Energy, (Geo) Politics & Money - 2024-03-19
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:
Russia plans to halt Ukraine’s ability to attack its energy infrastructure
A momentous moment in monetary policy history, as Japan raises its benchmark rate for the first time in 17 years, and out of negative territory for the first time in 8 years
China's foreign affairs priorities for the year 2024, which are "conducting proactive diplomacy," "initiating orderly multipolarity" and "stabilizing major power relations", and what this effectively means
The call by the leaders of the world’s largest oil companies to not rush the energy transition
TerraPower’s plan to start building the first of a new generation of nuclear power plants in the U.S. in June, featuring a reactor cooled with liquid sodium rather than water; where EPM explains why this technology could potentially cut nuclear energy costs by half
Why the EU’s CBAM is likely to raise the price of energy in the EU
China’s state policy to establish a fully made-in-China supply chain for EVs; and why some in Europe believe the EU should develop a similar policy
The BYD EVs that has American car manufacturers spooked
Photo by Lukáš Lehotský
General Energy News
RUSSIAN TO IMPROVE AIR DEFENCES FOR ENERGY INFRASTRUCTURE
Russia will take action to halt Ukraine’s ability to attack its energy infrastructure, writes Reuters. A Russian energy ministry official told a parliament meeting on Tuesday there were plans to defend oil and gas facilities with missile systems. "We are jointly working, including with colleagues from the Russian National Guard, to cover objects, on installing, accordingly, protection systems such as Pantsir," said Artyom Verkhov, director of energy ministry's department for gas industry development. Ukrainian drone attacks in the first quarter of 2024 lowered Russian refining capacity by about 4.6 million tons (370,500 barrels per day), or some 7% of the total.
Macroeconomics
BANK OF JAPAN TO RAISE INTEREST FOR FIRST TIME IN 17 YEARS
The Bank of Japan has ended 8 years of negative interest rates, writes Nikkei Asia, as the BOJ decided to guide overnight lending rates to 0%-0.1%. It is the first time in 17 years the bank has chosen to raise rates. The shift comes after the nation's largest employers agreed to a 5.28% increase in wages with major labor unions this month, marking the biggest pay increase in 33 years. The Japanese central bank's ultraeasy monetary policy had contributed to a rapid slide in the yen that through inflation hit Japanese households hard.
NOTE: Bloomberg carries an explainer, looking at what the BOJ decision is likely to mean for the Japanese economy, government finances, banking sector profits, and households.
Geopolitics
CHINA’S GEOPOLITICAL STRATEGY - FOSTERING MULTI-POLARITY
Nikkei Asia has an analysis of China's foreign affairs priorities for the year 2024, which are "conducting proactive diplomacy," "initiating orderly multipolarity" and "stabilizing major power relations." "Initiating orderly multipolarity" reflects China's aim to further strengthen ties with the Global South to create a robust alternative to the so-called liberal international order led by the U.S. "Conducting proactive diplomacy" in turn is the means to meet the ends of "initiating orderly multipolarity." It signals that Beijing will continue to try to reshape the global governance agenda both at the bilateral level and at the multilateral level to counter U.S. influence. "Stabilizing major power relations," meanwhile, is about maintaining good relations with Russia and encouraging the European Union to further pursue strategic autonomy. Beijing sees such efforts as critical to breaking what it perceives as U.S. containment efforts that are expected to persist for many years. China sees reconciliation with Europe as difficult, yet necessary to ease strategic pressure from the U.S. and to tackle domestic economic woes.
Energy Transition & Technology News
ENERGY LEADERS ARGUE - LOWER EXPECTATIONS FOR ENERGY TRANSITION
At CERAWeek top oil executives took to the stage to vocally oppose calls for a quick move away from fossil fuels, saying society would pay a steep cost to replace oil and gas, writes Reuters. "We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately" to reflect demand, Amin Nasser, CEO of Saudi Aramco, the world's largest oil producer, said. Shell's Wael Sawan pointed to government bureaucracy in Europe as slowing needed development. Petrobras CEO Jean Paul Prates said caution should overrule haste. ExxonMobil CEO Darren Woods also said regulations governing clean fuels have still not been resolved. "You're hearing some very pragmatic views up here," said Meg O'Neill, CEO of Woodside Energy, who rejected what she called simplistic views that the transition to cleaner fuels can "happen at an unrealistic pace."
