered planes for short-haul flights within decade US EPA proposes higher biofuel blending mandates for next three years Premium content (available exclusively on Platts Dimensions Pro ) SAF can't solve airlines' emissions problem without clean hydrogen: American Airlines US commercial solar installations to double over the next three years: SEIA US Commerce finds four Southeast Asia solar companies to be circumventing tariffs Asia SPGlobal.com INTERVIEW: Kansai Electric set for Japan's first nuclear power-originated hydrogen output test High prices jeopardize role of natural gas as bridging fuel in energy transition Premium content (available exclusively on Platts Dimensions Pro ) South Korea's POSCO to invest $40 bil in Australia for renewable hydrogen, green steel Australia tables bill on compliance carbon market reform, to launch new credits Policy uncertainties hinder private sectors from scaling up carbon market: experts Europe SPGlobal.com EU's ETS for shipping to start from 2024, include methane in emissions accounting European Commission proposes certification of carbon removals to counter greenwashing Premium content (available exclusively on Platts Dimensions Pro ) RWE eyes green ammonia offtake from Hyphen Hydrogen Energy in Namibia Cepsa to develop 2 GW Andalusia renewable hydrogen hub in Spain Battery sector nickel demand to rise 37% on year in 2022, 34% in 2023: Nornickel Charts of the week: Platts’ new green ammonia price assessments land substantially below conventional fossil fuel-based production, S&P Global Commodity Insights data showed: Quote of the week: "The key to cost reductions is economies of scale, and for that we need ambitious governments that want big renewable projects. We need gigawatt-scale ambitions, not megawatt-scale." Equinor Senior Vice President of Renewables Ingunn Svegaarden Price of the week: GBP69.50/mtCO2e UK carbon allowances on Nov. 30, dipping below European allowances for the first time on a weak macroeconomic outlook in the UK, coupled with more bullish short-term trading in the EUA market

Western sanctions triggered by Russia's invasion of Ukraine have resulted in a stronger ruble to dollar exchange rate, making Russia more likely to support cuts in OPEC+ quotas . For a more in-depth read: OPEC+ decision on oil quotas muddled by Russian sanctions Click here to see the full-size infographic (Latest update: December 2nd, 2022)

China is expected to export between 1.7 million mt (466,000 b/d) and 2 million mt (548,000 b/d) of gasoline in November and over 2 million mt in December, substantially higher compared with the 1 million mt it exported in October, analysts and market sources said Dec. 1. And should this happen, would likely exert downward pressure on regional gasoline crack spreads. Asia's largest gasoline exporter is expected to further lift its gasoline outflows by the end of 2022 in a bid to support its economy by encouraging exporters to exhaust their remaining export quotas. According to General Administration of Customs data, the country's gasoline exports stood at 662,000 mt in September, jumping 51.8% to 1 million mt in October. "Chinese oil companies will try their best to maximize the usage of their oil product export quotas, in a bid to push up the country's total goods export volumes and economy performance," said Sun Sijia, an analyst with S&P Global Commodity Insights. Beijing released 37.25 million mt of clean oil product export quotas in 2022. In January-October, China exported 23.2 million mt of gasoline, gasoil and jet fuel, the GAC data showed, leaving 14.05 million mt of quota yet to be used in November and December. "To boost exports as an economic indicator and earn more US dollars, related government authorities may work together with the refineries to facilitate and smoothen the logistics, helping the volume to hit a record high," a Beijing-based analyst said. China's domestic demand in November was weak amid tight movement restrictions, with capital city Beijing and manufacturing hubs Guangzhou, Chongqing under strict COVID control, while refining throughput was likely to hit a nine-month high. This would leave sufficient gasoline for export, market sources said. Sun said the Chinese government may alter COVID-19 restrictions frequently, resulting in an erratic impact on domestic gasoline demand. She added that people in China would continue to prefer to stay home to avoid infection and private cars remain the choice mode of transportation given rigid travel guidelines. Meanwhile, the country's estimated gasoline export volumes in 2023 remain subjected to next year's export quotas, which Chinese exporters are eagerly awaiting updates on, sources said. Expectations of China continuing to export large volumes of gasoline moving forward could possibly bolster overall gasoline supplies and exert a downward pressure on cracks, industry sources said. Several market participants also said that gasoline prices could also be weighed down by reduced demand from Malaysia following the end of the Nov. 19 general elections. However, other market participants said Malaysia's gasoline demand could be bolstered amid the school holiday period. Reflecting the softening sentiment, Platts-assessed front month FOB Singapore 92 RON gasoline swap crack spread against Brent swaps stood at 78 cents/b Dec. 1, down from $1.47/b on Nov. 30, S&P Global data showed. The physical FOB Singapore 92 RON gasoline crack against front month ICE Brent crude oil futures was assessed at $2.07/b Dec. 1, down from $3.33/b at the Asian close Nov. 30.

