In this roundup, we look at:
The rise in gasoline demand in Europe
China’s third batch of oil products export quotas, for 15 million metric tons, which takes the total volume this year to 53.99 million tons, up from 34.75 million in 2022
Sinopec’s international growth ambition for its downstream unit
The Financial Times’ review of the price cap on Russian crude oil
The further steps taken by the Chinese government to prop up its real estate sector
The visit by General Anthony Cotton, commander of the U.S. Strategic Command which oversees America's nuclear forces, to japan, which in the EPM view indicates that the U.S. plan is to establish a China-facing “nuclear deterrent” in Asia Pacific.
China’s view of its natural territory in the Himalaya’s, which is causing a rift with its BRICS partner India
Shell’s ditching of its plan to spend $100 million a year on carbon credits, which in the EPM view communicates that the company truly has abandoned its Net Zero objective
The wider trend of companies pulling back from offsetting their emissions, which is causing a decline in the size of the global voluntary carbon market
The view of Equinor and BP that U.S. offshore wind prices need to rise by more than 50% to make them economic in the current climate
China’s lead in nuclear energy technology
Canada’s plan to place a cap on oil and gas emissions, and legally require oil and gas companies reduce their emission
The “pro and con” views regarding the concept of solar radiation management, reflecting some of the sun’s rays back into space in order to cool planet earth
General Energy News
Oil headed for the biggest weekly gain since April as Russia signaled it would extend export curbs and China fired another salvo of state support to bolster the economy in the world’s largest crude importer, writes Bloomberg. WTI is about 5% higher this week, at $83.78 a barrel. Brent is at $87.04 a barrel.
For a time, European gasoline demand was dropping year after year, with oil executives assuming that consumption would continue to fall somewhere between 1% and 2% per annum, driven by two factors: more efficient engines and the rise of diesel-powered vehicles, particularly in Germany and France. Bloomberg writes that this trend changed around 10 years ago. First, gasoline use stabilized, and then it started to climb. Based on preliminary data, it looks like European Union gasoline consumption hovered this summer at a 10-year high. The main reasons are two. First, the shift away from diesel to gasoline following the Volkswagen emissions cheating scandal. Second, the increase in cars on European roads. Bloomberg concludes that while the future is electric, in the world of today, gasoline is king. Even in green-conscious Europe.
China has issued 15 million metric tons of oil products export quotas to companies in its third batch for 2023, writes Reuters. The volume consists of 12 million tons of refined products quotas, made up of kerosene, diesel and gasoline exports, and 3 million tons of marine fuel. The quotas were allotted to Sinopec, PetroChina, CNOOC, Sinochem Group, China Aviation Oil Co, Zhejiang Petrochemical Co and Norinco. State-owned Sinopec, PetroChina, CNOOC and Sinochem Group were the main recipients of the quotas, taking 91.6% of the allocation across refined fuel products and marine fuel. The new issue brings the total volume of oil product export quotas this year to 53.99 million tons, up from 34.75 million issued in the same period last year. Previous batches this year comprised 12 million tons in May and 26.99 million in January. EPM notes that China’s increased export quotas of course support economic activity in the country, but in 2022 were also critical for global supplies of liquid fuels meeting demand while Russian energy was being sanctioned.
China's Sinopec Corp is setting up a new entity, Sinopec Overseas Investment Holding, to invest in refinery and petrochemical assets overseas in a bid to leverage its expertise and deep pockets to expand globally as local Chinese oil demand nears a plateau, writes Reuters. Sinopec is expected to focus on locations where demand is growing and feedstock is easily accessible. One such investment could be in Sri Lanka, where Sinopec was shortlisted to bid for an export-oriented refinery in Hambantota potentially worth billions of dollars. Sinopec is also among companies reviewing Shell's Singapore refinery and petrochemical assets.
The Financial Times reviews the price cap on Russian crude oil. The policy — introduced by the G7, the EU and Australia — has had more effect on some routes than others. The flows from the Russian far east to China have, for example, long been priced above the cap, which stands at $60 per barrel for crude. The price cap coalition has little traction there. But oil coming out of the Russian Baltic ports, such as Primorsk and Ust-Luga, has been sold at hefty discounts. Pressure from the big buyers in India, who worry about flouting U.S. sanctions, and the need for western ships and shipping insurance kept the discounts pretty steep.
Macroeconomics
China stepped up measures to boost the country's faltering economy, writes Reuters, among others ways by easing some borrowing rules and a cut to the amount of forex banks must hold as reserves. The measures cheered investors, and analysts said they should prevent a further downturn in the struggling property sector. The country is set to take further action including relaxing home-purchase restrictions.
Geopolitics
General Anthony Cotton, commander of the U.S. Strategic Command, who oversees America's nuclear triad which consists of land-launched intercontinental ballistic missiles (ICBMs), sea-based ballistic missile submarines (SSBNs) and air-based strategic bombers, arrived in Tokyo as part of a visit to the region, writes Nikkei Asia. He is expected to meet General Yoshihide Yoshida, the highest-ranking officer in Japan's Self-Defense Forces, and is scheduled to visit the prime minister's office and the Foreign Ministry. General Yoshida earlier this week said his ambition was for Japan to join the U.S. nuclear umbrella. In the EPM view this clearly indicates that the U.S. plan is to establish a China-facing “nuclear deterrent” in Asia Pacific.
