Energy, Politics & Money - 12 September 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money view just for you!
In this roundup, we cover the Bloomberg report on past and future of Russia’s commodities industry, in particular oil and gas. The industry re-invented itself over the past 10 to 20 years, but now with the western companies behind this reinvention leaving, and traditional export markets being closed off, another reinvention will be needed.
Additionally, we cover:
Emerging real estate problems that are growing not just in China, but all over the world
Battery technology developments and expectation underlying electric vehicle strategies of BMW, Toyota, Honda, and Nissan
The Global Energy Crisis (of course) in particular where it is most urgent – Europe - which might just well be taking a completely wrong turn in trying to deal with the fall out.
General Energy News
CRUDE OIL – FUTURES AND MARKETS
Crude oil futures are fighting against negative sentiment, dominated by the looming economic recession. Consequently, Reuters reports, Brent crude futures are clinging on the $90s, at $91.83 a barrel during early trading on Monday. WTI futures are at $85.66 a barrel.
Russia’s Energy Industry – In-depth Analysis
Liam Denning of Bloomberg has a fantastic backgrounder (in two parts here and here) on the Russian energy industry. It argues that “under Putin, we’ve seen a wholesale strengthening of the commodities sector, to modernize an oil industry that was in bad shape, a gas industry that needed to move on to the next generation, a nuclear power industry that had fallen apart and a coal industry that mostly served the domestic sector. And all that was turned around, consolidated and reoriented toward the next generation of exports.” Clearly, following the invasion of Ukraine it will now have to be reinvented again. Not only are western companies that supported Russia with the transformation now pulling out, product flows will now also need to go east rather than west.
Macro-Economics
PETROCHEMICALS – MARKET CHALLENGES
According to S&P Global, the chemicals is showing clear signing of a recession. Usually one of the leading indicators that demand is falling away, since May this year the prices for olefins and polymers have shown a steady decline globally.
GLOBAL REAL ESTATE TROUBLES
We’ve been covering the implosion of China’s real estate sector, for the (valid) reason its past growth underlay growth in demand for commodities. But, as Bloomberg highlights, it’s not just China where real estate is under pressure. Around the world, from Sydney to Stockholm to Seattle, the increase in central bank lending rates is leading to soaring borrowing costs, which are squeezing home buyers and property owners alike. As we’ve mentioned before, this rapid cool down in real estate will to worsen the global economic downturn.
Geopolitics
US POLICY PILLAR TARGETING RUSSIA
What was originally presented as a proposal by the US to help the world avoid sanctions on Russia from disrupting crude oil supply, has quickly turned into a pillar at the heart of US geopolitical strategy. For the Financial Times reports, the US is now threatening to impose sanctions on buyers of Russian oil who fail to abide by the price cap proposed by G7 countries. The US Treasury department said individuals making “significant purchases of oil above the price cap” as well as those who provide false information about those purchases, “may be a target for a sanctions enforcement action”. This makes it more likely that as we forewarned, the price cap plan will in fact lead to more disruption, not less. Russian is not likely to back down over its threat to stop selling to anyone who abides by the cap plan, while the US is threatening to punish anyone who doesn’t.
HOW DOES THE WAR IN UKRAINE END?
As the war Ukraine continues in its 7th month, the question of how it will eventually ends remains unclear. We at EPM have created the scenarios, reach out if you are interested in learning more about these. Over at South China Morning Post an opinion piece posits it could well end like the way the 1974 war in Cyprus did. The main reason, it argues, is that in the coming winter, with rolling blackouts, rising unemployment and growing social discontent, Ukraine fatigue will descend on Europe, and Western elites will be forced to advance through the five stages of grief from denial and anger, to bargaining, depression and finally acceptance. However, recent unexpected and dramatic gains by Ukrainian forces requires more thought on potential outcomes. Even if the West continues supplying the Ukraine with ammunition and weapons that made the recent break through possible, will the situation be resolved in a way that provides Europe with the energy it needs to weather the cold winter and Russia willing to sell?
