Energy, (Geo)Politics & Money - March 4 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 look at:
OPEC+’s decision to extend its production cut, which stands at 5.86 million bpd, equal to about 5.7% of daily world demand
The Biden administration’s “2024 Trade Policy Agenda”, which promises further sanctions and tariffs on Chinese good; which, EPM notes, means that only thing Biden and Trump agree on is further economic action against China
The outlook for “white hydrogen”, that is hydrogen naturally seeping from the earth’s crust
The Biden administration’s announcement that it will investigate Chinese electric vehicles, claiming their high-tech abilities can be used to spy on Americans; where EPM explains why, at the end of the day, this is just an excuse to further the real objective of disconnecting the US economy from China, as part of the US “grand strategy” for its geopolitical competition with China
Mercedes updated electrification strategy, which used to target “100% by 2030”, but now targets just 50%; where EPM explains why we believe this is not the right move, and note what we think this means about likely EU trade policy when it comes to EVs
The increase in global carbon emissions over 2023, to a new annual record
Photo by @ventiviews https://unsplash.com/
General Energy News
OPEC+ AGREES TO VOLUNTARY 2.2 MILLION CUT INTO Q2/2024
OPEC+ have agreed to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter, writes Reuters. Saudi Arabia said it would extend its voluntary cut of 1 million barrels per day (bpd) through the end of June, leaving its output at around 9 million bpd. Russia will cut oil production and exports by an extra 471,000 bpd in the second quarter. For the second quarter, Iraq will extend its 220,000 bpd output cut, UAE will keep in place its 163,000 bpd output cut and Kuwait will maintain its 135,000 bpd output cut, the three OPEC producers said in separate statements. Algeria also said it would cut by 51,000 bpd and Oman by 42,000 bpd. Kazakhstan said it will extend its voluntary cuts of 82,000 bpd through the second quarter. The total OPEC+ pledged cut now stands at about 5.86 million bpd, equal to about 5.7% of daily world demand, according to Reuters calculations.
During early trading on Monday morning, the decision enabled the oil price to maintain its gains from last Friday, when Brent futures closed near $84 a barrel after rising 2%, while WTI broke through $80 for the first time since November, writes Bloomberg.
The OPEC+ decision offers much needed support for oils writes Reuters, as the Energy Information Agency (EIA) in the US announced American oil production was 13.3 million barrels per day (b/d) in December 2023, an increase of 1.2 million b/d (10%) from a year earlier – a comparison somewhat flattered by the extreme cold which caused widespread well freeze offs and a brief but sharp drop in production in late December 2022.
Macroeconomics
US TO CONTINUE IMPORT TARIFFS ON CHINESE GOODS
In 2018, Donald Trump imposed tariffs on Chinese imports to address the bilateral trade deficit, accusing Beijing of flooding the US market with Chinese goods. The Biden administration has, so far, mostly kept the Trump-era duties on imports worth US$350 billion intact. But it is now getting ready for a further escalation, writes the South China Morning Post. The 2024 Trade Policy Agenda was released by the office of US Trade Representative Katherine Tai, and it says it seeks to continue action against “harms wrought” by what it called Beijing’s “trade and economic abuses”. “We are also considering all existing tools – and will seek new ones as needed”, the report says. The US accuses China of maintaining a non-market economy that it seeks to use as leverage to distort competitive markets and concentrate supply chains under its control through massive state subsidies. Washington has tied these concerns to national security, most recently last Thursday when Biden ordered an investigation into potential threats posed by China-made electric vehicles (for more on this, see EPM section The Electrification of Transport). The report comes as Biden prepares for an electoral rematch with Trump, who has promised tariffs of 60 per cent or more on Chinese imports and a flat 10 per cent on all other foreign goods if he is re-elected in November. EPM notes that this means Biden and Trump agree on further economic action against China. As such, investors should prepare for accelerated regionalization of the global economy over coming years.
Energy Transition & Technology News
NO WHITE HYDROGEN GUSHERS, YET
Bloomberg notes that the wildcatters searching for subsurface reservoirs of hydrogen (“white hydrogen”) are yet to find a “gusher”. The experts in the field are veterans of former booms. But it’s not simply a matter of transferring expertise. Petroleum geologists study the sorts of sedimentary rocks that trap oil and gas, but hydrogen appears to be produced when water interacts with iron-rich volcanic minerals.