Based on CERAWeek so far, Bloomberg concludes that the era of Houston as the self-declared “energy transition capital of the world” is now over. It says the oil executives are not arguing against the energy transition, but merely pointing out the fact that it is slowing down. “One of the challenges here is that while society wants to see emissions reduced, nobody wants to pay for it”, ExxonMobil’s Woods said.
TERRAPOWER TO BUILD NEW DESIGN NUKE POWER PLANTS IN USA
TerraPower, a company founded by Bill Gates, plans to start building the first of a new generation of nuclear power plants in the U.S. in June, featuring a reactor cooled with liquid sodium rather than water, writes the Financial Times. The company says its Natrium-branded reactors could be built for about half the cost of standard water-cooled reactors, which have been the cornerstone of the nuclear energy industry since the mid-20th century. TerraPower plans to bring the plant online in 2030. Sodium-cooled reactors operate at lower pressures, which requires fewer safety systems. That reduces problems that could go wrong with the plant and reduces costs because they can be built with simpler materials while maintaining safety. The reactor is developed in partnership with GE Hitachi Nuclear Energy, and is slightly larger than most SMRs with a power capacity of 345MWe. It also contains a molten salt-based energy storage system, which can boost the system’s output to 500Mwe for more than five and a half hours when required.
Climate Politics
EURO ENERGY COMPANIES WARN CABM TO INCREASE ENERGY COSTS
The EU’s Carbon Border Adjustment Mechanism (CBAM), which takes effect in 2026, will lead to increased CO₂ emissions in Europe and cause a jump in prices for consumers in the bloc, the energy industry has warned., according to the Financial Times. Under the CBAM, countries that want to export to the EU must from 2026 show that they have an equivalent carbon price in place, or pay a tax to make up the difference. A specific issue arises with electricity exports, the energy industry says, because it is not possible to separate out power generated by green methods, like wind and solar, from power generated by traditional gas-fired stations. This will raise the cost of exporting green electricity from – say – the UK and the EU, and thus make it less competitive on the EU market.
The Electrification of Transport
CHINA TO BUILD IN COUNTRY INDEPENDENT EV SUPPLY CHAIN The Chinese government plans to tap all the policy resources available to create a made-in-China electric vehicle supply chain, writes Nikkei Asia. Business executives and senior government officials involved in EV policy announced plans that would support the growth of the industry at the annual China EV 100 Forum held in Beijing over the weekend. Beijing will likely instruct the three automakers to pour more money into development, even if their profits take a hit. The initiative is expected to include technology that incorporates semiconductors.
RENAULT BOSS ARGUES EUROPE SHOULD DO THE SAME
The boss of Renault has called for a similar, European wide effort to see off fierce competition from China, writes the Financial Times. Luca de Meo advocates a cross-border approach to developing and funding the industry, instead of simply setting deadlines for phasing out petrol and diesel cars. This would include pooling spending on consumer subsidies and creating “green” economic zones with tax breaks on hires at factories. The Renault boss made the call alongside a manifesto sent to European politicians. This recommended investment in regional software development and semiconductors, and a less prescriptive approach to cutting European greenhouse gas emissions.
CHINESE EVs CAUSE US AUTO GIANTS NIGHTMARES
Meanwhile, the prospect of cheap Chinese-made EVs is already causing sleepless nights in Detroit, the U.S. automobile capital, writes Bloomberg. The primary threat comes from cars such as BYD Co.’s Seagull hatchback, which features angular styling, a two-tone dashboard shaped like a seagull’s wing and six airbags. There’s even a 10-inch rotating touchscreen for its infotainment system. BYD’s company slogan, “Build Your Dreams,” is embossed on the rear of the vehicle. And, it costs less than $10,000. That undercuts the average price of an American EV by more than $50,000 (and is only a little more than a high-end Vespa scooter). BYD’s Atto 3, a curvaceous five-passenger SUV designed by a team led by former Audi and Lamborghini design chief Wolfgang Egger, could be even more imposing. It goes for $31,000, half of the average EV in America. Auto executives and politicians in Washington are sounding the alarm about a potential existential threat to American car brands—and the millions of workers employed building them. The Alliance for American Manufacturing, a trade group backed by major manufacturers and labor unions, is calling for new protectionist trade measures against China to prevent an “extinction-level event.”