Energy, Geopolitics & Money - 2024.01.29
Providing you with a non-partisan, objective & neutral analysis where global developments in energy, business & geopolitics intersect & curated from leading global sources & resources.
Geopolitically, the most important news comes out of Jordan, where Reuters writes three US service members were killed and dozens wounded after an unmanned aerial drone attack on US forces stationed in northeastern part of the country near the Syrian border. US President Biden blamed Iran-backed groups for the attack: "While we are still gathering the facts of this attack, we know it was carried out by radical Iran-backed militant groups operating in Syria and Iraq."
In EPM’s view, this is a real and meaningful escalation. So far, the US and Iran have used backdoor channels to warn each other of their plans to fire rockets and avoid significant casualties on either side. This was the case with Iran’s response to the Qasim Suleimani assassination, as well as the US attacks on the Houthi’s in Yemen. Alarmingly, the drone attack in Jordan is very different as it appears designed for maximum casualties. Since it is very obvious this attack is something to which the US must respond, in EPM's view, whoever decided to launch the attack is looking for a real escalation in the Middle East.
Furthermore, in this roundup, we look at:
Europe’s decision to trade Russian natural gas not for renewables but LNG, how this has established a critical energy dependency on the United States, and why this is driving $223 billion in new investment to produce LNG globally during the next decade
Shell’s further withdrawal from the refining business, via the conversion of its Wesseling refinery into a lubricant feedstock facility
The forced liquidation of Evergrande group in China, which has more than $300 billion of total liabilities, which could be considered good for the economy in the long term but very difficult in the short term
The attack on a US military outpost in Jordan, killing 3 servicemen and wounding almost 40 more; which in the EPM view is a very clear attempt to escalate the War on Gaza to a broader conflict in the Middle East
The decision by the leaders of the western world to pause their support for the UN refugee agency in Gaza; where EPM notes this decision is likely to further weaken the soft power of the West
India’s slow but steady alignment with the United States when it comes to defense
The massive build out in renewable capacity in China over 2023, which leaves the country on track to meet its renewable capacity target 5 years ahead of plan
General Energy News
As the Houthi’s, for the very first time struck a vessel containing oil products last Friday, oil prices climbed significantly over the weekend by a whopping $2 a barrel, writes Bloomberg.
The WTI contract for March ended settling at $78.01 a barrel, while the Brent contract for March settled at $83.55 a barrel, writes CNBC.
Rather than replace Russian fuel with next-generation renewables, Europe has increasingly turned to American natural gas, writes Bloomberg. In a very short window, the US has carved out a meaningful share of Europe’s gas supply, eclipsing any remaining Russian deliveries. America’s booming shipments today account for about half of the region’s LNG imports, a share that is widely expected to grow further. When considering gas shipped through pipelines as well, the US is the bloc’s second-largest gas supplier after neighbor Norway — a serious coup for the North American nation that only began exporting its shale gas in 2016. The European Commission is not concerned about a growing dependency on US LNG because there aren’t the same levels of political risks as with Russia, said a senior EU official who wasn’t authorized to speak publicly – a statement which leaves EPM shocked as that was exactly the mindset that led to the EU becoming natural gas dependent on Russia! (“Russia will change if we integrate it via trade”.)
Europe’s insatiable demand for gas is driving $223 billion in new investment to produce the fuel globally during the next decade, writes Bloomberg. Two US liquefied natural gas companies — Venture Global LNG and Cheniere Energy — are set to lead spending.
Shell will shut down its oil refinery in Wesseling, Germany by 2025 and convert the site to produce lubricant feed stock, writes Reuters. Shell said it will convert the site's hydro cracker unit into a production unit for Group III base oils, used mostly in engines, with capacity of about 300,000 metric tons a year, equivalent to about 9% of current EU demand and 40% of Germany’s demand for base oils. Crude oil processing at the Wesseling site, which is part of Shell's Energy and Chemicals Park Rheinland near Cologne, will end in 2025 but will continue at its Godorf refinery nearby. The Shell Energy and Chemicals Park Rheinland, which includes both the Wesseling and Godorf sites, currently has a capacity of more than 17 million tons of crude oil per year, of which Wesseling produces 7.5 million tons. Since 2020, Shell has divested five refineries, closed one and converted one into a terminal. It is also planning to sell its refining and petrochemicals site in Singapore.
