Energy, Politics & Money - 07 February 2023
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 look at:
Saudi Arabia’s increase of the prices for its crude in Asia, reflecting an expectation for oil demand recovery especially from China
Russia’s efforts to entice shadow fleet shipowners to transport Russian barrels below the radar
BP’s record 2022 profits, and its pivot… to oil and gas this time!
The potential impact of China’s planned ban on the export of solar technology
The decrease in renewables investment in Africa
The “COP28 pitch” of Sultan Al Jaber, president of this year’s COP summit: “fossils are a bridge fuel”
The shortfall in clean energy R&D in the world’s developed countries
The Oxford Institute for Energy Studies (OIES)’s fresh review of Europe’s natural gas situation
China’s new energy policy aims to minimize LNG imports providing Europe with potentially massive (unintended) support
General Energy News
Saudi Arabia has raised prices for its crude for Asian buyers for the first time in six months, amid an expectation of oil demand recovery, especially from China, reports Reuters. he official selling price (OSP) for March-loading Arab Light to Asia was raised by 20 cents a barrel from February to $2.00 a barrel over Oman/Dubai quotes. The OSP for Arab Extra Light was reduced by $1.30 to $2.25 a barrel over Oman/Dubai quotes, and for Arab Medium and Arab Heavy they were both increased by 50 cents to $1.60 a barrel and minus $1.75 a barrel respectively.
Tankers in Iran’s “ghost fleet” have switched to carrying Russian oil since western curbs on Moscow intensified in December, as the Kremlin turned to sanctions-busting techniques pioneered by Tehran. At least 16 vessels that formed part of the “ghost” network that allowed Iran to breach US sanctions have begun to ship Russian crude oil over the past two months, according to Financial Times research. Ship brokers and analysts say Russia is enticing tanker owners and operators with premium rates.
BP announced a record 2022 profit of $27.65 billion, Bloomberg reports. Interestingly, unlike its American competitors, who seem dedicated to return as much of the record cash flow to shareholders as quickly as possible, BP says it intends to spend at least part of the additional money on additional investment. But… Not just on the low-carbon businesses which is said it has been pivoting toward. BP Chief Executive Officer Bernard Looney said,
“We have to invest in today’s energy system, and the reality is that today’s energy system is predominantly an oil and gas system. And that needs investment.”
The company plans additional investment of as much as $8 billion by the end of the decade, in both its oil & gas segment and in its low-carbon businesses. As a consequence of the decision, BP now aims to cut the carbon from oil and gas its produces — known as Scope 3 emissions — by 20% to 30% in 2030, down from a previous ambition of as much as a 40% cut. It still it aims to cut its own direct emissions — known as Scope 1 and Scope 2 — by 50% by 2030.
Geopolitics
A while ago we informed our EPM readers of China’s plan to ban the export of technology used to make solar panels, an industry which China dominates by controlling at least 75% of its global supply chain. Reuters now looks at what this might mean for the global solar industry. Losing access to Chinese solar technology, such as furnaces for melting silicon, would not be an insurmountable problem for the West, it says. An array of Western companies including Applied Materials, Enel and Norway’s NorSun still have the expertise and intellectual property used in the photovoltaic industry, which was originally developed in America and Europe, before China adopted it. But, building the machinery to make solar panels in Europe or North America is likely to cost more than simply importing it from China. China’s planned technology export ban will therefore not derail the West’s clean energy push, but it could certainly slow it.
Energy Transition & Technology News
Investment in renewable energy in Africa fell to an 11-year low in 2021, comprising just 0.6% of the global total, writes Bloomberg. Financing options are insufficient and expensive because lenders worry about the risks of taking on new projects in often politically or economically unstable countries with broken supply chains. At EPM we also feel this indicates the failure of climate politics. Every year at the COP meeting the developing world is called upon to not utilize fossil fuels resources, but Renewables and instead, and promised support to do this. In the end, however, the support never materializes – except if the developing country promises to export the energy (fossil energy, or hydrogen, or electricity) to a developed market…
Climate Politics
The president of this year’s COP summit, ADNOC CEO Sultan Al Jaber, is communicating his pitch for this year’s meeting in the UAE.
“The world still needs hydrocarbons and will need them to bridge from the current energy system to the new one. We cannot unplug the current energy system before we have built the new one.”
The EPM perspective is that some will say this is a much needed dose of realism, while others will argue this is the fossil fuel industry hijacking the climate change debate. Consequently, COP28 is set to be a spectacle of high-pitched, emotional debate between these two camps. Otherwise, we expect it to have no real impact, as the COPs usually are.
According to the Information Technology and Innovation Foundation, a US public policy think-tank, of 34 developed countries, only Norway spent more than 0.1 per cent of its GDP on low-carbon energy R&D in 2021 – the minimum amount required to have a chance to meeting the Paris Climate Accord goal, says the Financial Times. If all 34 countries had invested at the 0.1 per cent level, it would have equated to an additional $71 billion in clean energy R&D.
The Global Energy Crisis
The Oxford Institute for Energy Studies (OIES) has looked at Europe’s natural gas situation again in a new report. In no small part thanks to mild weather, the EU seems to be getting through winter without any major supply issues – and significantly lower gas prices than feared. At the same time, the OIES warns, just as we have at EPM, that next winter is likely to be harder, as the EU now faces 12 months of being cut off from Russian gas, whereas in 2022 this was only 6 months. Additionally, the OIES says solidarity measures agreed by EU countries are unlikely to offer much relief to the most exposed member states, as the ability to move gas around the EU is limited by logistics constraints, it says. In other words, the gas demand / supply balance for the EU as a whole is one issue, but one level lower, at country level, things might be very different. The OIES advice is for Europe to continue to build out LNG import capacity, but also its gas pipeline infrastructure that can move the molecules around the EU to where they are needed.
A Reuters piece offers hope to Europe. It notes, as we at EPM have repeatedly noted, that a post-Covid economic rebound in China will increase the country’s appetite for liquefied natural gas which Europeans covet after shunning supplies from Moscow following Russia’s invasion of Ukraine. Luckily for Europe, Beijing is pushing to hike pipeline imports from Russia, use more coal, and boost domestic gas production which should contain the rise in Chinese demand for LNG in 2023, and thus minimize the supply challenge for Europe.