Argentina is likely to witness below normal rains over the next 15 days, leading to further dryness, while heat will continue to stress crops, space technology provider Maxar said in its daily weather report Nov. 29. Meanwhile, Brazil is likely to see favorable weather conditions for crop planting and growth in the coming days. Wetter weather in Brazil will provide some relief to the corn and soybean crops as rainfall in most parts of the country has been lower than normal for November. Brazil and Argentina ** Overall corn crop conditions in Argentina were far from ideal with only 12% of the crop under excellent or good conditions as of Nov. 23, as against 81% a year ago, the Buenos Aires Grains Exchange said in its weekly crop report Nov. 24. ** The center-west region of Brazil is likely to receive significant rainfall, with Mato Grosso bordering Goias seeing good showers Nov. 29-Dec. 5, according to Brazil's National Institute of Meteorology, or INMET, forecast. ** The other parts of Brazil's center-west region could see moderate precipitation, the INMET forecast said. ** First-season corn planting in Brazil reached 68.6% as of Nov. 26, compared with 75.3% a year ago, according to the national agricultural agency Conab. ** The most significant rainfall deficits were found in southern Mato Grosso, southern Goias, northern Mato grosso do Sul, and western Sao Paulo in Brazil, MAXAR said. ** Platts assessed corn, FOB Santos, for January loading at $299.98/mt Nov. 30, largely steady on the month, S&P Global Commodity Insights data showed. The US ** 34% of winter wheat crop was rated in good-to-excellent condition, against 32% in the previous week. However, this was 10 percentage points below last year's rating and lowest in 20 years, USDA Nov. 29 crop progress report showed. ** According to the National weather service, cold weather is making its way into the Corn Belt as extremely low wind chills are expected in parts of Nebraska, South Dakota, and Iowa. ** US harvested corn as of Nov. 20 was up 3 percentage points from the previous week. This year's harvest progress is 2 percentage points ahead of last year's 94% and 6 percentage points ahead of the five-year average. ** Platts assessed US Corn CIF New Orleans at $309.45/mt Nov. 30, over 9% lower on the month, S&P Global data showed. ** US soybean harvest wrapped up earlier this month as crop yields fluctuated with rainfall patterns in 2022. ** Platts assessed US Soybean CIF New Orleans at $592.49/mt Nov. 30, 1.3% lower on the month, S&P Global data showed. ** US Congress moves to avert massive railroad strike by voting on a bill driving unions to accept the tentative agreement reached earlier this year between railroad owners and their workers as Dec.4 deadline approaches. Australia ** Chances of heavy showers were seen declining across Australia, especially New South Wales, over the next two weeks, Australia's Bureau of Meteorology said. ** Western Australia is unlikely to witness heavy showers during the next two weeks, according to the BOM. ** Showers have delayed wheat harvest across Australia and raised concerns over crop quality given persistent showers, market participants said. ** Australia is likely to harvest a near record 34.5 million mt of wheat in marketing year 2022-23 (October-September), against 36.4 million mt in MY 2021-22, the US Department of Agriculture data showed. ** Platts assessed Australian Premium White wheat at $358/mt Nov. 30, down 7.5% on the month, S&P Global data showed. The EU ** Intensity of rainfall likely to increase over the next week to Dec. 7 across France, Mateo France said. ** Expected showers over France may help grain yields, which were under pressure due to hot and dry conditions, traders said. ** In the week to Dec. 14, showers may turn sporadic in some regions of France, the agency said. ** The European Commission forecast total EU cereal production in MY 2022-23 (July-June) at 270.8 million mt, according to its November update, down from 272.6 million mt a month ago. ** Platts assessed EU wheat with 11% protein content CPT Rouen at $331.5/mt Nov. 30, down 3.63% month on month, S&P Global data showed. This article is part of a global weather watch series from S&P Global Commodity Insights, which is published fortnightly.

Freeport LNG delayed its restart target until the end of the year, about two weeks beyond its previous estimate, as it works with US regulators to secure all approvals necessary to resume production, the operator said Dec. 1. The three-train, 15 million mt/year capacity terminal in Texas, which serves about 15% of US liquefaction output, has been offline since a June explosion and fire. The operator estimated Nov. 18 that it would resume production in mid-December, which represented a delay of about a month from its previous target. The latest timeline reflects some progress on the regulatory front, although work continues to secure all necessary clearances. Freeport LNG has approval from agencies to complete critical repairs and commence reinstatement of certain systems, spokeswoman Heather Browne told S&P Global Commodity Insights in response to questions. Based upon current progress and subject to the operator continuing to meet necessary requirements, Freeport LNG now anticipates that "restart of liquefaction to be achieved around year-end," Browne said. Freeport LNG has long-term offtake deals with South Korea's SK E&S, Japanese utilities JERA, and Osaka Gas, as well as French energy major TotalEnergies. Some counterparties have had to rely more heavily on the spot market for LNG supplies during the outage. Freeport LNG has said its three liquefaction trains will be restarted and ramped up in a slow and deliberate manner, with each train starting separately before restarting a subsequent train. It previously said it expected that about 2 Bcf/d of production would be achieved in January. The terminal's capacity is around 2.3 Bcf/d. Full production utilizing both docks remains anticipated to be achieved in March, Freeport LNG said. Investigators with the US Pipeline and Hazardous Materials Safety Administration have been present at the site throughout the course of the probe and planned to be there to consider restart approval, said a person familiar with the situation.

