Energy, Politics, & Money - 2023.08.10
Providing independent, objective, & neutral analysis of global developments curated from sources covering the world of energy, geopolitics, & investment.
2023.08.10
In this roundup, we look at:
The causes for the strong margins in refining globally
Why developing countries in Asia should think twice about better on LNG for their future energy supply
The next escalation by the US in its competition with China, the executive order that prohibits US investment in artificial intelligence, semiconductors and quantum technology in China, Hong Kong and Macao
The price of EVs, which in China at least had dropped below that of comparable IVECs
The polarization that is happening in Europe when it comes to climate politics; where authorities have moved to invoke legal powers often used for organised crime and extremist groups against climate activists; while at the same time they try to placate those citizens who believe priority should be giving to the continent’s cost of living crisis
The reminder yesterday that Europe’s energy crisis is not yet over
General Energy News
Profit on processing a barrel of crude at a typical European or US refinery has jumped by about 33% year to date, while refining profit margins in Asia are up by around 9%, writes Reuters. Robust summer demand for gasoline and jet is playing an important role, as are and low product inventories and unplanned refinery outages in Asia and elsewhere. According to FGE estimates, about 250,000 barrels per day of capacity was offline in Asia in the last two months, including in Malaysia at Petronas' PIC refinery, at Hyundai Oilbank's Daesan refinery in South Korea and at Japan's ENEOS. Next month, planned maintenance at India's Reliance Industries, BPCL and Indian Oil will bring a combined 430,000 bpd of capacity offline, FGE estimated.
In recent months, Vietnam, the Philippines and Hong Kong have each commissioned their first LNG import and re-gasification facilities to great fanfare, writes Nikkei Asia. But, it notes, these market newcomers now face a major challenge in lining up reliable and affordable supplies of LNG to feed into their freshly inaugurated systems. On the spot market, LNG prices have come down from last August's record-high $70.50 per million British thermal units -- a price equivalent to $409 for a barrel of oil -- to around $12. But they are still as high as they ever got during the five years before the invasion of Ukraine. Over the whole of 2022, spot LNG prices averaged $34 per million Btu in Asia, nearly double the average seen a year earlier. The market is almost certain to remain unstable as long as Europe continues to plug its massive Russian supply gap with LNG imports, and the Asian newcomers are unlikely to be able to afford these LNG prices.
Geopolitics
US President Joe Biden signed an executive order Wednesday that restricts certain American investments in mainland China, Hong Kong and Macao in high-tech sectors such as artificial intelligence, semiconductors and quantum technology, writes Nikkei Asia. In the long-awaited executive order, Biden declares a national emergency in dealing with "countries of concern" rapidly developing "sensitive technologies," which "significantly enhances their ability to conduct activities that threaten the national security of the U.S." China, Hong Kong and Macao are the only names identified as "countries of concern" in the executive order.
The investment community in the US does not expect this to be the last move of the US, writes Reuters. For example, congressional Republicans immediately criticised the order by Democrat Biden as not going far enough. A likely outcome is continuation pf the trend in investment world to break up into two arm, one dedicated to investing in China using funds from Chinese (and China-aligned) sources, and another dedicated to investments in the West.
In response, China’s internet giants are rushing to acquire high-performance Nvidia chips vital for building generative artificial intelligence systems, making orders worth $5bn in a buying frenzy fuelled by fears the US will impose new export controls, writes the Financial Times.
The subject is likely to be discussed in the seaside resort town of Beidaihe in Hebei province, where Chinese Communist Party leaders -- retired and incumbent -- have gathered to hold their annual, but informal and secretive, discussions on the state of the nation. This year is a gathering of the new generation of Chinese leaders, writes Nikkei Asia. In November, former top leader Jiang Zemin, long the most powerful of the elders, died at the age of 96. A month earlier, Xi's immediate predecessor, Hu Jintao, 80, was dramatically escorted out of the closing ceremony of the party's national congress. It is said that the form of the Beidaihe meeting has changed in recent years, and this year's meeting may not necessarily be attended by all the Politburo Standing Committee members, including Xi, and party elders in person. Still, top leaders have disappeared from news reports for some time, a clear sign that the Beidaihe conclave is underway. Among the topics under discussion are likely to be Taiwan, the tense relations with the U.S., and an ailing economy, with the country's youth unemployment rate surging and the real estate market in a slump. A key change is that China has virtually abandoned the collective leadership system Deng Xiaoping introduced, and under Xi established a unipolar rule, which makes it more difficult for dissenting voices to express their views and concerns.
