Energy, Politics & Money - 17 October 2022
Independent analysis of interconnected global developments in the world of energy, geopolitics, and money curated for you!
In this roundup, we focus on the US – China geopolitical conflict, as Chinese president Xi addressed the 20th National Congress of the Communist Party of China, while the US further tightened the thumbscrews for China with regards to the semiconductor industry, which is the proverbial “canary in the coalmine” indicating how this conflict is likely to play out over time.
Furthermore, we look at:
The sovereign debt crisis looming in the developing world
The US’s new National Security Strategy
Russia’s offer to make Turkey a natural gas hub, to maintain flows from Russia to Europe, and Croatia’s efforts to provide alternatives for Russian fossil fuels to eastern European countries
The challenges for Europe’s wind-turbine manufacturers to stay afloat, as the continent’s energy crises and collapsing euro make it uncompetitive on the global market place
The recent MIT ClimateTech conference, covering the latest-and-greatest tech in areas such as sola, nuclear fusion, geothermal for industrial heat, solid state batteries, the nuclear battery and carbon removal
Mercedes’ answer to Tesla’s model Y
Macro-Economics
SOVEREIGN DEBT CRISIS?
The Guardian looks at the sovereign debt crisis looming in the developing world. Already about 60% of low-income countries and about 25% of emerging markets are either in debt distress or at high risk of it. Two-thirds of low and middle-income countries now have bond yields above 10% and can no longer borrow from the private sector. If countries can’t refinance their bonds you have a crisis. While accounting for little more than 3% of the global economy, they represent 18% of the world’s population, and more than 50% of people living in extreme poverty. In our view at EPM, this means there is a social and political crisis in the making, akin the Arab Spring of 2011, which should be expected to have secondary and tertiary impacts on the developing world.
Geopolitics
RUSSIA OFFERS TURKEY GAS HUB OPPORTUNITY
During an exchange in Kazakhstan's capital Astana on the sidelines of the Conference on Interaction and Confidence Building Measures in Asia Summit, Russian President Vladimir Putin has proposed offering Turkey new natural gas supplies to transform the country into a regional "gas hub" that controls gas flows to Europe, writes Nikkei Asia. In the EPM view this indicates an aspiration on the Russian front to maintain its energy relation with Europe. To which the cynic might add “in order to maintain political leverage over the Europeans”, but undoubtedly economic considerations are also playing a role, as China is negotiating hard regarding the Russian offer to pipeline more gas eastward, demand lower prices than what Europe typically paid.
CROATIA – ALTERNATE HUB FOR OIL
Croatia, meanwhile, is trying to become the hub for alternatives to Russian crude and natural to flow into eastern Europe, writes The Financial Times. Countries such as Hungary, Slovakia and Slovenia as well as Serbia and Bosnia at present dependent on product flowing through pipelines connected to Russia, but the Adria oil pipeline that connects to Croatia’s Mediterranean coast could offer them an alternative.
CHINA – CPC CONGRESS MESSAGING SUMMARY
Bloomberg has a summary of the key messages in president Xi Jinping’s speech to the 20th National Congress of the Communist Party of China on October 15. It covers foreign policy, where on Taiwan Xi said “We will continue to strive for peaceful reunification with the greatest sincerely and the upmost effort, but we will never promise to renounce the use of force, and we reserve the option of taking all measures necessary”. On the economic front, development remains the top priority, the common prosperity objective remains, but a new priority is introduced, frugality. Time will tell what exactly this will mean for the business environment in China. In the social sphere, no indications the Zero Covid would be ended any time soon. As to the energy transition, Xi said that prudence would govern China’s efforts to peak and eventually zero out carbon emissions. “We will work actively and prudently toward the goals of reaching peak carbon emissions and carbon neutrality. Based on China’s energy and resource endowments, we will advance initiatives to reach peak carbon emissions in a well-planned and phased way, in line with the principle of getting the new before discarding the old.”
