Energy, Geopolitics & Money - 2023.12.21
Non-partisan, objective & neutral analysis of global developments curated from sources covering the world of energy, geopolitics & investment to make sense of our world.
In this roundup, we look at:
The financial sector’s change in opinion when it comes to the global economy, with a majority now saying the US recession they've been forecasting for two years isn't coming anymore; something most companies (and EPM) don’t agree with
The Biden administration intention to further raise tariffs on Chinese goods, including electric vehicles
The (in the EPM view) very slow and very late US push for a permanent ceasefire in Gaza
Australia surprising rejection of the US request for it send a warship to support Operation Prosperity Guardian in the Red Sea
Orsted’s FID on the 2.9-gigawatt Hornsea 3 project off the coast of Britain
India's announcement of establishment of a carbon offset market
The current state of China’s EV battery recycling industry; which, if developed well, could put Chinese carmakers ahead of the curve, giving them a (further) edge over international rivals
Germany’s Euro 50 billion gas deal with Equinor, which will supply the country with 129bn cubic metres of gas up to 2039, enough to cover a third of the country’s industrial demand
General Energy News
It was good while it lasted. Oil prices ended the rally on the back of the escalation of tensions in the Red Sea, following a surprise US crude inventory build, writes Reuters. The US Energy Information Administration (EIA) said on Wednesday that US crude inventories rose by 2.9 million barrels in the week to Dec. 15 to 443.7 million barrels, compared with analysts' expectations in a Reuters poll for a 2.3-million-barrel drop. (Separately, Reuters writes that US gasoline stocks rose by 2.7 million barrels in the week to 226.7 million barrels, compared with analysts' expectations in a Reuters poll for a 1.2 million-barrel rise; and that distillate stocks rose by 1.5 million barrels in the week to 115 million barrels, versus expectations for a 500,000 barrel rise.) During early morning trade on Thursday, Brent crude futures fell 22 cents, or 0.3%, to $79.48 a barrel while US West Texas Intermediate crude was at $74 a barrel, also down 22 cents or 0.3%.
Macroeconomics
The world’s investment banks say the US recession they'd been forecasting for two years isn't coming anymore, writes Reuters. Consensus forecasts from major banks, including Goldman Sachs, Morgan Stanley, UBS and Barclays, are for “global growth to be constrained” in 2024 by elevated interest rates, pricier oil and a weakened China. Previously, their forecasts included negative growth. Businesses, however, are sounding grimmer than they did last year, Reuters notes. In its collection of management commentary from 150 earnings calls in the third-quarter reporting season, Deutsche Bank last month said companies broadly characterized demand as being somewhat weak, but not alarmingly so. Companies have continued to cut inventories as they adjust to sluggish demand for goods. The words used by companies to describe demand included soft, sluggish, slow, lackluster, choppy, muted, constrained, challenging, weak, pressured and uneven.
Geopolitics
The US says "very serious" negotiations are taking place on a new Gaza ceasefire and release of more Israeli hostages, writes Reuters. Hamas leader Ismail Haniyeh visited Egypt on Wednesday for these talks. Prospects for a deal remain uncertain, as Hamas insists it will not discuss anything less than a complete end to Israel's offensive in the Palestinian enclave. Israel has ruled out a permanent ceasefire and says it will only agree to limited humanitarian pauses until Hamas is defeated. US President Joe Biden on Wednesday said he did not expect a second Israel-Hamas hostage release deal to be struck soon, though he added in remarks to reporters: "We're pushing." International aid groups say Gaza's 2.3 million people have been driven to the brink of catastrophe by wholesale destruction that has driven 90% of them from their homes and left many malnourished and gravely short of clean water and medical care.
The Biden administration is discussing raising tariffs on some Chinese goods, including electric vehicles, writes the Wall Street Journal.
Surprisingly, Australia has rejected the US’ request for a warship to help protect international shipping lanes in the Red Sea, Operation Prosperity Guardian, writes Bloomberg. Defense Minister Richard Marles said the nation’s strategic focus had to remain on the Indo-Pacific. While this is most certainly a sensible position, at EPM we wonder if this will have implications for AUKUS.
Energy Transition & Technology News
Orsted has taken final investment decision on the Hornsea 3 project off Britain's coast, writes Reuters. It will now proceed with what is to become the world's largest offshore wind farm. The 2.9-gigawatt project will have capacity to power more than 3.3 million UK homes and is expected to cost 70-75 billion Danish crowns ($10.3-$11.0 billion). It is targeted for completion by the end of 2027. The decision comes after several developers cancelled projects in Britain and the United States this year as soaring costs made them unprofitable, which forced Orsted to take impairments above $5 billion. Orsted said that in the current environment, Hornsea 3 has a value creation "around the bottom end" of its targeted return on projects. Bernstein analysts projected the internal rate of return at 7-7.5%.
Climate Politics
India's Ministry of Power has announced establishment of a carbon offset market, writes S&P Global. The Central Government and the Bureau of Energy Efficiency said the Carbon Credit Trading Scheme 2023 will henceforth be referred to as the Principal Scheme and made several amendments to the scheme, according to the notice. Most notably, both reduction and removal projects are to be part of the scheme.
The Electrification of Transport
There’s a flood of retired batteries waiting to be recycled in China, writes Bloomberg. An effective, safe and environmentally friendly system for collecting and processing batteries would put Chinese carmakers ahead of the curve. They’d be able to produce electric cars with recycled batteries at scale — making them doubly green — giving them an edge over international rivals, it says. The most profitable EV batteries to recycle are made of lithium, nickel, cobalt and manganese. To extract the metals, the batteries have to be dismantled and shredded into what’s known as “black mass,”. This is then dissolved in powerful chemicals. But, Yang Lin, secretary general of the battery recycling committee set up under China’s Electronic Energy Saving Technology Association, estimates that unregulated operators currently make up about a fifth of the market. Their presence threatens to undermine the credibility of China’s recycled batteries because they don’t always adhere to environmental and safety standards. And because they don’t have to invest in those proper protections, they can offer EV and other battery owner’s higher prices. The Chinese government has been trying to regulate the quick-growing market. But industry watchers say the measures currently lack enforcement.
The Global Energy Crisis
German state energy group SEFE signed a €50bn gas deal with Norway’s Equinor, writes the Financial Times. The deal will supply Germany with 129bn cubic metres of gas up to 2039, enough to cover a third of the country’s industrial demand. The gas will be delivered through pipes from Norway to hubs in the UK, Netherlands and Germany. Meanwhile, Canada continues to lose access to markets, squandering an opportunity to help replace coal with LNG, and continues to spiral deeper into irrelevance on the international stage.