Energy, (Geo) Politics & Money - 2024 March 12
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 look at:
The detailed review of the differences between OPEC and IEA oil demand outlooks
The U.S. average crude production of 12.9 million barrels per day over 2023, which makes it the world’s top producer for the 6th year in a row
The rising tensions between the U.S. and Israel over the War on Gaza; where EPM notes that our assessment of likely U.S. policy targets immediately following October 7th (“that the U.S. will use event to pressure Netanyahu to align with the U.S. on the Pivot Asia and related Abraham Accords, or leave to make way for politicians who will”) is now the consensus view as to U.S. policy
Israel’s continued pressure on Hezbollah in Lebanon; where EPM explains why this runs counter to U.S. interests, and is therefore likely to be one of the reasons for Biden’s frustrations with Netanyahu
The “shifting in momentum” in Russia’s favor in the Ukraine War, according to U.S. intelligence agencies
The overcapacity in the market for solar power panels, which should be good news for the energy transition, but isn’t as much due to the protectionist tendencies in the U.S. and EU, and continued lacking of investment in the grid to enable it to absorb additional solar power
The launch of China’s smartphone making company Xiaomi own EV (while Apple decided to pull out
The call by the boss of Mercedes-Benz to lower tariffs on electric cars imported from China into the EU; where EPM explains why he I likely to have taken this contrarian position
The growing scholarly challenge to the idea that an ESG focus helps companies to perform financially
Photo by @alexeckermann at https://unsplash.com/
General Energy News
IEA AND OPEC OIL GROWTH DEMAND PREDICTIONS VARY GREATLY
Yesterday, in our review of the Aramco oil demand outlook for 2024 and 2025, we implicitly noted the big difference between the OPEC and IEA outlooks, as we said Aramco is significantly below OPEC but quite close to the IEA. Today, Reuters reviews the differences between OPEC and IEA in more detail. They are further apart than they have been for at least 16 years in their views on fuel use, it says. The IEA predicted demand will rise by 1.22 million barrels per day (bpd) in 2024, while OPEC expected 2.25 million bpd. The difference is about 1% of world demand. OPEC and the IEA also disagree over the medium term. The IEA expects oil demand to peak by 2030 as the world switches to cleaner fuels. OPEC dismisses that view.
U.S. LEADS GLOBAL OIL PRODUCTION FOR SIXTH STRAIGHT YEAR
U.S. crude oil production lead global oil production for a sixth straight year, with a record breaking average production of 12.9 million barrels per day (bpd), the Energy Information Administration (EIA) said according to Reuters. In December, U.S. crude oil production hit a new monthly record high of over 13.3 million bpd, the agency said.
Geopolitics
U.S. ISRAELI TENSIONS RISE OVER THE WAR ON GAZA
Tensions between the U.S. and Israel over the War on Gaza are rising to boiling point, says Bloomberg. The almost-daily phone calls stopped months ago, it says. Now the two leaders bicker publicly. Late last week, president Biden demanded the Israeli leader “pay more attention to the innocent lives being lost,” warning that “he is hurting Israel more than helping Israel.” Netanyahu fired back the next day, in an interview where he said “He’s [Biden] wrong on both counts”. The U.S. invitation to Netanyahu adversary Benny Gantz last week, and Biden’s “hot mic” moment where he suggested Netanyahu would be called to a meeting for stern talking to, added to the tensions. People close to Netanyahu argue that U.S. policy is now aimed at separating the prime minister from his electorate in the hope of causing a political crisis in Israel that will lead to a more moderate government without Netanyahu and his far-right coalition partners. EPM notes that the latter assessment is in fact what we said in the very first days following October 7th regarding likely U.S. policy targets in response to that event.
We at EPM believe, among the things frustrating the Biden administration is Israel’s behavior toward Lebanon. The Financial Times reports that Israel has launched a new round of air strikes near the north-eastern Lebanese city of Baalbek, deep inside Lebanon. A similar attack occurred two weeks ago. The target is Hizbollah sites, but it is hard if not impossible to make the case this is a defensive move, in the EPM view. The targets are over 100 kilometers away from the Israel – Lebanon border, and two weeks ago focus on air defense systems. In other words, these attacks aim to degrade Hezbollah’s ability to defend itself against Israel. That is, let’s be honest, an act of aggression on the Israeli side. The reason we say this is likely to frustrate the Biden administration is that it has leaked classified defense assessments of a possible war between Israel and Hezbollah. The Washington Post wrote at the beginning of 2024 already that American intelligence assessments found that it would be difficult for Israel to succeed in such a war against, amid ongoing fighting in Gaza. In other words, the U.S. realizes it would be dragged into this war on the side of Israel. The U.S. sees this as contrary to its objectives. This is the meaning of the Washington Post statement that “U.S. officials are concerned that Israeli Prime Minister Benjamin Netanyahu may see an expanded fight in Lebanon as key to his political survival amid domestic criticism of his government’s failure to prevent Hamas’s Oct. 7 attack”.
