Energy, Geo-politics & Money - 2023.11.13
In this roundup, we take a closer look at how the stance of Western elites in the Ukraine and Gaza wars could have longer-term geopolitical implications. In the view of a majority of the global public, which thanks to the internet is now more informed of global events than ever before in history, Western elites are showing hypocrisy in their differing response to the Ukraine War and Gaza War.
The narratives created in the West to counter this perception are only making matters worse, it seems, as they tend to be seen as efforts to justify what are considered unjustifiable and immoral actions. This shift in global public perception is not something new but has been developing for longer, EPM argues. A key moment was the US war in Iraq, as in the eyes of many in the developing world, that is where the Western elites for the first time unequivocally showed a willingness to impose their will on the world through military intervention.
Now, every time a military is deployed, a sanction is imposed, or a contrarian view is met with censorship, this impression regarding the real motive of the West – preservation of hegemony at all costs – is further strengthened. The argument can be made, therefore, that the West is now wasting its valuable “soft power”.
If so, EPM argues, it will become ever more reliant on military power to preserve its interests around the world, since its economic power has also been on a deteriorating path since the Global Financial Crisis of 2008. Obviously, this leads to a vicious-cycle dynamic in which renunciation of Western leadership leads to an increased dependency by the West on military power to drive forward its plans and visions for the world; which would breed further resentment, weakening the West’s soft power further, and increasing resistance against its leadership; increasing further the West dependency on military power.
This means that EPM’s base case outlook for the world features increased and persistent geopolitical instability.
Furthermore, we look at:
China’s increased purchases of Iranian crude oil; as well as its selling of contracted LNG volumes to buyers in Asia, which EPM sees as the execution of a Chinese strategy to become a key player in the global LNG business
The US Fed’s signaling it might need to raise interest rates still further
The US announcement of sanctions on Russian LNG, which will impact Europe’s ability to meet its energy needs; which is happening at the same time that the European majors Shell and BP are complaining that a US LNG producer has failed to supply contracted LNG volumes
Confirmation of a meeting between Biden and Xi later this month
Why China’s GHG emissions are likely to drop next year (hint: its massive build out of conventional renewables continues)
Why the US’s first SMR project, a 462 megawatt facility in Idaho, just got canceled
ExxonMobil’s aim to begin lithium production in Arkansas by 2026
The Hydrogen Ammonia Global Value Chain concept, under which Japan and South Korea intend to collaborate on building a supply chain for hydrogen and ammonia
Volvo’s release of the EM90, its first-ever minivan, with a fully electric drivetrain
Germany’s massive intervention in its electricity market, to the tune of $13 billion in 2024 alone, in order to prevent de-industrialization resulting from its stance in geopolitics
How space-based technology is increasingly being used to hold polluting industries accountable for their contributions to climate change, with a new satellite named Vanguard being able to monitor emissions from individual sites
General Energy News
Reuters summarizes current oil market sentiment as follows: “Investors are more focused on slow demand in the United States and China, while worries over the potential supply disruptions from the Israel-Hamas conflict have somewhat receded,” As a result, Brent and WTI are trending downwards. Brent crude futures for January were at $81.08 a barrel on Monday morning while WTI crude futures for December were at $76.82.
China's oil imports from Iran have hit record highs as Iran ramps up output despite the threat of further US sanctions, writes Reuters. The country bought an average 1.05 million barrels per day (bpd) of Iranian oil in the first 10 months of 2023,. This is 60% above pre-sanction peaks recorded by Chinese customs in 2017.
China, the world's top buyer of liquefied natural gas (LNG), is increasingly re-selling some of the fuel to other Asian buyers, writes Reuters. EPM previously speculated that China’s activity in LNG contracting – the country has signed most of the longer-term contracts for LNG over recent years – is part of an ambition to not only secure supplies for itself, but also to become a key middleman in the business. China’s trades are taking place on the water, but also on land via reloading from re-gasification plants. The latter could lead to China taking up a similar role in Asia to the one that Spain has had in Europe, as a key centre for reloading cargoes.
Macroeconomics
US Federal Reserve officials, including Fed Chair Jerome Powell, say they are still not sure that interest rates are high enough to finish the battle with inflation, writes Reuters. Powell cautioned that the Fed may get little further help in taming price increases from improvements in the supply of goods, services and labor. At an International Monetary Fund event, Powell said the Fed
… is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time; We are not confident that we have achieved such a stance, If it becomes appropriate to tighten policy further, we will not hesitate to do so.
