Energy, Geopolitics & Money -
EPM provides you with non-partisan, objective & neutral analyses of intersecting global developments in energy, business & geopolitics curated from leading global sources & resources.
2024.01.22
In this roundup, we look at:
The explosion (figuratively) in tanker rates, as the oil market is bracing for a weeks-long disruption to shipping in the southern Red Sea
Oil’s refusal to go up in price, as demand fears outweigh geopolitical insecurity
Russia leapfrogging Saudi Arabia to become China's top crude oil supplier in 2023
Mohammed El Arian’s pessimistic perspective on the outlook for the global economy in 2024
The assassination of 5 Iranian intelligence officials in Syria, which is another escalatory development, to which even Saudi Arabia and the UAE have responded by saying this leaves the Middle East on a very danger pathway toward hot war
A summary of energy related discussions at the World Economic Forum in Davos
Why Time Magazine believes the US should “weaponize” renewable energy
China’s proposed standards for the recycling of retired onshore wind turbines
Thailand’s discovery of lithium resources in the south of the country, which it believes is the world’s third largest deposit of the mineral critical for the energy transition
Why the CEO of MAN Trucks believes it is impossible for hydrogen to effectively compete with battery electric trucks
The electrification of aviation
Why, in the EPM view, reporting on Europe’s energy is mis-focused, and thereby underestimating the issue
ExxonMobil’s court case against its shareholders that want the company to focus more on reducing emissions
General Energy News
The oil market is bracing for a weeks-long disruption to shipping in the southern Red Sea, writes Bloomberg. Charters of tankers to haul crude and fuels — which for some vessels are arranged up to a month in advance — reveal growing numbers of the vessels are being hired for routes that will avoid the danger zone, according to shipowners, brokers and traders. That has helped pushed earnings on the so-called relatively large tankers that ship oil products from $35,000 a day to $60,000 a day over the past week.
Nevertheless, crude oil prices struggle to remain flat, even as a Ukrainian attack on Russia also knocked out of service an important Russian fuel export terminal, writes Reuters. Brent crude is around $78.50 a barrel on Monday morning, after settling down 54 cents on Friday.
March WTI contract is at $73.21 a barrel. According to Reuters, demand fears outweigh geopolitical insecurity.
Russia leapfrogged Saudi Arabia to become China's top crude oil supplier in 2023, writes Reuters. Russia shipped a record 107.02 million metric tons of crude oil to China last year, equivalent to 2.14 million barrels per day (bpd). Imports from Saudi Arabia, previously China's largest supplier, fell 1.8% to 85.96 million tons, as the Middle East oil giant lost market share to cheaper Russian crude.
Macroeconomics
The unexpected resilience of the global economy in 2023 has led many analysts to adopt an optimistic outlook for the upcoming year, writes Mohammed El Arian for Project Syndicate. But, he says, given the escalating crisis in the Middle East and persistent market volatility, the chances of a robust worldwide economic recovery appear slim. One would be hard-pressed to find a systemically significant economy poised for breakout growth in 2024, El Arian says. As China remains saddled with an economic model that yields diminishing returns, the authorities have acknowledged that its growth rate is constrained by domestic inefficiencies, pockets of excessive debt, increased global fragmentation, and the West’s weaponization of trade and investment. Europe, for its part, is unlikely to replicate last year’s unexpectedly strong performance, given especially the sluggishness of global manufacturing and Germany’s economic stagnation. As to the US, lower pandemic-era household savings and higher debt act as headwinds to America’s remarkably agile and resilient economy. Moreover, recent interest rate increases are likely to continue to constrain new household mortgages, companies navigating the mountain of corporate debt expected to mature in 2025, and highly leveraged non-bank institutions dealing with their losses.
Geopolitics
On Saturday, a rocket attack on a building in the Syrian capital of Damascus killed at least five people. Bloomberg writes the building served as a residence for Iranian military advisers in Syria. Two of those killed on Saturday were identified as the head of intelligence at the Quds Force of the Islamic Revolutionary Guard Corps. Israel’s Channel 12 says that the four-story building, in the Mezzeh neighborhood of Damascus, was Iran’s intelligence headquarters in Syria. The event has infuriated Iran further. For obvious reasons, it accuses Israel of being behind the attack. In the EPM view, this is another example of crossing the unwritten red lines in geopolitics. It follows Israel’s assassination of Sayyed Razi Mousavi, was responsible for coordinating the military alliance between Syria and Iran in Damascus. To put these acts in perspective, they are similar to a killing of the US military attaché at the United States embassy in Israel. Such a (hypothetical) event would clearly result in calls for war across the western world, which indicates how escalatory the assassinations of Iranian officials in Syria are, and how they bring the Middle East closer to all-out war between Israel and Iran.
Both Saudi Arabia and the United Arab Emirates have articulated fears that the current trajectory of events in the Middle East is very dangerous. Reuters writes that Saudi Arabia's foreign minister expressed concern that tensions in the Red Sea over Houthi strikes and US counterattacks could spiral out of control in the Middle East. "I mean, of course, we are very worried," Prince Faisal bin Farhan told CNN. "We are in a very difficult and dangerous time in the region, and that's why we are calling for de-escalation." Bloomberg meanwhile quotes to UAE’s ambassador to the United Nations Lana Nusseibeh as saying “If the objective is not to increase extremism and terrorism in our region, this would be described as the case study for how not to do it”.