WAR IN UKRAINE - MOMENTUM FAVOURS MOSCOW
As to the War in Ukraine, there momentum is shifting in Moscow’s favor, U.S. intelligence agencies told senators, according to Bloomberg. Moscow has made continual, incremental battlefield gains since late 2023 and benefits from uncertainties about the future of military assistance from the U.S. and allies. Central Intelligence Agency Director William Burns testified that “Ukraine is likely to lose ground — and likely significant ground — in 2024.” He said Russia is interested in the “theater of negotiations” over ending the war, he said, and wasn’t ready to make significant compromises to do so.
Energy Transition & Technology News
GROWING TURMOIL IN THE GLOBAL SOLAR PANEL MARKET
An opinion piece over at Bloomberg looks at the situation in the world of solar panels manufacturing. A “tidal wave of investment has swelled to the point that it is threatening to overwhelm the global industry”, it says. And amid the onslaught of cheap Chinese-made modules, overseas manufacturers have either walled themselves off behind tariff barriers (as in India and the U.S.) or resigned themselves to extinction, as in Europe. But now, even the Chinese companies blamed for the current glut are panicking, it says. The slump in prices is so drastic that there is now “no profit across the entire supply chain,” Chinese solar panel executives say, who are calling upon Beijing to introduce bidding rules to prevent low-quality, even-lower-cost products being put onto the market. From the perspective of the energy transition, this wave of supply should be good news. But it isn’t as much due to the tariff-based responses in key demand markets such as the U.S. and EU. Another continuing challenge is with the grid, that in most countries is still not seeing the investment that is needed to enable it to absorb all the additional solar capacity enabled by the Chinese panel manufacturers.
The Electrification of Transport
XIAOMI TO START EV DELIVERIES THIS MONTH
Where Apple pulled out, China’s smartphone making company Xiaomi is rushing on with its EV, writes Reuters. It will start deliveries of its first electric vehicle (EV) model SU7 this month. At the unveiling of the Speed Ultra 7 (SU7) sedan in December, Chief Executive Lei Jun said Xiaomi plans to become one of the world's top five automakers. The SU7, Lei touted, has "super electric motor" technology capable of delivering acceleration speeds faster than Tesla and Porsche's EVs. Analysts say the car's shared operating system with Xiaomi's popular phones and other electronic devices will appeal to the company's existing customers.
MERCEDES CALLS ON THE EU TO LOWER TARIFFS ON CHINESE EVs
The boss of Mercedes-Benz has called on Brussels to lower tariffs on electric cars imported from China, just as the European Commission is considering raising import duties amid a probe into Beijing’s subsidies for its car industry, writes the Financial Times. Increased competition from China would help Europe’s carmakers produce better cars in the long run, chief executive Ola Källenius said, adding that protectionism is “going the wrong way”. “Don’t raise tariffs. I’m a contrarian, I think go the other way around: take the tariffs that we have and reduce them,” he told the Financial Times. Chinese companies looking to export to Europe was a “natural progression of competition and it needs to be met with better product, better technology, more agility,” he added. “That is the market economy. Let competition play out.” EPM notes that the MB comments are likely to do with the fact that, one, MB has big interests in China, which would likely end up in the crosshairs of Beijing if and when the EU increases tariffs on Chinese EVs; and two, the Chinese EVs are primarily targeting the lower and middle segments of personal transport, not MB’s higher segment.
Other
FURTHER ESG RESEARCH CHALLENGES SUPPOSED INITIAL BENEFITS
A growing number of scholars say research showing ESG helps companies perform better financially relies on shaky evidence, writes Bloomberg. Five years ago, academics at Harvard University, the London Business School and other institutions were churning out research asserting that doing good for people and the planet was also good for company profits. The papers have been quoted in U.S. Senate testimony, cited by regulators crafting corporate climate rules and invoked by Wall Street firms marketing funds valued at billions of dollars. Today, researchers from Boston University, Columbia University, the University of California at Berkeley, the Massachusetts Institute of Technology and others, are challenging these results, arguing no statistical relationship between ESG and profitability or stock performance can be found.