Energy, Politics & Money - 14 November 2022
Independent, objective, and politically neutral analysis of interconnected global developments in the world of energy, geopolitics, and money curated to help you thrive in chaotic times
In this roundup, EPM examines the recent US Saudi ‘spat’ following OPEC+ production cuts, noting the cut would not hurt their relations confirmed by the Saudi Foreign Minister, increase crude prices or reduce supply confirmed by the markets.
Furthermore, we look at:
Another IMF downgrade of the global economic outlook, which brings is more closely in line with the outlook we at EPM have articulated for you over recent months
The warning by JPMorgan Chase CEO Jamie Dimon that an economic storm is on its way
The worsening of credit crisis risk in Asia
The most likely trajectory of the US – China relationship, where Bloomberg has not adopted the view we at EPM articulated a few months ago already
The failure of Chevron to deliver CCS as part of its Gorgon project in Australia
The increased presence of the oil and gas industry at the most recent COP, which will undoubtedly influence the conversation, and as such the path forward for global climate change agenda
Technological advancements in China’s EV space, where BYD is now taking a commanding lead
General Energy News
As to the spat between the US and Saudi following the OPEC+ production cut decision, Bloomberg writes the Adel Al-Jubeir Saudi Minister of Foreign Affairs said he does not believe the issue will cause lasting damage to the relationship between the two countries, which goes back nearly 80 years now. “It’s a very strong relationship,” Al-Jubeir said Saturday at the Saudi Green Initiative during the COP27 climate summit in Egypt. “We have seen the coming and passing of many storms. We have had our ups and downs and we always move towards a stronger, deeper and broader relationship.” As you know, our EPM view has from the start been that the OPEC+ decision would not drive up the crude oil prices, as it would not significantly reduce supply, or at least not more than what demand is likely to decrease due to the global recession. As such, the spat, in our view, was most likely targeting short-term political points (ahead of the midterm elections).
Macro-Economics
EPM has warned before against relying on IMF outlooks for your scenario planning, as they are always “behind the curve” in times of disruption. In case you needed further evidence to support our assertion, Reuters reports the institution now says “global economic outlook is even gloomier than projected last month”.
JPMorgan Chase CEO Jamie Dimon warned Nikkei Asia that an economic storm is on its way. Condition for it, including monetary tightening, inflation and the war in Ukraine, have all fallen into place. And consequently, he says, the world could see more “surprises” like the near meltdown of UK pension funds, referring to how volatility in government bonds forced overleveraged pension funds there to sell their assets and pushed them to the brink of collapse in past months.
Credit crises are lurking in every corner of emerging markets, writes Bloomberg. The article explains why the issue has appeared not only in China, but also – as we at EPM forewarned! – in South Korea and Vietnam. Nikkei Asia has gone deeper into the problem experienced by South Korea. Investors have grown concerned over the creditworthiness of corporate borrowers, leading to a loss of liquidity in the market and raising yields sharply, it says. The South Korean government will now intervene through a bond-buying program, but analysts say the measures might not be enough to stabilize the market, where lending conditions are the tightest since the global financial crisis.
Geopolitics
At EPM, we note the semiconductor industry is the “canary in the coalmine” and offers a clear indication as to how the rivalry between the US and China is likely to affect global business. Our forecast has been that the most likely trajectory is a break up of the global economy into two separate blocks, with the US in particular not allowing companies that want to do business with it, to also do business with China. Bloomberg has come to the same conclusion. Biden is “forcing US partners to pick sides in a deepening global technology standoff” it now says. US partners such as South Korea, Japan and The Netherlands are of course not happy with this – but they will be bullied into compliance, we at EPM foresee.
Energy Transition & Technology News
In the six years since export of liquefied natural gas started from Gorgon, Chevron has been able to capture and sequester just a third of the CO2 targeted, writes WA Today from Australia. The CO2 injection system was not ready when gas production started at Gorgon in early 2016. Then Chevron found excess water in the system mixed with carbon dioxide and formed an acid that threatened to corrode the equipment. Injection of CO2 did not begin until August 2019, three and half years after the plant started producing revenue. The next problem was rising pressure in the layer of sandstone two kilometres below Barrow Island where the CO2 was to be stored. Wells to remove water to make room for the CO2 were clogged with sand. “We expect a number of years will be required to implement any solution due to the timeframes associated with regulatory approvals, equipment procurement, and installation”, Chevron now says. In the view of EPM, the Chevron experience at Gorgon highlights that carbon capture remains an unproven technology, at the scale needed to decarbonize fossil fuel operations at least.
Interestingly, Bloomberg reports Chevron is studying plans to sell greenhouse gas storage space in Australian underground reservoirs to emitters across Asia. At EPM we do see “CCUS as a service” as a viable business model. Chevron’s performance in Gorgon, however, is unlikely to make it “partner of choice” for companies looking for such a service.
Climate Politics
In what probably is a sign of the times, considering the global energy crisis, The Financial Times writes this year’s COP is the first to invite oil and gas companies to participate in the official programme of events. Campaign group Global Witness estimated that more than 600 fossil fuel lobbyists were registered for COP27 — a quarter more than the year before. This will undoubtedly influence the conversation, and as such the path forward for global climate change agenda.
The Electrification of Transport
Nikkei Asia has analyzed EV patent applications from China’s four largest sellers of all-electric vehicles. BYD came out in front with 1,557 applications, nearly double the 870 filings of its closest rival, Zhejiang Geely Holding Group. Chery Automobile was in third place with 640 patent filings, while SAIC Motor took fourth with 448, indicating BYD has taken an overwhelming lead in EV technology.