Debate about the best way to buy renewable power has been heating up recently after strong demand from corporate buyers helped push European Guarantee of Origin (GO) certificates to all-time high prices. The tradeable certificates issued when renewable power is generated have seen prices increase more than tenfold through 2022. Platts, part of S&P Global Commodity Insights, assessed the most actively traded GO -- Nordic hydro 2022 -- at Eur9.82/MWh ($10/MWh) on Nov. 30. Prices have been surging since early September and compare to levels of less than Eur1/MWh as recently as late 2021. Much of the rise is due to a shortage of hydropower following a summer of drought in Europe, according to GO market players, but also resilient demand from corporate buyers keen to meet emissions targets by buying renewable energy and doing so with certificates. While much lower certificates prices encouraged skepticism from analysts assessing their impact on new renewables development -- particularly as many come from old, existing plants -- the surge in value has increased revenues for renewables producers and demonstrates strong demand for green power. But whether that will encourage the development of new capacity is still up for debate. Additionality concerns The extent to which buying certificates was 'additional' -- a term used to describe whether an environmental commodity supports new projects that would not otherwise be built -- could indeed depend on price, according to Matthew Brander, Senior Lecturer in Carbon Accounting at University of Edinburgh Business School. "Current higher prices make it more likely that GOs achieve additionality but it cannot be assumed that they do," Brander said. "Investors will only factor GO prices into their investment decisions if they think those prices are certain and relatively long-term." What is needed is an "investment additionality test that shows the revenue from the GOs made the renewable project investable," Brander said. While there have been no signs of a slowdown in prices yet, the record levels could also encourage some buyers to look for other ways to source green power, one GO trader said. "Expectations are for [prices] to keep rising, nothing is really suggesting much of a slowdown," the trader said. "It will either be a supply boom that causes a crash or prices reaching a level where it is not worth it for corporates to buy anymore." Analysts at S&P Global Commodity Insights forecast average solar and wind GO prices in the range Eur5-8/MWh from 2023-2030. "At this price range, our models suggest that, all things being equal, some 4-5 GW of newbuild per year could be encouraged across Europe," said Bruno Brunetti, head of low-carbon electricity analytics at S&P Global Commodity Insights. With power capture prices expected to decline in future, "GOs represent additional revenue streams for merchant renewables plants, which would complement declining wholesale/energy revenues. In that, this would help merchant renewables newbuild, which otherwise wouldn't happen without subsidies or other supporting mechanisms," Brunetti said. Tighter certificates rules As well as higher prices, a tightening of rules on location and a move to match supply and demand on an hourly rather than annual basis could help improve the impact of certificates. "If you were to buy hourly renewable certificates from a producer on your grid that matches your demand profile, then I think it is more likely that you have contributed to new renewable energy than if you bought it annually and not from the grid specifically," said Anders Bjorn, a post-doctoral fellow at the Technical University of Denmark. The RE100 -- a group of big companies committed to 100% renewable energy – in October said members should only claim green power from projects less than 15 years old in another move to help increase demand for new capacity. "Restricting certificates to those from projects less than 15 years old will reduce excess supply of non-additional certificates. But I understand the 15-year rule already exists for US RECs (renewable energy certificates), and the empirical evidence shows that US RECs still do not achieve additionality," Brander said. More accessible PPAs Another way for companies to buy green energy is through signing long-term power purchase agreements (PPAs) with renewables developers that can help underpin project financing. "There has been a problem historically that PPAs have mainly been an option for really big companies that are credit worthy and have enough power demand. We are seeing power purchase agreements becoming more accessible. I think power purchase agreements are more likely to lead to new renewable energy production than trading GOs," Bjorn said. He cited a model whereby a group of smaller companies were aggregated together -- accounting for their individual demand profiles -- to sign a single PPA with a developer. Price volatility and uncertainty around market intervention meant PPA market liquidity was currently low, according to the S&P Global analysts. "Despite these constraints, corporate activity has increased markedly," they said in a recent report. The International Energy Agency advocates a range of approaches for buying green energy including on-site generation, PPAs, and certificates, for which it favors a time-stamped design, it said recently. "The most critical requirement is that voluntary procurement actually goes beyond existing government mandates and initiatives," the IEA said.

The message from LNG industry leaders gathered at the annual World LNG Summit & Awards wavered between wariness and optimism Nov. 30 as they discussed changes in contracting, the unprecedented challenges facing the industry and a new pricing mechanism for hedging Atlantic cargoes. Politicians, administrators and trading managers recapped 2022 across various panels and presentations during the 22nd World LNG Summit & Awards, organized by DMG events and taking place in Athens. They were near universal in noting the unprecedented challenges presented by record-high LNG prices, the war in Ukraine and European energy security. "Was it a black swan event [in 2022]? No, it was a flock of black swan events, "said Pat Roberts, Managing Director of LNG Worldwide, who described 2022 as one of the most tumultuous years for the LNG industry. "We clearly have a major crisis as an industry," said Steve Hill, Shell's Executive Vice President for energy marketing. Discussed across several panels were how the war and other factors have caused record high natural gas and LNG prices and an unprecedented decoupling between the Dutch TTF natural gas hub and the Northwest European LNG price. Platts assessed Northwest Europe LNG at a record high of $74.486/MMBtu on Aug. 26 alongside a similarly bullish TTF second-month price of $98.96/MMBtu. On Oct. 3, the difference between the two markets reached a record spread when LNG fell to a $29.55/MMBtu discount to TTF. While many panelists were candid in the challenges facing the LNG market, there was also praise for the speed in which Germany has brought import capacity online as well as other market solutions put forward. "This crisis has revealed there are diverse European indexes and, of course, they have reacted differently," said Patrick Dugas, Vice President LNG Trading in TOTAL Gas & Power Limited (TGP) and Global Head of LNG Trading. "We realized we have been misled in that pipeline gas no more reflects the price of an LNG Cargo." "We will have to find a way to move away from the pipeline gas TTF index to a Northwest Europe LNG index." The LNG North West Europe Marker (Platts) Futures Contract was launched by the CME on Oct. 24 and traded on opening day. The contract is cash settled against the Platts DES Northwest Europe physical assessments, has a size of 10,000 MMBtu and monthly contracts are listed for the current year and the next five calendar years. "We have an LNG marker that we hope will move to gather the liquidity and activity of the LNG players in Europe," Dugas said. "This is an index that reflects the market in Northwest Europe." Panelists were mixed on the viability of short versus long-term LNG contracting, with spot activity strained during high price environments. Hill said the combination of long-term and spot contracting is unconventional but works for LNG. Jonathan Westby, Jera Senior Vice President LNG said his company relies on the spot market to manage their business. ADNOC LNG's Senior Vice President of commercial Rashid Al Mazrouei said a shift to long term contracts are needed to secure countries' energy supplies and ensure capital commitments for long term liquefaction projects.

