Energy, Politics & Geopolitics - 2024.02.12
Non-partisan, objective & neutral analysis where global developments in energy, business & geopolitics intersect & curated from leading global sources & resources.
In this roundup, we take a closer look at the China All-Solid-State Battery Collaborative Innovation Platform (CASIP). This is a government-led consortium bringing together government, academia and industry - including EV battery rivals CATL and BYD - to expedite commercialization of all solid-state batteries.
EPM’s interest results from the fact solid state batteries are THE next generation of battery technology promising to revolutionize not only the electric vehicle markets and drive electrification of all other forms of transport including utility scale electricity storage. In other words, it can become truly revolutionary.
The consortium will target basic research, key technologies, and joint development and manufacturing of EVs equipped with solid-state batteries, in addition to creating the necessary supply chain to support commercialization by 2030.
EPM’s perspective on the news is that in typical Chinese fashion the plan is
Pro-active. China currently leads the world in more conventional battery technologies, but it is not sitting back for that lead to be upended by new technologies. Rather, it wants to use its current lead to ensure it also comes to dominate the next generation tech.
Ambitious. The target of 2030 is ambitious and is much earlier than what Japan is targeting.
Wise. The “whole of society” approach is what has the best chances of succeeding, if the force leading it is able to make different and competing stakeholders collaborate effectively.
Our assessment is that if there is any government that is currently capable of achieving this ambitious and timely objective, it is the Chinese government.
Furthermore, we look at:
OPEC+’s overproduction versus its quota commitment for the first quarter of 2024
The IEA’s outreach to Asian countries, the future centers of oil global demand
Germany’s decline as an industrial powerhouse, and the role played by energy policy is causing this economic disaster for Europe
Israel’s announcement that it has concluded operations in Southern Gaza; which EPM believes could well be a pivotal moment, the one where the US starts to dominate events and drive developments towards its vision
Iran’s confirmation that it has been in communications with the US on the conflict in Gaza; which EPM notes confirms our geopolitical analyses on the subject, including that the risk of escalation of the conflict is commonly overestimated
China’s geostrategic calculations when it comes to the Middle East, which are based on a belief that the US backing of Israel is weakening its position, and therefore explains why it is not intervening in for example the Houthi’s disruption of Red Sea shipping
The decision by US utility FirstEnergy to abandon its 2030 target for reducing greenhouse-gas emissions
General Energy News
S&P Global says that the crude output for OPCE+ is in decline, but the reduction was less than what was committed to by members under the most recent quota agreement. OPEC+ crude output fell 340,000 b/d in January, the steepest drop in six months, but far less than the approximately 700,000 b/d in cuts pledged by the group for the first quarter of 2024. Iraq was well above its quota, as were Kazakhstan, the UAE and Kuwait.
The International Energy Agency is working to enhance formal collaboration with the future centers of oil global demand, writes Nikkei Asia. It is finalizing plans to open membership discussions with India, and to establish its first regional office in Singapore in order to bolster ties with non-members such as Indonesia. The agency currently has 31 member countries, mainly Western nations, such as, the US and European states. The only Asian full members are Japan and South Korea. To ensure stable energy supplies, members are obligated to stockpile oil equivalent to 90 days' worth of imports.
Macroeconomics
Germany’s days as an industrial superpower are coming to an end, writes Bloomberg. It blames the energy crisis the country created for itself when its geopolitical stance led it to be disconnected from Russian natural gas. Bloomberg says, the decision to reduce Russian gas was the final blow for a growing number of industrial manufacturers.
Manufacturing output in Europe’s biggest economy had since 2017 been trending downward as China became a bigger rival and was no longer an insatiable buyer of German goods. But, the final blow for some heavy manufacturers was the end of huge volumes of cheap Russian natural gas further eroding competitiveness. While worst-case scenarios like freezing homes and rationing were avoided following the Russian invasion of Ukraine, prices remain comparatively higher than in other economies. This added to costs resulting from higher wages and regulatory complexity. One of the hardest-hit sectors has been chemicals.
Geopolitics
Israel says it has “concluded” its operation in Southern Gaza, writes Reuters. In the EP view, this announcement is likely the result of the intense US pressure on Israel not to launch a ground invasion of Rafah. Biden and Netanyahu spoke for about 45 minutes on Sunday, while according to CNBC, US ally Egypt threatened it would end its peace treaty with Israel if the IDF entered the Rafah area. We are hopeful, therefore, that the conflict in Gaza has now taken a turn for the better. For the first time in 4 months, US pressure on Israel has dominated its decision making priorities. This, together with the fact that most of Gaza has already been flattened by Israel, leads us to conclude that the most likely pathway forward is more leadership from the US, and, as such, a slow move towards its vision for a two state solution. This would see the West Bank and Gaza united under a single leadership for the Palestinians, the leader of course chosen by the US, a formal treaty between this leadership and Israel, and building upon that, a formal treaty between Israel and Saudi Arabia.