A teardown of the Huawei Mate 60 Pro by Nikkei reveals how quickly China is moving forward in its ability to produce high-technology. Chinese parts constitute 47% (on a value basis) of the Mate 60, up 18 percentage points from the Mate 40 analyzed three years ago. The increased share of Chinese components resulted largely from Huawei switching suppliers for the organic light-emitting diode (OLED) display – the phone's costliest component – from South Korea's LG Display to BOE Technology Group. BOE is making inroads into the smartphone display market dominated by LG and Samsung Electronics with a reputation for quality, but it lags in terms of mass production capacity. Touch panel components for the Mate 40 Pro were supplied by US developer Synaptics, but Huawei turned to Chinese parts for the Mate 60 Pro.
Geopolitics
The Financial Times notes that European countries continued importing Russian LNG even after Moscow’s full-scale invasion of Ukraine last year. Now, it says, the US wants to stop this. The US State Department has announced sanctions on a new Russian development known as Arctic LNG 2 — in effect blocking countries in Europe and Asia from buying the project’s gas when it starts producing next year. Arctic LNG 2 is a 20 million tonnes per year project, located on the Gydan Peninsula in the Arctic allowing it to export to both the European and the Asian market. It is led by Russian private company Novatek, which holds a 60 per cent stake. Other shareholders are France’s TotalEnergies, two Chinese state-owned companies and a Japanese joint venture between trading house Mitsui & Co and government-backed Jogmec, each holding 10 per cent stakes.
As the US is working to limit potential sources of LNG for Europe, it is worthwhile to highlight that the European majors Shell and BP, alongside Spain’s Repsol and Italy’s Edison, are in a massive conflict with US LNG producer Venture Global LNG. The Financial Times writes the European accuse the American company of not supplying the contracted volumes of LNG. They say that instead, the US company sold the volumes on the spot market in order to make more money. Effectively taking money that Shell and BP could have made, but also putting at risk European energy security. The FT writes the European majors have asked the government of the US and the EU to step in and resolve the matter.
Its confirmed that Presidents Joe Biden and Xi Jinping will sit down for a summit on Wednesday, on the sidelines of the annual Asia-Pacific Economic Cooperation summit in San Francisco, writes the south China Morning Post. The topics for discussion include the need for military-to-military dialogue, Russia’s war in Ukraine and the Israel-Gaza conflict.
A truly thought-provoking opinion piece in the South China Morning Post discusses how the stance of Western elites in the Ukraine and Gaza wars could have longer-term geopolitical implications. In neither of these two conflicts has the West acted as peace maker, it says. Instead, it has played a role that the majority of the world views as self-serving, either instigating, enabling, and/or deepening these conflicts. As a result, the question now being asked across the world, including by some of the West’s leading public intellectuals, is: “what are the reasons for the moral bankruptcy within Western societies, and especially their political leaders?”
Underlying the issue is an accelerating decline in the quality of political discourse in the West. Western elites have proven unable to deal with the rapidly changing global order, the author says, in part due to a superiority complex. It has left them simultaneously at-odds and out-of-touch with a changing world, meaning it is incapable of taking on the coveted role of global leadership. The result has been a disaster for humanitarian values all around the world, because weak Western leaders – still steeped in the belief that the West is superior and must maintain its hegemony over others – have tried to impose their will on the world through military intervention, sanctions and censorship.
In order to manage the resulting fallout, the Western elites have developed narratives to justify their unjustifiable and immoral actions. The response by a majority of the global public to the war in Gaza, thanks to the internet who are now more informed of global events than ever before in the history of humanity, clearly indicates this is only making matters worse (see The Conversation for analysis of how far apart exactly the Global North and Global South stand on the issue of Gaza).
In EPM’s view, what the author of the piece is really saying, in a nutshell, is that the West is rapidly wasting its “soft power” in order to maintain its hegemony. This will leave it more and more reliant on military power to preserve its interests, since its economic power has also been on a deteriorating path since the Global Financial Crisis of 2008.
An opinion piece on Project Syndicate shares a similar sentiment. It says the wars in Gaza and Ukraine are exacerbating global divisions, and thereby may drive forward a profound geopolitical reconfiguration. It argues that one of the reasons the US is trying to get China back at the table, is that it recognizes this danger. The author very aptly summarizes the perspective of the Global South when it comes to the current system. It is often referred to in neutral-sounding terms such as the “rules-based global order,” but in reality, he says, it is undoubtedly centered on the US. Not only did the US largely make the rules on which that order is based; it also seems to believe itself exempt from key rules and norms, such as those prohibiting interference in other countries’ internal affairs. As a result, the Global South now sees this US-led order of “international law” as “powerful against the powerless, but powerless against the powerful”. This is why, the author argues, the UN appears to be in irreversible decline and increasingly marginalized in international affairs. The author concludes, “Though the details are impossible to know, a fundamental global geopolitical rebalancing now appears all but inevitable. The specter of a sustained clash between the West and its rivals – especially China, Russia, and the Islamic world – looms large.”
