Energy, (Geo)Politics & Money - 08 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 IEA view that non-OPEC+ supply increases will be more than capable of meeting the expected increase in oil demand
The real reason why ExxonMobil has been opposing the sale of the Hess share in Guyana’s Stabroek oilfield: it wants to buy this share for itself
The view of CNPC, that China’s oil demand has entered a low-growth phase, as decarbonization starts to eat into consumption of fossil fuels
US Fed chair Jerome Powell’s and ECB chair Christine Lagarde’s most recent speeches, which raised investor expectation regarding a rate cut as both said they are not far from cutting interest rates
The harsh words from China’s foreign minister Wang Yi regarding the US sanctions policy regarding China, which he believes will eventually be self-defeating
The announcement by South Korea's Samsung SDI that it will begin mass production of solid-state batteries for electric vehicles and other applications in 2027; which in the EPM view is something to watch closely as this particular technology will not only greatly propel forward the electrification of transport, but also enable cost-effective electrification in other economic sectors
The indication that the EU Commission is on its way to imposing punitive tariffs on Chinese EVs – even if these EVs are already on the EU roads or are currently being imported (i.e. before a tariff law actually comes into force); where EPM explains why we see this as trade politics above all, and will result in the EU slowing down the decarbonization it says it is so ambitious to achieve
Rivian’s new EV model, a smaller crossover named R2, which comes with a starting price of $45,000
The US SEC adoption of climate risk disclosures rules
Photograh by @blackspeaker93 at https://unsplash.com/
General Energy News
GLOBAL OIL SUPPLY WELL STOCKED
Despite OPEC+’s decision to extend its oil production cuts, the IEA believes the oil market will remain well supplied, Reuters writes. While oil demand last year grew by some 2.3 million barrels per day (bpd), the increase in 2024 is expected to be smaller, at 1.2 million to 1.3 million bpd, the IEA says. The IEA expects supply to grow to a record high of about 103.8 million bpd, almost entirely driven by producers outside OPEC+, including the United States, Brazil and Guyana "So far, that's sufficient to meet the demand growth," the IEA said.
EXXONMOBIL OPPOSES CHEVRON IN GUYANA BECAUSE OIL IS LOW CARBON
It is becoming clear why exactly ExxonMobil is opposing the acquisition of Hess by Chevron. Hess partners with ExxonMobil in Guyana’s Stabroek oilfield. The issue is not that ExxonMobil doesn’t want to partner with Chevron. The issue is more that ExxonMobil would like to expand its own share in the Stabroek field, which contains low cost and low carbon intensity crude oil. This is one of the reasons why Chevron originally bid for Hess. But, Reuters writes, ExxonMobil believes it has a contractual right at “preemption”, meaning t believes it has first buyers right if it decides to match the Chevron offer for the Hess share in Stabroek.
8% OF ARAMCO TRANSFERRED TO SAUDI SOVEREIGN WEALTH FUND
Saudi Arabia transferred an 8% stake in Aramco to the country's Public Investment Fund, writes Reuters. The stake is worth roughly $163.6 billion, according to Aramco's market capitalization. The fund has held a 4% stake in Aramco since 2022 and indirectly holds another 4% that was transferred last year to Sanabil, which it wholly owns. EPM notes the transfer strengthens PIF’s balance sheet, making it easier for the fund to attract the capital it needs for its massive investment program in the Kingdom.
CHINA OIL DEMAND ENTERS LOW GROWTH PHASE
China’s oil demand has entered a low-growth phase as decarbonization starts to eat into consumption of fossil fuels, China National Petroleum Corp (CNPC), the country’s biggest energy producer said, according to Bloomberg. Greater take-up of electric vehicles, as well as trucks powered by liquefied natural gas, will replace about 20 million tons, or approximately 10%-12% of the country’s gasoline and diesel consumption respectively this year, the company believes. Still, overall demand for crude will continue to grow, aided by the expanding petrochemical sector.
Macroeconomics
FED RESERVE CHIEF “CONDITIONS CLOSE FOR CUTTING INTEREST RATES”
Federal Reserve Chair Jerome Powell has said the US central bank is "not far" from gaining the confidence it needs in falling inflation to begin cutting interest rates, writes Reuters. Powell said of the current stance of monetary policy in a hearing before the Senate Banking Committee.
I think we are in the right place. We are waiting to become more confident that inflation is moving sustainably down to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.
The most recent data showed headline inflation, as measured by the Fed's preferred Personal Consumption Expenditures price index, at 2.4%, with a related measure of underlying inflation at a slightly higher 2.8%. But both have been "coming down sharply since the middle of last year," Powell said. "We've got a ways to go on that, but we've made a lot of progress."
