Energy, Politics & Money - 17 August 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money just for you!
Welcome to the Energy, Politics & Money news feed of Wednesday 17 August 2022, with your daily dose of cutting-edge insight into everything of importance in the connected worlds of energy, geopolitics and the economy.
In this roundup, we examine:
Further predictions noting a fall in oil price forecasts for 2022 and 2023
European energy electricity rates of €251 per megawatt hour
Iran’s calls for U.S. flexibility to complete negotiations for a new 2015 deal
Potential outcomes of US and Chinese leaders meeting later this fall
Observations the U.S. is not doing enough to combat inflation
The original backers think Carbon Capture and Sequestering is a waste of time
Reality sets in over the recent U.S. energy bill - barriers to smooth adoption
General Energy News
Reuters reports that Barclays bank lowered its Brent price forecasts by $8 per barrel for 2022 and 2023 as it expects a large surplus of crude oil over the near-term due to “resilient” Russian supplies. The British bank now sees Brent crude averaging $103 this year and next with WTI to average $99 for ‘22 and ‘23. This is higher than current price levels as the bank sees recent declines as temporary. Barclays expects Russian oil output to decline 1.5 million barrels per day compared with the pre-war level once the EU sanctions on imports and insurance activities kick in.
As to natural gas, The Financial Times reports gas markets in Europe jumped by as much as 10% to as high as €251 per megawatt hour yesterday (Tuesday) - this is equivalent in energy terms to more than $400 a barrel of oil! Traders are caught - in what we have long argued - shorter-term scenarios for the natural gas supply and demand balance as Europe heads to winter and competition over available LNG increases. Prices have now more than doubled from June’s already extremely elevated levels. European gas prices are expected to remain near record levels or head even higher as winter approaches. With natural gas prices at more than 10 times normal levels the possibility of a deep recession continues to grow. Investors are now more downbeat on the German economy than at any time since the Eurozone debt crisis a decade ago.
The Macro Environment (economics & geopolitics)
On Tuesday, Reuters reported that European Union and United States were studying Iran's response to - what the EU has called its “final” proposal - for saving the 2015 nuclear deal after Tehran called on Washington to show flexibility. Earlier on Monday, Iran’s foreign minister called on the U.S. to show flexibility in resolving three remaining issues. EPM believes that this clearly indicates Europe is very eager for a deal as it would love freeing Iranian crude oil supplies while it prepares to fully sanction energy supplies from Russia.
Iran would equally love a deal for the obvious reason that it’s economy is heavily reliant on revenue from oil exports. The U.S., meanwhile, needs the deal less in strictly economic terms, and, can hence play “hard to get” and push its demands harder than other parties. We question in how far the recent attack on Salman Rushdie is influencing the U.S. position? U.S. Secretary of State Antony Blinken, after all, denounced Iranian state institutions for inciting violence against Salman Rushdie as reported by The Financial Times.
The turning to the U.S. - China tensions. As you know, EMP’s view is that this tension relationship will push globalization into reverse and cause “de-globalization” or “regionalization” and have major implications for businesses everywhere. The Financial Times analyzed the recent intensification tensions over Taiwan and noted it is causing multinational companies to draw up contingency plans in the event of a U.S.-China military conflict in Asia. Another consequence, will no doubt lead to changes in investment plans for the medium term.
Meanwhile, according to the Wall Street Journal, Chinese officials are making plans for Xi Jinping to visit Southeast Asia and meet face-to-face with President Biden in November. Xi plans to attend the Group of 20 summit in Indonesia in mid-November, and then go to Bangkok for the Asia-Pacific Economic Cooperation summit, and the meeting is to take place around those official gatherings.
EPM hopes this meeting will lead to a path forward for the two countries steering them away from increased tension and confrontation. However, it is equally possible, as Ian Bremmer writing for Nikkei Asia hints, that the meeting will be characterized, on the one hand, by China communicating a doubling down on its principles of “One China” over Taiwan. While, on the other hand, the U.S. will counter with stronger language designed to communicate the end of its principle of “strategic ambiguity” regarding Taiwan and the adoption of a “fully behind Taiwan” strategy. This, of course, will of course only serve to further escalate tensions…
Then turning to global economics, former Salomon Brothers economist Henry Kaufman - referred to as “The original Dr. Doom” by The Financial Times because he correctly predicted the 1982 bull market - says that today’s Fed under Jay Powell is failing to combat inflation. Kaufman argues the U.S. still has quite a way to go in increasing interest rates before inflation will start to come down, “Today, the inflation rate is higher than interest rates. Back then, interest rates were higher than inflation rates. It’s quite a juxtaposition”.
Energy Transition & Technology News
A New York Times (it may require free registration to access) an opinion piece by professors from MIT and Stanford argues that CCUS is a waste of time and effort. 24 years ago, the authors established the first privately funded company to make use of CCUS technology in the United States. Back then, they say, it made sense. Now it doesn’t.
According to the authors, CCUS projects that have been completed so far have mostly failed. In the words of the authors “at least 15 projects burned billions of dollars of public money without sequestering any meaningful amount of carbon dioxide”. They note that renewable power generation technology has improved so much that coupling fossil fuel based power generation with largely unsuccessful CCUS technology no longer makes sense. Consequently, their main argument is that, every dollar invested today in renewable energy will eliminate more carbon emissions than putting that same dollar in CCUS.
The article concludes, therefore, that inclusion of CCUS in the recent U.S. climate bill creates a perverse incentive. Oil and gas companies will receive tax credit for each metric ton of carbon dioxide injected into the ground, which in the new law will rise from $35 to $60 per ton, even if the injection of carbon is used to produce more oil and gas (“enhanced recovery”). According to the authors, this means this element of the climate bill subsidizes oil and gas at the expense of renewables. In the words of the authors, “tilting the playing field against promising innovations that avoid fossil fuels in the steel, fertilizer and cement industries while locking in long-term oil and gas use.”
Climate Politics
The U.S. climate, tax and spending law holds potential to spark an explosion of new renewable power projects across the country. Clean-energy executives, climate advocates, and energy scholars have praised it saying that it is the first serious legislative attempt to tackle emissions that fuel global warming. But The Financial Times says a host of obstacles stand in the way. They range from tariffs and import controls (driving up the cost of solar panels) to state land-use laws over which the federal government has no control.