Energy, Politics & Money - 07 September 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money view just for you!
Welcome to the Energy, Politics & Money news summary for Wednesday 07 September 2022 with your daily dose of cutting-edge insight into everything of importance in the connected worlds of energy, geopolitics and the economy.
General Energy News
SAUDI CUTS OIL PRICES FOR ASIA & EUROPE
Saudi Arabia on Tuesday cut oil prices for customers in Asia and Europe as coronavirus lockdowns and sagging economies cool energy demand in the two regions, reports Bloomberg. Arab Light shipments in October will now be at $5.85 a barrel above the Middle Eastern benchmark, a decrease of almost $4 from September. Aramco lowered all grades to Northwest Europe and the Mediterranean, most of them by $2 a barrel. The company raised pricing for US buyers by 50 cents, except for Arab Light, which was kept unchanged.
EPA DECLINES LNG POLLUTION EXEMPTION REQUEST
The US Environmental Protection Agency (EPA) finally came out which its – much anticipated – decision on a request from leading liquefied natural gas (LNG) exporter Cheniere Energy to exempt turbines at its two Gulf Coast terminals from a hazardous pollution rule. Reuters reports, the decision is negative as the request was declined. The most likely implication will be that company now has to reduce exports of LNG, to install new pollution control equipment at its facilities, exactly at a time that Europe is depending on increased shipments of LNG from the United States to offset cuts from Russia.
Geopolitics
CHINA AND RUSSIA GAS PIPELINE AGREEMENT
According to Reuters, China National Petroleum Corporation (CNPC), parent of PetroChina, said on Wednesday it had signed an agreement with Russia's Gazprom related to the Power of Siberia gas pipeline. The agreement deals with the currency of exchange. Both parties agreed to drop the dollar for settlement, and use the rouble and yuan instead.
INDIA TO BUY OIL FROM GULF COUNTRIES
India’s minister of petroleum and natural gas, Hardeep Singh Puri, said most of his country's crude oil supplies in the near future will come from the Gulf countries, including Saudi Arabia, Iraq, Abu Dhabi and Kuwait. But, Reuters writes, the country does not rule out Russian purchases. The country’s imports from Russian oil rose by 4.7 times, or more than 400,000 barrels per day, in April-May, but fell in July. Asked if future purchases of Russian oil would rise or decline, Puri said he wouldn't rule out anything.
Energy Transition & Technology News
US BLUE HYDROGEN GETS A BOOST
ConocoPhillips will provide natural gas and manage a carbon capture and storage facility for a proposed US blue hydrogen gas project to be jointly developed with Japan's largest utility JERA, Reuters reports. The plant will produce hydrogen from natural gas and convert it into exportable ammonia for sale in the US, Europe and Asia, and could be in operation within five to eight years at a site along the US Gulf Coast.
Climate Politics
The UK’s new prime-minister Truss has appointed Jacob Rees-Mogg as the new business secretary, who is in charge of Business, Energy and Industrial Strategy, and therefore responsible for the government’s strategy on climate change. Reuters writes, Rees-Mogg has expressed concerns about “climate alarmism”, said humanity should adapt to, rather than mitigate, climate change, and warned that the drive to getting to net zero emissions is responsible for high energy prices. EMP hopes the UK Government clarifies policy and provides funding, tax breaks, and subsidies to make adaptation possible. Quickly.
G7 FAILING TO MEET PARIS COMMITMENTS
According to non-profit disclosure platform CDP and global management consultancy Oliver Wyman Companies, reported on by Reuters, the Group of Seven (G7) economies are failing to meet Paris Climate Agreement objectives. Across the G7, which consists of Britain, Canada, France, Germany, Italy, Japan and the United States, corporate emissions targets are overall on a 2.7°C warming trajectory, CDP and Oliver Wyman analysis showed.