H2 Energy News also looked at the subject, concluding that white hydrogen is unlikely to ever make it on to the “big stage”. The hydrogen seeping from the earth is diffused over large areas of land. Unlike hydrocarbons, there are unlikely to be hydrogen reservoirs below ground, where the molecule is trapped in rock formations, leading to significant upward pressure. This is what made hydrocarbon exploration and production such a success. No such hydrogen fields have been conclusively proven to date. Producing of white hydrogen from natural seeps is possible, but production rates will be low, possibly adequate for small local off take but not for large-scale hydrogen supply like feeding a large power plants or industrial facilities.
The Electrification of Transport
BIDEN TO INVESTIGATE CHINESE MADE EV’S
Citing potential national security risks, the Biden administration says it will investigate Chinese-made “smart cars” that can gather sensitive information about Americans driving them, writes AP. The probe could lead to new regulations aimed at preventing China from using sophisticated technology in electric vehicles and other so-called connected vehicles to track drivers and their personal information. Officials are concerned that features such as driver assistance technology could be used to effectively spy on Americans.
EPM, however, says this is just an excuse to further the real objective of disconnecting the US economy from China, as part of the US “grand strategy” for its geopolitical competition with China. In the realm of economics, this competition expresses itself in a disconnecting of the two economies, as each will adopt industrial policy to ensure it possesses the supply chains needed for an independent economic and military policy. China’s electric vehicle manufacturers so far outperform the American car manufacturers, that the latter need massive government intervention to protect them and keep them alive, which is critical for the American economy and its future ability to manufacture military vehicles.
MARKETS ADJUST MERCEDES EV TARGETS - ONLY 50% TO BE EVs BY 2030
Three years ago, Mercedes was feeling quite bullish about electric vehicles, saying that by 2030 it would only sell EVs. At the time, the company said it would completely phase out gas-powered vehicles – while including the caveat “where markets allowed”. It has not announced a backtracking on this strategic objective, writes The Verge. The company said in its fourth quarter earnings statement that it now expects 50 percent of its sales to be all-electric by 2030. Mercedes now says.
Customers and market conditions will set the pace of the transformation. The company plans to be in a position to cater to different customer needs, whether it’s an all-electric drivetrain or an electrified combustion engine, until well into the 2030s
EPM would agree that the company’s strategy should be aligned with developments in the market. And it is not unreasonable to conclude that Mercedes’ earlier assessment of electric vehicles development was too optimistic. Our view, however, is that it was not. The expected decline in EV sales growth in 2024 in our view is not the result of any structural changes to the EV and battery technology outlook, but rather the consequence of the current economic environment – internal combustion car sales will also struggle with the high interest rates.
As you know, EPM’s bullish outlook for EVs has nothing to do with emissions. Most people don’t buy a car on that basis. They look at design, price, comfort and operating cost. Mostly in that order. Continued innovation in (in particular) battery technology will make EVs outperform ICEV holistically in the near future – we have believed in “2025” since around 2016. In our view this will be achieved via optimizations of the lithium-ion battery. After this point, the industry will eventually switch to new battery chemistries, such as solid state batteries, that will place EV performance significantly ahead of ICEVs. Perhaps Mercedes sees it differently. Or perhaps they have realized they can not compete with the Chinese in neither EV design, tech or batteries. And as such are, in the background, preparing for extensive lobbying to have trade restrictions slow down the electrification of transport.
UMICORE - CHINESE EV VEHICLES BETTER THAN US
The Financial Times, meanwhile, interviewed Mathias Miedreich, chief executive of Umicore, one of the world’s biggest battery materials manufacturers, and asked him about the competition in the EV market. “They are simply good cars and people buy them,” he said in an interview, referring to Chinese vehicles. “The American ones [producers] seem to struggle to bring good electric vehicles [to market].” The Chinese have “at the end of the day what the market needs”, he said.
Other
GLOBAL CO2 EMISSIONS REACH NEW HIGH IN 2023
The world’s carbon dioxide emissions from energy rose yet again to a new high in 2023 despite fossil fuel use falling in the advanced economies of the EU and US, the latest International Energy Agency report shows, writes the Financial Times. Emissions reached a record 37.4bn tonnes, a rise of 1.1 per cent, or 410mn tonnes, compared to the year before. Higher emissions from India and China helped offset reductions in the EU and the US, as the developing economies remained heavily reliant on coal to meet energy demand even as they also develop cleaner energy. Still, the IEA is optimistic. Overall, emissions growth over the past five years would have been about three times higher without the development of cleaner energy technologies, it said. It also pointed to the US and the EU which managed to cut energy-related emissions despite economic growth.