Energy, Politics & Money - 08 August 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money just for you!
Welcome to the Energy, Politics & Money news feed of Monday 8 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 look at
The continuing decline of crude oil prices and market instability expected to continue
Biden’s Inflation Reduction Act was passed by the Senate (51 to 50)
The Eurozone’s financial policy for Northern and Southern member states
The status of Reliance Industries investments in green energy in India
Low carbon taxes through out Asia with Japan beginning to question the value of ESG and SDG
China approves fully driver-less autonomous robo-taxis
Lithium production will be slow to increase to meet automotive demands
General Energy News
Early Monday morning, crude oil prices continued their decline as recession fears continue to dominate trader sentiment. Reuters reports that by 0039 GMT, Brent crude futures dropped 74 cents, or 0.8%, to $94.18 a barrel. U.S. West Texas Intermediate crude was at $88.34 a barrel, down 67 cents, or 0.8%.
Bloomberg reports that crude’s decline over recent weeks not changed Goldman Sach’s view on the fundamentals. “We continue to expect that the oil market will remain in unsustainable deficits at current prices”, it said over the weekend. There will be a number of high profile reports on the outlook for the market this week (EIA short-term outlook on Tuesday, monthly reports from OPEC and the IEA on Thursday), so in a few days it will be clear who agrees and disagrees with this assessment.
The Macro Environment (economics & geopolitics)
The US Senate has passed Joe Biden’s flagship economic package. The Financial Times writes the climate, tax and healthcare bill, known as the Inflation Reduction Act, passed by a margin of 51 to 50, with voting split along party lines and vice-president Kamala Harris casting the deciding vote in an evenly divided Senate. It includes some of the most significant climate change legislation enacted in the US, with $369bn dedicated to climate and clean energy programmes. It also includes measures allowing the government to negotiate to lower prescription drug prices, a provision to apply a minimum 15 per cent tax on large corporations, and a new 1 per cent tax on share buybacks.
The Financial Times has a good piece on the growing divergence in public finances between northern and southern member countries of the Eurozone. Apparently, between June and July, the ECB injected €17bn into Italian, Spanish and Greek markets, while allowing its portfolio of German, Dutch and French debt to fall by €18bn. This data asks underlines some really tough questions about the Eurozone’s ability to hang together in the midst of an inflation wave, a Global Energy Crisis, and a looming recession.
Energy Transition & Technology News
According to The Economic Times in India, in his annual note to shareholders Mukesh Ambani of Reliance Industries said the following interesting, “Over the next 12 months our investments across the Green Energy value chain will gradually start going live, scaling up over the next couple of years. This new growth engine holds great promise to outshine all our existing growth engines in just 5-7 years."
Climate Politics
Earlier we highlighted an analysis of China’s first year of carbon pricing. Today Bloomberg carries a report examines the practice more broadly in Asia. It concludes that although more Asian governments are putting prices on emissions to try and curb global warming, the region’s carbon markets and taxes are mostly off to slow and disappointing starts. Carbon prices in China and South Korea are fractions of prices in the European Union and well below levels estimated to have a meaningful impact on the climate. While carbon taxes in Japan and Singapore have been set at a very low rate. This all suggests that the rate of carbon taxation -- at least at their current trajectories -- is not going to be sufficient to change the behavior of polluting industries or help countries reach their net zero goals. Chinese carbon prices peaked at around $9 a ton early this year, while those in South Korea aren’t that much higher. Some 46 countries worldwide are now pricing carbon through trading schemes or taxes, with a current average price of $6 a ton.
The Electrification of Transport
Autonomous cars will always be electric and the reason for this is due to the ability of autonomous vehicle to be on the road 24/7. The reliability and low maintenance requirements of the electric drive train enables this. For more on this topic, see this interesting analysis “The Second Automotive Revolution: Implications for the Oil Industry”. It provides an explanation for why we see the electrification of transportation and transport autonomy going hand-in-hand. According to Reuters, China has now handed out the first permits to search engine giant Baidu to operate fully driver less robo-taxi services on open roads. The permits awarded by the southwestern municipality of Chongqing and the central city of Wuhan, allow commercial robotaxis to offer rides to the public without human safety drivers in the car. This is different from the permits handed out by Beijing in April of this year - these required robo-taxis to include a safety driver in the passenger seat.
Kent Masters, Chief Executive Officer of Albemarle - the largest publicly traded lithium producer - said the market for lithium will remain tight despite efforts to unlock more of the metal. According to the Financial Times, the company believes hopes for a rush of supply overestimated the ability of producers to match demand from carmakers that has become “broader, deeper and more certain”. The IEA believes the world needs another 60 lithium mines by 2030 to meet the decarbonisation and electric vehicle plans of all national governments. But lithium mining projects typically take between six and 19 years from an initial feasibility study to actual production and have the longest development cycle of any of the technologies involved in electric batteries. Albemarle highlighted lithium companies have historically delivered as much as 25 per cent less production than promised in a given year because of chronic delays and technical mishaps.
ESG
According to an opinion piece in Nikkei Asia, mainstream Japanese media have begun reporting second thoughts about the wisdom of investments and corporate policies based on environmental, social and governance (ESG) concerns. This appears to be laying the groundwork for a revisionist pivot away from ESG and its close cousin, sustainable development goals (SDG). Do note, however, the author is clearly no fan of the investment principle having labelled ESG and SDG “utopian projects”…