Energy, Politics & Money - 09 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:
The earnings releases of TotalEnergies and Equinor
The major rift in the EU over hydrogen, as France is pushing for classifying hydrogen made using nuclear power – known as “red” hydrogen – as “green” in the EU taxonomy, which Spain and Germany are not agreeing to
Seymour Hersh’s bombshell report which accuses the US of organizing, in collaboration with Norway, the bombing of the Nordstream pipelines
Neste’s estimation that the maximum available global capacity for waste and residue materials to produce biofuels from (mostly used cooking oil and discarded animal fat) is around 40 million tonnes a year, roughly 700,000 barrels per day
A review of the argument that Small Modular reactors will enable nuclear energy to (finally) enter the learning curve that enables cost reductions
The view that, despite the political storm over it in the US, the ESG train has already left the station and will continue to move forward
The lawsuit against Shell’s 11 board members, which argues that Shell’s focus on reducing the carbon intensity of its products is allowing the company to grow its absolute emissions from operations (scope 1 and 2) and products (scope 3) over the short to medium term
General Energy News
TotalEnergies and Equinor are the latest energy giants to report record earnings, writes the Financial Times. Total announced an increase in its dividend, more share buybacks and a doubling of profits to a record $20.5bn. Equinor reported $74.9bn in adjusted pre-tax earnings as it replaced Russia as Europe’s largest supplier of natural gas.
Macroeconomics
Nikkei Asia digs deeper into international shipping, the subject we discussed yesterday here at EPM. It says shipments from Asia to the US started to decline sharply during 4th quarter last year, -20% versus 2021, as stubbornly high inflation sapped spending by American families on furniture and toys. Consequently, shipping rates are sinking to three-year lows.
Geopolitics
Seymour Hersh, the US journalist of My Lai and Abu Ghraib fame, released a report on Substack in which he argues the US organized the bombing of the Nordstream pipelines. Hersh says the attack was planned well in advance of the Ukraine war, as the US disagreed with the energy relation between Europe and Russia. The operation was then executed after Russia’s invasion of Ukraine, as the US feared this energy relation would make the Europeans hold back on supporting Ukraine with weapons and money. The US operation against Nordstream was supported by Norway, Hersh says, as it saw an end to the Europe – Russia energy relation as an opportunity to increase its sales of fossil fuels to Europe. Reuters reports that the Biden administration has said that Hersh’s account is “utterly false and complete fiction”.
Energy Transition & Technology News
Neste, the finish company that has done groundbreaking work in the biofuels space, estimates that the maximum available global capacity for waste and residue materials to produce biofuels from (mostly used cooking oil and discarded animal fat) is around 40 million tonnes a year. This amount, the equivalent of roughly 700,000 barrels per day, is becoming expensive as the IOCs are entering the market. The EPM perspective on this is, firstly, something we have said since long, namely that you need to be in waste management to have longer-term success in the “biofuels from waste” business. Simply put, you have to corner the (limited) market for this feedstock. Our second point is that 700,000 barrels per day of feedstock is around half of global aviation fuel demand. This does not bode well for the aviation and marine shipping industries, as they are looking at biofuels to get them to Net Zero. Thirdly, the limited supply of waste feedstock could be compensated by other feedstocks, such as dedicated agricultural produce (soybean, etc). This we at EPM believe will become socially unacceptable becaus that is a major cause of deforestation and competition with food production. The next big opportunity in biofuels we therefore believe is cellulosic, made from agricultural waste – look at a company like Raizen from Brazil.
David Fickling of Bloomberg looks at the argument in favor Small Modular Reactors. By reducing size, it holds, the cost of nuclear can be brought down. And, learning can be enabled, as smaller sizes means more builds, enabling technology and efficiency improvements over time. The argument doesn’t hold up, Fickling says. Wind turbines and solar panels have gotten so cheap because, like semiconductors and socks, they are mass-produced. The huge volumes involved in large-scale manufacturing allow ample opportunities for efficiencies and innovations to drive prices remorselessly lower — the so-called learning curve. That’s why the cost of solar modules has fallen 71% over the past decade and why wind turbines are 25% cheaper. SMR’s, he says, are still not small enough to enable a “learning curve”.
Forbes looks at a company building even smaller nuclear reactors, micro-reactors with a capacity of 100 MW, Last Energy.
Bloomberg Ne Energy Finance, meanwhile, looks at what can be done to lower the price of batteries and electric vehicles.
Climate Politics
France, which relies on its aging nuclear fleet to generate electricity, is leading a campaign to count hydrogen made using nuclear power -- known as “red” hydrogen -- in the EU's new renewable energy targets, which currently focus on green hydrogen made using electricity from renewable sources. Reuters reports, Spain and Germany are against the idea, which is causing a major rift in the EU.
ESG
An opinion piece on Forbes argues that while in the US the political heat associated with ESG keeps escalating, public opinion, private capital, human capital, government capital and consumer interest continue to trend towards “green” or “sustainable” products and investments in the long run.
Other
A group of European institutional investors is backing a novel London lawsuit against Shell’s board over alleged climate mismanagement, reports Reuters, which calls it “a case that could have far-reaching implications for how companies tackle emissions”. The lawsuit alleges Shell's 11 directors have failed to manage the "material and foreseeable" risks posed to the company by climate change - and that they are breaking company law. British pension funds London CIV and Nest, Swedish pension fund AP3, French asset manager Sanso IS, Degroof Petercam Asset Management in Belgium and Denmark's Danske Bank Asset Management and Danica Pension and AP Pension are among those to have written letters supporting the claim. Shell obviously rejects the claim, saying its strategy plans to reduce the carbon intensity of its products by 20% by 2030, 45% by 2035 and by 100% by 2050 from 2016 levels. This is rejected by the claimants, who argue Shell’s focus on carbon intensity is causing it to grow absolute emissions from its operations (scope 1 and 2) and the products it sells (scope 3) over the short to medium term.
Useful for the above debate is a new Bloomberg deep dive on Shell’s strategy to tackle climate change. It offers an excellent history of Shell’s efforts in the New Energy areas. And it notes, Shell plans to halve its Scope 1 and 2 emissions, from a total of 83 million tons of CO2 emitted in 2016 to 41 million in 2030. (In 2021, the last year reported, they were down to 68 million, but much of the emissions progress has come from selling off oil wells and refineries in the US, Denmark and Germany.) Scope 1 and 2 emissions make up less than 10% of the company’s overall carbon footprint. The far greater share is its Scope 3 emissions—those produced by the fuel it sells to people and businesses to burn in their cars, trucks and airplanes. And Shell has no clear plan for getting rid of those.