Daily update: December 15, 2021

Start each business day with our analyzes of the most pressing developments affecting the markets today, along with a curated selection of our most recent and important information on the global economy.

Large economies may need to reconsider their dependence on natural gas in the face of rising energy prices, more frequent extreme weather events and the acceleration of the energy transition to renewable sources, according to market participants.

While the UK, Texas and California differ considerably in many areas, these economies are united in their over-reliance on natural gas for power generation, as fossil fuels account for nearly 40%, 51% and 48% of their respective energy. mixtures, according to government data. Despite several risks that have threatened the viability and reliability of natural gas for these economies, leaders remain loyal to natural gas for the immediate future of their energy networks.

Immediately, energy price have ricocheted between highs and lows in recent months, leading to the shutdown of some energy companies in the UK and put pressure on the American markets. Moreover, devastating California wildfires raging in summer and a polar vortex that froze Texas last winter called the resilience of energy mixes and state networks in question. In the future, the energy transition from fossil fuels will not necessarily leave natural gas behind, as many market players see fuel as a bridge between the current and more sustainable conditions.

The United Kingdom remains “convinced that there is no risk security of supply and that the system will continue to deliver during the winter period ”, and that on the country‘s market“ what we are currently seeing are very high gas prices, but we do not see in the system UK gas supply shortage at the moment, ”said Alexandra Howe, head of gas safety at the UK Department for Business, Energy and Industrial Strategy, at an industry seminar on December 14, according to S&P Global Platts.

Texas’ leading utility regulator assured market participants that “the lights will stay on “this winter because of the electricity network reforms requiring wintering, new production facilities and coordination with natural gas suppliers implemented in the State since freezing conditions in mid-February triggered widespread blackouts and caused progressive blackouts. “No other power grid has made such dramatic changes in such a short period of time as we have. And we will continue to improve our grid and our market,” said Peter Lake, chairman of the Texas Utilities Commission, at a press conference. a December 8 press briefing, according to S&P Global Platts.

Although many utilities in California are on track to meet state climate goals, market players see excessive dependence on natural gas preventing the global economy from growing sufficiently towards emission reductions.

“Natural gas is rapidly become the Achilles heel of California across industries, ”said Patrick Adler, research director at Beacon Economics, in a statement announcing the 13th edition of the Los Angeles-based consultancy.e California’s annual green innovation index. “Gas consumption is increasing in buildings, even though our state leads the country with policies to phase it out in new construction. In the electricity sector, we added more new gas production than any other resource in 2020. To meet our climate targets, we need to reverse these trends, and quickly. “

Both Permian Basin and Southern California Markets face pressure on natural gas prices, according to S&P Global Platts.

Today it’s Wednesday, December 15, 2021, and here is today’s essential intelligence.

The credit cycle


Default, transition and recovery: weakest links have fallen by more than 50% to date in 2021

The number of weakest links (issuers rated “B-” or less by S&P Global Ratings with negative outlook or ratings on CreditWatch with negative implications) fell 55% to 216 as of November 18, 2021. number of weakest links These links can be attributed to a decrease in the number of lower-rated issuers with a negative bias, which fell to a record level of 24% in November, down from 52% in December 2020, implying a lower risk of default in the short term.

—Read the full report of S&P Global Ratings

Speculative Grade North American Firms Have A Lot of Cash (and Upgrades)

Since the summer of last year, North American companies have reaped the rewards of very favorable lending terms, tapping into liquidity-awash capital markets and setting issuance records. Based on S&P LCD, in 2021 (through November 12) the volume of leveraged loans was around $ 576 billion and high yield issues were over $ 445 billion.

—Read the full report of S&P Global Ratings

Credit trends: U.S. distress ratio remains low despite record number of speculative-grade issuers

The US Distress Ratio – the proportion of speculative grade issues (rated “BB +” or less) with option-adjusted composite spreads of more than 1,000 basis points (bps) against US Treasuries – a slightly increased to 2.6% on December 6. , 2021, compared to 2.3% the previous month. Recent low levels, including the 2021 average of 2.9%, are influenced by our calculation method, which takes into account all speculative grade issuers.

—Read the full report of S&P Global Ratings

Fed could hike rates sooner, but 1970s inflation is not on the agenda

Most economists expect the Fed to start raising short-term rates in the second half of 2022, a few months after the cut to its bond buying program ended. Fed Chairman Jerome Powell said last week that central bank bond purchases could end a few months earlier due to strong economic growth and high inflation.

—Read the full article by S&P Global Market Intelligence

The banking sector under pressure


UK banks show resilience of balance sheets in latest stress test

The Big Seven Banks and the UK’s largest mortgage lender have passed the Bank of England’s latest stress test. In the results published yesterday, each institution exceeded the capital and leverage obstacles set in the year, with none being required to revise the capital or distribution plans. S&P Global Ratings believes this result illustrates the groups’ strong track records and resilience to potential stress, including a further escalation of the COVID-19 pandemic.

—Read the full report of S&P Global Ratings

Spain’s BBVA increasingly relies on Turkey, Mexico and other emerging markets

Banco Bilbao Vizcaya Argentaria SA is increasingly dependent on its activities in Turkey, Mexico and South America, as it relies on emerging markets to fuel its growth. The Spanish bank’s assets in these three regions amounted to 34.4% of the group’s total at the end of September, against 30.1% at the end of 2020. Loans experienced a similar development and net interest income of Mexican operations grew to 39.5% from 31.9% of total assets over the same period, according to data from S&P Global Market Intelligence.

—Read the full article by S&P Global Market Intelligence

ESG in the age of COVID-19


Path To Net-Zero: Oil & Gas Industry On Track To Miss 2 Degree Climate Target

The number of large oil and gas operators committing to achieve net zero emissions from their company’s operations and supply chains, known as scope 1 and scope 2 emissions, has increased by 50% to 70% in the past six months, according to reports from 30 companies compiled by S&P Global Market Intelligence in November. Net zero carbon targets are needed to align industries with the goals of the Paris Agreement on climate change.

—Read the full article by S&P Global Market Intelligence

Listen: Oil and gas industry responds to energy transition at World Petroleum Congress

The World Petroleum Congress in Houston brought back a sense of normalcy in the energy sector as the industry and the world continue to grapple with the coronavirus pandemic. But the other existential threat to fossil fuels is the booming energy transition and the shift to cleaner sources of energy and fuels.

—Listen and subscribe to Commodities Focus, a podcast of S&P Global Platts

The future of energy and raw materials


Food for thought: Cambo’s disappearance could be a blow to energy security and transition leadership in the UK

The demise of the British Cambo oil project could prove to be a pivotal moment for the country’s offshore industry, one that jeopardizes the province‘s future production prospects and the expertise that could contribute to global transition goals. Shell’s support for Cambo, a project in the distant Atlantic waters west of the Shetland Islands targeting hundreds of millions of barrels of heavy crude, seemed increasingly untenable amid the UK the UN climate talks in Glasgow and a drumbeat of environmental opposition.

—Read the full article by S&P Global Platts

Raw materials 2022: the global lithium market will remain tight

Prices for lithium carbonate transported by sea rose 413% since the start of 2021 to $ 32,600 / t CIF in North Asia on December 14, while prices for lithium hydroxide climbed 254% during the same period at $ 31,900 / t CIF in North Asia, according to S&P Global Platts Data. Lithium prices are expected to remain high until 2022, according to a number of market participants, due to the bullish supply-demand dynamic.

—Read the full article by S&P Global Platts

Written and compiled by Molly Mintz.


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