Energy, Politics & Money - 16 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 take a closer look at the unfolding “Chinese balloon” saga, where instead of trying to offer an explanation, EPM focuses on what it tells us. All attempts to explain are speculative, because neither the US nor China will show their cards (so to speak).
However, the response of in particular the US clearly indicates that at present it is not seeking a rapprochement with China. Therefore, the key insight come from the affair, in EPM’s view, is that US – China relations remains on a pathway to escalation, and thus that our base-case outlook for the global economy will remain tied to further de-globalization, rather than a plateauing of de-globalization or even a reversal of this trend.
Furthermore, we look at:
The new destinations for Russian refined products, following the G7 / EU sanctions from February 5th
China’s redevelopment of its air force
China’s plan to add 95 to 120 gigawatts (GW) of solar power in 2023, or as much as 30% of current capacity
The Financial Times’ review of the IRA, which is calls “the US plan to become the world’s cleantech superpower”
The European Parliament’s formal approval of the law banning the sale of new petrol and diesel cars in the European Union from 2035
Charlie Munger, co-head of Berkshire Hathaway and Warren Buffett’s longtime investment partner, on the comparison between Tesla and BYD
General Energy News
Similar to what has already happened with Russian crude oil, there are signs that the country’s refined fuels too are finding new buyers outside Europe, writes Clyde Russell for Reuters. China's imports of Russian fuel oil are expected to hit a record high in February. India has also been lifting its imports of Russian fuel, and has also turned to Russian naphtha. In the Middle East the United Arab Emirates (UAE) and Saudi Arabia have been increasing Russian fuel oil imports, in order to displace crude in direct-burning for power generation. Russia has some further scope to boost oil product shipments, with product importing countries such as Indonesia, Pakistan and Bangladesh possible targets.
Geopolitics
The latest news from the White House is that the most recent three unmanned objects that the U.S. has shot down may have had a commercial or otherwise benign purpose, writes Nikkei Asia – in an article which then goes on to accuse, on the basis of anonymous “national security analysts”, China’s People’s Liberation Army (PLA) of being behind it. The EPM perspective on the subject is that it seems primarily designed to attract attention, i.e. to deflect attention from other, more serious topics and issues. We believe this is also what George Friedman hinted at when he recently wrote,
According to the Pentagon, China’s spy balloons have entered the airspace of more than 40 nations in recent years. Given that these flying objects are somewhat visible from the ground, it is strange that no one noted them at least loudly enough to be noticed.
Some have speculated what the more important topic or issue could be, such as Edward Snowden who says it is the Seymour Hersh investigation into the Nordstream explosions. This is all speculative, however.
What we at EPM take away from the whole affair, is, firstly, that the US – China relationship is on a pathway to escalation. Secondly, based on the balloon saga, we speculate at this stage that the US is seeking this escalation. Our base-case outlook for the global economy therefore remains more de-globalization, not a plateauing of de-globalization nor a reversal of this trend.
In line with our above assessment is the news, from Nikkei Asia, that NATO is considering issuing a joint statement for its next summit together with four observer nations from the Asia-Pacific region – Japan, South Korea, Australia and New Zealand – to show solidarity against Russia and China.
Nikkei Asia reports on a speech by John Chipman, director-general and chief executive of IISS, in which he said that China’s combat aircraft inventory has been transformed over the past five years. The country is now outpacing the US in the production of stealth fighters, with the inventory of its most advanced J-20A overtaking that of the US Air Force's F-22 Raptor as soon as this year. The F-22 was the first-ever fifth-generation fighter to enter service (and represents the nadir of US technology available in the 1990s). It is no longer in production due to its high cost, and the US has shifted its focus and resources to the F-35s, which are considered more affordable and versatile. Yet the F-22 is expected to serve into the 2030s. The J-20 is China’s first fifth-generation fighter and was designed to rival the F-22.
Energy Transition & Technology News
China is expected to add 95 to 120 gigawatts (GW) of solar power in 2023, or as much as 30%, writes Reuters. It brought 87.41 GW of new solar power into operation in 2022, official data showed, driving the total installed capacity to 392.61 GW.
Climate Politics
The Financial Times looks at the US plan to become the world’s cleantech superpower. Across the country, a new revolution is under way in sectors from solar to nuclear, carbon capture to green hydrogen — and its goals are profound: to rejuvenate the country’s rustbelt, decarbonise the world’s biggest economy, and wrest control of the 21st-century’s energy supply chains from China, the world’s cleantech superpower. The world is only just beginning to contend with what it means, it says.
The European Parliament on Tuesday formally approved a law to effectively ban the sale of new petrol and diesel cars in the European Union from 2035, writes Reuters. The landmark rules will require that by 2035 carmakers must achieve a 100% cut in CO2 emissions from new cars sold, which would make it impossible to sell new fossil fuel-powered vehicles in the 27-country bloc. The law will also set a 55% cut in CO2 emissions for new cars sold from 2030 versus 2021 levels, much higher than the existing target of a 37.5%.
The Electrification of Transport
According to Charlie Munger, co-head of Berkshire Hathaway and Warren Buffett’s longtime investment partner, Tesla pales in comparison to BYD in China, writes CNBC. Munger said:
Tesla last year reduced its prices in China twice. BYD increased its prices. We are direct competitors. BYD is so much ahead of Tesla in China ... it’s almost ridiculous.