Energy, Politics & Money - 20 July 2023
Providing independent, objective, & neutral analysis of global developments curated from sources covering the world of energy, geopolitics, & investment.
In this roundup, we look at:
ExxonMobil’s plan to significantly expand its liquefied natural gas business, doubling it to more than 40 million tons by 2030
The global gas industry’s call for more investment in gas and LNG infrastructure – something the analysts of industry analyst Wood Mackenzie say is not necessary
The failure of the western oil sanctions on Russia, Iran and Venezuela
The wave of corporate bankruptcies, and real estate bust, that is building now that the era of easy money has come to an end
The orchestrated expression of confidence in China’s government from the country’s business tycoons, which indicates, in the EPM view, that China fears social unrest
The failure of John Kerry’s climate focused visit to China, and the US deployment of veteran statesman Kissinger to try and get China to move in line with the US plans and ambitions
The boom in China's energy storage sector
A breakthrough in enhanced geothermal power systems
General Energy News
ExxonMobil will significantly expand its liquefied natural gas business by doubling the annual amount it handles to more than 40 million tons by 2030, writes Nikkei Asia. "We're very bullish about the growth opportunities in natural gas and LNG. When you think about that in the portfolio with a corporation, investing in more LNG is certainly part of the strategy," Andrew Barry, vice president in charge of LNG marketing, said.
Big gas producers have in recent years promoted gas as a transition fuel in the push for cleaner energy, a move fiercely resisted by environmentalists, with the argument that renewables like wind and solar face technical factors like intermittency of supply. Fears over energy security, triggered by sanctions on Russian energy following its invasion of Ukraine in 2022, then left countries scrambling for access to gas. During a gathering of major gas producers in Tokyo, Japan, representatives of the industry used this background to argue for more investment in gas and LNG, writes Reuters. "Lack of investment is affecting both producers and consumers, and their access to affordable and reliable energy and economic growth," Suhail Mohamed Al Mazrouei of ADNOC said. "Do we have enough investment in gas and LNG to cover for converting all coal plants in the world to gas? The answer is no," he said. Fatih Birol, executive director of the International Energy Agency, pushed back slightly, telling the conference that there is a "strong need" to cut emissions from gas supply. "We think that strategies to future proof investments in gas infrastructure are needed, (eg) by incorporating technologies like carbon capture and storage throughout the value chain, or by allowing for the integration of low emission gas," he said.
On the topic of under investment, the current global annual investment of around $500 billion into upstream oil and gas will be sufficient to meet peak oil demand in the 2030s, Wood Mackenzie says according to Reuters. It said it expected oil demand to peak at 108 million barrels per day (bpd) in the early 2030s before beginning its long–term decline, with fuel efficiency, electric vehicles, and natural gas substitution taking over eventually. Current expenditure could deliver the supply needed to meet demand peaks through three main reasons - "the development of giant low-cost oil resources, relentless capital discipline and a transformational improvement in investment efficiency," according to WoodMac.
Javier Blas of Bloomberg has looked at the effectiveness of the oil sanction on Russia, Iran and Venezuela. Their impact has been minimal, he says. By and large, their only impact has been market disruptions, which smart traders have been able to handsomely profit from, as the actual volumes have kept flowing.
Macroeconomics
A wave of corporate bankruptcies is building now that an era of easy money has come to an end, writes Bloomberg. More than $500 billion of corporate-debt-in-distress is already starting to make landfall across the globe, it says.
Bloomberg also says the real estate boom of the past 15 years is now turning into bust as prices start to fall around the world. New Zealand, a bellwether for global housing euphoria that attracted Silicon Valley preppers and domestic flippers, has seen a 16% fall in property prices from their peak, while the proportion of mortgages in arrears is at a three-year high. In Sweden, a 15% fall in house prices is expected to bottom out but leave recession and higher unemployment in its wake, meaning less homebuilding. In markets like the UK with a long history of sustained price rises, the decline has been more muted, but the pain is there beneath the surface. Prices have another 10% to fall from their 2022 peak, according to Bloomberg, which says those who stretched their budgets to buy during Covid-19 are in for a shock. The Bank of England estimates that around 4.5 million households have already seen increases in repayments since late 2021, with another 4 million to be hit with higher rates by the end of 2026. A typical borrower refinancing in the second half of this year could see payments rise by around £220 ($288) a month. The return to normality looks hellishly unequal amid a broader cost-of-living crisis, high inflation and a persistent lack of housing supply, it says, and as such brings the risk of more social anger. The temptation to soften the blow will be hard for politicians to resist, Bloomberg says.