According to Reuters, Iran’s foreign minister said that Iran had exchanged messages throughout Israel's four-month-old war on Hamas in Gaza with the United States, in order to contain the conflict and included discussions about the Lebanese armed group Hezbollah. Hossein Amir Abdollahian said, rather cryptically, following a day-long visit to Beirut, Lebanon, "During this war and in the recent weeks, there was an exchange of messages between Iran and America". He said the United States had asked Tehran to request Hezbollah, which is backed by Iran, "not to get widely, fully involved in this war against" Israel. EPM notes that this news effectively confirms our geopolitical analyses on the subject, including that the risk of escalation of the conflict is commonly overestimated.
Chinese “grand strategy” when it comes to dealing with the US comes down to three “Noes”: no cooperation, no support and no confrontation, writes the South China Morning Post. This “creed” underlies China’s decision not to push back against the Iran-backed Houthis as they carry out drone and missile attacks on Red Sea shipping lanes, it says. There is recognition that the disruptions of the major supply line affect China’s economy – irrespective of whether Chinese vessels are attacked or not. But Chinese strategists tend to view developments in the Middle East through the lens of Sino-American relations. As a result, regional instability does not necessarily appear to be all that bad to China. It believes the US is being forced to back Israel at the significant cost of its strategic relationships with Muslim countries in the region. China can benefit from this, especially as a time when its great-power rival is already heavily invested in Russia’s invasion of Ukraine. The longer the US stands by Israel, the more opportunity China will have to consolidate its ties with other Middle Eastern countries and the more credible China’s alternative approach to regional security will appear. EPM wonders what form of inducements the US will use to bring the aligned Muslim countries back into their fold, or at least soothe their anger.
Energy Transition & Technology News
Utilities across the US have announced a slew of carbon-reduction goals in recent years in response to regulatory pressure to clean up power-generation fleets and meet green investor goals. Most utilities, however, are failing to make significant progress toward long-term carbon-neutrality targets. Bloomberg writes that FirstEnergy has now abandoned its 2030 target for reducing greenhouse-gas emissions, because coal plants can’t be replaced in time. The Ohio-based company’s longer-term goal of becoming carbon neutral by 2050 remains in effect.
The Electrification of Transport
China's battery and car makers have united as part of a government-led drive to commercialize all solid-state batteries, an area of technology that could revolutionize the electric vehicle market, writes Nikkei Asia. The China All-Solid-State Battery Collaborative Innovation Platform (CASIP) brings together government, academia and industry, including EV battery rivals CATL and BYD. The consortium will work on basic research, key technologies, and joint development and manufacturing of EVs equipped with solid-state batteries, in addition to setting up a supply chain for them. It targets a completion date of 2030.
China is stepping up research and development of the next-generation batteries, leveraging artificial intelligence and other technologies. Toyota currently leads the world in solid state battery technology. It holds more than 1,300 patents for solid-state batteries, while Chinese battery companies have fewer than 100. Toyota and others believe commercial production will be possible after 2030. If China manages to move faster, Japanese players will have a hard time catching up in the fast-growing EV market.
EPM’s interest in this race stems from the undeniable fact solid state batteries are the next generation of battery technology able to revolutionize, not only the electric vehicle market, but also drive electrification of all other forms of transport, as well as utility scale electricity storage. In other words, it can become truly revolutionary.
EPM’s perspective on the news is that in typical Chinese fashion the plan is:
Pro-active: China currently leads the world in more conventional battery technologies, but it is not sitting back for that lead to be upended by new technologies. Rather, it wants to use its current lead to ensure it also comes to dominate the next generation tech.
Ambitious: The target of 2030 is ambitious and is much earlier than what Japan is targeting.
Wise: The “whole of society” approach is what has the best chances of succeeding, if the force leading it is able to make different and competing stakeholders collaborate effectively.
Our assessment is that if there is any government that is capable of achieving it, it is the Chinese government. In all, China’s project reminds EPM of the US’ Project Socrates, which played a key role in enabling the US to establish and maintain technology leadership during the Cold War with the Soviet Union.