In response to media talk of a breakthrough in negotiations between Israel and Saudi, organized by the US, the Biden administration signaled there’s still a long way to go, writes Bloomberg. “There is no agreed-to set of negotiations, there’s no agreed-to framework to codify normalization or any of the other security considerations that we and our friends have in the region,” John Kirby, spokesman for the US National Security Council, told reporters. “But there is a commitment by the administration to keep talking, and to keep trying to move things forward.” The US and Saudi Arabia must agree on three core issues: the civil nuclear program the kingdom is seeking, security assistance and an executive agreement on defense — not a mutual-defense treaty that would require US Senate approval
Energy Transition & Technology News
Climate Politics
States and national authorities across Europe are invoking legal powers often used against organised crime and extremist groups to wiretap and track climate activists, Reuters writes. State authorities in Germany are widely using preventative detention to stop people from protesting, including holding at least one person for as long as 30 days without charge. Lawmakers passed new surveillance and detention laws in France in July and in Britain in May, with Britain making it illegal to lock, or glue, yourself to property. France has used an anti-terrorism unit to question some climate activists. A French government source with knowledge of the matter said intelligence services across Europe cooperated to monitor protesters' plans and activities.
At the same time as having to deal with a segment of society that believes Europe’s climate agenda is not going far or fast enough, it also has to deal with another segment of society that believes the climate agenda is going too far. As policymakers seek to translate net-zero targets into measures that extend beyond power generation to areas such as buildings and transport, they face increasing resistance as citizens struggle with a cost of living crisis, writes Reuters. Officials say it is getting harder to pass green laws, with some EU governments resisting new emissions limits for cars and seeking to weaken pollution controls for livestock farms. A proposal to improve the energy efficiency of buildings faces pushback from countries worried by the cost. Poland's government, which faces October elections, is even suing Brussels over climate policies.
Reuters also has a “Factbox” summarizing which policies have faced backlash where.
The Electrification of Transport
Since Tesla Inc. and Mitsubishi Motors Corp. started developing the first mass-market electric cars in the late 2000s, battery vehicles have struggled with a higher cost structure that even subsidies and manufacturer losses haven’t been sufficient to surmount. That’s finally changing — and China is leading the way, Bloomberg writes. Seven of the 10 best-selling cars in China in June came with a plug. Tesla’s Model Y crossover SUV has comfortably outsold every competitor since February, while BYD Co.’s Dolphin hatchback has already overtaken established competitors just months after deliveries began. Tesla’s Model 3, which previously retailed at twice the price of comparable premium mid-sized sedans such as the BMW AG 3 Series, is now the more affordable option. BYD’s Dolphin, likewise, comes in about 5,000 yuan ($693) cheaper than a comparable compact sedan such as Volkswagen AG’s local Jetta variant, the 125,000-yuan Sagitar. Bloomberg notes those numbers benefit from EVs’ exemption from China’s 10% vehicle purchase tax. Bloomberg estimates that subsidy-free parity won’t come until 2025 for smaller cars in China.
The Global Energy Crisis
At the beginning of the year, when Europe was very pleased with itself for averting a “worst case” energy crisis scenario, at EPM we highlighted that the uncontrollable weather played no small part in this success, and that the continent continued to walk a tightrope on energy supplies, as the tightness of the LNG market meant that any small issue would immediately have big impacts on pricing – and by extension Europe’s economy. The Financial Times writes that on Wednesday, European natural gas prices surged almost 40 per cent, as the potential for disrupted global liquefied natural gas supply from Australia spooked traders. Prices on the Title Transfer Facility, the European benchmark, rose to more than €43 per megawatt hour, up from almost €30 on Tuesday. The increase was triggered by reports that workers at important LNG plants in Australia were planning strike action in a fight for higher pay and better job security. FT rightly concludes, as we at EPM do, that despite gas storage levels rising close to capacity in the EU, the energy crisis that has roiled the continent for almost two years is not yet over, and markets are still nervous about the vulnerability of supplies.