In China, the country’s billionaires have stepped out of the shadows to praise the Communist party’s efforts to restore private sector confidence, as Beijing attempts to recharge the economy’s faltering post-pandemic recovery, writes the Financial Times. The country’s typically low-profile titans of industry — many of whom have been hit by regulatory crackdowns in recent years — put out a series of editorials and statements on Wednesday and Thursday declaring their support for a new action plan by the party to bolster private companies. The orchestrated expression of confidence from the tycoons indicates, in the EPM view, that China fears social unrest.
Geopolitics
Climate talks this week between China and the United States achieved nothing meaningful, Reuters implicitly says. John Kerry and Xie Zhenhua met over three days, and the outcome is nothing more than building goodwill. China did not even make the effort of putting out a communique following the meeting. This is in line with the EPM assessment following the Yellen visit to Beijing. As we said at the time, China feels the US is not treating it as a partner, willing to meet China halfway on the issues that concern both sides. Until the US budges on some of these issues, such as Taiwan, the semiconductor sanctions, taxes on Chinese imports, and the US military’s forward positioning in Asia, China will not move, we said.
The veteran US diplomat Henry Kissinger has made a surprise visit to Beijing to meet China’s defence minister, writes The Guardian. According to a readout on Tuesday from the Chinese defence ministry, Li Shangfu said “friendly communication” between China and the US had been “destroyed” because “some people in the United States did not meet China halfway”. Kissinger said he was a “friend of China”, according to the readout. In the EPM view, this statement confirms our assessment of US – China relations, in which China refuses to give the US anything. China has lost trust in US reliability and will now not do anything until the US first takes a step back in some of its China targeted policies. The Kissinger visit is likely a form of US shadow diplomacy to break this deadlock, and get China to move first before the US actually does anything. While this would not be in China’s longer term strategic interest, it could be effective as Kissinger is very highly regarded in China.
Kissinger is highly regarded because he played a key diplomatic role in normalising ties between Washington and Beijing in the 1970s when he served as secretary of state and national security advisor in the administrations of Presidents Richard Nixon and Gerald Ford, writes Reuters. China played along with Kissinger politely. "The Chinese people never forget their old friends, and Sino-U.S. relations will always be linked with the name of Henry Kissinger," Xi told Kissinger at the Diaoyutai State Guesthouse, where foreign dignitaries are often received. But, EPM notes, China also very clearly stuck to its talking points. "China is willing to discuss with the U.S. side the right way for the two countries to get along and promote the steady progress of China-U.S. relations," Xi said. Interestingly, Kissinger seemed to go along with those talking points, rather than pushing the US perspectives. "Under the current circumstances, it is imperative to maintain the principles established by the Shanghai Communique, appreciate the utmost importance China attaches to the one-China principle, and move the relationship in a positive direction," Kissinger said in the meeting. So we at EPM are left wondering: is Kissinger doing shadow diplomacy for the US, or is he so much against the current US policies vis-à-vis China that he trying to undermine it?
Energy Transition & Technology News
China's energy storage sector is growing rapidly, with planned capacity based on newly published tenders of projects topping 19 gigawatts for the first five months of this year, up 93.5% from the same period last year, writes Nikkei Asia. A series of factors can explain the booming industry. This includes an accelerated uptake of renewables in the country's energy mix, leading to more demand for storage to ensure a stable power supply. Falling lithium prices also reduced costs for installations of such new energy storage systems. New energy storage systems in China are largely based on lithium-ion battery technology.
US startup Fervo Energy has completed a performance demonstration of its commercial enhanced geothermal power system. The Houston-based company wrapped up a full-scale, 30-day well test at its Project Red site in northern Nevada, which was able to generate 3.5 megawatts of electricity, writes Bloomberg. Natural geothermal systems require heat, fluid and rock permeability to generate electricity. In many regions, the existing rock is hot enough but there isn’t enough permeability for fluid to flow through the hot rock. Through wells drilled deep underground, EGS injects fluid to create fractures, causing the permeability needed for electricity generation.
Climate Politics
Climate change is a "universal threat" that should be handled separately from broader diplomatic issues, U.S. climate envoy John Kerry told Chinese Vice-President Han Zheng during his trip to Beijing, writes Reuters. While that sounds compelling, at EPM we suspect the Chinese recognize that even climate politics is not disconnected from geopolitics – something that anyone who has ever been involved in COP in any way will certainly attest to.