EURO CENTRAL BANK CHIEF AGREES WITH FED COLLEAGUES
Across the Atlantic European Central Bank President Christine Lagarde also indicated policymakers may be in a position to lower interest rates in June, as fresh projections showed inflation hitting the 2% target in 2025, writes Bloomberg. Speaking after policymakers left the deposit rate at 4% for a fourth straight meeting, Lagarde said there’s a definite slowdown in consumer prices but that she and her colleagues aren’t “sufficiently confident” at present to commence monetary easing. “We clearly need more evidence, more detail,” she told reporters Thursday in Frankfurt, highlighting upcoming figures on wages. “We know that this data will come in the next few months. We will know a little more in April, but we will know a lot more in June.”
Geopolitics
Harsh words from China’s foreign minister Wang Yi regarding the US sanctions policy regarding China. Wang said according to Nikkei Asia.
The US has been devising various tactics to suppress China and kept lengthening its unilateral sanction list, reaching a bewildering level of unfathomable absurdity. If [the US] persistently monopolizes the high-end of the value chain and keeps China at the low-end, where is fairness and competition? If the US is obsessed with suppressing China, it will eventually harm itself."
Energy Transition & Technology News
SOUTH KOREA TO MASS PRODUCE SOLID STATE BATTERIES FOR EVs
South Korea's Samsung SDI announced that it will begin mass production of solid-state batteries for electric vehicles and other applications in 2027, writes Nikkei Asia. The batteries are to have an energy density of 900 watt-hours per liter -- a 40% improvement from its lithium-ion cells. In addition, solid-state batteries have short charging times, and can also be made lighter and safer than lithium-ion batteries, which contain a flammable electrolyte solution. The EPM closely monitors developments in this particular technology is that it will not only greatly propel forward the electrification of transport, but also enable cost-effective electrification in other economic sectors.
The Electrification of Transport
EV CONCLUDED CHINESE MANUFACTURERS RECEIVE ILLEGAL SUBSIDIES
The EU has given its clearest signal yet that its investigation into whether Chinese-made BEVs imported into the bloc receive illegal state subsidies is set to conclude that they do, writes EV in Focus. The European Commission already “has at its disposal sufficient evidence tending to show that imports of the product concerned from the People’s Republic of China (PRC) are being subsidised”, the Commission says. The Commission has directed EU customs authorities to take the appropriate steps to register imports of Chinese BEVs, “so that measures may subsequently be applied against those imports from the date of such registration”. In other words, steps are being taken to ensure Chinese EV currently being imported, can retroactively be tariffed once the EU formally institutes the tariff.
EPM notes the retroactive tariff is somewhat unusual. Its impact is also clear the objectives is to: put an immediate end to sales to Chinese EVs in Europe, as no car dealer will want to expose itself to the risk of having to pay tariffs at a later date. In EPM’s view, therefore, this EU measure is very clearly designed to serve as an effective ban on Chinese EV imports in the EU. To protect European car manufacturers, who don’t produce EVs for the masses. And as such this will all delay the reduction in transport related emissions the EU is saying it is targeting!
RIVIAN INTRODUCES NEW SUB AND CROSSOVER
Rivian has introduced its smaller, less expensive electric R2 SUVs and R3 crossovers, with plans to start producing the R2 at its existing US factory to hasten deliveries in the first half of 2026, writes Reuters. The R2's starting price of $45,000 is well below the company's flagship R1 SUVs and pickups, which cost $70,000+.
Other
SEC INTRODUCES CLIMATE RISK & EMISSION RULES FOR PUBLIC FILERS
The US Securities and Exchange Commission on Wednesday approved a rule that will require some public companies to report their greenhouse gas emissions and climate risks, writes AP.
Last week, EPM highlighted the SEC had already toned down the rules, dropping Scope 3 emissions reporting altogether. The final rules also reduce reporting requirements for Scope 1 and Scope 2. Companies would only have to report those emissions if they deemed to be “material”, a decision that allows companies to decide whether they need to disclose. Smaller companies, at this time, do not have to report emissions at all but my have to do so at a later date. Required disclosures will include the expected costs of moving away from fossil fuels, as well as risks related to the physical impact of storms, drought and higher temperatures intensified by global warming. The SEC estimates approximately 2,800 US companies will have to make the disclosures and about 540 foreign companies with business in the US will have to report climate information. The largest companies will have to start reporting climate risks in 2025 and emissions for fiscal year 2026. Smaller companies will have to disclose some information for fiscal year 2027, but not emissions.
Neverthess, a flood of court challenges is expected against these rules. West Virginia Attorney General Patrick Morrisey announced that 10 states were filing a challenge with the US Court of Appeals for the 11th Circuit. The Financial Times writes that the SEC is likely to be faced with lawsuits from both sides, those that believe the new rules go too far as well as those who believe the rule do not go far enough.