Energy, Politics & Money - 08 June 2023
Independent, objective, and politically neutral analysis of global developments curated from sources covering the world of energy, geopolitics, and investment.
In this roundup, we look at:
The surprise Aramco decision to raise its OSP (Official Selling Price) for July deliveries
The decline in Chinese exports in May, and an analysis of why spending by its domestic consumers has been disappointing as well
The view that the US response to the Ukraine War signals a weakening of its global position, and that this can only be halted through starting talks for a negotiated settlement in the Ukraine conflict
The final version of the first-ever US National Clean Hydrogen Strategy and Roadmap
The projected growth in the US solar industry, more than doubling installed capacity by 2028
Shell’s decision to exit its home retail power businesses in Britain, Germany and the Netherlands, due to their poor returns
The “slap on the wrist” for Shell, Repsol and Petronas, as the UK’s advertising watchdog banned their advertisements for “greenwashing”
Public sentiment in Europe regarding China and Taiwan, which indicates a preference not to align with the US and not to “decouple” from China
General Energy News
A negative sentiment still seems to dominate the financial markets for crude oil trading. "We considered substantially lowering our oil price deck in the absence of OPEC+ action last Sunday, but even a 1 million barrel/day cut looks unlikely to underpin a sustainable price increase," Reuters quotes Citi analysts as saying.
The result is a balance on the market, with the negative sentiment countered by the announced OPEC+ production cut. Brent for August settlement is at $76.85 a barrel, while WTI for July delivery is at $72.46 a barrel, writes Bloomberg.
Having been surprised by Saudi Arabia’s unilateral announcement of a 1 million barrels per day cut in oil output for July, oil refiners got more bad news when Saudi Aramco informed Asian customers that prices for July-loading cargoes are going up, not down, writes Clyde Russell for Reuters. The OSP (official sales price) for the benchmark Arab Light grade for July cargoes to Asia was increased by 45 cents a barrel from June’s level to $3.00 a barrel over the regional Oman/Dubai price marker.
Refiners surveyed by Reuters ahead of Monday’s announcement had expected the OSP for Arab Light to be cut by about $1.00 a barrel for July. So less availability, with higher prices, which increases the risk of Saudi Arabia losing market share. The obvious path for Asian refiners to go down is to buy less Saudi oil. The problem for refiners in Asia is that there are limited alternatives to the crude supplied by the Saudis and other Middle East producers such as the United Arab Emirates, Iraq and Kuwait, as similar Russian, Iranian and Venezuelan crudes are all under some form of Western sanctions, meaning they can really only be bought by the big players in China and India.
Macroeconomics
China's exports contracted in May for the first time in three months as weaker global demand, writes Nikkei Asia. A drop in orders for mobile phones and automatic data processing equipment contributed to a 7.5% decline in outbound shipments.
But it is not just China’s export customers whose demand is disappointing, writes Nikkei Asia. There is enough money being pumped into the economy to fuel the recovery, it writes. The year-on-year growth rate of broad money supply (M2) has maintained double-digit growth, reaching as high as 12.9% in February, indicating that individuals and businesses have ample money for investment, which is supposed to boost economic growth. M1 money, consists of physical currency held by the public and in circulation as well as deposits held by individuals and businesses at banks, has not grown as fast, however. At the end of March, M1 only expanded by 5.1% year-on-year. This indicates money isn't going to the real economy, but just circulating within the financial system, analysts say. This outcome is connected to households and business becoming more risk averse and concerned about the economic outlook. Consequently, instead of spending any additional money, they are saving it in financial instruments, the speculation is.
In response to the economic headwinds, China's biggest (and state owned) banks have lowered interest rates on yuan deposits, the second such cut within a year, with previous action taken in September, writes Reuters. The objective of the move is to push savings into consumption and investment.
The US, meanwhile, is in the early stages of a “late, big-cycle debt crisis”, says Ray Dalio, according to Bloomberg. “We are at the beginning of a late, big-cycle debt crisis when you are producing too much debt and have a shortage of buyers,” Dalio said at the Bloomberg Invest conference in New York. He said while interest rates won’t go much higher, the economy will get worse, and that could cause more internal strife if the US continues to have political fragmentation – which is very much a typical development for empires in the later stages of their era, Dalio wrote in his books on empires and debt cycles.
