Energy, Politics & Money - 01 August 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money just for you!
Welcome to the Energy, Politics & Money newsfeed of Monday 1 August 2022, with your daily dose of cutting-edge insight into everything of importance in the connected worlds of energy, geopolitics and the economy.
In this roundup, we review:
Quarterly profits are up (way up) for major oil companies but the plan for using the lucre remains the same
OPEC+, Russia, the US, and Europe machinations oil and increasing its supply
The intensifying crisis between China and the US over Tiawan
The EU, distracted by the Energy and Ukrainian crises, drops the ESG Standards ball (and kicks it away)
The impact of the energy crisis in Australia, Asia, Germany, and Europe as countries compete for a limited supply.
The Atlantic’s deep dive into the news regarding a newly published bill with significant impact on US energy - carbon based and renewable - production and use.
General Energy News
We did not yet cover the earnings releases of ExxonMobil and Chevron in our update from last Friday. ExxonMobil delivered a $17.9 billion quarterly profit, the most for any international oil major in history. Chevron second-quarter profit was $11.6 billion. Similar to their European counterparts, ExxonMobil and Chevron plan to use the sizable profits and increased cash flows for additional share buybacks.
Click here for more: https://www.ft.com/content/13f82093-1110-4c92-9fea-936067a5f29e
Crude trading early morning Monday saw the price fall, as the concerns about the economy start to outweigh concerns over continued market tightness. According to Bloomberg, poor Chinese economic data was one the reasons for this change in market sentiment.
Click here for more: https://www.bloomberg.com/news/articles/2022-07-31/oil-drops-at-start-of-week-as-china-data-raises-demand-concerns
Haitham al-Ghais, OPEC's new Secretary General, said that Russia's membership in OPEC+ is vital for the success of the agreement. Other elements of the interview granted to a Kuwaiti newspaper and reported on by Reuters, also indicate that no changes to OPEC policy are to be expected anytime soon.
Click here for more: https://www.reuters.com/business/energy/opec-secretary-general-says-russias-membership-opec-is-vital-success-agreement-2022-07-31/
According to Bloomberg, the Russian influence in OPEC+ is pushing the cartel to decreasing production, although western nations and the US in particular, are asking for it to increase output.
Click here for more: https://www.bloomberg.com/opinion/articles/2022-07-31/oil-prices-don-t-count-on-opec-pumping-more-oil-russia-is-in-the-way
OPEC+ currently under producing versus its own targets by around 2.7 million barrels per day, Russia is responsible for half that. The cartel could allow other members to produce more than their quota to make up for short fall in production, but for geostrategic reasons it is of course unlikely Russia will agree to this.
According to the Financial Times, the EU is backing off from its plan to shut Russia out of the vital Lloyd’s of London maritime insurance market.
Click here for more: https://www.ft.com/content/333f7447-aed8-40d2-87e9-f8d289162707
You may recall the US was very concerned that this move would further disrupt the oil market and push prices even further up, as it was likely to remove additional Russian oil from supply. It, therefore, proposed an alternate scheme of capping the price customers can pay for Russian oil. But Russia responded to that by saying it would not sell oil to any country who implemented the cap. For this reason, an opinion piece in Nikkei Asia argues China and India would be wise not to follow Europe or the US.
Click here for more: https://asia.nikkei.com/Opinion/China-and-India-should-reject-West-s-Russia-oil-price-cap-plan
The Macro Environment (economics & geopolitics)
Bloomberg reports on a European Central Bank study which concluded that the higher oil prices will reduce the Euro area output by just 0.8%.
That is not an unreasonable number as crude oil derivatives are much less of an input to production system than natural gas. We eagerly await the ECB’s study on how record gas prices and limited gas supplies will impact economic production.
Click here for more: https://www.bloomberg.com/news/articles/2022-08-01/ecb-says-oil-price-hike-to-cut-euro-area-output-by-just-0-8
Responsible Statecraft provide some excellent context on the proposed Pelosi visit to Taiwan, which we’ve been covering because it is an element of the larger trend towards regionalization of the global economy. The context provided by RS is the Chinese perspective on the proposed trip: “From Beijing’s perspective, Washington has been gradually shifting the goalposts on Taiwan toward explicit support for Taipei’s independence, a red line for Chinese officials. And a visit from a top U.S. politician would only make things worse.”
Click here for more: https://responsiblestatecraft.org/2022/07/25/how-china-would-see-a-pelosi-visit-to-taiwan-and-why-it-matters/
The Electrification of Transport
Nothing to report today.
