Energy, Geo-politics & Money - 2023.11.16
In this roundup, we take a closer look at the Biden – Xi meeting. Whatever was discussed and agreed the meeting was made irrelevant when US president Biden, at a press conference afterwards, again called Chinese president Xi a “dictator”. EPM is suspicious that this was a mistake by the US president, for the simple reason that he said it before, at which time it really infuriated China. As such, if the US wanted to ensure not to infuriate China again, then as part of their close choreography of the meeting and the subsequent press conference, the US would have ensured reporters do not open the subject again, and they would have ensured Biden was fully prepped to deal with the subject in a more diplomatically appropriate manner if for an unforeseen reason it did come again. That, to us, is so obvious, that in our view Biden’s comment was deliberate and organized in such a way to maintain “plausible deniability” (and avoid being seen as soft on China).
Why would the US choose to infuriate China? For the Chinese, Biden’s remark will feel like a slap in the face – after all, their president travelled to meet Biden, in the US, only to be called a dictator. China will this time not publicly respond in any significant manner, EPM believes, as this would only add insult to injury, from its perspective. But obviously, China will see in Biden’s remark, and the timing of it, further confirmation of its assessment that the US is not an honest partner, that it is not interested in a real relationship with China, that it instead is focused on containing China economically and militarily, bullying China into submission such that the US can remain the sole hegemon. In short, therefore, EPM sees Biden’s remark as intentional, designed to infuriate the Chinese, with the hope China will respond rashly, that the US can the use as an excuse to rally its allies around itself against China and further tighten the economic and military thumbscrews. In sum, one can expect continued escalation!
Furthermore, we look at:
Why Energy Aspects expects Saudi Arabia to maintain its voluntary oil production cut into 2024
What the lower-than-expected US inflation numbers are likely to mean for the Fed’s monetary policy
The disappointing progress on carbon capture, with less technological innovation, project launches and capital funding than assumed just 18 months ago
Siemens Energy’s full-year net loss of €4.6bn, driven by its wind turbine business, and its expectation that this business will not be returning to profit until 2026
Why the current situation in the EV market is really the “darkest before the dawn”
General Energy News
Energy Aspects expects Saudi Arabia to maintain its voluntary oil production cut into 2024, writes Reuters. Current oil prices are not low enough to push the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, to deepen supply cuts in 2024, it said, adding that market fundamentals are not weak enough to warrant that. Despite the current OPEC+ cuts, however, Brent prices slipped just under $82 a barrel on Wednesday, depressed by concerns about economic growth and demand. Energy Aspects concludes from this that if Saudi Arabia wants to see higher prices, it will need to go it alone.
Macroeconomics
The US consumer price index rose 3.2% from a year earlier, after rising 3.7% in September, writes Reuters. Core inflation, which excludes energy and food, rose 4% from a year earlier, the slowest pace in more than two years, the report showed. While still well above the Fed's 2% target, the trend downward may give Fed policymakers more confidence that policy is tight enough to do the job, it says.
Geopolitics
US President Joe Biden and Chinese leader Xi Jinping met on Wednesday. Reuters writes the two had a "substantial" discussion on Taiwan, with Xi telling Biden that Taiwan was the biggest, most dangerous issue facing the two superpowers. The Chinese leader said that China had no plans for military action against Taiwan in coming years, but also discussed conditions under which force could be used, according to a US official. The two leaders also discussed artificial intelligence (AI) and agreed that AI was used in military or nuclear operations, it created real risks. Biden and Xi further agreed to cooperate on addressing the source of the opioid fentanyl, a leading cause of drug overdoses in the United States, as well as to establish a hotline between themselves.
Nikkei writes about how China’s media report on the meeting. According to a Xinhua News Agency, Xi said Taiwan is the "most important and sensitive" issue in U.S.-China relations and that Washington should embody its stance of not supporting Taiwan independence in concrete actions, stop arming Taiwan and support China's peaceful reunification. China will "eventually be reunified and inevitably be reunified," Xi said. On other issues, the two leaders agreed to establish an intergovernmental dialogue on artificial intelligence and a working group to carry out anti-drug cooperation. They also agreed to restore high-level communication between their militaries "on the basis of equality and respect," and resume Sino-US defense cooperation, Xinhua said.