Energy Transition & Technology News
CONCRETE – NEW TECH TO REDUCE EMISSIONS
Humans produce more concrete than any other material on the planet. Consequently, the global cement industry is responsible for more than 8% of global carbon dioxide emissions, over three times the emissions associated with aviation. The primary culprit is a production process which heats limestone rich in calcium carbonate to over 2,640 degrees Fahrenheit (1,450 Celsius), at which temperature the calcium carbonate decomposes into calcium oxide, or quicklime, and carbon dioxide (CO2). The Conversation looks at new technologies to decarbonize the cement industry. Discussed are using materials such as fly ash from coal plants, slag from iron production, calcined clay, or small amounts of ground limestone to replace some of the cement in concrete mixtures, to electrification of furnaces and carbon capture. It also looks at alternatives to cement in construction.
The Electrification of Transport
BMW BATTERY TECHNOLOGY SELECTION
BMW announced it is breaking from the “prismatic cells” it has so far used in its batteries, and following the path chosen by Tesla with its 4680 cylindrical battery, writes Reuters. The German carmaker has already placed multi billion Euro orders with CATL and EVE Energy to produce the battery cells at four factories in China and Europe, and it is seeking partners able to build two more factories in the United States and Mexico. BMW said it would sign contracts for up to 20 gigawatt hours of capacity at each of the six plants. The batteries will use more nickel and silicon and less cobalt, leading to a 20% increase in energy density, 30% faster charging and a 30% longer range than previous generations.
JAPAN – SOLID STATE EV BATTERY TECH
The Financial Times takes a deeper look at solid state, following recent news by Honda and Nissan about their ventures into that area (which we reported on here at EPM). It interviewed Hiroaki Koda, who heads a joint battery venture between Toyota and Panasonic, who told FT that new liquid-based lithium-ion batteries would be dominant for the next 10 years. “Solid-state batteries becoming a game-changer is still far away. One reason is the difficulty in developing [solid-state batteries], and the other is the expanded potential of liquid lithium-ion batteries.”
AUTONOMOUS VEHICLES – DEVELOPMENT BARRIERS
Some cold water being poured on the prospect of autonomous vehicles? Reuters reports that while autonomous vehicle startups have raised tens of billions of dollars based on promises to develop truly self-driving cars, industry executives and experts now say remote human supervisors may be needed permanently to help robot drivers. Making robot cars that can drive more safely than people is immensely tough because self-driving software systems simply lack humans' ability to predict and assess risk quickly, especially when encountering unexpected incidents or “edge cases”.
The Global Energy Crisis
EUROPE – DEMAND REDUCTION THE SOLUTION?
An opinion piece at Project Syndicate makes the – in our view – sensible suggestion for the European Union countries to focus on reducing demand for and supply of energy, rather than controlling the price in a market whose supply - demand balance is completely out of whack.
THE EU CAN’T AGREE ON HOW TO CUT SOARING PRICES
While all EU countries agree that the bloc has to take steps to cut soaring energy prices, Politico reports Friday’s emergency summit of energy ministers got bogged down in the details of how. Ministers expressed general support for capping the price of natural gas in some form, but there was a spat over whether such a cap would apply to all imports or just those from Russia. There was also disagreement over how to cut energy demand. We at EPM are of the view that most of the ideas discussed sound wonderful on paper (“cap the price of gas!”) but are either unworkable in practice (gas will flow to Asia if Europe caps the price) or open a Pandora’s Box of new problems (as in the case of the proposed interventions in the electricity market which we discussed last week).
SLOVAKIA NATIONALIZES ITS UTILITIES
Slovakia is the latest country considering a nationalization of its utility company, Slovenske Elektrarne, writes Reuters. The nationalization would essentially entail a bail out of the shareholders of the company, which include Italy's Enel. This is almost certain to fan the flames of public discontent with European governments over the energy crisis.
Reducing demand with high prices may well be good economics, but it would make for some very difficult politics.