British Airways and United Airlines are both aiming to begin using hydrogen-powered planes for short-haul flights beginning around 2030 as both airlines embark on their journey toward net-zero by 2050, the airlines' sustainability leaders said Nov. 30. "The big focus is on hydrogen, and for us hydrogen is going to be a really key part of our pathway to net-zero," British Airways Director of Sustainability Carrie Harris said during the Hydrogen Innovation Summit hosted by ZeroAvia. "We're aiming to get to net-zero by 2050 -- ideally sooner." United Airlines and British Airways have taken very different approaches to reaching their net-zero goals. British Airways, for instance, will use carbon offsets to account for one-third of its midcentury goal, while United Airlines has pledged not to use offsets in its carbon accounting. Yet both airlines are making early investments in the hydrogen value chain through venture capital investments and startup accelerators, aiming to nurture companies like ZeroAvia, a California-based hydrogen aircraft developer founded in 2017. ZeroAvia is focused on developing hydrogen-powered airplanes smaller than 100 seats used for subregional travel. The company's first model, at 10 to 20 seats, is expected to begin service in 2025. Its 50- to 70-seat aircraft is expected to launch in the 2027 time frame. The startup hopes to see its planes flying short-haul demonstration routes with major airlines by the end of the decade, founder Val Miftakhov said. The company has said in the past that its aircraft could reach breakeven delivered cost at $5-$6/kg this decade with anticipated demand of 5-10 mt/day at medium-sized airports with regional traffic. Platts, part of S&P Global Commodity Insights, assessed the cost of hydrogen production via alkaline electrolysis (including capex) on the US Gulf Coast at $3.09/kg Nov. 29, compared with Eur17.43/kg ($18.14/kg) in the Netherlands. United has pilot shortage in mind United Airlines is pursuing an "upgauging" strategy for introducing hydrogen-powered planes into its fleet, said Ed Espiritu, senior manager of corporate development at United Airline Ventures. Under that framework, the airline would begin by introducing obtaining 50-seat planes, then 76-seat planes followed by narrow-body aircraft, which can seat 100-plus passengers. That strategy is shaped by two primary factors: cost and the US pilot shortage. Over the last 30 years, smaller short-haul planes have grown increasingly expensive to maintain and have been phased out and replace by larger aircraft. Hydrogen-powered small planes, however, have much lower maintenance costs, which could prompt the airline to bring back a generation of smaller planes to run shorter routes, Espiritu explained. The pilot shortage, on the other hand, has made short-haul regional routes harder to staff, a factor that has also been driving the industry toward larger aircraft. "Depending on who you ask, there's going to be questions on the cycle and nature of how long that shortage will actually last," Espiritu said. "If you believe some people who think that it's going to naturally ebb and flow based on supply and demand, then once we are enticing regional pilots to become pilots for larger-gauge aircraft, that will allow for new routes to cycle through, which will then include downgauging to the 50-seat market." By the time that labor market cycle plays itself out, the hydrogen economy might have advanced enough to allow airlines to retrofit existing aircraft with fuel cells. British Airways' approach While also focusing on smaller hydrogen-powered planes, British Airways is taking a different tack. The airline wants to begin its hydrogen journey with planes that seat at least 70 passengers, which would fly out of British Airways smaller hubs, Harris said. "What I'm really hoping for is that we see a breakthrough and we get the opportunity to retrofit onto existing airframes," Harris said. "I'm kind of open-minded, but I think for our operation, we're definitely more interested in like-for-like replacement of single-aisle short-haul aircraft."

US battery storage nearly doubled year on year by the end Q3 2022 COP drag on carbon projects; landmark PPA for Renault Vietnam considers phasing out coal in power sector by 2050 The total capacity of US power grid-connected battery storage nearly doubled year on year by the end of the third quarter of 2022, climbing 97% to 9.6 GW. However, storage additions have slowed because of supply chain issues and inflation and are unlikely to benefit substantially from the Inflation Reduction Act through the end of the year. Meanwhile the expanded tax credits for carbon capture projects in the IRA prompted Europe’s leading direct air capture company Climeworks to announce plans to bring Louisiana a direct air capture and carbon storage hub. It would be the state’s first such direct air capture facility and would help its industrial coast reach climate targets. The lack of an agreement on key rules on international emissions credit trading at the UN Climate Change Conference in Egypt is a deterrent to investment in carbon reduction projects, Andrea Bonzanni, international policy director at the International Emissions Trading Association, said Nov. 21. Meanwhile a landmark PPA in France saw automaker Renault signing up for 350 MW of solar supply, the country’s largest deal to date. Output of 500 GWh/yr will help decarbonize ElectriCity hub, Europe's largest EV production center set to produce 500,000 vehicles a year by 2025. In Asia Pacific, with Vietnam next in line to receive billions of dollars in energy transition financing under the Just Energy Transition Partnership by the end of 2022, its government is already backing down from coal-fired power generation. Vietnam’s new draft power plan, a copy of which was obtained by S&P Global Commodity Insights, expects a complete phase out of coal-fired power generation by 2050 and even sets aside a scenario where 6.8 GW of approved coal-fired projects may not materialize. It expects a large ramp-up in LNG-fired power generation, renewables and a significant build out of hydrogen and ammonia in the energy mix from 2035 onwards. In carbon markets, Singapore said it will launch a carbon credit data platform -- Climate Action Data Trust -- in December, which will consolidate and harmonize information from different project registries worldwide under a World Bank sponsored project – Rocco Canonica Americas SPGlobal.com New York climate law implementation plan nears completion with focus on reliability Maritime decarbonization requires $2 trillion spending on green fuels: Maersk Rail, industry officials push US Congress to act quickly to avoid a rail strike Premium content (available exclusively on Platts Dimensions Pro ) US battery storage capacity climbs to 9.6 GW in Q3, 1.33 GW planned in Q4 Climeworks partners with Louisiana carbon storage company to develop direct air capture hub EMEA SPGlobal.com COP27: Deterrent to carbon market investments as key Article 6 decisions deferred Australia, UK critical minerals entities eye creation of integrated battery supply chain Maritime decarbonization requires $2 trillion spending on green fuels: Maersk Premium content (available exclusively on Platts Dimensions Pro ) EWE, TES to build 500-MW green hydrogen plant at Wilhelmshaven, Germany Renault signs 350-MW French corporate power purchase deal with Voltalia APAC Premium content (available exclusively on Platts Dimensions Pro ) LNG to become key transition fuel for Vietnam’s power generation [2 Parts] China stresses loss and damage finance for climate change as developed countries’ obligation PNG, Japan sign cooperation agreement on cross-border carbon trading Petronas, Vopak to develop carbon capture and storage in Southeast Asia Singapore to launch global carbon credit data hub in December: minister Chart of the week West, Texas lead rapid US battery storage capacity additions in Q3 2022, into Q4 Quote of the week “Until a decision on [Article 6.4 governance] is made, countries are free to implement their own rules. The threat of revocation and frequent changes is a deterrent to investment, so we hope countries will devise policy frameworks that take that into consideration” -- Andrea Bonzanni, international policy director at the International Emissions Trading Association Price of the week $21.28/mtCO2e Platts’ new Blue Carbon CARBEX index, powered by Viridios AI, reflects the price of voluntary carbon credits from blue carbon projects – those that focus on preservation and improvement of coastal and marine ecosystems

