Energy, Geopolitics & Money - 2024.01.04
Covering the world of energy, geopolitics & investment with non-partisan, objective & neutral analysis of global developments curated from international sources.
In this roundup, we examine:
The US becoming not only the largest crude oil producer in the world, but also the largest natural gas producer; while China continues to dominate the demand side of both
The 4 to 5 billion reasons Chevron dislikes California’s regulatory developments
Global investor sentiment regarding monetary policy, which expects that major Western central banks are close to a pivot, from raising interest rates to cutting them; and why this is (another) cause for concern in Asia
The first indications Israel is indeed changing its approach to fighting in Gaza, as demanded by the United States, while it continues its efforts to cause the horizontal escalation of its war that EPM discussed last week, and resulted in the US (in EPM's view) responding by pulling the USS Ford out of the Med
A new potential source of feed stock for bio-fuel production, namely raw sewage
Why transitioning to clean energy requires trade with China
The UK push for floating wind farms across almost 1,000 sq km of the North Sea
General Energy News
Not only is it the world’s largest oil producer, the US has also become the world’s largest producer of natural gas, writes Reuters. In 2023 the United States leapfrogged Qatar and Australia to become the largest exporter of LNG. In 2022, Qatar was the largest LNG exporter and Australia the second-largest. This year, full year exports from the U.S. rose 14.7% to 88.9 million metric tons (MT) driven largely by the return to full production of the Freeport LNG plant that had suffered a fire in 2022, and as others increased processing efficiency.
Meanwhile, China has regained the title of world’s biggest buyer of liquefied natural gas, writes Bloomberg. High prices and virus restrictions had significantly cut demand in 2022, which helped free up LNG shipments to gas hungry nations elsewhere. In 2023, however, LNG shipments to China rose 12% to nearly 71 million tons. Although China’s LNG deliveries remain below 2021 levels, due in part to cheaper alternatives, the nation is expected to drive global demand growth for the next decade. China’s imports are slated to increase almost 20% to 84 million tons through 2025, and to 136 million tons by 2030.
Chevron said a deepening rift with lawmakers over energy policy in the state of California would dent its earnings in the fourth quarter and further reduce its investment plans for its home state, writes the Financial Times. “Continuing regulatory challenges” in California will contribute to a non-cash charge of $3.5bn to $4bn, the oil company said, reflecting a write down in the value of its US upstream oil and gas assets, primarily in the state. The disclosures follow moves by California regulators to implement a bill signed into law last year by the state’s Democratic governor, Gavin Newsom, which aims to penalise oil companies for allegedly “price gouging” consumers. The so-called margin penalty law seeks to limit the profits local refiners can make in the state, where motorists pay among the highest petrol prices in the US.
Macroeconomics
Investors appear convinced that major Western central banks are close to a much awaited pivot, from raising interest rates to cutting them, writes Reuters.
An OpEd in Nikkei warns, however, that pivoting too early would expose it to the risk of higher inflation for longer. The region is dependent on exports. As lower Fed rates would likely translate into a lower dollar, the value of these exports will go down while the local currency price of imports will go up.
Geopolitics
Israel says it has begun drawing down troop numbers in the Gaza strip, writes Reuters. A U.S. official said the decision appeared to indicate the start of a shift to the “lower-intensity operations”, at least in the north of the Palestinian enclave, that the US has been calling for. At the same time, however, Israeli planes and tanks stepped up bombardment of the eastern and northern areas of Khan Younis in southern Gaza, Reuters also reports.
At the same time, further evidence in support of the EPM assessment from last week, that Israel is trying to cause a horizontal escalation of its current war. Yesterday, it killed Hamas deputy leader Saleh al-Arouri in a drone strike in Lebanon's capital Beirut, writes Reuters.
In our EPM view, yesterday’s news of the US pulling the USS Ford out of the Mediterranean is connected to this Israeli objective. The aircraft carrier and its support vessels were stationed in the Mediterranean to provide cover for Israel, to enable it launch its military operation in Gaza without having to worry about its northern border with Lebanon. So effectively, the US has just taken this cover away. This limits what Israel can do, because it is generally considered incapable of fighting a war on two fronts at the same time. In other words, by scaling back support in the way that it has, the US is forcing Israel to accept the US vision for the next phase of the War on Gaza.
This perspective is supported by the news reported by Reuters that the U.S. State Department on Tuesday slammed statements from Israeli Ministers Bezalel Smotrich and Itamar Ben-Gvir that advocated for the resettlement of Palestinians outside of Gaza, calling the rhetoric "inflammatory and irresponsible." Finance Minister Smotrich, one of the senior figures in Israeli Prime Minister Benjamin Netanyahu's right-wing coalition, called on Sunday for Palestinian residents of Gaza to leave the besieged enclave. National Security Minister Ben-Gvir also said the war in Gaza presented an "opportunity to concentrate on encouraging the migration of the residents of Gaza." The US State Department responded by saying such statements should "stop immediately". "We have been clear, consistent, and unequivocal that Gaza is Palestinian land and will remain Palestinian land, with Hamas no longer in control of its future and with no terror groups able to threaten Israel."
Fortunately, Hezbollah is showing restraint in response to Israel’s killing of Al-Arouri. According to Reuters, in a speech Hezbollah leader Hassan Nasrallah said his heavily armed forces would fight to the finish if Israel chose to extend the war to Lebanon, but he made no concrete threats to act against Israel.
Energy Transition & Technology News
A UK based company has found a way to convert sewage into fuel, writes BBC, opening up a new potential source of feedstocks for biofuels. Firefly Green Fuels worked with Cranfield University to examine a sample of the resulting jet fuel's life cycle carbon impact. It concluded that Firefly's fuel has a 90% lower carbon footprint than standard jet fuel. The BBC notes that the UK's total sewage supply would meet about 5% of the country's total aviation fuel demand.
Another UK company, Cerulean Winds, wants to develop a network of three connected floating wind farms across almost 1,000 sq km of the North Sea, writes the Financial Times. The company is aiming to have the initial 600-megawatt phase of his project up and running by 2028. So far 29 floating projects have secured seabed leasing deals with the UK government, out of 51 in the pipeline with a combined capacity of 37GW.
Geopolitics of the Clean Energy Transition
EPM was not sure where to report on the following, as it cuts across macroeconomic, geopolitics and energy transition. Transitioning to clean energy requires trade with China, writes Foreign Affairs. The simple reason is that clean energy technologies are an area that China dominates. China is at the forefront not just in production and deployment of clean energy technologies but also now in innovation. Subsidies in order to build domestic alternatives to China are likely to result in a “subsidy war” between western countries, that will not accelerate the transition to a cleaner economy, but will hollow out government budgets. Instead, the West should clarify which sectors it must absolutely support at a loss in order to reduce its reliance on China for national security reasons. These sectors include rare earths, for example, which have military uses.