Energy, (Geo) Politics & Money
In this roundup, we take a deep dive & look at the global trend towards regionalization of the world economy (as EPM has predicted for sometime)
Welcome to EPM, where we take our daily look at the interconnected worlds of Energy, (Geo)Politics and Money. Chosen 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.
One of the drivers behind this trend towards regionalization of the global economy is geopolitics, and this was on display again as US Treasury Secretary Janet Yellen visited China, and warned it that the US “will not accept Chinese imports decimating new industries”. EPM believes this indicates a US geopolitical decision to ensure resilient supply chains, independent of its major geostrategic competitors. And as such, a US decision to drive regionalization of the global economy via legislation.
But another driver is at least as interesting, and that is the development of China’s capabilities. This has on display in the world of mobile phones. Huawei earlier presented its Mate Pro 60 which features Chinese-made, top-of-the-line semiconductors. Now it has also presented its own mobile-operating system HarmonyOS Next, which is designed to function as a standalone alternative to Apple’s iOS and Google’s Android. This means China is developing comprehensive ecosystems that can function as alternatives to those coming from the West, and EPM has little doubt the Chinese alternative will be very attractive to countries such as Russia, Iran and other countries attempting to break free from the US “rules based international order”.
Photo by Wolfgang Weiser on Unsplash
Furthermore, we look at:
The decline in oil prices during trading early Monday
Current supply disruptions that could potentially push crude oil above $100 over the summer period
India’s oil demand growth for the past fiscal year
The development of “CCS as a service” in the US, enabled by the IRA
The announcement by Didi and GAC from China that their JV will begin mass production of L4 autonomous vehicles next year to support the launch of robo-taxis
The decisions from Europe’s top human rights court this week in a trio of climate change cases
General Energy News
OIL REMAINS STABLE WHILE IRAN CONTEMPLATES ISRAEL’S ATTACK
A week on from Israel’s attack on the Iranian embassy in Damascus, Syria, and still no response from Iran. As a result, the risk premium in oil prices has started to decline again, leading oil prices to slide more than $1 a barrel during trading on Monday morning, with Brent falling below $90, writes Reuters. Brent crude futures dropped $1.48, or 1.6%, to $89.69 a barrel by 0615 GMT. U.S. West Texas Intermediate crude was at $85.54 a barrel, down $1.37, or 1.5%. This is another instance where EPM has been able accurately forecast shorter-term geopolitical events (the Iranian response to the mentioned attack), and thereby the direction of oil prices movements.
POSSIBLE DISRUPTIONS TO CRUDE OIL SUPPLY
As to the medium term, Bloomberg brings into focus a number of disruptions on the supply side. Due to sanctions, Russian crude is already limited in where it can go. Venezuelan crude saw some sanctions relief last year, but it is likely these will end by year end. OPEC+ seems to be sticking with its production cuts for longer than anticipated. The Houthi’s threat to Red Sea shipping has increased shipping times for Middle Eastern crudes heading West. And most recently, Mexico decided to reduce its oil exports (earlier this week Pemex canceled contracts to supply its flagship Maya crude oil to refiners in the US, Europe and Asia, Bloomberg reported.) The resulting supply crunch is supporting an oil rally ahead of the US summer driving season, and could push Brent crude to $100 for the first time in almost two years.
INDIA’S OIL DEMAND
India’s oil demand for the 2023 financial year, ending in March, hit a record high of 233.276 million tons (4.67 mbpd) compared to 223.021 million tons (4.48 mbpd) a year earlier, writes Reuters. Sales of diesel were up 4.4%, and sales of gasoline were up 6.4% for the fiscal year. Sales of bitumen were up 9.9% for the fiscal year. The only outlier was fuel oil, which fell 6.3% for the fiscal year.
Macroeconomics
HUAWEI DEBUTS A PROPRIETARY MOBILE PHONE OS
Nikkei Asia has reviewed Huawei’s own mobile-operating system HarmonyOS Next. Development of the original HarmonyOS, known as "hongmeng" in Chinese, started as early as 2015. Like Android, HarmonyOS is built on the Linux open-source operating system. HarmonyOS Next, the newest version of this proprietary operating system, was unveiled in January 2024, and marked a significant departure from the previous Android-compatible versions, as it is designed to enable Huawei to establish its own self-sufficient ecosystem of mobile applications like those built around iOS and Android. A beta version of the new operating system will be released to developers in the second quarter of 2024. A version for consumers will be released in the fourth quarter. Huawei has been collaborating with domestic universities since 2021 to train coders in its system. There are currently just over 380,000 HarmonyOS-certified developers. Huawei pledged to train 100,000 developers a month through online videos and other means.