Within days of taking office in late October, Iraqi Prime Minister Mohammed al-Sudani announced what appeared to be a major salvo in the country's long struggle against corruption, with the arrests of nine senior oil-protection force police officers, including five generals, allegedly involved in a massive oil smuggling ring in Basra. The bust uncovered a network of operatives, who punctured crude oil pipelines in the Zubair oil field and stole some 75 million liters per month, Iraq's National Security Agency said. It amounts to the first serious actions by the government to tackle the illicit trade in crude and refined products since 2003, when the oil ministry sacked hundreds of workers amid a US-led crackdown on smuggling in the country, according to Iraqi industry sources. But with corruption rife in the Iraqi oil sector, Sudani will have to go further to root out the problem, they say. Many doubt his new government's willpower or ability to constrain the organized groups and militias entrenched in the "gray market" trade that is generating millions of dollars of laundered revenues, including for sanctioned groups. "We ordered the tracking of oil smuggling networks and the implementation of arrest warrants against the gangs that dared to steal the rights of Iraqis," Sudani said in a Nov. 2 tweet. "We will spare no effort and work day and night to fight corruption in its various forms." Eye-witnesses and sources familiar with the trade have described to S&P Global Commodity Insights how militias aligned with neighboring Iran have run an "industrial scale" oil smuggling operation for years. The alleged activities in the country include "shadow tanker loadings" to disguise unofficial oil cargoes, shakedowns of local officials and oil workers, unsanctioned drilling in fields commandeered by militia, siphoning of crude and fuel from punctured pipelines, and convoys of trucks carrying refined products across the border to Iran and Syria. The groups, such as Kataib Hezbollah, one of Iraq's most powerful Shiite militia, operate with virtual impunity, according to industry insiders, particularly since the US scaled back its military presence beginning in 2020. The Iraqi oil ministry and state marketer SOMO didn't respond to multiple requests for comment on the matter. "The smuggling convoys are accompanied by a heavily armed military escort to ensure their safe passage, showing the value placed on these operations by Iranian militias and the Iranian regime," said one witness, an Iraq-based industry source with first-hand knowledge of the shipments, who spoke on condition of anonymity. A former US official closely involved with monitoring the Iraqi oil industry and security said that the militias, which control several local oil companies, will "coordinate a tanker loading to be off-book to better share proceeds," while another Iraqi source said: "The smuggling of oil and oil products cannot be denied, neither is the involvement of Kataib Hezbollah." The exact quantities of Iraqi oil lost to the purported trade vary and are difficult to track with certainty, though several sources and observers say it is likely in the tens of thousands of barrels per day, possibly higher. Ali Dadpay, an associate professor of finance at the University of Dallas, who has studied oil smuggling in the Middle East, estimated the illicit volumes in Iraq at around 7 million liters daily, or almost 60,000 b/d. That is a small fraction of the 4.58 million b/d of crude oil that OPEC's second-largest producer pumped in October, according to the latest Platts survey of OPEC+ output by S&P Global. But at a discount of $20/b to Platts Dated Brent, it is equivalent to some $1.4 billion in lost annual revenues. Beyond the direct fiscal outflows from government coffers, the impact extends to shortages in the local supply of transportation fuels and power generation, causing popular protests and hampering efforts to rebuild the nation after decades of war. "Fuel smuggling goes back to the 1970s and since then it has been growing into an industry of its own," Dadpay said. "In the economy it adds to the cost of a wasteful policy, subsidizing fuel and petroleum products at the expense of public infrastructure and other welfare programs." US awareness The alleged activity has drawn renewed scrutiny from US lawmakers, with former Iraqi oil minister Ihsan Ismaael included in a delegation from the country to participate in the World Bank's annual meeting Oct. 10-16. In a letter to US President Joe Biden, three Republican members of Congress asked the White House to reconsider engaging with Ismaael, accusing him of helping Iran evade sanctions. Sudani, who took office Oct. 28, has since replaced Ismaael as oil minister with Hayyan Abdul-Ghani. His removal from office was not thought to be linked to the alleged smuggling activities. "The oil minister is known to have facilitated illegal oil exports on behalf of Iran [and] is suspected of widescale corruption to accept bribes for the award of contracts and oil operations in Iraq," Republican Representatives Jim Banks, Michael Waltz and Joe Wilson wrote. Ismaael could not be reached, while the oil ministry did not return multiple messages seeking comment, nor did the offices of Sudani and his predecessor, former Prime Minister Mustafa al-Kadhimi. Current and former US officials said the American government, which has been frustrated in its attempt to dislodge Baghdad from Tehran's sphere of influence, has long been aware of the prevalence of Iraq's gray oil market. "The fact that Iraq has a parallel set of...militias alongside its military, including Kataib Hezbollah, is a huge problem," said Greg Priddy, an oil consultant focusing on Middle East geopolitics, who added that Iraq's borders have been poorly secured since the US invasion in 2003. A former US official, who specializes on the Middle East and asked not to be identified, said Kataib Hezbollah, along with fellow Iranian-linked Shiite militias Asaib Ahl al-Haq and Harakat al-Nujaba, "run Iraq's borders and in some cases facilitate smuggling into and out of Iraq by truck. They are also part of the system to more broadly profit from the oil sector." The US has imposed sanctions on all three militias. The White House and US State and Treasury departments declined to comment. Exploiting price gaps The bulk of the gray market trade involves refined products, a lucrative trade given Iraq's industrial fuel subsidies and prevailing market prices for consumers in the country, as well as in neighboring Iran, Jordan and Syria. For example, Iraq produces about 40,000 