Energy, Politics & Money - 18 October 2022
Independent analysis of interconnected global developments in the world of energy, geopolitics, and money curated for you!
In this roundup, EPM looks at:
Harold Hamm’s purchase of the remaining shares in Continental resources, valuing the company at $27 billion
The concept of “green hushing”, under which companies downplay their emissions targets to avoid getting accused of the more familiar “greenwashing”
General Energy News
CRUDE OIL – HIGHER OR LOWER IN THE NEAR FUTURE?
The crude oil markets continues to fluctuate between the idea that tightness in the supply demand balance – especially with the OPEC+ quota cut coming in November – should push prices up, and the idea that the coming global recession – especially as central banks continue to push up interest rates – should push prices down, writes Bloomberg. Currently Brent is trading at $91 while WTI is trading at $85.
RUSSIAN CRUDE – INCREASED DELIVERIES TO INDIA, CHINA, & TURKEY
Further on crude oil, the three countries that helped Moscow to maintain crude exports in the wake of its invasion of Ukraine – China, India and Turkey – appear to be stepping back into the market for Russian barrels, writes Julian Lee of Bloomberg. A marked increase in the volume of crude on tankers that have yet to signal a final destination makes the task of monitoring Russia’s exports more complicated, but most of those vessels end up in India, with a smaller number heading further east to China. Adding those ships into the calculation shows a steady increase in the combined flow of Russian crude to Turkey, China and India in recent weeks, he says. Lee’s view is that the increase in purchasing is in anticipation of European Union sanctions that will deprive vessels of insurance and other services as of December 5.
DIESEL - WORLD WIDE SHORTAGES
John Kemp of Reuters looks at the global supply / demand situation for diesel, a critical commodity for the global economy used for road transport, farming, mining and manufacturing. The global shortage of the product is intensifying rather than easing, he writes, as the US has reduced capacity to make it, producing an average of 4.9 million barrels per day of distillate fuel oil in 12 months ending July 2022 compared to 5.2 million in the same period ending July 2019, while Chinese refinery runs were down because of the lockdowns. This situation will maintain high diesel prices, pushing up inflation of most things used daily, and thus force central banks to maintain their high interest rates, or even push them up further.
US STRATEGIC OIL SUPPLY – RELEASE PLANNED SOON
Bloomberg says the Biden administration is moving toward a release of another 10 million to 15 million barrels of oil from the nation’s emergency stockpile in a bid to balance markets and keep gasoline prices from climbing further. Included in the report is what we at EPM find the most interesting. As we forewarned, the US is conscious of the fact that energy prices influence global competitiveness, and therefore some in the Biden administration continue to push for limits on gasoline and diesel exports.
NOPEC – AN IDEA THAT DOESN’T MAKE SENSE
Javier Blas of Bloomberg warns the US against going after OPEC+ using antitrust law. The risk the US runs with their NOPEC, he says, is that in response Saudi Arabia would dump US financial assets, redirect oil sales and openly talk about pricing oil in other currencies. At EPM we note that NOPEC has been around for 25 years already, and the reason it never got through Congress is that both the US and Saudi realize they are in a symbiotic, mutually beneficial relationship when it comes to crude oil. Which is why we at EPM are of the opinion, as we expressed multiple times over recent days, that most of the US angry words directed at Saudi Arabia regarding the OPEC+ quota cut is just politics, essentially words produced for domestic consumption, rather than a signaling an honest opinion or any real intent.
HAROLD HAMM BUYS CONTINENTAL RESOURCES
Lastly as to crude oil, Harold Hamm has reached a deal to buy Continental Resources in its entirety, valuing the equity of the US oil producer he founded at about $27 billion, writes The Financial Times. According to FT, Hamm bought the company because he felt shareholders were holding back on increasing crude oil and natural gas production. As the sole owner, FT says, Hamm can now “drill baby, drill!” to his heart’s content.
CHINA FORBIDS RESELLING LNG TO EUROZONE
As to natural gas, Bloomberg reports China told its state-owned gas importers to stop reselling LNG to energy-starved buyers in Europe and Asia in order to ensure its own supply for the winter heating season. At EPM we note that so far, Europe has received significant support from China reselling LNG cargoes it did not need over the summer / autumn period. With this flow of product coming to an end now, the price of spot LNG is set to increase again, as Europe’s demand for the energy increases over the winter months.
Macro-Economics
CHINA DELAYS PUBLICATION OF GDP AND ECONOMIC DATA
Some puzzling news coming out of China. The country decided to delay publication of third-quarter GDP figures and a batch of other economic data. Figures for July-September growth were due Tuesday morning, writes Nikkei Asia, but on Monday, the National Statistics Bureau's updated website said the data were delayed along with other figures set for release, including September industrial production, retail sales and the unemployment rate. The agency gave no new release date or an explanation for the delay.
Geopolitics
CHINA POLICY – STRENGTHEN DOMESTIC ECONOMY & NATIONAL SECURITY
Yesterday at EPM we discussed the Bloomberg summary of Chinese president Xi Jinping’s speech at the Communist Party's National Congress. Today, Nikkei Asia brought together the analyses of a number of leading China analysts. The consensus view is that the speech stressed the determination of Xi to strengthen the domestic economy as the global outlook sours, and to put security at the top of the agenda amid soaring geopolitical tensions, including icy relations with Washington.
Energy Transition & Technology News
BP MOVES INTO BIOGAS
BP makes a big push into biogas through a $4 billion acquisition. The Financial Times reports it plans to acquire Houston-based Archaea Energy, that produces biogas by processing organic waste from landfill sites and the farming industry. BP is paying $3.3 billion in cash and taking over approximately $800 million of Archaea net debt. Archaea has 50 facilities across the US, producing about 6,000 barrels of oil equivalent a day, and BP is paying a 38% premium over the past 30 day’s average share price. The deal would immediately increase BP’s biogas supply volumes by 50 per cent and provide a development pipeline of more than 80 projects that could see volumes quintuple by 2030, BP said.
The Global Energy Crisis
EUROZONE RESPONSE TO ENERGY CRISIS LACKING
An opinion piece over at Euractiv argues the European Council has so far failed to provide an adequate answer to its energy crisis. In August it was the world’s largest energy importer, but also paid almost nine times higher energy prices than the US. The author states this “may” start a de-industrialization process in Europe. As you know, we at EPM have forewarned this state of affairs, and believe Europe is beyond the “may” point. If it does not tackle urgent and drastic measures to structurally address its energy crisis, and price caps or other kinds of market-suspending interventions are not structural solutions but just temporary patches, it will soon find itself in a position where its industry has become globally uncompetitive.
EUROZONE - PATCHY SUPPORT FOR CONSUMERS
The plan of the European Union to use 40 billion euros ($39.2 billion) from the bloc’s budget to support people and companies struggling to cope with high prices caused by the energy crisis, reported on by Bloomberg, falls in the category of “patches”. Our EPM view is that most likely this will be nowhere near enough to protect households against the cold of winter and industry against global competitive pressures…
ESG
GREENWASHING FEARS – STIFLING CORPORATE EFFORTS?
Bloomberg reports on a survey of 1,200 large companies from 12 different countries, all of which have set net-zero targets and more than two-thirds of which identify as “heavy emitters.” It found that although a majority of companies have set science-based targets to help them deliver on their commitments, 23% “don’t plan to publicize” them. The findings suggest that the stigma of so-called greenwashing, where a company exaggerates its green credentials, is so feared by executives that they will do anything to avoid being accused of it – including downplaying their organization’s ambitions.