Bloomberg writes about how choreographed the meeting was. Biden and Xi began with a meeting with close advisers. Treasury Secretary Janet Yellen, Secretary of State Antony Blinken and Commerce Secretary Gina Raimondo attended the talks, with Chinese Finance Minister Lan Fo’an, Commerce Minister Wang Wentao and Foreign Minister Wang Yi among the Chinese delegation. Later, a smaller group met for a working lunch. The two leaders concluded their four-hour summit saying the discussions made “real progress”, Bloomberg says.
But, that was until US president Biden went to speak to reporters. Because there, Nikkei and Bloomberg and Reuters report, Biden again called Xi a “dictator”. "Look, he is. He's a dictator in the sense that he's a guy who runs a country that is a communist country that's based on a form of government totally different than ours," Biden said. EPM reflected deeply on this. Most commentators brush off Biden’s remarks as a “gaffe’, an “off-the-cuff remark”. We do not accept the explanation that this was a mistake by the US president, for the simple reason that he said this before, at which time it really infuriated China. As such, if the US wanted not to infuriate China again, then as part of their close choreography of the meeting and the subsequent press conference, they would have ensured reporters do not open the subject again, and they would have ensured Biden was fully prepped to deal with the subject in a more diplomatically appropriate manner if for an unforeseen reason it did come again. That, to us, is so obvious, that in our view Biden’s comment must have been deliberate, organized in such a way to maintain “plausible deniability”.
For the Chinese, Biden’s remark will feel like a slap in the face – after all, their president travelled to meet Biden, in the US, only to be called a dictator. China will this time not publicly respond in any significant manner, EPM believes, as this would only add insult to injury, from its perspective. But obviously, China will see in Biden’s remark, and the timing of it, further confirmation of its assessment that the US is not an honest partner, that it is not interested in a real relationship with China, that it instead is focused on containing China economically and militarily, bullying China into submission such that the US can remain the sole hegemon. In short, therefore, we see the Biden remark as intentional, designed to infuriate the Chinese, with the hope that China will now do something rash, that the US can the use as an excuse to rally its allies around itself against China and further tighten the economic and military thumbscrews on China.
Energy Transition & Technology News
According to the Energy Transitions Commission, whose members include senior representatives from BP, Bank of America and others, the cost of developing CCUS isn’t declining, and projects aren’t being developed at the expected pace, Bloomberg writes. At the same time, progress made toward getting the necessary financing for such projects has been “very disappointing” over the past 18 months
As if the bad news coming out of the wind energy sector was not enough yet (EPM provided a summary yesterday), the Financial Times writes that Siemens Energy reported a full-year net loss of €4.6bn on Wednesday, hours after agreeing a government-led rescue plan. The group said it was restructuring its wind turbine business, Siemens Gamesa, after confirming steep losses which it described as an “unexpected, serious setback”. Siemens Energy said it did not expect its wind business to return to profitability until 2026
The Electrification of Transport
Hyundai unveiled its first high-performance electric vehicle (EV), an N sport variant of its IONIQ 5 crossover SUV, writes Reuters. The N brand is the company's high-performance brand, akin to AMG for the Mercedes and the M lineup for the BMW. The South Korean automaker said that the IONIQ 5 N, which will be available at its dealers in March 2024, will be followed by more electrified N models in the future.
Most automotive chief executive officer can’t stand on a stage these days without downgrading some aspect of their EV rollout plans, says an opinion piece on Bloomberg. While sales are still growing at double-digit rates, expectations of a rapid switch away from conventional drive trains have taken a hit. The explanation is that the “early adopters” in the market, those people who like to try out something new, have by now pretty much all done so. The next segment of automotive consumers is the mainstream consumer, who is more pragmatic and will simply buy the car with the best perceived value for money. But, the author notes, the days that EVs can compete with ICEV on manufacturing cost are near, very near. In China, EVs have already reached price parity with conventional vehicles. Prices for cells in China are running well below the levels needed to build battery packs for less than $100 a kilowatt hour. In the US, the average battery car sold in September retailed for $50,683, barely above the $47,899 for the industry as a whole, a 5.8% premium, compared to 35% 12 months earlier. The other worries about range and charging infrastructure are similarly likely to diminish. The average range of new EVs is now 300 kilometers (186 miles) or more in developed markets. Globally, a public charging station is being installed for every 10 new EVs sold.