The Electrification of Transport
NISSAN BUYS EV BATTERY MANUFACTURER
Nissan will acquire Vehicle Energy Japan, which develops, manufactures and sells lithium-ion batteries for hybrid vehicles, writes Nikkei Asia. In our view an odd acquisition. Considering where the automobile industry is heading, at first sight it appears to target outdated technology…
The Global Energy Crisis
ENERGY PRICES IN EUROPE
The Financial Times has a nice graph about electricity and gas prices across Europe. Electricity is the most expensive in the UK. Gas in The Netherlands. But everywhere, everything has more than doubled from pre Ukraine Crisis. Except in Hungary, because it agreed with Russia continued supply of low priced natural gas.
The above neatly explains why, as we forewarned, European politicians are being increased challenged on their position in the Ukraine Crisis by their electorates. The Financial Times reports on the pressures on Olaf Scholtz in Germany, who is increasingly asked what he will do to prevent the German people becoming collateral damage in Europe’s economic war with Russia?
ADDITIONAL DANGERS OF THE ENERGY CRISIS
According Norwegian energy group Equinor, European energy companies need at least 1.5 trillion euros ($1.5 trillion) to cover the cost of their exposure to soaring gas prices, writes Reuters. And that does not include firms in Britain! This is clear evidence Europe risks its Energy Crisis morphing into a 2008-like Financial Crisis.
Yesterday we highlighted the steel plants in Europe that have already shut down due to the high energy costs on the continent. Today, Reuters reports on a call by industry association Eurometaux to the European Union, to urgently reduce power costs in the region to prevent the permanent closure of all metal producing plants in the region. About 50% of EU aluminum and zinc production capacity “has already been forced offline due to the power crisis”, Eurometaux said in a letter to EU Commission President Ursula von der Leyen. Eurometaux also said the energy crisis is an “existential threat to the future of Europe's metal smelters”.
As to what Europe intends to do about this, The Financial Times reports Brussels is pushing for national windfall taxes on energy companies’ inflated earnings. The proposed levies would target fossil fuel producers and low-carbon power generators that have reaped extra profits thanks to inflated energy prices. Of course, we must highlight that even if implemented, this will not be nearly provide the funds needed to manage the economic fall out of the energy crisis on the continent. Unless Europe can drastically increase supply of energy, eventually the ECB will be called upon to provide emergency support to Europe’s industry, which will add further downward pressure on the euro, of course.
JAPAN’ INVITED TO JOIN ENERGY BAIL OUT EFFORTS
Japan is cautiously joining the “energy bail out group”, writes Nikkei Asia. It will distribute 50,000 yen ($350) in cash to low-income households under a new relief package. It will separately continue to subsidize oil distributors in October and beyond to curb the rise in gasoline prices.
GLOBAL ENERGY CRISIS – SILVER LININGS?
An opinion piece by the IEA chief Fatih Birol in The Financial Times tries to find a silver lining in the current Global Energy Crisis. He correctly points out it is not caused by the Energy Transition, as some have claimed. And he again correctly argues that a build out of the renewable energy infrastructure would reduce Europe’s exposure to energy geopolitics. But the overall tone of his piece, “after winter comes spring” is far too optimistic, in our view. To enjoy the spring after winter one first needs to remain alive during winter. And that is not only a challenge for many businesses in Europe in a metaphorical sense, as their high energy bills make then either uncompetitive or unable to provide goods and services to customers at prices these can afford. For many people across Europe that will be a challenge in a literal sense, because in large parts of Europe you can’t survive a winter without heating. His reference to the oil crisis in the 1970s, meanwhile, which incentivized investment in nuclear and renewable energy, ignores the fact that back then, there was no Asian industrial base that could take over the global market from western (European) companies.
ESG
PRESSURE TO DROP ESG
Strive Asset Management wrote a letter to Chevron CEO Mike Wirth, asking him to drop ESG and focus solely on shareholder value. Noticing that Chevron’s behavior has indeed been affected by ESG pressures, Strive says, “We are concerned that Chevron faces immense pressure from its large institutional ‘shareholders’ including BlackRock, State Street, and Vanguard to adopt value-destroying limitations on its business that do not align with Chevron’s best interests… Our goal in writing this letter is to liberate you from constraints imposed on Chevron by its ESG- promoting ‘shareholders’.” Clearly the shareholder-vale versus stakeholder-value debate remains alive and well – though the latter has been winning on points over recent years.