mt/d of fuel oil, of which about 26,000 mt/d is supplied to local power stations, cement factories and other local customers at a subsidized price of around $200/mt, far below the Nov. 28 Platts assessment by S&P Global for FOB Arab Gulf cargoes of $326.61/mt. Motor fuels are also heavily subsidized, with gasoline recently retailing in Baghdad for about Dinar 450-750/liter (31-51 cents/l), compared with about $1.63/l in Amman, according to people in the region. Iraq's refining sector has a total crude distillation capacity of about 1.1 million b/d, though effective capacity is much lower, ravaged by the legacy of war. As a result, Iraq has to import gasoline and diesel to meet local demand, while its power sector, which heavily uses oil as feedstock, has been reliant on Iran for supplies of gas and electricity. The smuggling has exacerbated local fuel shortages, with several protests erupting in Iraq over the past several months over living conditions, including spiraling costs and widespread unemployment. Special border crossings Crude oil is also illicitly produced or smuggled, sent to simple topping refineries that have dotted Iraq and surrounding areas since the Islamic State spread through the region in 2014, or consumed in power plants, informed observers said. Kataib Hezbollah allegedly takes advantage of weak oversight of crude supplies intended for local refineries and fuel oil volumes allocated to industrial plants, where forged paperwork will allow them to load subsidized barrels to be refined and sold later at market prices, sources said. "There are a lot of distraction tactics" for the oil shipments, said an energy consultant who works in Iraq and asked not to be named for security reasons. "It goes at night, it goes in loops, and nobody knows where it's going. But it's a substantial amount that's floating around." Sources in the industry and eye-witnesses said the activity is prevalent in eastern Iraq, where dozens of trucks take crude oil and refined products daily through various border crossings, including to the Iranian towns of Shalamacheh and Mehren. In some cases, oil workers are brought in from Iran by the militia to prospect for drilling locations, sources said. Iran's foreign ministry declined to comment, while efforts to reach Kataib Hezbollah were unsuccessful. Weak governance Iraq suffers from widespread corruption, ranking among the worst in the world by several governance watchdog agencies. A weak legal system and an inadequate independent judiciary compound a parliament that is splintered by sectarian allegiances. "Iraqi institutions naturally demonstrate little public accountability and are instead driven by each group's political positions and power," Transparency International said in placing Iraq 157th out of 180 countries on its 2021 Corruption Perceptions Index. Ridding Iraq of the militias is no easy task, given Iran's heavy influence in the country's splintered government. Analysts claim the militias operate outside the Iraqi military chain of command, and efforts to curb their activities, including arrests of Kataib Hezbollah leaders, have inflamed tensions. "The problem is that Kataib Hezbollah has made clear via shows of force that it isn't going away without a major fight -- and nobody is willing to undertake that," Priddy said. In the weeks since his announcement of the sting on the Basra smuggling operation, Sudani and his administration have not followed up with any new information on who was involved beyond the nine officers arrested, nor any other efforts to combat the illegal trade. The prime minister has spoken more generally about tackling corruption, a pledge many of his predecessors have also made, with scant success. His willingness to take on smugglers head-on remains a major test for his administration.

The value of Russia's key crude exports has come under renewed pressure as EU sanctions and the G7's price cap edge closer amid growing signs that the curbs pose little threat to Moscow's resilient output and oil revenues. The outright price for Russia's flagship crude Urals slumped to 22-month lows in the run-up to the Dec. 5 start for the mechanism as weak physical market fundamentals and anxiety around sanctions risk have spurred even steeper discounts. The discounts for Urals and ESPO—Russia's eastern-bound export crude—against regional benchmarks have also widened again in recent weeks although they remain well below record levels seen in the aftermath of Russia's Feb. 24 invasion of Ukraine. Platts, part of S&P Global Commodity Insights, assessed medium sour Urals at $54.935/b Nov. 21, the lowest since Jan. 29, 2021. Compared with Dated Brent, the Urals discount widened to $29.50/b Nov. 24, its highest since Aug. 11. Russia's eastbound ESPO crude is valued higher and Platts assessed it at $74.32/b Nov 25. But the grade has also lost ground against regional benchmark Dubai over the last week, Platts data shows. The weakening values for Russian crudes come as G7 moves closer to setting the level of its price cap on Russian oil, designed to stymie the Kremlin's oil revenues by controlling access to shipping services. But following a week of crunch talks between diplomats in Europe to hammer out the mechanism's closely watched price cap, reports that the price ceiling considered could be a higher-than-expected $65-$70/b has surprised the oil markets. Although consensus on the cap level has yet to be reached, many oil traders have rightly questioned the utility of the cap if it is set above the level at which Moscow's main export grade is currently trading. "To me, this price cap means they want [Urals] to flow at current levels," a trader said, noting that the impact of the cap as an outright price will also be dependent on movements in international benchmarks to which Urals trades at a differential. Softer fundamentals Russian crude has been trading at record discounts of up to $40/b in wake of Russia's invasion of Ukraine as key buyers in Europe shunned Moscow's oil. The bulk of Russia's crude exports is now flowing to refiners in Asia, with China and India being its key customers. With the oil market turning bearish as a growing list of poor economic data has undermined confidence in demand, Brent crude prices and Urals crude differentials have taken a hit in the past few weeks. Such concerns are exacerbated by weakness across physical crude markets, particularly in Asia, where rising coronavirus cases have dampened demand from China, the world’s largest crude importer, and weighed heavily on the Middle Eastern sour complex. That looks set to drive the Urals to even steeper discounts to Dated Brent just as the price cap comes into force, before even considering the logistical effects of the looming sanctions. Demand for Russian ESPO from Chinese and Indian refineries has also slowed in recent cycles with traders citing a hefty overhang in December-loading cargoes. “Oman [crude values] have come off, a lot of [Upper Zakum] has come off a lot … why would you take Russian barrels?” said a second trader. Platts assessed ESPO at a discount of $6.74/b to Platts Dubai Nov. 25, a six-week high after discounts for the grade had almost shrunk back to pre-war levels earlier in the month. “It's hard to find much bidding interest in the eastern market at all, no matter what grade,” the second crude trader said. “Everything is dropping like a stone, including Russian crudes.” Delivered values for the Russian Urals to India have also shrunk through November, even as freight rates have soared, an Indian refining source said. With the Middle Eastern sour complex