Energy, (Geo)Politics & Money - 2024.03.18
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 4% increase in oil prices last week, primarily due to the attacks on Russian refineries; and the start of the annual CERAWeek conference in Houston, which will focus on the topic of “energy security” in light of geopolitical tensions
Why China’s response to its economic challenges is difficult for many western analysts to understand, fundamentally because it focuses on building up new industries rather than propping up the old
Germany’s very dire economic outlook for 2024; which, EPM notes, is really the result of its political decisions in the geopolitical realm over the past 2 years
Russian president Vladimir Putin’s warning that formal entry of NATO onto the Ukrainian battlefield would leave the world just a step away from World War Three
Israeli prime minister Netanyahu’s strategy for dealing with the pressures from the Biden White House, which in essence is all about utilizing the polarized politics in the U.S. to his advantage
TotalEnergies’ progress in its solar business; where EPM explains why the company’s approach stands out as unique
The Economist’s view on how the energy transition will play out, and what this will mean for the world’s oil producing nations
The push by the European Union, Canada, Japan and 44 other countries to establish a tax on international shipping's greenhouse gas emissions
The summary of the decarbonization targets of the world’s largest oil companies
Photo by Zbynek Burival
General Energy News
CRUDE UP BY 4% LAST WEEK
Oil prices increased nearly 4% last week, on the view that supply was tightening, and that the risk of supply disruptions was heightened by further attacks on Russian energy infrastructure, writes Reuters. Brent crude oil futures for May delivery are at $85 a barrel, while WTI is at $81.
CERA WEEK STARTS THIS WEEK IN HUSTON
The annual oil and gas conference CERAWeek in Houston kicks off this week. Reuters writes the conference is taking place while oil prices have remained in the “sweet spot” range between $75 and $85 per barrel, a level fueling profits but not hurting economic growth. Energy security is back on the table, as a result of the increased geopolitical stability around the world.
EXXONMOBIL DOUBLES DOWN ON ESG RESISTANCE
ExxonMobil CEO Darren Woods will be one of the main speakers at the conference. He has become more vocal in his pushback against ESG, and his opinions are finding support from more and more segments of Wall Street, writes Bloomberg. Underlying the change is Russia’s invasion of Ukraine, which brought energy security back front and center in the minds of policy makers and investors. Since ExxonMobil never changed its course during the earlier ESG-focused era, this made the company a new “darling” for the investment community, Bloomberg says. When Woods takes center stage at the CERAWeek by S&P Global energy conference in Houston this week, he’s likely to double down on his long-held view that fossil fuels will be in demand for decades to come and that governments and consumers — rather than just Big Oil — will need to pay for any meaningful transition to greener energy. Woods is also being more vocal about his views on a lower-carbon future. “The dirty secret nobody talks about is how much all this is going to cost and who’s willing to pay for it,” he said in a recent Fortune podcast.
Macroeconomics
CHINESE ECONOMIC STRATEGIES CONFUSES THE WEST
The National People’s Congress and the Chinese People’s Political Consultative Conference which took place early March were difficult for western analysts to comprehend, writes Asia Times. The challenges to Chinas economy are clear. Western countries have experienced similar challenges in recent history, and therefore most western analysts expect it to respond in the same way – for example – the U.S. responded to the Global Financial Crisis. But China did not do monetary easing, consumption stimulus, or a property bailout. But instead, China’s leadership focused single-mindedly on the transformation of Chinese industry through new technologies. Among other measures, it added another U.S.$27 billion for a semiconductor industry fund to its already massive commitment and announced a 10% increase in the national science budget. That provides critical support for China’s high-tech industry, especially solar panels, EVs, telecommunications equipment and electronics.
CHINA WORLD LEADER IN INDUSTRIAL ROBOTS
China already installs more industrial robots than the rest of the world combined, or 52% of the total, and the combination of automation and economies of scale enables it to produce solar panels, electronic vehicles, and other key products far more cheaply than any competitor. But industrial automation, including the application of advanced 5G (what Huawei labels 5.5G) and artificial intelligence, is only the beginning. China is pushing for breakthroughs in frontier technologies including nuclear fusion.
GERMAN ECONOMY TO FLAT LINE AND NOT RECOVER
Germany is in recession and its economy will hardly grow this year, Bloomberg writes. Gross domestic product will most likely contract 0.1% in the first quarter. Just a month ago, analysts were predicting stagnation in the first three months of the year, which EPM notes, indicates that things are getting “worse than expected”. Underlying the issue is continued weak domestic demand, high financing costs and the still subdued sentiment among private households and companies. Analysts point to the fact that the root cause of these root causes is geopolitics. Germany’s political decisions in the geopolitical realm mean it has over the past 2 years lost cheap energy from Russia, flourishing sales markets in China and an almost free security guarantee from the U.S..
