Energy, (Geo) Politics & Money - 11 March 2024
Non-partisan, objective & neutral analysis where global developments in energy, business & geopolitics intersect & curated from leading global sources & resources.
Welcome to EPM, where we take our daily look at the interconnected worlds of Energy, (Geo)Politics and Money. Curated from the world’s leading sources of information, we provide you both the information and the objective, neutral commentary that you need to make sense of it all – and beat the market.
In this roundup, we discuss U.S. demands that The Netherlands and Japan tighten restrictions further on the export of semiconductor-related exports to China; this is effectively the next round in the U.S.’s efforts to cut China off from resources critical for its economic and military success.
EPM explains this move was predictable. About a month ago we reported on the growing realization among insiders that while cutting-edge semiconductors underpin next-generation technologies such as AI, older generation chips are the workhorse in the current economy, including China’s defense related sectors.
The latest U.S. move therefore makes sense from the U.S. perspective, it is not without risk for Washington as it hurts the economic interests of its allies. It increases the risk of the U.S. alliance against China falling apart. Something Malaysia’s prime minister Anwar Ibrahim explicitly articulated recently.
Furthermore, we look at:
Saudi Aramco’s outlook for oil demand in 2024 and 2025
China’s plan to expand a program to help more local governments reduce debt risks
Why the Indo-Pacific nations fear a return of Donald Trump as president of the United States, and their strategy for dealing with the potentiality
The plan of Aramco and ADNOC to follow in ExxonMobil’s footsteps and extract lithium from brine in their oilfields
The cost increases experienced by the main pilot CCS project in the Netherlands, Porthos
The memorandum of cooperation between Japan and Oman for the production of synthetic methane from the CO2 captured at Oman’s LNG facilities
The view that the aviation industry is likely to miss its Net Zero by 20250 target
Photograph by: Ben Wicks (@profwicks) at Unsplash.com
General Energy News
ARAMCO PREDICTS ROBUST DEMAND AND GROWTH UP TO 2025
Saudi Aramco's CEO Amin Nasser said on March 10 that he expects oil demand growth to average 1.5 million b/d in 2024 and be "robust" in 2025, writes S&P Global. During a call to discuss the company's 2023 full-year financial results, he told reporters,
With regard to the oil demand, we expect the global oil market to remain healthy over the remainder of this year and we expect it to be fairly robust. We are looking at a growth of about 1.5 million b/d. (Demand was expected to be 102.4 million b/d in 2023) and we're looking at 104 million b/d for 2024 with more growth expected in 2025.
Aramco's forecast for global oil demand growth is less bullish than OPEC, which said in its February oil market report that demand would grow 2.2 million b/d this year. OPEC anticipates global demand to reach 104.40 million b/d in 2024. Aramco's view of demand is slightly more optimistic than the International Energy Agency, which in February forecast oil demand growth of 1.2 milion b/d in 2024, down from from 2.3 million b/d last year.
Macroeconomics
CHINA REDUCING LOCAL GOVERNMENT DEBT RISKS
China intends to expand a program to help more local governments reduce debt risks, writes Bloomberg. Another 19 localities have been approved by the nation’s State Council to apply for support to deal with heavy debt burdens. These come on top of an earlier approved 12. The Financial Times adds to the subject that China’s local governments accumulated enormous liabilities over a decade-long, debt-fuelled building spree. While the infrastructure drive helped fuel growth, many local governments are now grappling with billions of dollars of off-balance sheet debt. They have amassed up to Rmb94tn ($13tn) in debt, according to an estimate from Goldman Sachs, which includes liabilities from off-balance sheet entities known as local government financing vehicles. A total of Rmb3.2tn of public bonds needs to be repaid by the end of 2024, according to Moody’s.
Geopolitics
U.S. SEEKS FURTHER RESTRICTIONS ON SEMI-CONDUCTOR TECH TO CHINA
The U.S. is pushing Japan and the Netherlands to expand their restrictions on semiconductor-related exports to China, seeking to cover equipment for older-generation chips as well as chip making chemicals, writes Nikkei Asia. The current curbs broadly restrict exports of gear for making semiconductors in the 10- to 14-nanometer range or smaller. The U.S. wants this expanded to encompass some equipment for older, generic chips. The U.S. has urged Germany and South Korea to stop supplying necessary components as well. EPM notes the U.S.’ move was predictable. About a month ago we reported on the growing realization among insiders that while cutting-edge semiconductors underpin next-generation technologies such as AI, it is the older generation chips that are the workhorse in the current economy, including its defense related sectors. Nikkei Asia writes that Japan is less than eager to go down this path, because of the significant economic implications it would have for the country. The Netherlands, EPM speculates, will similarly be forced to think about this deeply, as it already is in conflict with ASML, which is in fact the country’s largest company.