continuing to soften, some traders suggested major buyers are likely to look more favorably on conventional sour flows compared with riskier Urals over the coming weeks. Russia's Urals is classified as a medium sour grade, with a specific gravity of about 31.7 API and sulfur content of 1.7%, while ESPO is lighter and sweeter, with 34.7 API and sulfur content of 0.55%, according to the Platts periodic Table of Oil. Supply outlook S&P Global forecasts Russian crude and condensate output to fall by 1 million b/d between November and March, that is 1.5 million b/d below pre-conflict levels, due to the looming EU bans and G7 restrictions on maritime services and financing. The EU crude import ban and G7 price cap will both be in place from Dec. 5 onward. But paul Sheldon, chief geopolitical advisor at S&P Global, said odds are rising that supply could exceed expectations. "Russia has already had significant time to prepare, increasing its ability to secure a sufficient fleet of ships and non-Western maritime services," Sheldon said. "A softening of the EU ban on ships not complying with the price cap (if finalized) could increase tanker availability, more sanctions exemptions could arise, and/or a price cap as high as reported levels could cause Russia to hold its nose and maintain supplies, especially if the alternative is damaging shut-ins." Almost five months in the making, G7 nations have yet to set the maximum price at which shippers from G7 and EU countries may legally transport Russian crude and products. Russia has so far insisted it will not sell its oil under the price caps, which forces it to develop alternative supply chains to bypass the measures or shut-in its displaced oil. Many expect refiners in China, India, and Turkey—the top current destinations for Russian crude— to absorb more of the affected oil. Combined, the three buyers have seen their seaborne imports of Russian crude almost treble from prewar levels to over 2 million b/d, accounting for nearly 70% of Russia's seaborne flows. But the logistical risks brought by the new sanctions regime present an additional hurdle. The so-called shadow tanker fleet carrying Russian crude is expanding, with the G7 oil price cap regime expected to banish Russian barrels into non-mainstream trades. This is likely to exacerbate maritime trade risks for the shipping industry. "The general consensus is that ... the majority of mainstream tanker owners will be prevented from lifting Russian barrels," said shipbroker BRS in a recent note. Uncertainties over implementation and likely Russian workarounds mean, even when the G7 does set the price cap, the impact of Russian export flows will be hard to call.

The European physical gasoil market, already showing signs of tightness, could strengthen further on reduced supply from Russia due to the EU's February 5, 2023 sanctions, according to analysts and traders, but economic weakness will likely provide shock absorbers. Russia has long been Europe's key gasoil supplier and many analysts believe EU sanctions banning Russian product imports will cause volumes to Europe to collapse. The CIF Mediterranean 0.1%S Gasoil cargo cash differential versus the front month ICE low sulfur gasoil future strengthened $2.75/mt on the week to Nov.24, to a discount of $5.75/mt below the ICE LSGO. On an outright basis, the CIF Med 0.1% gasoil price is $913.75/mt – its highest level in a week as seasonal winter demand rises. In Northwest Europe, although CIF Northwest Europe 0.1%S gasoil cash differentials strengthened $2/mt on the week to Nov.24 to a discount of $28.25/mt below the ICE LSGO as traders report that the market is strengthening. "[NWE 0.1%S] swaps have been heading up for a while," one trader said. "Mediterranean [gasoil] prints [the physical outright price published by Platts] have been holding despite the [strong] backwardation [in ICE LSGO futures]." Traders highlighted that differentials had a lot of potential to increase in the following months as a result of EU-Russian sanctions and fewer flows, in general, coming to the region. "Next year differentials are rating quite strongly," a second trader said, adding that with no flows from Russia, the principal users of gasoil in Europe will have to look for different sources of supply. Russian product made up around 14% of European gasoil demand in 2021, according to the latest outlook from S&P Global Commodity Insights analysis. "The pressure to cover lost Russian cargoes at a time of existing global tightness are bullish for prices in coming months and in early 2023," said Rebeka Foley, an analyst at S&P Global. However, she adds that global economic weakness will temper demand, "providing a reprieve to supply concerns." S&P Global forecasts global gasoil demand to rise 380,000 b/d on the year in 2023, compared to 520,000 /d in 2022, with Europe set to contract in this current quarter and the first half of 2023. The main European demand hubs for 0.1%S gasoil in the Mediterranean have traditionally been Greece, Spain, and Italy. In Europe as a whole, France is the largest demand center for 0.1%S gasoil for use as a heating oil. Refining questions Market participants suggested that European gasoil demand could be fulfilled by refineries, primarily in the UK and Rotterdam, through increases in production. A third trader also suggested that supply could come from reducing exports from the Amsterdam-Rotterdam-Antwerp hub to West Africa. Due to the lower restrictions on Russian product exercised by African nations, flows could potentially go directly from Russian Baltic ports to West Africa, a fourth trader said. "Europe exports a lot of the heavier grades to Africa," the third trader said, "so the lack of Russian products will eat into that source." European refinery capacity has also recently increased following the end of outages due to French refinery strikes at the end of October which at its height took out four of the country's six refineries. Nevertheless, strikes that began in BP's Rotterdam refinery Nov.22 and at Pembroke Docks serving the Valero Energy refinery in the UK on Nov.16 may see refining capacity reduced again. On top of this, European refineries continue to prioritize the production of diesel over gasoil due to favorable cracks and the large sulfur spreads between the 10ppm ultra-low diesel cargo prices and the 0.1%S gasoil cargo prices. Platts, a part of S&P Global Commodity Insights, assessed that 10ppm ULSD FOB ARA vs Brent crack at $39.95/bl compared to the 0.1%S Gasoil FOB ARA vs Brent crack at $35.69/bl. According to the latest outlook from S&P Global CI Analystics, ARA distillate cracks are expected to average well about the 5-year range, at $43/b in the first half of 2023 and $40/b in H2 2023. The incentive for desulfurization remains strong on the back of a $59.75/mt spread between 10ppm CIF Med cargoes and 0.1%S CIF Med cargoes prices, assessed Nov.24. The NWE sulfur spread was assessed at $85/mt on Nov.24. "For refineries, once they have the feedstock, desulfurization costs [very little]," the second trader said. "To bring gasoil to the market or convince refineries to make it, it has to be well-bid." They continued that once demand hit from falling temperatures, cash differentials would strengthen significantly. Analysts have added that supply into the European gasoil complex could be supplemented by flows coming from the US and the Persian Gulf. That said, US flows would likely be diesel. New refineries built in Saudi Arabia could allow Middle Eastern gasoil flows to help replace Russian volumes, market participants have said. said.