A few key points in the article EPM wishes to highlight. First, what this development says about Huawei’s capabilities. Nikkei Asia notes that before Huawei, other tech giants tried to build operating systems to rival Android and iOS, but failed. These included Microsoft's Windows Phone in partnership with Nokia, Samsung's Tizen developed with Intel, and Alibaba's YunOS. Second, the independent operating system effectively means Huawei is now close to achieving full autonomy, from chips, to operating systems, phone design, and applications. Third, this has led China to established of its own, independent ecosystem. Huawei estimates the creation of apps for HarmonyOS will generate at least 3 million jobs over coming years. In other words, Huawei’s achievements indicate that the global economy will indeed break apart into regional economies, with consumers in the Western bloc using iPhone or Android, and consumers in the China (and likely to include Russia) associated markets becoming Huawei-based.
Geopolitics
US WARNS CHINA NOT TO DUMP CHEAP GREEN ENERGY GOODS
On her second trip to China, US Treasury Secretary Janet Yellen warned China that the US will not accept Chinese imports decimating new industries, writes Reuters. The US focus is in particular on China's fast-growing exports of electric vehicles, batteries, solar panels and other green-energy goods. EPM has elected to report this under Geopolitics, rather than under Macroeconomics, because in our view, the whole narrative around Chinese “subsidies” and “dumping” is simply a ruse, comprised of artificial justifications for US geopolitical decisions to ensure resilient supply chains, independent of its major geostrategic competitors. After all, did the US not institute massive subsidies for these industries via the IRA? We are not here to issues value judgements, but EPM wants to be clear as to where we believe the global economy is currently heading: regionalization.
Energy Transition & Technology News
US HYDROCARBON PRODUCERS RACE TO IMPLEMENT FOR CCS
CNBC writes that Chevron, ExxonMobil, Baker Hughes and SLB are racing to scale up carbon capture and storage (CCS) across the U.S. The technology typically uses chemical absorption to capture carbon dioxide emitted from the chimney of an industrial plant. The emissions are condensed into a fluid for transport, normally through a pipeline, and are stored thousands of feet below ground in depleted oil wells or geological formations such as saltwater reservoirs. The oil companies are proposing “CCS as a service” to heavy industries such as cement and steel that have few good options right now to reduce their emissions. In the U.S., investment in carbon management technologies more than doubled to $1.2 billion in 2023, the first full year after the passage of the Inflation Reduction Act. The law supports the industry with tax credits of up to $85 per ton of emissions captured and stored.
On the topic of CCS, Hydrocarbon Processing writes that Chevron was the lead investor in ION Clean Energy’s Series A financing round, which raised $45 million. ION is a Boulder, Colorado, based technology company that provides post-combustion point-source capture technology. ION says its amine absorption technology is capable of very high capture efficiency with low energy use while simultaneously being exceptionally resistant to degradation.
The Electrification of Transport
CHINA TO MANUFACTURE ROBOT DRIVEN TAXIS
Chinese ride-hailing giant Didi has said its self-driving unit's joint venture with EV maker GAC Aion has received a license to mass produce electric robotaxis in the country, and that it plans to sell the cars from next year, writes Reuters. "The joint venture has positioned us as a pioneer in the autonomous driving industry, enabling us to lead the creation of an early L4 commercial route and the world's initial closed-loop business model for L4 development that encompasses technology, smart manufacturing and operations," said Zhang Xiong, deputy general manager of GAC Aion.
Other
The Financial Times writes that Europe’s top human rights court will rule on a trio of climate change cases this week brought by individuals from a range of ages and backgrounds across the continent, which could potentially prompt governments to rethink their efforts to reduce emissions. The most prominent case is led by Portuguese nationals, aged from the early teens to mid-20s, bringing the claim that the 32 governments, including 27 EU member states plus Norway, Turkey, the UK and Switzerland, failed to adequately cut the emissions behind global warming. The court will on Tuesday also decide on a case brought by a group of senior Swiss women, mainly in their 70s, who claim that Switzerland’s inadequate climate policies violate their right to life and health, arguing their age and gender put them in a high-risk category for temperature-related mortality. The third case involves a former French mayor of the Grande-Synthe municipality, a low-lying north-eastern coastal area vulnerable to sea rise. Each case has argued before the Grand Chamber in Strasbourg that the governments involved are breaching human rights by failing to protect the applicants against the damage from climate change.