Energy, Politics & Money - 19 August 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money view just for you!
Welcome to the Energy, Politics & Money news feed of Friday 19 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 look at:
Stabilizing oil prices, OPEC’s optimism, and the $1.3 trillion windfall for the Middle East
How the Ukraine and Taiwan are proxies in the great geo-political power struggle
Technological developments in bio-fuels using agricultural waste
Luxury car makers looking at new EV motor tech to further improve crazy acceleration
Big business in Ghana are blaming consumers for low plastic re-cycling rates
Increasing energy costs resulting in demand destruction in Asia with social unrest increasing in Asia and Europe
General Energy News
The oil price remains in the mid-90s range for Brent, high-$80s / low-$90s for WTI as worries over the outlook for the economy balance worries about limited reserve capacity. For the week, WTI is down 2% reports Bloomberg.
OPEC’s new secretary general, Haitham al-Ghais from Kuwait, is decidedly optimistic about the future, however. Reuters reports he is of the opinion that while oil demand is robust in the physical market the concern of a Chinese economic slowdown is exaggerated and demand is likely to find support from jet fuel use as people travel more.
According to the IMF, Energy-rich Middle East states are set to reap up to $1.3 trillion in additional oil revenues over the next four years, reports The Financial Times. This is based on the IMF’s assumption that over this period, crude oil prices will remain elevated due to the Ukraine conflict.
The Macro Environment (economics & geopolitics)
In a week where both New Zealand and the Philippines raised rates by 0.5%, Reuters reports that Japan announced its inflation rate remains above official targets. At 2.4% Japanese core inflation appears low relatively speaking, but it is important to remember this is in a country that for decades has been trying to manage deflationary pressures.
Regarding geopolitics, over at Geopolitical Futures an article by George Friedman explains why Ukraine and Taiwan are of geo-strategic importance to the United States.
With respect to the Ukraine, he says “If Russia defeats Ukraine and takes control of the country, its forces will be on the border of Eastern Europe. A Russian presence on Europe’s border would transform the balance of power in the Atlantic, and would thus inevitably compel the U.S. to deploy forces in Europe’s defense.” Of course, the Russians would argue that if a pro-American regime were to be established in the Ukraine, then this would position an adversarial force just 300 kilometers from Moscow. For Russia, without any natural borders in this area, this is an unacceptable strategic threat.
In regard to China, Friedman writes “China’s geographic problem is that it has become an exporting powerhouse, and as such it depends on its access to the Pacific Ocean and adjacent waters. The United States sees free Chinese access to the Pacific as a potential threat to its own strategic depth, something fundamental to the United States since the end of World War II. Chinese access to the Pacific is blocked by a series of island states – Japan, Taiwan, the Philippines and Indonesia, indirectly supported by nearby powers such as Australia, India and Vietnam. Not all of them are American allies, but all have common interests against Chinese naval expansion. China wants to defend its strategic depth by seizing and controlling it. The United States wants to defend its strategic depth by defending it.” What this excellent analysis indicates, is that for all the moralistic rhetoric Ukraine and Taiwan are in reality proxy battle grounds for the geo-strategic powers. As such, these conflicts will not be resolved any time soon and should be expected to continue influencing the global economy over at least the medium term.
Nikkei Asia, meanwhile, explains how the conflict is Ukraine is creating major problems for Europe in more ways than one. The energy implications of Europe choosing sides and declaring economic war on Russia are well documented (though still underestimated in many sectors, in our view). Nikkei Asia highlights another casualty - Europe’s rail link to China - its most important trade partner - has been effectively cut.
Energy Transition & Technology News
WoodMackenzie has a deep-dive analysis on biofuels. To address the challenge of raising supply to meet demand, it highlights the importance of further development of technology enabling cost effective conversion of agricultural waste into bio fuels. EPM very much supports this. Agricultural waste is probably the largest sustainable feed stock and remains underdeveloped as a source for bio fuel purposes. Household waste is limited, while dedicated agricultural products are an unsustainable solution. Their use will eventually be challenged on ESG grounds as it incentivizes deforestation, monoculture, and results in food price inflation.
The Electrification of Transport
The electrification of transport leaves luxury car makers searching for ways through which they can differentiate themselves. All cars featuring an electric motor possess acceleration that was reserved only for super cars in the internal combustion engine (ICE) world.
In that regard, Al Arabiya English has an interesting article on Mercedes and Ferrari’s attention to axial flux electric motors. These are smaller motors than the predominant radial electric motors but pack a more powerful punch. The article explains the key difference between the two “With each press of the accelerator, EV drivers push hundreds — and in some cases thousands — of amps of electric current to copper coils. When these coils are energized, they become electromagnets with attractive and repulsive forces. The magnetic force created by a stationary stator surrounding a rotating rotor produces the torque that turns the wheels of the vehicle. In axial motors, rather than have a rotor spin inside a stator, disc-shaped rotors spin alongside a central stator. This leads the flow of current — the flux — to travel axially through the machine, rather than radially out from the center.”
While civil society organizations in the US have called upon Musk not to invest in Indonesia in the area where nickel is mined- because of it’s poor environmental and human right record - the Indonesian president want Musk to invest even more. Bloomberg reports president Jokowi wants Tesla to make not only batteries, but also manufacture electric cars.
ESG
Bloomberg reports on West Africa’s plastic waste problem. Some of the world’s largest companies have come together to address the issue in Ghana, including Coca-Cola, Unilever, Nestle, Danone and Dow Chemical. But, Bloomberg says, this hasn’t done much to fundamentally solve Ghana’s plastic problem. Instead, their efforts (like they always have done) are intent on shifting responsibility to the customer. The amount of actual recycling happening in Ghana has remained stubbornly low. Although reliable data is scant, less than 0.1% of plastic is actually recycled.
The Global Energy Crisis
The global media has focused attention that as rich countries pull out their wallets to offset Russian gas supplies with a “whatever it costs” attitude developing countries, without the financial resources, are left behind in the dark and heat/cold.
EnergyVoice publised an article dedicated to how the Global Energy Crisis is affecting developing countries around the world. Russia’s war in Ukraine has Europe bracing for a tough winter but costs are piling up higher in emerging nations as Governments struggle to keep energy flowing to citizens hit by surging inflation.
Bloomberg highlights that this development is likely to cause political unrest in a wide range of countries – Pakistan likely to be among the first.
Another EnergyVoice report note that with developing countries unable to afford LNG at current prices, demand destruction in Asia will be significant.
Over in Europe, the drought is increasing energy problems. Reuters reports how Shell has cut output at its German Rhineland refining facility because the Rhine’s low level has made transport of goods via the river more challenging.