Energy, Politics & Money - 14 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 in these chaotic times.
In this roundup, we look at:
Goldman Sach’s assessment of the price being paid for Russian crude, and where this crude is likely to head in 2023, and how the US financial sanctions seem set to make this trade more difficult than it is today
China’s second major LNG deal with Qatar (reportedly for 30 years)
The outlook for interest rates hikes around the world
China’s (near) ability to power every home in the country via renewables
The reason why the circular economy is notable absent in the US’ Inflation Reduction Act
The European Commission’s detailed definitions of renewable hydrogen
Pakistan’s decision to end its use of LNG for electricity generation, and instead build out its coal fired electricity infrastructure
General Energy News
Moscow's trade partners have increasingly paid more for Russian crude than quoted prices suggest, Goldman Sachs said in a note, according to Reuters. The bank says that the gap between the average effective price paid and the quoted price has widened since last March, and reached around $25 per barrel in December.
Russia plans to sell more than 80% of its oil exports to what it calls “friendly” countries in 2023, Deputy Prime Minister Alexander Novak said according to Reuters, referring to countries that have not sanctioned Moscow over its invasion of Ukraine. He added that these countries would also receive 75% of Russia’s refined oil products, and that Moscow continued to look for new markets.
Among the most important friendly countries is India. But trouble is brewing in the relationship, writes Bloomberg. Not political, but financial. India’s imports of discounted Russia oil is widening its trade deficit with Moscow. The countries originally agreed to settle in Indian rupee rather than US dollars, to evade US sanctions. But, Russian banks do not want excess rupee piling up. One possible way out is to trade oil in the UAE dirham, which is pegged to the US dollar. But at EPM we expect this to attract serious US pressure to the UAE, and is therefore unlikely to be a longer-term sustainable solution.
China is about to close a second massive LNG deal with Qatar, writes Reuters. Last November, China’s Sinopec agreed with QatarEnergy the purchase of 4 million tonnes of LNG annually for 27 years, the longest duration LNG supply contract ever signed by Qatar. This time round, it is China National Petroleum Corp (CNPC) that is the buyer for a 30 year deal.
Macroeconomics
An opinion piece at Bloomberg argues that because inflation is receding, though significantly above target; and global growth is slowing, though by less than feared a short while ago; central banks may be inclined to push pause on interest rates over coming months.
Energy Transition & Technology News
Wind turbines and solar panels are now generating almost enough electricity to power every home in China, writes Bloomberg. The country’s wind and solar output increased 21% in 2022, to 1,190 terawatt-hours of electricity, China’s National Energy Administration said. Which is not far off of total residential power consumption of 1,340 terawatt-hours, which was a 14% higher in 2022 as more people spent time at home because of the government’s stringent virus restrictions.
The Financial Times looks at the question why the phrase “circular economy” is missing from the US’ Inflation Reduction Act. The concept refers to a model of production and consumption that involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible, to avoid wasting raw materials. This could be because the Biden administration did not want to trigger anymore opposition to the bill, the FT writes. Or, it says, it could be because the concept was simply not on mind. The EPM view is that the circular economy model conflicts American Capitalism, which is focused on growth (of consumption and production). A circular economy, meanwhile, is about plateauing.
Climate Politics
The European Commission has published its detailed definitions of renewable hydrogen, writes Hydrogen Insight. Producers must prove that their electrolysers are powered by “additional” renewable energy capacity, such that their green hydrogen does not compete with the power grid. If the electrolysers are not directly connected to this additional renewable energy capacity, but instead connected to the grid, then the hydrogen producers must prove that the elektrons they use come from additional renewable energy capacity that was connected to the grid – every month until 2029, every hour thereafter. Additionality is not required if the grid has an average emission intensity of 64.8gCO2e/kWh or less. This is the case only in Sweden, but France is close to qualifying due to its heavy reliance on nuclear – which clarifies that the EU had opened the door for nuclear to produce “green hydrogen”.
Pakistan plans to quadruple its domestic coal-fired capacity to reduce power generation costs and will not build new gas-fired plants in the coming years, the country’s energy minister told Reuters. Behind the decision is Pakistan’s experience in the LNG market over 2022, when Europe sucked up all available cargoes, pushing prices out of the range of affordability for developing countries such as Pakistan.
The Electrification of Transport
Ford announced plans to invest $3.5 billion to build an electric-vehicle battery plant in Michigan, writes Nikkei Asia. The plant is scheduled to produce lithium iron phosphate, or LFP, batteries, utilizing technology from Ford’s Chinese battery partner CATL. The subsidies in the IRA were “incredibility important” for the decision, Ford also said. Last year, the company already agreed to form a joint venture with South Korean battery maker SK Innovation to build EV battery factories in Tennessee and Kentucky.
While batteries are clearly at the heart of the auto industry’s attempts to cut emissions, they also present a significant headache, writes the Financial Times. Unless battery recycling and reuse becomes widespread, car companies still run the risk of becoming the targets of environmentalists, who could argue that the shift to electric vehicles still requires too many resources to be extracted from the earth.