Energy, Politics & Money - 01 December 2022
Independent, objective, and politically neutral analysis of interconnected global developments in the world of energy, geopolitics, and money curated to help you thrive or survive these chaotic times.
In this roundup, we take a closer look at:
The progress in negotiations about the level of the price cap for Russian oil, which has come down from the initial $65 to $70, to $62, and is now being pushed down further towards $60
Aramco venturing into Poland
Asian manufacturing slowdown in Asia, which EPM believes confirms our thesis that a global recession is underway
Continued discussions between the EU and the US on the impact of the Inflation Reduction Act on European industry
British Airways and United Airlines’ announcement that one of their objectives for 2030 is to provide hydrogen-powered short-haul flights with smaller sized aircraft
Additional warnings from industry wanting to decarbonize - this time from the CEO of Airbus - who say their efforts will be held back by a lack of alternative fuel supplies
Rio Tinto’s view on hydrogen which (EPM notes that they get) is mostly “hype”
The latest addition to “energy transition critical industries where China is a world leader” heat pumps and what this means
The EU’s new plan for reducing plastics usage and managing associated waste
The continuing debate as to whether Africa may develop its fossil fuel resources to power economic growth, or not; we at the EM view believe this is indicative of a very “colonial” mindset.
General Energy News
Bloomberg reports on the ongoing negotiations about the level of the price cap for Russian oil. As we at EPM mentioned before, Poland and the Baltic nations have demanded a price that puts more pressure on Moscow’s revenues, arguing that the initial proposal of $65 to $79 was too high for that. Greece and other shipping countries have angled for a higher price, to avoid disruption of Russian crude oil supplies to the global market. The number now being discussed is in the $60 to $62 range, the report says. But even this new figure would still be slightly higher than where Russia’s barrels now trade.
Aramco has announced it has taken a 30% stake in the 210,000 bpd Gdansk refinery in Poland, Energy Voice reports. It has also acquired a wholesale business in the country, and a 50% stake in an aviation fuel joint venture with BP. As part of the deal, Aramco will provide around 45% of PKN’s crude oil needs.
Macroeconomics
In what we at EPM see as clear evidence of the ongoing slowdown, Reuters reports factory output slumped widely across Asia in November. China's factory activity shrank in November. Manufacturing activity also contracted in export-reliant economies, including Japan and South Korea, and in emerging nations, such as Vietnam.
Geopolitics
French President Emmanuel Macron warned the US risks “fragmenting the west” with its Inflation Reduction Act because it will distort competition by massively subsidising American companies to the detriment of European industries, reports the Financial Times. The US and Europe currently in negotiations on the subject. An option is for the US to add the EU to a list co countries whose products also qualify for the subsidies. But another possible outcome is the EU introducing its own subsidy package to effectively launch a “subsidy war” with the US – great if you’re in business, but probably not so great if you are in either geopolitics or the treasury department of government!
Energy Transition & Technology News
British Airways and United Airlines are both aiming to begin using hydrogen-power for short-haul flights, on smaller size planes, beginning around 2030, reports S&P Global. This is surprises us at EPM because battery powered electric flight is absolutely possible for this niche segment of aviation, far more developed already than is hydrogen-based flight, and will always have a significant energy efficiency advantage over hydrogen due to the laws of physics. We apologize, but we just don’t get this…
The airlines should also take note of what the CEO of Airbus recently said about hydrogen for aviation. Following the footsteps of the Maersk-Moller CEO, who said his company could probably not decarbonize as quickly as targeted due to a lack of alternative fuels, Airbus too warns of a lack of SAF and green hydrogen supply, both of which will hold back decarbonization for aviation, writes The Guardian.
We at EPM believe Rio Tinto understands the question of hydrogen. According to The Australian Finance Review, its chief scientist says the mining giant will only “produce hydrogen where we consume it”, because shipping hydrogen long distances makes no sense. In all other ways, hydrogen remains prohibitively expensive, still requiring “a technology breakthrough” to get the cost down, and could potentially be worse for the climate than burning natural gas. As to electrified mining trucks, he said battery-electric heavy vehicles were capable of only short runs, but had to spend most of their time charging. Nevertheless, this is an area where Rio Tinto does see potential, and it will therefore “persevere” in its efforts to bring this technology forward.
Goldman Sachs disagrees, however. MSNBC reports, the bank is of the opinion the US Inflation Reduction Act represents a “turning point” when it comes to the economics of hydrogen. We at EPM will believe it when we see it.
Europe’s shift away from gas has been getting all the attention, but the world’s biggest market for new heat pump sales is China, according to a new report from the International Energy Agency, writes Bloomberg. While North America has the largest number of heat pumps already installed in homes and the EU is the fastest-growing market, China had the largest number of new installations. It also has the largest workforce installing heat pumps and, at 45%, the largest market share in manufacturing of heat pumps. In response, at EPM we highlight the fact that China’s industrial policies have targeted leadership in new energy industries for years already, and we see the results playing out at present in solar panels, wind turbines, batteries, EVs and heatpumps. These are all critical elements of the energy transition and are likely to be dominated by Chinese firms.
Climate Politics
A draft EU regulation published on Wednesday also proposes a wide range of measures designed to drive a reduction in plastics demand on the continent. Measures include ban mini-shampoo bottles in hotels and the use of throwaway cups in cafes and restaurants, deposit and return schemes for single-use plastic drinks bottles and metal cans, as well as an end to e-commerce firms wrapping small items in huge boxes, writes The Guardian. The objective is for EU member states to reduce packaging waste per capita by 5% by 2030 and 15% by 2040 compared with 2018. The proposal, which could still be changed, retains recycling targets of 65% by 2025 and 70% by 2030 from the directive's last update in 2018, with specific targets per packaging material, writes Reuters. Our view at EPM? The EU is going down a dangerous path with this approach of “micromanaging” what can and cannot be done. Putting in place financial incentives would, in our view, be a far easier and more efficient way to change behavior.
The Financial Times reports on the continuing debate as to whether Africa may develop its fossil fuel resources to power economic growth, or not. At EPM, we find it a bit rich – but indicative at the same time – that this debate is taking place in the capitals of Europe and North America world. Indeed, the capitals of countries which have already developed. Which in the process of their development caused the levels of CO2 in the atmosphere to increase to the point that is affecting global weather. And, we hasten to add, which are not actually located in Africa! The solution to the debate is really simple, in our view. Either the developed countries pay for development of a new energies based energy system for Africa, no strings attached, not financing but pure money transfers. Or, they shut up and let Africa decide what is right for its populations.