When in competition with the US, it is wise to make friends rather than enemies. This, it seems, is not one of China’s strong points. BBC reports that China's ministry of natural resources has released a new China map, which reportedly shows India’s north-eastern state of Arunachal Pradesh and the disputed Aksai Chin plateau as Chinese territory. Obviously, this has angered China’s BRICS partner India. China says it considers the whole of Arunachal Pradesh its territory, calling it "South Tibet". India claims the Aksai Chin plateau in the Himalayas, which is controlled by China. In the EPM view this news important for two reasons. Firstly, it highlights what we believe to be China’s major weakness in geopolitics: it’s inability to make friends and build real alliances. Second, it highlights what we have said regarding BRICS, namely that the bloc as it is will not upend the US’s “international rules based order”, as the BRICS bloc is a very loose amalgamation of countries that on too many important things just cannot get along well enough.
Energy Transition & Technology News
Shell has ditched its plan to spend $100 million a year on carbon credits, writes Carbon Credits. It was supposed to be the largest offset program among oil and gas corporations, but 6 months after its new chief executive officer Wael Sawan took office it was ended. Originally, Shell aimed at spending $100 million each year on carbon offsets. The oil company also targeted to generate 120 million carbon credits yearly by 2030 from natural carbon sequestration projects. These targets would have offset about 10% of Shell’s carbon emissions. According to Shell, those prior goals weren’t attainable due to the lack of carbon offsets that meet its quality standards. In the EPM view this indicates, firstly, how radical the strategic U-turn of Shell under Sawan. It is back to pure basics, upstream oil & gas, as a corollary of which the company has practically abandoned its Net Zero objective. But secondly, it also shows how much of Shell’s previously stated energy transition ambitions were not firmly grounded, i.e. more crafted appease external stakeholders than resulting from thorough strategic and financial analysis.
Bloomberg echoes the EPM analysis. “Europe's Biggest Oil Company Quietly Shelves a Radical Plan to Shrink Its Carbon Footprint”, it says.
According to Reuters, Shell is not the only company pulling back from its offsetting plans. Company’s such as Nestle and Gucci preceded it, which has caused the global voluntary carbon markets to have shrunk for the first time in at least seven years. Carbon credit demand is on track to fall further in 2023. Behind the decline is the realization that many forest protection projects do not deliver promised emissions savings, Reuters says. EPM believes that another part of the story is the fact that public opinion is turning against offsetting, and becoming more focused on delivering actual reductions in emissions. The end result is that only higher-quality offsets remain socially acceptable. These of course come with a bigger price tag, and that makes the practice of offsetting a lot less interesting for companies.
Norway's Equinor and its partner BP are seeking a 54% increase for the price of power produced at three planned offshore U.S. wind farms, writes Reuters. The two partners in recent years won the rights to build the Empire Wind 1, Empire Wind 2 and Beacon Wind wind farms off the New York coast, which have a combined capacity of 3,300 megawatts. Equinor and BP argued that "rampant inflation, global supply chain disruptions and soaring interest rates associated with the COVID-19 pandemic, the Russia-Ukraine conflict and the increasing pace of the energy transition", has driven up costs. To compensate, the partners request for the so-called strike price for Empire Wind 1 to rise from $118.38 per megawatt hour (MWh) to $159.64/MWh, for Empire Wind 2 to rise from $107.50/MWh to $177.84/MWh, and for Beacon Wind to rise from 118.00/MWh to 190.82/MWh.
CNBC looks at how China has become the “king of nuclear”. It has 21 nuclear reactors under construction which will have a capacity for generating more than 21 gigawatts of electricity. That is two and a half times more nuclear reactors under construction than any other country. India has the second largest nuclear buildout right now, with eight reactors under construction that will be able to generate more than six gigawatts of electricity. Third place Turkey has four nuclear reactors under construction with a presumed capacity of 4.5 gigawatts.
The United States currently has one nuclear reactor under construction, able to generate just over 1 gigawatt. Thus activity has translated into China becoming the de facto world leader in nuclear technology at the moment, it says. Behind this is success is the Chinese government, which has provided legislative support that made nuclear an economically attractive proposition. The buildout of capacity then gave the opportunity to innovate.
Climate Politics
Canada plans to place a cap on oil and gas emissions, writes Bloomberg. The draft regulations are set to be published as soon as October and will “definitely” be released before a United Nations climate conference in Dubai that kicks off November 30, the Canadian government says. Last year, the environment minister published an emissions reduction plan that foresaw a 42% reduction in oil and gas emissions by 2030 — a target that oil industry groups have argued is too restrictive. However, Canadian officials have also said the 42% figure was a modeling exercise, and in practice the share of each sector’s emission cuts by 2030 could look different. Although the details of the plan are skimpy at present, to EPM it seems Canada will legally require oil and gas companies to reduce their emission.
Other
The Financial Times looks at the concept of climate engineering, or to be precise, solar radiation management (SRM) — the idea that the Earth can be cooled by reflecting some of the sun’s rays back into space. Proponents argue that humanity’s lack of progress in curbing carbon emissions means society will increasingly need to look at more drastic ways to limit the worst effects of warming as well as trying to prevent further rises in global temperatures. But for others, SRM is a wasteful, ineffective and even dangerous proposition. Little is known about the side effects of attempting such cooling on a planetary scale; some scientists argue that large-scale deployment of sulphur into the stratosphere might change the colour of the sky to a milky white. Others suggest that such a project might have unpredictable effects on weather patterns across the globe and could potentially worsen extreme weather events such as droughts and monsoons in some regions.