Energy, (Geo)Politics & Money - 2024.04.03
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:
Oil prices reaching five-month highs on the back of the Israeli attack on the Iranian embassy in Syria
The Reuters analysis that found more than a tenth of the Russian gas formerly shipped by pipeline to the European Union has been replaced by LNG delivered into EU ports
Why natural gas prices are approaching record lows; why this is likely to remain the case for a number of years to come; and why natural gas producers hope that AI will come to their rescue
The outlook for China’s economy as per leading Chinese economists (rather than the Party), which is significantly lower than the official target
The Ian Bremmer view of what a second Donald Trump presidency would mean for geopolitics
The impact of the farmer protests across Europe on the EU’s green policies; where EPM explains why we believe this is an important development to watch for anyone assessing how the energy transition is likely to play out
The core of Shell’s argument against the Dutch court’s ruling that is must decarbonize faster, which is that while not decarbonization is bad for humanity, not making affordable energy available is at least as bad
Photo by Tomas Hudolin on Unsplash
General Energy News
WORLD TENSIONS RAISE OIL PRICES
Oil prices climbed in response to Israel’s attack on the Iranian embassy in Syria, writes Reuters. The geopolitical risk premium increased as traders fear escalation of conflict in the Middle East. Brent crude futures for June rose to over $89 per barrel, while U.S. West Texas Intermediate crude futures for May climbed to over $85 a barrel. This leaves them at 5-month highs, CNBC writes. Yesterday EPM explained our outlook for the geopolitical situation in the Middle East. We see a real Iranian response as unlikely. But, we do see an increased risk for domestic turmoil in a number of Middle eastern countries, where Israel’s actions, with active US support, is making the gap that exists between the ruling elites and their populations on the issue of Palestine more apparent.
RUSSIAN GAS TO EUROPE REPLACED BY LNG
A Reuters analysis has found that more than a tenth of the Russian gas formerly shipped by pipeline to the European Union has been replaced by LNG delivered into EU ports. Russia sent more than 15.6 million metric tons (mt) of Russian LNG to EU ports last year. EU statistics and Reuters calculations show the rise in LNG has pushed the share of Russian gas in EU supply back up to around 15% after pipeline imports had plunged since the war to 8.7% from 37% of EU gas supply.
NATURAL GAS OUTLOOK - LONG TERM OVER SUPPLY
As to the outlook for natural gas, prices have plunged recently as the world grapples with an oversupply following a warmer-than-expected winter, writes CNBC. The U.S. reported its warmest winter on record. Europe logged its second warmest winter temperature on record. Similarly, Japan’s average temperature this winter was also 1.27 degrees Celsius (2.29 degrees Fahrenheit) higher than normal for the second warmest winter on record. Looking further ahead, more than 150 million tonnes per annum worth of LNG capacity is currently under construction, which investment bank Morgan Stanley named a “record wave of expansion” for a market that currently stands at over 400 mtpa. This means gas prices could potentially remain depressed for a number of years.
AI ACTIVITY EXPECTED TO RESCUE NATURAL GAS PRICES
A surge in demand for electricity to feed data centres and to power an artificial intelligence revolution will come the rescue of natural gas, producers expect according to the Financial Times. AI’s soaring energy needs will rise well beyond what renewable energy and batteries can deliver, gas producers say. The International Energy Agency estimates power demand from data centres globally could top 1,000 TWh by 2026 — double 2022 levels and an increase equivalent to Germany’s total power demand. FT quotes an investor as saying
Gas is the only cost-efficient energy generation capable of providing the type of 24/7 reliable power required by the big technology companies to power the AI boom
But not everyone is convinced, as many of the customers of data centres have made net zero CO2 commitments, so they will say the power has to be renewables. Semafor notes, however, that renewable electricity companies themselves doubt that they can keep up with the expected demand increase from AI.
Macroeconomics
CHINA’S ECONOMIC GROWTH TO BE BELOW 5%
Nikkei Asia has surveyed 31 leading economists about the outlook for China’s economy. The average projection is 4.7% growth in 2024, marginally up from the 4.6% rate they forecasted in a December 2023 survey, but lower than Beijing's official target of "around 5%" announced at the National People's Congress in early March. Twenty-seven of the economists predicted growth below 5%, mainly pointing to the sluggish housing market and a lack of sufficient policies to stimulate demand. The experts from major banks and institutions see the downturn deepening in the years ahead, predicting 4.4% for 2025 and 4.2% for 2026, amid the ongoing property crisis, weak consumption and challenges posed by an aging population.
Geopolitics
BREMMER’S VIEWS ON A SECOND TRUMP PRESIDENCY
Ian Bremmer has written down his view regarding what a second Donald Trump presidency would mean for geopolitics, for Nikkei Asia. On China, a second Trump presidency would mean a turn toward a more confrontational U.S. approach to the rivalry. There is also likely to be a new push against U.S. allies like Japan and South Korea to renegotiate trade and security terms. (EPM notes that during his first presidency Trump demanded higher payments by the South Koreans for the US military force on the peninsula.) On NATO, Trump will weaken the transatlantic alliance. Most NATO countries will not be willing or able to meet the conditions for higher spending Trump sets. Trump is unlikely to try to pull the U.S. out of the alliance, whatever threats he makes, but allies in Europe and enemies in the Kremlin will each have cause to doubt the Trump administration's commitment to defend alliance partners under attack. In the Middle East, Trump might play a more stabilizing role. Trumps term, his transactional instincts and strong relationships with Gulf Arab leaders could revive the possibility of further – Abraham Accord-like – deals.
Other
EUROPEAN FARMERS HAVE WON SIGNIFICANT CONCESSIONS FROM OPPOSING GREEN LAWS
From Poland to Portugal, farmers have won remarkable concessions in response to waves of street action, reshaping the European Union's green politics, writes Reuters. EU countries declined to approve a landmark law to safeguard nature, leaving it unclear if the policy will be passed. And, EU countries have asked Brussels to scale back and possibly delay a new anti-deforestation policy, which they said could harm local farmers. Meanwhile, changes to weaken environmental criteria linked to the disbursement of subsidies under the EU's Common Agricultural Policy (CAP) have taken place at lightning speed, without proper consultation according to Greenpeace. In the EPM this is noteworthy, because of our belief that the energy transition is not a given, and will certainly not take place as currently planned by policymakers. As the world progresses on the currently planned path, once the economic costs of these policy choices start to impact household budgets, we believe there will be strong pushback. The farmers in Europe were the first group to do so in a coordinated manner. We expect more to come from other groups in society as well.
SHELL ARGUES AGGRESSIVE TRANSITION NEGATIVES OUTWEIGH BENEFITS
EPM’S the view is that of Shell, apparently. On the first day of the Shell appeal of a 2021 court ruling that ordered the company to slash its greenhouse gases faster, lawyers for the company said support for the energy transition will wane if ordinary citizens aren’t able to keep the lights on, according to Bloomberg. “If people can no longer pay for their energy or that energy is no longer reliable when you press the button or want to cook food and turn on the gas stove, the support of people in the country here but also in other countries for the energy transition will be lost,” Shell’s lawyer said in court. In the original case, the claimants argued that Shell was threatening the lives of people by its emissions. Shell’s defense focuses on the point that not providing its fossil-based product in an affordable manner also threatens the lives of people – possibly more.