Energy, (Geo)Politics & Money - 29 February 2024
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 cover lots of ground in Geopolitics. George Friedman essentially says that Russia has won the war in Ukraine, and that Europe will now have to really step up. As to Gaza, we discuss in depth the internal power struggles that we believe are taking place in Israel and the US, and what this is likely to mean for the trajectory of the conflict – will it escalate of (finally) fizzle out?
Furthermore, we look at:
The view that China’s oil demand will be structurally lower this year and the following, about 300,000 barrels per day, approximately a quarter of what it once was
The tenfold increase in US investment in climate technologies such as green hydrogen, sustainable aviation fuel and carbon capture
China’s increase in solar capacity over 2023 – all 200+ gigawatt of it!
The view of the head of the UN Intergovernmental Panel on Climate Change on Carbon Capture, which he likened to “pushing water up a hill”
Shell continued withdrawal from the energy transition, with its US solar business Savion putting around a quarter of its assets up for sale
The Asian Development Bank intention to increase its allocation of financing toward addressing climate change to 55% by 2030, up from less than 40% now
The SEC’s decision to vote on whether to adopt the rules requiring U.S.-listed companies to report climate-related risks on March 6
General Energy News
CHINA OIL DEMAND TO SOFTEN
Eurasia Group believes China’s oil demand will not return to the “million barrels per day plus” on an annual basis, writes CNBC. The consultancy expects demand growth to be around 250,000 bpd to 350,000 bpd, less than half of what it was in 2019. The country’s construction and auto sectors — key drivers for oil demand — now look “exhausted,” the consultancy says. Even if China’s property sector recovers, future growth on the level seen before the pandemic “is not possible”, it says, given the country’s soaring debt levels (which limits debt based spending), declining demographics and resulting reduced GDP growth expectations.
Geopolitics
FRIEDMAN ARGUES UKRAINE HAS ALREADY LOST
George Friedman of Geopolitical Futures has provided his latest assessment of the Ukraine War. Russia started this war two years ago, he says, not because it feared an imminent invasion by the US or NATO of Russian territory from Ukrainian territory. Rather, It did what it did because it knows Ukraine gives the US and NATO the capability to do so, if and when the intention were to arise. So, Friedman argues, Russia reasoned that “war should begin when the enemy has no intention (yet) to fight and has limited capability”. This calculation led Russia to invade Ukraine and thus acquire a vast buffer against American incursion if the U.S. changed its stance. Since then, Russia did not fight or organize well, he says, but it performed just well enough to bring the conflict to a point where the U.S. commitment is now at risk. The U.S. will likely send more weapons, but Russia has ventured too far into Ukraine to be stopped by anything less than overwhelming force. With Europe being on the front lines, it will have to step up if it wants to see its desired outcomes achieved, Friedman concludes.
FORMER ISRAELI PM URGES STOP TO HOSTILITIES
A Bloomberg interview with former Israeli prime minister Ehud Olmert reminded EPM of our original assessment of the War on Gaza. At that time, we said, it would likely be used by political forces inside Israel that are more aligned with the US vision for the Middle East (two-state solution and Abraham Accords, to facilitate the Pivot to Asia) to increase pressure on Netanyahu. This internal power struggle has not been obvious, as the terrible suffering inflicted by Israel on the people of Gaza has (rightly) been the focus of international media, but it is certainly there. In his interview Olmert said Netanyahu should stop the war against Hamas and focus on a plan that will enable the Israeli army to leave Gaza and international forces to go in as peacekeepers. Israel will face dire consequences if it sends troops into the besieged Gazan city of Rafah, he also said, making the argument that other nations, including the US, will find an assault on Rafah intolerable. The most immediate danger for Israel, he said, is that neighboring Egypt could revoke its 45-year-old diplomatic treaty with the Jewish state – which, EPM notes, is exactly what Egypt has threatened to do. (Undoubtedly in alignment with the US, we say, since in international affairs Egypt does nothing except what the US wants it to do.) Once Israel’s army is out of Gaza, the government must start peace negotiations with the Palestinians, Olmert further said, adding it’s in Israel’s interests to eventually allow for an independent Palestinian state. And that even Bloomberg recognizes is exactly the standpoint of the Biden administration throughout this current conflict (and before).