US NATIONAL SECURITY STRATEGY ANALYSIS
The Carnegie Endowment for International Peace has analysed the latest edition of the US National Security Strategy. The main thrust of the new strategy is that America will focus on competing with China and containing Russia, it says, and that it will do so by investing at home, building a coalition of like-minded states, and modernizing its military. Sensible priorities, says Carnegie, but also not surprising. What is more interesting in the new strategy is the way in which the White House has shifted its framing of the major fault lines of world order. Early in his administration, Biden placed America at the center of an urgent struggle between the world’s autocracies and its democracies. The new strategy keeps the democracy-versus-autocracy framing but tries for a more open approach. For one, it says the United States doesn’t believe it needs to turn autocracies into democracies in order to be secure. More important, rather than a global competition between all autocracies and all democracies, the White House now explicitly welcomes autocracies that reject using force to change borders into the tent. A final shift has been in the making since the Trump administration. To compete with China, the White House argues, America should invest in its strengths. The plan is to do this through a more active industrial policy that targets investment in infrastructure, education, training, cybersecurity, and green energy, among other fronts. The emphasis on industrial policy, especially when coupled with growing restrictions on technology-sharing, represents a distinct shift away from America’s long-standing role as the world’s leading proponent of a global free-market economy.
US TIGHTENING RESTRICTIONS ON SEMI-CONDUCTOR TECH TRANSFERS
On the semiconductor industry, which is the “canary in the coalmine” as to how the US – China Trade War could possibly develop, the US continues to gradually tightening its semiconductor restrictions on China. The range of what is defined as “advanced” technology has been broadened from circuit widths of 10 nanometers or less to 14 nm to 16 nm or less. Nikkei Asia has an analysis of how the regulation also drags down the financial performance of US, Japanese and South Korea based companies, which are increasingly not allowed to do “normal business” with China. Another Nikkei Asia report looks at Apple, which has had to put on hold plans to buy memory chips from China's Yangtze Memory Technologies Co. (YMTC) for use in some of its products. According to Bloomberg, China is trying to circumvent the restrictions in a variety of ways, including building up a local pool of semiconductor talents. But, the latest US restriction include a ban on American citizens, US residents and holders of US green cards to support the development, production or use of integrated circuits at chip plants located in China.
Energy Transition & Technology News
EURO WIND TURBINE INDUSTRY STRUGGLING
According to The Financial Times, major industry players have warned that European wind turbine manufacturers are financially struggling, due to the rising energy costs on the continent, but also the weakening euro which is making imports of critical materials significantly more expensive. European companies are now at risk of losing out to Chinese competitors, many of which were more financially resilient and could build turbines for less. At EPM we see this as evidence our warning that the energy crisis, though its impact on energy prices, could cause a collapse of European industry, is indeed playing out. In response, Siemens Gamesa’s chief executive Jochen Eickholt has called upon the EU to suspend normal functioning of the European market for wind turbines, writes the Financial Times. He has called for a quota on the amount of EU-produced turbines installed in the region
ARTIFICIAL LEAVES AND OTHER NEW TECH
A summary of the recent MIT ClimateTech conference can be found over at Technology Review. Among the bits of fascination is the “artificial leave”, which attempts to mimic nature’s photosynthesis process, converting CO2 and water into hydrogen using sunlight in an environment made from inorganic materials. After 10 years of development, much of the basic science is figured out. But, industry partners are necessary for artificial leaves to ever have any impact on the energy grid. Further subjects covered are nuclear fusion, geothermal for industrial heat, solid state batteries, the nuclear battery and carbon removal.
The Electrification of Transport
MERCEDES TO TAKE ON TESLA
Mercedes is broadening its battery-powered lineup with a sport utility vehicle that will take on Tesla Model Y. Bloomberg reports, the Mercedes EQE SUV will edge out the cheaper Model Y with 590 kilometers (367 miles) of driving range and start at around €70,000 ($68,000) when sales begin late this year. It’s the fourth model to use Mercedes’ dedicated EV platform, which also underpins the flagship EQS sedan.
The Global Energy Crisis
EURO ENERGY CRISIS – RECESSION AND SOCIAL TENSION
At Project Syndicate, Clemens Fuest, Professor of Economics at the University of Munich, writes the energy crisis is plunging Europe into recession and causing social tensions. European governments are eagerly seeking ways to defuse the situation, and he notes they will succeed only if they cooperate closely. Without cooperation, the EU’s response could well become a self-defeating subsidy race between the bloc’s members. Our view at EPM, as you know, is that the EU lacks solidarity and that the kind of collaboration the bloc obviously needs to deal with its self-inflicted energy crisis is unlikely to materialize.