Energy Transition & Technology News
A surge in clean power generation will reduce carbon emissions in China next year and could put the world’s biggest polluter on a path to sustained declines, writes Bloomberg. Installations of solar, wind, nuclear and hydro capacity this year should exceed the electricity demand increase, according to the Centre for Research on Energy and Clean Air, which will leave China less reliant on coal and the emissions that go with it.
NuScale, the first and only company to have its SMR reactor design approved by the Nuclear Regulatory Commission in the US, has seen its deal to build a 462 megawatt facility in Idaho canceled, writes Bloomberg. The project had not secured enough buyers of its planned output to continue. Primary reason is that its estimated cost of power was hiked by 53% to $89 per megawatt-hour earlier this year – before the US Fed further raised rates making a further increase in the NuScale power price likely. Secondary reason is risk. NuScale was originally supposed to have a 12-reactor project up and running in Utah by 2023. That project has become a six-reactor design set to begin operations in 2029.
Japan and South Korea will build a supply chain for hydrogen and ammonia together, writes Nikkei. The leaders of the two countries will announce the Hydrogen Ammonia Global Value Chain concept when they visit Stanford University in California together on November 17 for the Asia-Pacific Economic Cooperation forum summit meeting. The two countries will work together to enhance their ability to negotiate prices and ensure stable procurement of the two fuels. Government-affiliated financial institutions, meanwhile, will assist Japanese and South Korean companies in raising funds for joint investments in hydrogen and ammonia production projects outside their home countries, such as the Middle East and the U.S.
ExxonMobil aims to begin lithium production in Arkansas by 2026, writes Reuters. EPM reported on the company’s plan in lithium earlier. It is about leveraging its capability in geology, drilling and fluids management. It wants to produce lithium-rich brine, first in Arkansas, but thereafter the world over, and filter the lithium from the brine, before reinjecting back into the well.
Climate Politics
The UK is planning to introduce levies on imported carbon-intensive goods from countries with weaker climate regulations from 2026, mirroring CBAM being introduced by the EU, writes the Financial Times. The objective is to protect domestic industries as they decarbonize, and avoid the risk of the UK becoming a dumping ground for carbon-intensive products facing levies by the EU.
The Electrification of Transport
Volvo has released the EM90, its first-ever minivan, with a fully electric drivetrain, writes Autoevolution. It is powered by an electric motor mounted on the rear axle and develops 268 horsepower (272 PS) allowing the heavy vehicle (tipping the scales at 2,763 kilograms) accelerate from 0 to 62 mph (0 to 100 kph) in 8.3 seconds. A CATL-sourced 116-kWh battery pack stores enough energy for a range of 459 miles (738 kilometers), according to the CLTC (China Light-Duty Vehicle Testing Cycle). It takes 30 minutes for the unit to charge from 10 to 80%. The model is also equipped with the hardware necessary for bi-directional charging. Therefore, the battery can be used to charge other electric cars, for instance, or appliances. The Volvo EM90 is first coming to China, where it is already available for pre-order with a starting price of 818,000 yuan, the equivalent of $113,740 at the current exchange rates. Deliveries are set to commence before the end of the year.
The Global Energy Crisis
Germany has announced on a massive relief package including tax cuts on electricity for the manufacturing sector, writes Le Monde. In 2024 and 2025, electricity tax will be slashed from the current 1.537 cents per kilowatt to the European Union minimum of 0.05 cents per kilowatt for the manufacturing sector. The lowered tax could be extended for a further three years, said the government in a statement. The most energy-intensive companies most vulnerable to international competition will also have costs related to their emissions trading reimbursed under the package. In the coming year alone, the relief will reach up to €12 billion," said Chancellor Olaf Scholz in a statement. However, Peter Adrian, the head of Germany's association of chambers of industry and commerce, called the package "overdue" while saying it was "doubtful if the package will be enough to ensure competitive electricity prices for the entire industry."
Other
Canadian emissions monitoring company GHGSat on Saturday launched a satellite, named Vanguard, aimed at detecting carbon dioxide emissions from individual facilities like coal plants and steel mills from space, writes Reuters. Space-age technology is increasingly being used to hold polluting industries accountable for their contributions to climate change. GHGSat's data is available for sale to industrial emitters who want to reduce their emissions, as well as to governments and scientists.