ESG
Bloomberg reports the next milestone in Europe’s efforts to create a global benchmark for ESG investing has been shelved indefinitely, as EU attention is drawn elsewhere amidst the energy crisis. As a result, the so-called social taxonomy, the next plank in the European Union’s years-long process to create a guidebook for driving capital into activities that meet environmental, social and governance standards is unlikely to see the light of day in the next few years.
Click here for more: https://www.bloomberg.com/news/articles/2022-07-31/europe-to-put-key-plank-of-esg-rulebook-on-hold-amid-infighting
The Global Energy Crisis
Reuters reports that one of the “Big Three” LNG producers - Australia - is seriously considering placing limits on gas exports in order to ensure sufficient supplies for the domestic market their coming summer. From our perspective, this would significantly worsen an already very bad global gas situation.
Click here for more: https://www.reuters.com/business/energy/australias-east-coast-may-face-gas-shortfall-next-year-watchdog-warns-2022-07-31/
The effects of the “very bad global gas situation” are beginning to show in Asian demand. Reuters reports Asian LNG prices remain very high – the spot price was $42.50 per million British thermal units (mmBtu) on July 29, exceeding the previous 2022 high of $40.50, short of the record high of $48.30 per mmBtu from the week ending December 23 but 160% higher than in the same week of July last year and 1400% above the level from late July 2020. This is happening amidst weak demand from Asia itself, in no small part due to China’s economic weakness at present.
Click here for more: https://www.reuters.com/markets/commodities/asias-lng-demand-slipping-europe-crisis-keeps-price-sky-high-2022-08-01/
What this means for Asia, is that the high price of LNG is due to European competition for supply and resulting high prices are depressing Asian demand for LNG, as the product is perceived to be “accessible but unaffordable” for many in the region.
Bloomberg, meanwhile, carries a Big Take which argues “Germany has little time to lose to avert an energy shortage this winter that would be unprecedented for a developed nation.”
Click here for more: https://www.bloomberg.com/news/articles/2022-08-01/germany-heading-to-gas-emergency-with-russia-keeping-nord-stream-flows-reduced
Our Take:
The energy crisis is (a) clear and present (danger) in Germany. If household energy bills are expected to rise by thousands of Euro’s - the result will be a forcible cut in demand - and by preparing to ration supplies, Germany, is by default, already deep in an energy crisis. We would, however, agree with the authors of the article (see immediately above) that things can get much worse for Germany - we don’t see many avenues through which a further worsening of Germany’s energy situation can be prevented. Additional energy supplies are hard to come by, and they are so expensive, that households can ill afford them and German industry becomes globally uncompetitive (not everyone wants to pay more for German goods). We also believe the so called idea of “European solidarity” - regarding limited energy supplies - is unlikely to translate into any action that would move the needle…
Climate Politics
The Atlantic digs deep into the contents of the climate bill that Senator Joe Manchin and Senate Majority Leader Chuck Schumer introduced this week to the Senate and agreed to support. At the core of the bill is a set of tax credits designed to touch nearly every aspect of the energy economy. Among some of the new tax credits, is a $7,500 rebate for new EV purchases and a $4,000 incentive for Americans to buy used electric vehicles.
The bill includes additional incentives: 10 year subsidy program to support households with purchasing and installing heat pumps, electric water heaters, and rooftop solar panels AND $10 billion in funding for low-income Americans to increase their home’s energy efficiency and electrify key appliances.
To support de-carbonization in heavy industry, tax credits and incentives support development of domestic clean-hydrogen, direct-air-capture, and advanced-nuclear industries. At the same time, the bill invests in the conventional fossil-fuel system. This is a compromise that allowed agreement over the contents of the Bill to be reached. It does this by forcing the governments to grant access to new locations for oil and gas leasing in Alaska and the Gulf of Mexico, and by tying renewable development on federal property to fossil-fuel development. The bill forbids Government from selling leases for installing solar or wind power projects on federal land or seafloor when it has not also recently opened territory to oil and gas developers.
Click here for more: https://www.theatlantic.com/science/archive/2022/07/manchin-schumer-inflation-reduction-climate/670981/
Reuters reports that Spain intends to send a proposal to the European Union on limiting carbon emission permit prices, in a bid to curb energy price increases and their effects on inflation.
Click here for more: https://www.reuters.com/markets/commodities/spain-propose-eu-cap-carbon-emission-permit-prices-pm-says-2022-07-29/