Macroeconomics
A Hong Kong court on Monday ordered the liquidation of property giant China Evergrande Group, a move which Reuters says is likely to send ripples through China's crumbling financial markets as policymakers scramble to contain a deepening crisis. The decision to liquidate the world's most indebted developer with more than $300 billion of total liabilities was made as Evergrande had been unable to offer a concrete restructuring plan despite months of delays. The liquidation process could be complicated, with potential political considerations, given the many authorities involved. But it is expected to have little impact on the company's operations including home construction projects in the near term, as it could take months or years for the offshore liquidator appointed by the creditors to take control of subsidiaries across mainland China - a different jurisdiction from Hong Kong. Reuters quotes an analyst as saying, “Evergrande's liquidation is a sign that China is willing to go to extreme ends to quell the property bubble. (While) this is good for the economy in the long term but very difficult in the short term."
Geopolitics
The most important news comes out of Jordan, where Reuters writes three US service members were killed and dozens wounded after an unmanned aerial drone attack on US forces stationed in northeastern part of the country near the Syrian border.
Bloomberg writes US president Biden is already feeling pressure to retaliate in the direction of Iran. “The Biden administration is going to have to tread a very delicate line in trying to respond forcefully enough to restore some modicum of deterrence so this doesn’t happen again, while not undertaking a response that escalates the conflict,” said Jonathan Panikoff, Director of the Atlantic Council’s Scowcroft Middle East Security Initiative and former deputy national intelligence officer at the National Intelligence Council.
Looking at the soft power implications of the War on Gaza, a day after the International Court of Justice concludes genocidal acts could indeed be taking place in Gaza against the Palestinians, the western world decides to pause funding for the UN refugee agency for Palestinians (UNRWA) following allegations, by Israel, that some of its staff were involved in the October 7 Hamas attacks on Israel, Reuters writes. Britain, Germany, Italy, the Netherlands, Switzerland and Finland on Saturday joined the United States, Australia and Canada in the move. In EPM’s view, this makes little rational sense, and we note that it is hard not come away from this feeling it is another form of collective punishment of the Palestinians because of the ICJ decision.
For example: Why should UNRWA be punished because of acts by its employees in a personal capacity, especially since UNRWA has already taken disciplinary actions against them? Where is the proportionality of the response, considering 2 million refugees in Gaza will be affected? Where’s the due process considering there are as of yet only accusations by Israel? Questions UNRWA also asked in the statement it released: “Why is there not a similar cutting of aid to Israel following the ICJ verdict?”
There is little doubt, this is how most people of the world will see this move by the West – biased, unbalanced and hypocritical. It is, therefore, another example of what we think future historians will look back at and say, “this is where the port-WWII world order began to fall apart”. It will not be because China is trying to create an alternative world order as that will be seen to be a secondary reason. It will be due primarily to the blatant disregard by leaders of the current order for the values they say they espouse. Therefore, EPM sees this decision as another one likely to accelerate the macro-trend we have highlighted since we started our newsletter, which is that the geopolitical order we are all accustomed to is falling apart.
Also important for the medium to longer term is, in the EPM view, the news that India is slowly but steadily weaning itself off of Russia as its main arms supplier, and instead turning West for military supplies. Russia supplied 65% of India's weapons purchases of more than $60 billion during the last two decades, Reuters writes. Russia has publicly urged India to step up defence ties, but Prime Minister Narendra Modi has turned his focus to domestic production with Western technology, experts and officials said. Nandan Unnikrishnan, a Russia expert at New Delhi think tank the Observer Research Foundation, is quoted as saying "We (India) are not likely to sign any major military deal with Russia. That would be a red line for Washington." This view comes despite Moscow's offers, described by four Indian government sources ( among them a senior security official who recently retired) that included platforms such as the most advanced Kamov helicopters, Sukhoi and MiG fighter jets, with the added fillip of joint Indian manufacturing. India has not had much recently luck with procuring and developing weapons with Russia, while US and European weapons platforms are perceived, by India, to be superior. EPM notes that the US considers India a critical ally and we believe that as India goes, so goes the world.
Energy Transition & Technology News
China's installed solar electric power generation capacity rose by 55.2% in 2023, writes Reuters. The country built in excess of 216 gigawatts (GW) of solar power this year, the data indicated, underscoring the scale and pace of China's solar build out. China's overall power generation capacity grew by 13.9% over the course of 2023 to reach a total of 2919 GW. Alongside new solar projects, the country's wind power generation capacity jumped by 20.7%. The rapid capacity growth has been driven by a set of government targets announced in 2020, under which Beijing plans to achieve peak emissions by 2030 and carbon neutrality by 2060. The government committed to construct 1,200 GW of renewables capacity by 2030 to support this, but China is on track to meet that goal five years early.