Japan is poised for more spot LNG trades in 2023 as more than 6 million mt/year of long-term LNG supply contracts are due to expire, a trend likely to persist for the next few years at least. The long-term contractual expiries come at a time when Japan faces stiff competition for LNG from Europe, which has committed to replace Russian gas supply in the wake of Russia's invasion of Ukraine. Roughly 6.1 million mt of long-term LNG contracts held by Japanese companies are up for expiry in 2023, with Brunei LNG accounting for 56% of the contracts due to expire in the year, according to S&P Global Commodity Insights LNG database. The 2023 contractual expiries represent roughly 8% of Japan's annual LNG imports of around 74 million mt, a level that will likely be difficult to replace with incremental supply from other long-term term contracts and short-to-mid-term contracts amid tight LNG markets. "Everybody is seeking term [supplies] including for strip and mid-term [contracts]," a Japanese buyer told S&P Global. "We tapped a few [suppliers] but there are no [suppliers] offering oil-indexed long-term contracts." "So we are in a situation [where we have] to keep room open helplessly for spot [volumes] because sellers are not willing to offer," said the buyer, adding that Japanese buyers cannot secure their LNG requirements in advance. The Russian invasion of Ukraine, which has tightened the LNG supply-demand balance and increased uncertainty over supply, including from the Sakhalin 2 project, is also impacting Japanese companies' LNG procurements in 2023, said Hiroshi Hashimoto, senior analyst and head of gas group at the Institute of Energy Economics, Japan. "Of course, [Japanese companies] must have taken steps for contractual expiries in advance but the situation has slightly changed, which has created the need to move additionally," said Hashimoto, adding that such moves include not only pursuing more long-term LNG supply than previously expected but also seeking spot LNG procurements. Japan's higher exposure to spot LNG procurement in 2023 comes after the Platts JKM price benchmark rose to an all-time high of 84.762/MMBtu March 7 because of supply uncertainty and rising prices in the Atlantic. Platts, part of S&P Global, assessed JKM for January at $31.368/MMBtu Nov. 24. Japanese buyers have mostly secured sufficient LNG for the upcoming winter into March 2023 despite facing some supply issues, including from Malaysia LNG and US Freeport LNG, with some still in the midst of working out their annual delivery programs for 2023, according to market sources. Nuclear restarts The country's overall LNG procurements, however, might fall on the year in 2023 because of expected restarts of Kansai Electric's 826 MW No. 1 and 826 MW No. 2 Takahama nuclear reactors over the course of the year. Kansai Electric's No. 1 and No. 2 Takahama nuclear reactors will be restarted in June and July, respectively, for the first time under Japan's new regulatory standards introduced in 2013 following shutdowns for scheduled maintenance in 2011. The restarts of the No. 1 and No. 2 Takahama reactors would also mark the country's second and third nuclear reactors to see over 40 years of commercial operations following NRA's approvals in 2016, along with Kansai Electric's 826 MW No. 3 Mihama nuclear reactor, which was restarted in 2022. Japan's economic outlook for 2023 remains challenging and the country's overall power demand will be at a similar level to 2022, said Kaori Tachibana, associate director of gas, power & climate solutions at S&P Global. "With the ramp up of up to 10 reactors by February 2023, and a further two scheduled for restart next summer, the pressure on LNG is expected to be lifted," Tachibana said. "With tight supply expected to continue for the next few years, Japan's nuclear restart strategy will help alleviate the situation," she said. "However, nuclear restart remains highly uncertain and delays will place pressure on the tight LNG market as well as on domestic power supply." The 10 nuclear reactors that will be in operation by February 2023 are Kansai Electric's No. 3 Mihama, 870 MW No. 3 Takahama, 870 MW No. 4 Takahama, 1.18 GW Ooi No. 3 and 1.18 GW Ooi No. 4 nuclear reactors; Kyushu Electric's 890 MW No. 1 and 890 MW No. 2 Sendai nuclear reactors, and 1.18 GW No. 3 and 1.18 GW No. 4 Genkai nuclear reactors; Shikoku Electric's 890 MW No. 3 Ikata nuclear reactor. Contractual expiry Japan's exposure to spot LNG trades will continue in the next few years unless it is able to secure some sort of extension to expiring long-term contracts or short-to-mid-term contracts. The country's long-term LNG contractual volumes are slated to fall to around 62.86 million mt in 2030, compared with 85.11 million mt in 2025 and 89.83 million mt in 2023, according to S&P Global data. Despite the approach of long-term contractual expiries, Japanese LNG buyers have not been able to secure new long-term LNG supply contracts because of the demand uncertainty in the years ahead due in part to the country's 2050 carbon neutrality commitment. "Honestly, we have a split view at the company, with some calling for signing long-term contracts," said a Japanese buyer. "Others push for keeping room open for spot [volumes] without signing long-term contracts."