Energy, Geopolitics & Money - 2024.01.24
Providing you with a non-partisan, objective & neutral analysis where global developments in energy, business & geopolitics intersect & curated from leading global sources & resources.
After yesterday’s sidestep into the world of geopolitics surrounding nuclear energy, today EPM returns to the more familiar subject when it comes to nuclear, namely cost overruns and project delays. This is no better highlighted than by Britain’s flagship Hinkley Point C nuclear plant experience - multiple, delayed completion dates and coming in at double its original cost estimate. These developments explains why EPM is not optimistic about nuclear’s future (see Energy Transition & Technology News below)
Furthermore, we examine:
India’s oil demand, which hit a record in 2023, and is set to continue to grow strongly until 2030
Why and how the economic fallout from the Red Sea shipping disruptions is spreading
The shorter-term outlook for renewable energy, which is set to make up more than one-third of total electricity generation by early 2025
Turkey’s approval of Sweden’s entry into Nato
The EU’s assessment of what it must spend, annually, to meet its climate commitment: $1.5 trillion
Tesla’s geopolitical challenges in China, one of its largest markets and the fastest electrifying market in the world
General Energy News
India's petroleum consumption climbed to a new record last year and it is on course to overtake China as the primary driver of incremental oil consumption before 2030, writes Reuters. Its petroleum consumption increased to 231 million tonnes in 2023, up from 219 million tonnes in 2022. This means India's share of global oil consumption already rose to more than 5% in 2022, up from 4% in 2021 and 3% in 2002. While China's oil consumption is expected to peak before the end of the decade, and start to fall primarily due to the uptake of electric vehicles in the country, India's will continue increasing throughout the 2030s. India is already the second-most important driver of incremental consumption in the world after China, and is on course to take the top spot before 2030.
Macroeconomics
The disruption of Red Sea shipping is spreading, fueling fears of broader economic fallout, writes Bloomberg. With sailors demanding double pay and insurance rates skyrocketing, shipping lines are steering clear of a waterway that normally carries 12% of the world’s seaborne trade. As a result, the cost of shipping containers from China to the Mediterranean Sea has more than quadrupled since late November. European customers of products manufactured in Asia are starting to become affected. Volvo and Tesla have announced production suspensions at plants in Europe, citing the inability to get components from suppliers in Asia. And the ECB is watching for signs the supply chain issue pushes up inflation again.
Bloomberg failed to report on the impact it is having on the economy of Egypt. According to The Maritime Executive, Egypt's government uses revenues from the Suez Canal to service its $165 billion in public debt. In 2022-23 - with tanker traffic soaring due to the war in Ukraine - transit fees approached $9 billion. Now, however, canal transits are down by 30 percent year-on-year and dollar revenues from canal fees are down by 40 percent. This comes just at the same time that the war in neighboring Gaza has cut into Egypt's tourism revenue. Tourism is the nation's other major foreign-exchange earner for Egypt, and generates as much as $12 billion in a good year.
Geopolitics
The Turkish parliament has given its long-awaited approval to Sweden’s membership of NATO, bringing the Nordic country significantly closer to joining the western military alliance, writes The Guardian. Turkey’s approval leaves Hungary as the only country still to ratify Swedish membership.
Energy Transition & Technology News
Yesterday we looked at the geopolitics surrounding nuclear. As on cue, today the Financial Times reports that global nuclear power generation is set to reach an all-time high next year, based on data from the International Energy Agency. This highlights the relevance of nuclear energy for the world of energy, and by extension therefore geopolitics.
But also in the news today is the more familiar subject when it comes to nuclear, namely cost overruns and project delays. Britain’s flagship Hinkley Point C nuclear plant, being built by Electricite de France (EDF), has been delayed until 2029 at the earliest and could end up costing up to £10 billion ($13 billion) extra to build, or nearly twice the initial budget, writes Bloomberg. EDF now expects the two reactors it’s building in southwest England to cost between £31 billion and £35 billion in 2015 terms, the French energy company said in a statement on Tuesday. That’s up from an estimate of £25 billion to £26 billion in 2022, and is the fifth budget increase in eight years. Stuart Crooks, Managing Director for Hinkley Point C said in a memo to employees
Like other infrastructure projects we have found civil construction slower than we hoped and faced inflation, labor and material shortages, on top of Covid and Brexit disruption. Running the project longer will cost more money.
EDF now expects the first reactor at Hinkley to start producing power in 2029 in a best case scenario, a two year delay. The second unit will be online about a year after the first, according to the company.
The Financial Times also mentions the worst case scenario for Hinkley C. In this scenario, the first start up is in 2031 and costs swell to £46 billion.
In the EPM view, all this information regarding nuclear informs an outlook for the sector. The Energy Transition desperately needs it to grow. However, we feel that conventional nuclear’s ability to deliver will remain limited by its inability to deliver projects on a reasonable timescale, on time and on budget. SMRs are being touted as the solution, but as of yet there is no evidence they will address any of the underlying, structural issues of nuclear mega-projects. For this reason we do not expect any dramatic changes in nuclear’s share of world energy demand over the shorter- to medium-term.
While nuclear continues down its well-trodden path of under delivering, renewable energy is set to make up more than one-third of total electricity generation by early 2025, overtaking coal, writes The National News from the UAE based on data from the International Energy Agency.
Climate Politics
The EU must invest about €1.5tn a year between 2031 and 2050 to meet its mid-century target of bringing greenhouse gas emissions down to zero, Brussels has said according to the Financial Times. To reach the goal, it says the EU will require an almost completely decarbonised electricity sector by about 2040, a shift of the bloc’s workforce into green industries and an overall reduction in fossil fuel consumption of 85 per cent compared with 1990 levels. Oil for ships, aircraft and other transport would make up the majority of the remaining fossil fuel use, it said. Brussels says the high level of investment would far outweigh the vast cost of inaction as the effects of global warming become increasingly apparent. It could save the EU €2.4tn in economic losses between 2031 and 2050 and cut net costs of fossil fuel imports by €2.8tn over the same period, it says.
The Electrification of Transport
Tesla drivers in China are facing entry restrictions at more government-affiliated venues, including meeting halls and exhibition centers, due to data security concerns amid ongoing tensions between Washington and Beijing. Sources told Nikkei Asia that a growing number of government affiliates, local authority agencies, highway operators and even cultural and exhibition centers have restricted Tesla cars from entering their premises since last year. Previously, such restrictions were generally limited to military bases. China is a major market for Tesla, but competition from local rivals is heating up, with BYD surpassing the US company by worldwide unit sales in the last quarter of 2023.