Energy, Politics & Money - 08 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.
If you don’t have time to read today’s column right away, here are some main points included in today’s roundup:
China’s relaxation of COVID restrictions, which should not be expected to translate into an immediate uptick in economic activity and energy demand
New moves by the US in Asia as it prepares for war with China, this time through “closer military collaboration” with Australia which will allow it to increase its military presence in the country
The US government’s opening up of a new frontier area for the offshore wind industry, off the country’s western coast in the Pacific
The challenges you will be faced with when searching for high quality offsetting projects
Vanguard’s pull out of the from the Net Zero Asset Managers initiative, whose members have committed to achieving net zero carbon emissions by 2050.
General Energy News
The price of oil fell to its lowest level this year on Wednesday, writes Reuters. It surged to nearly $140 a barrel in March this year, close to an all-time record, following the launch of Russia’s military operation in Ukraine. But yesterday, Brent futures fell $2.18, or 2.8%, to $77.17 a barrel, while WTI fell $2.24 to $72.01 a barrel. In EPM’s view, this move is not supported by fundamentals. The Russian price cap will disrupt supplies, with the only question being how much? At the same time, China has clearly communicated it is on its own pathway to reopening, which will support demand. But, it seems like the market participants decided to focus on US product stocks information, which indicated significantly larger builds than anticipated.
China announced 10 new measures for dealing with COVID-19 on Wednesday, marking a shift away from its Zero COVID policy, writes Bloomberg. Among the changes is that any lockdowns will henceforth be smaller, targeted to specific areas rather than blanket for entire neighborhoods or cities; lockdowns will not last longer than 5 days, if no new cases are found; and asymptomatic and mild COVID cases may now stay at home. These changes run parallel to the new push for vaccination of the elderly, as we discussed earlier here at EPM. In all, we see this less as a sudden break in policy, forced upon the Chinese government by protest, and more as execution of planned approach toward complete reopening, possibly a little earlier than previously thought.
It would be unwise to assume these adjustments to China’s COVID policy will automatically and immediately translate into an uptick in economic activity and energy demand. Our view at EPM is that because the Chinese has been so effective in suppressing COVID, its population will experience a mass spread of the virus as restrictions are lifted. Essentially, what Europe and North America experienced earlier in 2020, and to a lesser degree in 2021, but hopefully with lower severity due to vaccination and the changes in the virus since. This is also what the Chinese government expects, as reported by Bloomberg. Some 60% of Chinese people may be infected in the first wave, before the curve flattens, experts advising the Chinese government expect. This would of course severely affect the global supply chain, as massive Chinese workers will still be left sick at home, just no longer under government mandated lockdowns.
Geopolitics
The US will boost its rotating army and navy presence in Australia as part of a broad push for closer defense cooperation, writes Nikkei Asia. The reason for the move is that the US is looking to spread out its forces across the western Pacific to complicate China’s targeting decisions in the event of a conflict. Australia’s position outside the “second island chain”, which includes Guam and Papua New Guinea, makes it a tougher target for Chinese missiles.
Energy Transition & Technology News
The US government organized the first auction of offshore wind development rights off its western in the Pacific – a new frontier area for the offshore wind industry. According to Reuters, it drew $757.1 million in high bids, mainly from European companies. The winners included Norway's Equinor; Denmark's Copenhagen Infrastructure Partners; Germany's RWE AG (RWEG.DE), Ocean Winds – a joint venture between France's Engie and Portugal's EDP Renewables; and US developer Invenergy LLC.
While demand for GHG emissions offsets could grow 40-fold between now and 2050, to 5.2 billion tons of CO2 equivalent, equal to 10% of global emissions, according to BloombergNEF, the supply chain of offsets remains fraught with greenwashing. Australian bank Macquarie is angling for a slice of this market. The bank expanded its global carbon team this April, to find and fund new projects, from cookstove initiatives to carbon capture technologies that creates offsets that can be traded. But so far it has rejected 90% of the projects that landed on its desks, over quality concerns, writes Bloomberg.
ESG
Yesterday we reported on the pressure on BlackRock CEO Larry Fink to live up to his ESG commitments. Today we look at Vanguard. With $7.1 trillion under management and more than 30 million customers as of October 31 it is the second-largest global money manager after BlackRock. It said on Wednesday that it was resigning from the Net Zero Asset Managers initiative, whose members have committed to achieving net zero carbon emissions by 2050, reports the Financial Times.