Energy, (Geo)Politics & Money - 06 March 2024
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 skepticism in “oil investor world” about China’s ability to achieve its growth target for the year, as well as the increase in US crude oil inventories, both of which are pushing oil down
Saudi Arabia decision to increase the price of its main oil grade to buyers in Asia next month, after the OPEC+ group agreed to extend output cuts into the middle of the year
The market’s view that China’s growth target for 2024 is “a target without a plan”; China’s answer to this doubt, which is a continued focus on the high-tech new energy sectors of the economy; why this plan is challenged by the geopolitical competition between the US and China
The US push to get to a ceasefire in Israel’s War on Gaza
Why China’s military capabilities will grow much faster than the announced defense budget
The additional funding secured by Fervo Energy, which is a geothermal energy focused startup that uses fracking technology to create closed-loop geothermal systems
The Biden administration’s decision to exclude the existing US fleet of natural gas power plants from upcoming carbon emissions regulations; which in the EPM view is actually a wise move – and we explain why
The acceleration of the electrification of transport in Australia, and why the Chinese EV makers are set to benefit most from this
Photo by David Thielen at Unsplash (click image above for link)
General Energy News
OIL FALLS ON CHINA’S ANNOUNCEMENT OF GDP TARGET
Following China’s announcement of its economic growth target for 2024, oil prices fell by approximately 1%, writes Reuters, as investors doubt the country’s ability to deliver. Brent settled 76 cents, or 0.9%, lower at $82.04 a barrel, a fourth straight decline, while WTI fell 59 cents, or 0.8%, to $78.15 a barrel. "The growth target is OK, but the missing part is how they want to achieve that - what sort of stimulus is unclear for now," Reuters quotes an analyst as saying.
US CRUDE INVENTORY UNLIKELY TO BOOST PRICES
US crude oil inventory data is unlikely to offer support to the oil price. Bloomberg writes that the American Petroleum Institute says US nationwide stockpiles rose by 400,000 barrels last week.
SAUDI ARABIA INCREASED OIL PRICE FOR ASIAN BUYERS
Saudi Arabia increased prices of its main oil grade to buyers in Asia next month after the OPEC+ group agreed to extend output cuts into the middle of the year, writes Bloomberg. Saudi Aramco increased its flagship Arab Light crude for Asia at a premium of $1.70 a barrel to the regional benchmark. That’s higher than expectations in a survey of refiners and traders last week.
Macroeconomics
CHINA GDP GROWTH - TARGET WITHOUT A PLAN
Analysts have not responded positively to China’s economic growth target for 2024 of 5%. Bloomberg quotes an analyst as saying,
This is a target without a plan. It shows they’re not understanding the seriousness of the situation. How are you going to support consumption? Wages have been falling. There’s deflation. What are you going to do?
CHINA TO BUILD UP INDUSTRIES KEY TO COMPETITIVENESS
China has vowed to build up industries it sees as crucial to future competitiveness, ranging from artificial intelligence to space, while offering to free up access to manufacturing and some services sectors such as telecoms and medical services, writes Reuters. In the high-tech areas, the objective remains self-reliance.
Energy Intelligence (EI) notes that China’s efforts to build out the high-tech sectors of its economy, in particular in the new energy areas, will require international partners to buy the resulting products – something that is not guaranteed. China’s clean energy manufacturing boom has turned its main components — EVs, lithium-ion batteries and solar panels — into the country’s “New Three,” replacing its “Old Three” engines of development: furniture, clothing and appliances. Exports of the New Three rose 29.9% last year, official data show, exceeding 1 trillion yuan ($139 billion) for the first time. But China’s expertise and low-cost advantage are a growing source of tension with the West. The EU — the largest import market for China’s New Three — and the US are wary of Chinese products and technologies. Both are seeking ways to restrict imports of Chinese new energy goods. In the EPM view, this is why China must focus on its trade ties with the developing world. EI notes that is exactly what it is doing via the Belt and Road Initiative (BRI).
Geopolitics
US PRESSURE ON ISRAEL GROWS FOR GAZA CEASE FIRE
The US is stepping up pressure to get to a ceasefire in Israel’s War on Gaza. Among the evidences is that is has even adopted the language of “ceasefire”, as it previously spoke of a “pause”, Reuters notes. Further evidence is the meeting this week in Washington DC between US Vice President Kamala Harris and Secretary of State Antony Blinken, and Benny Gantz, which, as Haaretz notes, is an attempt to sideline Netanyahu who has been obstructionary on the subject.
CHINA’S DEFENCE BUDGET UP TO 35% HIGHER THAN REPORTED
China’s official defence budget will increase by 7.2 per cent this year, as EPM reported yesterday. Experts believe, however, that the figure masks a much bigger boost for military capabilities, writes the Financial Times. International analysts of the Chinese military agree that Beijing’s total military expenditure far outstrips its official defence budget, which does not include military research and development, some procurement, paramilitary forces and the coastguard. “Our estimates suggest that total military spending is about 30-35 per cent higher than the official budget,” said Nan Tian, a researcher who tracks Chinese military spending at the Stockholm International Peace Research Institute. Additionally, lessons drawn from the Ukraine War have led to a shift in Chinese military procurement from high-technology and high-cost equipment towards lower-cost conventional systems and munitions.
Energy Transition & Technology News
FERVO MAKES OPERATIONAL GAINS IN GEOTHERMAL ENERGY
Fervo Energy, a company focusing on geothermal energy, has secured an additional $244 million in funding, writes Forbes. The funding is led by Devon Energy, with help from billionaire John Arnold, Liberty Mutual, Mercuria, Congruent Ventures, Capricorn and others. Fervo drills wells into naturally hot rock like (250 degrees Fahrenheit) and then fracks the rock. It drills several such wells close together, making sure that the fracture networks of the wells overlap, or connect. This way it creates a closed-loop system, injecting water down one well, allowing it to circulate underground absorbing heat, then producing it as steam up another well.
Climate Politics
US EXCLUDES EXISTING GAS POWER PLANTS FROM EMISSIONS REGULATIONS
The Biden administration has decided to exclude the existing US fleet of natural gas power plants from upcoming carbon emissions regulations, writes Reuters. The US power industry is the source of about a quarter of the nation’s greenhouse gas emissions. In an unusual move, the Environmental Protection Agency late last week said it will take existing gas plants, which account for over 40% of US power sector carbon emissions, out of its plans to reduce emissions in the sector. The EPA says it plans to write a separate rule to cover CO2 emissions from the existing gas plants.
We sidestep the question of why the EPA made the decision, but to EPM, the decision actually makes sense to manage existing and new energy infrastructure separately, since retrofitting equipment is typically harder and more expensive. In our view, a wise energy transition policy aims to build out a new energies system alongside the existing system, while in parallel working with the existing system to decarbonize it where possible.
The Electrification of Transport
AUSTRALIA EV DRIVE A BOON FOR CHINA
Since coming to power in 2022, Australian Prime Minister Anthony Albanese's government has aggressively promoted EV adoption as part of the country's plans to cut down on emissions. Reuters writes that this has created a powerful tailwind for electric car demand, with EVs accounting for 7.2% of Australian new car sales in 2023, up from 3.1% a year earlier. And, that it is the Chinese EV makers that are leading in sales. The Chinese focus on the non-premium side of the market means they appeal most to the wider Australian audience, not Tesla. Sales for BYD, which entered the market in 2022, climbed nearly six times to more than 12,000 vehicles in 2023. The automaker now has 14% of Australia's EV market, second to Tesla which has 53% but which has less room to grow due to its “premium” market segment focus.