Geopolitics
RUSSIA WARNS NATO - YOUR TROOPS IN UKRAINE BRINGS WW III CLOSER
Russian President Vladimir Putin has said that a direct conflict between Russia and the U.S.-led NATO military alliance would leave the planet one step away from World War Three, writes Reuters. Putin’s comments are connected to French President Emmanuel Macron’s remark last month, in which he said he could not rule out the deployment of ground troops in Ukraine in the future, with many Western countries distancing themselves from that while others, especially in eastern Europe, expressed support. Putin added, though, that NATO military personnel were present already in Ukraine, saying that Russia had picked up both English and French being spoken on the battlefield. Putin said he wished Macron would stop seeking to aggravate the war in Ukraine but to play a role in finding peace: "It seems that France could play a role. All is not lost yet…. I've been saying it over and over again and I'll say it again. We are for peace talks, but not just because the enemy is running out of bullets," Putin said.
ISRAELI PM CONTINUES TO CONFOUND THE U.S.
As to Israel’s War on Gaza, the Financial Times analysed the strategy of Israeli prime minister Netanyahu for dealing with the pressures from the United States. Netanyahu’s policies regarding Gaza in particular, but Palestine more broadly in general, conflict with the plans of the Biden administration for the Middle East, as we at EPM have written before. This was highlighted again when the U.S. intelligence community released its annual assessment that challenged the pillars of Netanyahu’s political strategy, saying that Iran had no role or knowledge of the October 7 Hamas attack on Israel and that defeating Hamas fully could take years. This conflict on the pathway forward led to the Senate majority leader Chuck Schumer, America’s most prominent Jewish politician, to explicitly say Israel needs elections to replace Netanyahu, a leader he said who had weakened Israel’s “political and moral fabric”. In order to deal with this pressure, FT says, Netanyahu is trying to use the schism in American politics. Netanyahu is betting that the other levels of influence in American politics which he has cultivated for decades, with Israel-dedicated U.S. senators, to the powerful pro-Israel lobby, will enable him to preserve his ability to continue his War on Gaza and keep him in office. According to the FT, Netanyahu’s support in the U.S. political establishment runs deeper than in the White House. Netanyahu for example broke with Obama over nuclear talks with Iran in 2015, opting to make a direct appeal to a joint session of Congress instead. Netanyahu similarly aggravated president Trump, with the latter saying Netanyahu had “betrayed” him, EPM adds.
Energy Transition & Technology News
TOTALENERGIES STRATEGY FLIES UNDER ANALYST’S RADAR
TotalEnergies has a unique energy transition strategy, that flies under the radar of most analysts, EPM believes. The company "develops, finances, builds, and operates solar panels installed on rooftops, carports, and vacant industrial lands" around the world, and in this new business has achieved a milestone of .5 gigawatts (GW) of long-term solar power contracts at sites for more than 600 industrial and commercial customers worldwide, writes Reuters. TotalEnergies expects on-site solar generation capacity to reach 8-9 GW by 2030. That represents just under 10% of the overall gross renewable capacity target of the company, which is 100 GW. EPM notes that if any of our readers want to know more about TotalEnergies’ “whole of value chain” approach to solar electricity, they can look here. In short, the company builds, operates and finances solar power plants; for its own use, but also as a service provider to residential and commercial customers; with and without battery storage, where it uses in-house produced batteries.
DEMAND TO DRIVE THE ENERGY TRANSITION
The Economist has developed an opinion as to how the energy transition will play out. Governments everywhere are designing policies to reduce the demand for oil and boost alternative sources of energy, it says. Consequently, henceforth, it will not be supply that drives the oil markets, but rather demand. Another consequence will be that as the oil market shrinks, the power of low cost and low carbon intensity crude oil producers will increase. That is the Arabian Peninsula. Depending on the pace of the energy transition, the countries there could command a market share of half or even two-thirds of global output by 2050, compared with less than 40% today. The countries that produce higher-cost and more carbon-intensive crude oil are, as a result, more exposed to the risk of ”stranded assets” – think Nigeria, Indonesia and Mexico.
Climate Politics
INTERNATIONAL SHIPPING GHG EMISSIONS UNDER PRESSURE
The European Union, Canada, Japan and climate-vulnerable Pacific Island states are among 47 countries rallying support for a charge on the international shipping sector's greenhouse gas emissions, writes Reuters. Support for the idea has more than doubled from the 20 nations that publicly supported a carbon levy at a French climate finance summit last year.
Backers argue the policy could raise more than $80 billion a year in funding which could be reinvested to develop low-carbon shipping fuels and support poorer countries to transition. Opponents, including China and Brazil, say it would penalise trade-reliant emerging economies. Researchers have said a $150 carbon price could make investments in low-carbon ammonia-fuelled systems economic compared with conventional ships. Shipping, which transports around 90% of world trade, accounts for nearly 3% of the world's carbon dioxide emissions - a share expected to expand in the coming decades without tougher anti-pollution measures.
Other
OIL INDUSTRY DECARBONIZATION PLANS HERE
Reuters has produced a summary of the decarbonization targets of the world’s largest oil companies, which you can read here.