Energy Transition & Technology News
The World Economic Forum published an “Everything you need to know about Energy at Davos”. It says progress on the energy transition is plateauing amid geopolitical volatility. The result has been an emphasis on security and sustainability, with equity suffering as a result. It lists all the reports issued and discussed during the most recent WEF meeting.
Even with the support of subsidies and tariffs, US solar manufacturers struggled to compete with the flood of cheap solar panels pouring out of China into the global market, writes Time Magazine. Behind China’s achievement, highly integrated supply chains, innovative manufacturing techniques, and consistent government support that aided the growth of China’s solar industry. As did its massive domestic market—China boasts nearly four times the installed solar capacity of the U.S., which is the world’s second-largest market. Time argues the US should not allow this situation to continue, and should “weaponize” renewable energy. Ending China’s dominant position in the global solar market is not possible. It benefits from a massive head start. However, the US should work to loosen China’s chokehold. The domestic clean energy manufacturing incentives in the Inflation Reduction Act are a start. The Biden Administration can also re-impose tariffs on Chinese-made solar components routed through Southeast Asian countries. Furthermore, it can pressure the European Union and other allies to take a stronger stand against Chinese solar companies’ anti-competitive behaviors and human rights violations. Finally, the Biden Administration should work with allies like India to strengthen their solar manufacturing capacity, taking advantage of lower labor costs.
China has issued its first set of proposed standards for recycling retired onshore wind turbines, writes the South China Morning Post. The proposed standards prioritise reuse and recycling of wind blades, while banning landfilling and burning. China is the world’s largest producer and user of both wind and solar power. A first wave of equipment decommissioning will gather momentum in coming years as hardware put in place in the early 2000s reaches its end of life. Wind turbines have a typical lifespan of 20 years, while solar panels can last 25 to 30 years.
Thai officials have reported the discovery of lithium deposits that they describe as the world's third-largest reserves of the key battery-making material for electric vehicles, writes Nikkei. Lithium deposits were found at two locations in the southern province of Phang-Nga. One location is estimated to have deposits of 14.8 million tonnes containing lithium while the other site is still being surveyed. This amount would place Thailand third behind Bolivia and Argentina based on known lithium deposits. The two South American nations contain 21 million tonnes and 20 million tonnes, respectively. The announcement has prompted skepticism, however. Social media posts by Thai experts pointed out that the ore quality could be low, and further research is needed to conclude whether it is suitable for commercial production.
The Electrification of Transport
Alexander Vlaskamp, CEO of German heavy truck maker MAN Truck & Bus, has told reporters that it is “impossible for hydrogen to effectively compete with battery electric trucks”, writes Electrec. “It’s one thing to have the technology and another thing for the technology to be viable,” Vlaskamp said. “Today you cannot buy hydrogen for less than 13 or 14 euros,” he says. “And it is not green. And when we have green hydrogen it will be needed for the heavy industry of steel, cement, or plastic.”
Bloomberg reports on Elysian Aircraft, a start-up working in partnership with Delft University of Technology, one of the world’s leading institutes for aerospace design. Their concept aircraft features a narrow fuselage with four seats in each row; large wings fitted with four turboprop engines apiece, wide enough that their tips would have to fold up on the ground; plus a reserve power system using low-emission fuel that could be switched on for emergencies. Such a plane, they argue, could fly for up to 800 kilometers (497 miles) on battery power. Charging should be possible in an average 30 minutes and maximum 45 minutes, which would be in line with most airlines’ targets to turn their planes around quickly. The price of aviation fuel would still need to double to make costs competitive with conventional jets, though.
Here is EPM’s perspective on the subject is as follows. Firstly, the cost of fossil-based energy must go up, if the energy transition is to move forward. So, if you believe that governments around the world are sincere in their efforts, than the economics of this particular battery-powered plane are not so bad. Secondly, to assess the potential of electrification of aviation, it is necessary to break that single bucket down into its constituent pieces. Certainly, a big piece is transatlantic flights. But there is also a piece for regional flights. Small planes big planes. Etc. The current realities of battery technology are such that we do not believe in electrification of long-distance, mass transport aviation. But there certainly could be cost-effective options for some of the other segments of the aviation industry.
The Global Energy Crisis
This month, a cold front swept across much of Europe and giant tankers that carry fuel through the Red Sea were rerouted to avoid escalating violence. That should have pushed gas prices higher. Instead, they just kept falling, notes Bloomberg. Even if it’s a step too far to give Europe the all-clear, it’s a strong sign that the worst of the nightmare that sent energy bills soaring and pushed inflation to multi-year highs is in the past., it says. In our EPM view, from the very beginning the reporting on Europe’s energy crisis was overly focused on the available of energy, mostly natural gas / LNG. That is one part of Europe’s energy crisis, the one it has managed well so far. The other part of the crisis is the price at which the alternative supplies have been procured. This leaves Europe’s energy prices structurally higher than in other parts of the world, which is an ongoing crisis by itself since it makes heavy industry uncompetitive on the global scene.
Other
Investors led by US activist investment firm Arjuna Capital and shareholder activist group Follow This are asking ExxonMobil to adopt tighter climate targets. ExxonMobil has now responded by taking them to court, writes Reuters. The shareholders want ExxonMobil to set so-called Scope 3 targets to reduce emissions produced by users of its products. ExxonMobil is the only one among the five Western oil majors which does not have such targets. ExxonMobil says the investors are "driven by an extreme agenda" and that their repeated proposals do not serve investors’ interests or promote long-term shareholder value. ExxonMobil is seeking to prevent the climate proposal by the activist investors from going to a vote during the company's shareholder meeting in May.