The U.S. demand makes sense from the perspective of U.S. interests, as it comes at little to no cost for the U.S. economy (the cost is shared by The Netherlands and Japan in this case) while it would be a significant problem for China, EPM further notes.
And, it reminds us of a speech recently made by Malaysia’s Prime Minister Anwar Ibrahim, who, according to the Australia Finance Review, warned the U.S. not to drag South-East Asia into its problems with China, and reiterated his criticism of growing “China-phobia” in the broader West. Dr Anwar said Malaysia found itself under increasing pressure to pick sides between China and the U.S. He added
While we remain to be an important friend to the U.S. and Europe and here in Australia, they should not preclude us from being friendly to one of our important neighbours, precisely China. If they have problems with China, they should not impose it upon us. We do not have a problem with China.
ASIA WARY OF A TRUMP ADMINISTRATION
Nikkei Asia has analysed the likely geopolitical implications of a second Donald Trump presidency for Asia. Unlike Europe, which has NATO, there is no multilateral security framework in the Indo-Pacific region. Bilateral alliances between the U.S. and Japan, Australia, South Korea and the Philippines have supported regional stability. But if Trump returns, the foundations of these vital alliances may be shaken to their collective cores. Against this backdrop, about 40 politicians, government officials, diplomats and journalists from the U.K. and Japan gathered in Odawara, near Tokyo, on Feb. 2-4 to discuss global affairs in private. The gathering was the annual meeting of the U.K.-Japan 21st Century Group. The gathering concluded three things need to be urgently done: Rebuild connections not only with the Democratic Party but also with the Republican Party, where Trump is gaining influence; Establish of a network of diplomatic and security cooperation among middle powers, that can function independent from the U.S.; and, immediate action needs to be taken to significantly increase defense capabilities.
Energy Transition & Technology News
ARAMCO & ADNOC SEEK TO EXTRACT LITHIUM FROM OIL FIELD BRINE
Saudi Aramco and ADNOC plan to follow in ExxonMobil’s footsteps to extract lithium from brine produced by their oilfields, writes Reuters. There is no detail on the type of direct lithium extraction (DLE) technology that would be used, as both companies are keeping their efforts secret for now.
DUTCH CARBON CAPTURE PROJECT COSTS TRIPLE
Costs assessments for the carbon capture project Porthos in The Netherlands, designed to be a pilot to prove feasibility of the approach, have tripled over recent months, writes Dutch News. Originally estimated at €500 million when the project was launched five years ago, latest estimates are in the range of €1.3 billion. The rise is due to inflation which has pushed up costs of preparing the location for storage, the three state-owned companies behind the Porthos project – Gasunie, Rotterdam’s port authority, and EBN, said. The project involves pumping the CO2 via a pipeline from the Rotterdam port area to empty gas fields some 25 kilometres offshore. The aim is to store 2.5 megatonnes of CO2 a year. Construction is due to start this year and storage to begin in 2026.
JAPAN & OMAN TO CO-PRODUCE SYNTHETIC METHANE
Japan and Oman are set to sign a memorandum of cooperation for the production of synthetic methane, writes Nikkei Asia. Japan and Oman had first agreed to cooperate on synthetic methane in 2022, and are now taking the next step to actual production. Designs for a plant are expected to be completed by the end of the year, with construction beginning sometime next year. The project aims to begin mass producing e-methane in the latter half of 2026. Japan will supply equipment and catalytic materials needed to synthesize hydrogen and carbon dioxide efficiently. The project will capture carbon dioxide emitted from Oman LNG's existing gas plants. Whether Japan will be the off taker for the produced e-methane, and at what commercial terms, will be negotiated separately.
Other
EUROPEAN AVIATION INDUSTRY UNLIKELY TO MEET PARIS TARGETS
The Financial Times reports the European aviation industry is likely to miss its target to reach net zero by 2050. According to Mr. Sondag, the recently departed boss of Amsterdam’s Schiphol airport, one of Europe’s busiest hubs, said,
I think it’s important to . . . state that the plans that the aviation industry itself has, most probably will not lead to the result that we are all signed up for in the Paris Agreement. I think there’s a distinct risk that if you don’t do something about this, then politicians . . . or judges will interfere. In the long run, you will lose your license to operate.
A large part of the European airlines’ net zero plan is based on a switch to so-called sustainable aviation fuels or SAFs, which are made from feedstocks other than fossil fuels. But these new fuels are expensive and scarce, leading environmental groups to claim that a substantial reduction in flying will be the only way for the industry to decarbonise.