US INCREASING PRESSURE ON NETANYAHU TO END HOSTILITIES
Meanwhile, the US is also increasing pressure on Netanyahu to make him change course. Axios writes that the Biden administration has given Israel until mid-March to sign a letter, provided by the U.S., that gives assurances it will abide by international law while using U.S. weapons and allow humanitarian aid into Gaza. If the letter is not signed, U.S. weapon transfers to the country will be paused. The EPM view on US policy on this matter has evolved during the course of Israel’s War on Gaza, and we are now of the view that while the Biden administration is sincerely pushing for Israel to fall in line with the official US strategy (again: two-state solution and Abraham Accords, to facilitate the Pivot to Asia), a significant subset of the US deep state is targeting unconditional US support for Israel. In other words, we believe that in addition to an internal power struggle inside Israel, there is also one inside the US. That, we believe, is what explains the schizophrenic behavior of the US, with official statements and actions not being aligned, and even actions often being contradictory (such as this letter compared with the message from the US embassy in Israel two weeks ago that said US weapons transfers should continue without conditions). All this makes it essentially impossible to predict what the next developments in Israel’s War on Gaza, as well as the wider Middle East, will be. If in Israel Netanyahu and the US the Zionist lobby ends up dominating, the expulsion of the people of Gaza into Egypt and horizontal escalation of the current conflict into Lebanon becomes the most likely outcome. If the Biden administration and its allies in Israel win, Israel will halt its attack, withdraw its forces, and agree to a Palestinian state in which US selected individuals will form the political elite.
Energy Transition & Technology News
US INVESTMENT IN EMERGING GREEN TECH GREW TENFOLD IN 2023
US investment in emerging climate technologies, such as green hydrogen, sustainable aviation fuel and carbon capture grew tenfold last year, hitting $9.1 billion, writes Bloomberg. Nearly half came in the fourth quarter. These emerging industries attracted more finance than the wind industry did this year, which struggled under high interest rates, siting issues and grid-connection queues. The interest rate environment also put a damper on heat pump sales, as they have residential construction in general.
CHINA ADDED 120 GIGAWATTS OF SOLAR IN 2023
China added 120 gigawatts of utility-scale solar projects last year, exceeding the 96.3 gigawatts of new distributed capacity which are mainly on the rooftops of homes and office buildings, writes Bloomberg. Rooftop installations were the major force for China’s solar growth in 2021 and 2022 as the country ran out of land for utility-scale developments in more densely populated regions. However, large-scale solar projects outgrew distributed capacity last year after Xi’s ambitious plan for clean energy expansion lured developers to the country’s inland areas.
IPCC SAYS CCS ROLL OUT SLOW AND PAINFUL
Jim Skea, the head of the UN’s Intergovernmental Panel on Climate Change, has compared the rollout of carbon capture and storage (CCS) to “trying to push water uphill”, writes CNBC. Skea’s comments came during the first day of International Energy Week, formerly known as International Petroleum Week — a three-day global energy conference in London that convenes senior industry figures. Consequently, “(CCS) is not the answer to everything, but it is certainly part of the picture,” Skea said.
SHEEL CONTINUES ENERGY TRANSITION WITHDRAWAL
Shell continues its withdrawal from the energy transition, with its US solar business Savion putting around a quarter of its assets up for sale, writes Reuters. Investment bank Jefferies is running the sale of up to 10.6 gigawatts (GW) of solar generation and storage assets currently in development. Shell acquired Savion for an undisclosed sum in December 2021 as part of a drive under former CEO Ben van Beurden to grow in the low-carbon energy market and reduce its carbon footprint.
Climate Politics
ABD ALLOCATE 55% OF FINANCING TO CLIMATE CHANGE PROJECTS
The Asian Development Bank (ABD) intends to allocate 55% of its financing toward addressing climate change by 2030, up from less than 40% now, Nikkei writes. In addition, the bank is expected to boost the maximum amount of available financing to $35 billion per year from the current $25 billion. The ADB set a goal in September of securing $100 billion in new funding resources over the next decade. The bank will spend three years reassessing organizational practices to improve lending efficiency.
SEC TO VOTE ON RULES FOR CLIMATE RISK REPORTING ON MARCH 6 2024
The SEC will vote on March 6 on whether to adopt rules requiring U.S.-listed companies to report climate-related risks, writes Reuters. The Securities and Exchange Commission rules aim to standardize climate-related company disclosures about greenhouse gas emissions, risks and how much money they are spending on the transition to a low-carbon economy. The agency says that such information is important for investors.