Geopolitics
An opinion piece in Nikkei Asia makes a number of interesting points regarding the Ukriane War. For example, it says that the conflict meanwhile has brought about a marked decline in U.S. hegemony, evidenced by the fact that the Global South, whose aggregate economic power has significantly risen, has not sided with the U.S. diplomatically in the war and estrangement from the West as a whole has increased. Also, the dominance of the U.S. dollar is declining amid growing use of the yuan, Russian ruble, Indian rupee and other currencies for international trade settlement as a consequence of Western financial sanctions against Moscow. And, due to intensifying domestic political and economic pressures interacting with public fatigue toward Ukraine aid, latent schisms in the West are getting deeper and surfacing more often, it says. Despite these “obvious signs” of weakening, the US has doubled down on using force to spread or maintain its influence. In this process, the opinion piece argues, the West has recklessly pushed up against Russia's red line by sending increasingly offensive weapons to Ukraine. But it is obvious, it says, that given current arms stocks and production capacity, as well as the considerable attrition suffered by Ukrainian forces, the ambitious goal of retaking all Ukrainian lands occupied by Russian forces is unachievable. It is high time for prudential realism, it therefore concludes, as in negotiations about a cease fire and a political solution based on acknowledgement of the fears and concerns of both sides in the Ukrainian conflict.
Energy Transition & Technology News
The Biden Administration has released the final version of the first-ever US National Clean Hydrogen Strategy and Roadmap, writes Renewables Now. Just as in the draft document published last September, the final strategy outlines strategic opportunities for the production of 10 million tonnes of clean hydrogen a year by 2030, 20 million tonnes by 2040, and 50 million tonnes by 2050. The three key strategies bundled within also remain the same: target strategic, high-impact uses for clean hydrogen; reduce the cost of clean hydrogen to electrolysis-based production at USD 2 (EUR 1.87) per kg in the period 2026-2029 and at USD 1/kg from diverse sources in 2030-2035; and focus on regional networks, including regional clean hydrogen hubs.
The Strategy includes three so-called waves of applications when it comes to the adoption of clean hydrogen in the US, based on two key factors – estimated break-even and the relative attractiveness of hydrogen as a decarbonisation solution, as well as stakeholder input.
The US solar market is on track to more than double over the next five years, supported by the IRA, writes Bloomberg. Total installed capacity will reach 377 gigawatts at the end of 2028, up from 142 gigawatts at the end of last year. In addition, domestic manufacturing capacity is on the way up. As much as 60 gigawatts of US production capacity may be in service by 2028, up from less than 9 gigawatts now. Already, at least 16 gigawatts of capacity are currently under construction.
Another backtrack by Shell in its energy transition strategy. A fee years back the then company CEO Ben van Beurden announced the strategic objective was to become the largest power player in the world. That objective had been dropped earlier, and under new CEO Wael Sawan Shell has decided to exit its home retail power businesses in Britain, Germany and the Netherlands, due to their poor returns, writes Reuters.
Climate Politics
The Electrification of Transport
The Global Energy Crisis
Other
The UK’s advertising watchdog has banned a group of big oil and gas company advertisements for being misleading as part of crackdown on “greenwashing”, or making something appear more sustainable than it really is. According to the Financial Times, the Advertising Standards Authority said on Wednesday that recent ads by Shell, Repsol and Petronas had misled the public on the climate and environmental benefits of the groups’ products overall. The ads had “omitted material information” by promoting their “green” offers and plans, such as renewable energy and net zero goals, without any mention of their larger polluting operations, and as such were “misleading”, the ASA said. The Adfree Cities campaign group, which led the complaint against Shell, said the ban “marks the end of the line for fossil- fuel greenwashing in the UK. The world’s biggest polluters will not be permitted to advertise that they are ‘green’ while they build new pipelines, refineries and rigs.”
The European public is not behind aligning with the US on China and Taiwan, writes Bloomberg. According to a European Council of Foreign Relations survey, a majority of those surveyed — 46% — said they viewed China as an “ally or necessary partner” compared to just 35% who saw Beijing as a “rival or adversary”. A majority of those surveyed (62%) also said they wished to stay out of a US-China conflict over Taiwan. Still, the survey showed Europeans have concerns about some of China’s economic practices. Of those polled, 65% were uncomfortable with Chinese ownership of key infrastructure, such as bridges or ports, while 59% didn’t want Beijing to buy a newspaper in their country and 52% opposed the purchase of tech companies. In addition, if China were to supply ammunition and weapons to Russia, 41% of respondents said they’d approve of Europe sanctioning Beijing, even if it harmed Western economies.