Energy, Politics & Money - 2023.08.01
Providing independent, objective, & neutral analysis of global developments curated from sources covering the world of energy, geopolitics, & investment.
In this roundup, we look at:
Goldman Sachs’s revised global oil demand forecast for the year
The increase in the number and scope of Chinese and Russian military drills around Taiwan since visit of (then) U.S. House Speaker Nancy Pelosi to the island, which appear to be designed for a blockade of Taiwan rather than an invasion
Another next step in the US buildup of its military alliance against China in Asia, this time featuring South Korea and Japan
ADNOC’s acceleration of its target to reach net zero emissions, to 2045 from its initial plan of 2050; and its partnering up with Occidental on investment in Direct Air Capture
China’s efforts to take the lead in the electrification of (inland) shipping
The pushback being planned against U.S. President Joe Biden's plan to decarbonize the country's power sector by 2035, which mandates that large existing natural gas-fired plants that run at least 50% of the time to install carbon capture by 2035 or co-fire with 30% hydrogen by 2032
Why the “new normal” on Europe’s energy market is more volatility, with significant risks of upward price spikes
The view that the UK will see a slowing down of energy transition ambitions, as a significant majority of the general public is unwilling to pay for “net zero”
General Energy News
For what it is worth, Goldman Sachs revised up its global oil demand forecast for the year while sticking to its 12-month Brent price projection of $93 per barrel as higher realized inventories offset the demand boost from a less pessimistic growth outlook, writes Reuters. Goldman analysts estimate global oil demand climbed to an all-time high of 102.8 million barrels per day (bpd) in July and see solid demand driving a larger-than-expected 1.8 million bpd deficit in the second half this year and a 0.6 million bpd deficit in 2024.
Geopolitics
China has greatly increased its conducting of military drills around Taiwan since then-U.S. House Speaker Nancy Pelosi visited the island a year ago, writes Nikkei Asia. The range of activities by the Chinese military around Taiwan has changed. Before Pelosi's visit on Aug. 2 of last year, Chinese military planes and ships rarely moved around to the east of Taiwan. Instead, they primarily engaged in activities southwest of the island. Over the past year, they have become active in the Western Pacific, or the Philippine Sea, having Taiwan to the west. Also, in the past Chinese military aircraft rarely crossed the "median line," an effective cease-fire line through the Taiwan Strait in the past. Last August, the month Pelosi visited Taiwan, flights crossing the line were confirmed for 24 days in a row. As frequent crossings have continued, the line no longer serves as the virtual cease-fire band. Russian military activities east of Taiwan have also become noticeable. Two frigate ships appeared in May and continued activities for more than a month. "Russia is stepping up military activities around Taiwan in tune with China against the backdrop of changes in their relationship after the Russian invasion of Ukraine", Nikkei quotes an analyst as saying. Experts consider Beijing to be finalizing preparations for a "blockade of Taiwan" in the near future, it says.
Yesterday EPM reported on the US agreement with Australia - enabling further forward deployment of US military forces in Asia - clearly targeting China. Today, the Financial Times reports the US also wants South Korea and Japan to collaborate more closely on the military front and further strengthen the power of the US military alliance in Asia. Officials are still negotiating the exact text of the statement that US president Joe Biden, Japanese prime minister Fumio Kishida and South Korean president Yoon Suk Yeol plan to issue at the presidential retreat on August 18. But the three sides are also discussing installing a trilateral leader-level hotline and are expected to unveil other measures at the summit, including strengthening trilateral exercises, cyber security, missile defence and economic security.
Energy Transition & Technology News
Abu Dhabi National Oil Co. (ADNOC) will accelerate its efforts to reach its net-zero emissions to 2045, from its initial plan for 2050, writes Bloomberg. The government-owned company also pledged to eliminate methane discharges by the end of this decade. ADNOC’s plan covers so-called Scope 1 and Scope 2 emissions, which measure the amount of carbon dioxide that comes directly from the company’s own operations and from energy it uses to run its business. The targets don’t cover Scope 3 emissions, which count carbon that comes from customers using the oil company’s products and which make up the vast majority of warming gases linked to oil and gas output.
In related news, ADNOC has agreed to partner with Occidental Petroleum to explore investment in the US and overseas for Direct Air Capture (DAC), writes Bloomberg.
China is taking the lead in the electrification of (inland) shipping, writes CleanTechnica. The Yangzhou shipyard in northern China, inland from Shanghai on the Yangtze River, has launched an electric-drive-only 700 container ship which will ply a regular 1,000-km (600-mile) route up and down the river and to the world’s largest container port on the Yellow Sea. It’s an inland ship, so 119.8 metres (393 feet) long and 23.6m (77 feet) wide, with a 10,000-metric-ton full load capacity (deadweight tonnage or DWT). There are 30 container ports along the Ynagtze’s 2,700 kilometers of navigable waterway. 36 containers of batteries will be dispersed through those ports in some undoubtedly optimized pattern to allow the ship to slip into a berth and then winch depleted batteries off and charged batteries on. The containers are reported to have a capacity of 50 MWh of batteries in multiple reports. EPM notes that this model for electrified inland shipping should appeal to Europe as well, which makes substantial use of inland shipping across the continent on a relatively few rivers (Rhine, Danube, etc).
Climate Politics
The Edison Electric Institute (EEI), which represents investor-owned utilities that serve 250 million people, plans to fight back against U.S. President Joe Biden's plan to decarbonize the country's power sector by 2035, writes Reuters. The power industry accounts for a quarter of the nation's greenhouse gas emissions, second only to transportation, according to Environmental Protection Agency (EPA) data. The EPA's plan would require large existing natural gas-fired plants that run at least 50% of the time to install carbon capture by 2035, or co-fire with 30% hydrogen by 2032. Areas of EEI concern include these regulations that mandate a timeline for deploying carbon capture and storage (CCS) systems.
The Global Energy Crisis
In Europe, the "new normal" of the energy markets, established by the continent’s energy policies regarding Russia as well as it green agenda, prices will be persistently volatile and prone to sharp spikes, unlikely ever to regain pre-crisis stability, as the market is left at the mercy of (spot) LNG supply, writes S&P Global. There is strong consensus in the market that Europe's energy problems will not entirely be over even by late 2024 or early 2025, since fundamentally nothing will have changed, and Europe will rely heavily on LNG supply for years – if not decades – to come.
Other
An opinion piece in the Financial Times argues that public support for an energy transition is close to nil, if people are told there’s a cost associated with it. In Ipsos surveys, voters endorse various green policies by supermajorities. But when a financial cost is attached to them, most are rejected. A YouGov poll found that around 70 per cent of adults support net zero. If this entailed “some additional costs for ordinary people”, however, that share falls to just over a quarter. The author forecasts that this will be picked up by both Conservative and Labour politicians in the UK, and thereby result in a slowing down of energy transition ambitions in the country.