Energy, Politics, & Money - 2023.08.11
Providing independent, objective, & neutral analysis of global developments curated from sources covering the world of energy, geopolitics, & investment.
In this roundup, we look at:
India’s continued appetite for Russian crude oil
The view that the countries which rely more on exports are already experiencing a hard landing of their economies
Geopolitical developments in Central Asia, where a key question is, are Russia and China competing or collaborating?
Another use of unusual undiplomatic language by US president Biden regarding China, who after calling Chinese president Xi a “dictator” said regarding the country, “They have got some [economic] problems” and “That’s not good because when bad folks have problems, they do bad things”
A review of Japan’s promotion of the co-firing of coal with ammonia as a decarbonization solution for the power sector, which has not convinced many outside of the country
The $5 trillion of capital investment that may be needed to deliver on aviation’s goal of reaching carbon neutrality by 2050
China’s efforts to dominate not only refining of the minerals critical for the energy transition, but also trading
Why Bloomberg New Energy Finance believes green hydrogen will be cheaper than grey hydrogen by 2030
S&P Global’s decision to drop its ESG scores when doing credit ratings, as the subjectivity of the affair left investors confused
General Energy News
Indian buyers, key consumers of cheap Urals crude since the invasion of Ukraine, have no plans to turn away from Moscow even as the discount to global benchmarks narrows, arguing Russian barrels remain among their most affordable options, writes Bloomberg. Earlier this year, the gap between Russian crude and the Dubai benchmark stood at around $20 on a delivered basis. Today, the discounts offered for Urals cargoes are closer to $8. Still, officials at four major refiners in India said they would continue purchasing Russia’s flagship Urals blend, arguing similar-quality barrels from the Middle East remain significantly more expensive.
Macroeconomics
A slew of recent data show that a downturn is already evident when it comes to global commerce, writes Bloomberg. China, the world’s biggest exporter, this week reported the biggest contraction in overseas shipments since Covid-19. Germany, the global number 3, saw its exports sink in the latest monthly data by the most on a year-on-year basis since early 2021. Exports from the US, which pips Germany for the global number 2 slot, also contracted over the year to June. India’s merchandise exports plunged 22% in June from a year earlier. Taiwan’s exports tumbled for 11 straight months. Vietnam is mired in the longest slump for shipments abroad in 14 years. Bloomberg concludes that the countries which rely more on exports are already experiencing a hard landing of their economies.
Geopolitics
Silk Road Briefing looks at geostrategic developments in Central Asia. Western media coverage sees developments there as China attempting to reduce Russia’s influence in the region, it says. But Russian and Chinese analysts believe that Moscow and Beijing are co-operatively squeezing Western countries out of Central Asia. The article provides an overview of the various agreements of both China and Russia in the region, and concludes that the Chinese-led Belt and Road Initiative and Shanghai Cooperation Organisation, and the Russian-led Eurasian Economic Union (EAEU), leave room for cooperation between the countries.
Another use of unusual undiplomatic language by US president Biden regarding China. Reuters writes that during a fundraiser he called China a "ticking time bomb" because of its economic challenges. “They have got some problems. That’s not good because when bad folks have problems, they do bad things,” he said. These remarks are reminiscent of comments he made earlier at another fundraiser, when he referred to President Xi Jinping as a "dictator." China called those remarks a provocation, and is likely to respond in a similar manner this time round.
Energy Transition & Technology News
Japan continues to promote the co-firing of coal with ammonia as a decarbonization solution. But the technology has so far not convinced many outsiders, who remain skeptical, writes Nikkei Asia. JERA, the nation's largest power generator, at the end of this fiscal year is preparing to start a test run at a commercial coal plant in Aichi prefecture by sourcing 20% of the fuel from ammonia and 80% from coal. The company plans to use "blue" ammonia, and to increase the ratio of ammonia to 50% in the 2030s and gradually to 100% by 2050. Western countries are hesitant to believe in the technology's maturity because they don't hear about it from their domestic industries, Nikkei says.
Some $5 trillion of capital investment may be needed to deliver on aviation’s goal of reaching carbon neutrality by 2050, almost all of it plowed into sustainable fuel production and renewable power generation, Bloomberg writes based on a McKinsey report. This expensive transition to cleaner fuels would almost certainly put the democratization of flying into reverse, leading to higher fares, fewer routes and airlines, for fewer customers.
China already dominates refining of the minerals critical for the energy transition, but also has a plan to achieve domination of trading in the minerals, writes the Financial Times. Last month the Guangzhou Futures Exchange became the fourth global commodities exchange to launch contracts tracking the price of lithium carbonate, a mineral used in the manufacture of electric-vehicle batteries. Within three weeks open interest — a key measure of the size of the market — had risen to more than 20,000 lots and far outstripped activity at rivals London Metal Exchange, Singapore Exchange and the US’s CME Group. By establishing its own trading hubs and benchmarks priced in renminbi, the drive is part of Beijing’s efforts to lessen the commodities market’s reliance on the US dollar.
According to Bloomberg New Energy Finance, grey hydrogen is at present substantially more affordable than blue or green. Gray hydrogen, which comes from natural gas, costs $0.98-$2.93 per kilogram to produce. Blue hydrogen, or hydrogen produced with fossil fuels but subject to carbon capture, costs $1.8-$4.7 per kilogram. And green hydrogen, which is produced by running an electric charge through water, costs a whopping $4.5-$12 per kilo. But, it says, from 2030 on producing green hydrogen in a new plant could be as much as 18% cheaper than continuing to run an existing gray hydrogen plant in Brazil, China, India, Spain and Sweden -- even for green hydrogen plants built without subsidies. The dramatic drop in the price of green hydrogen is due to two key factors: economies of scale, and supportive policy. “The more electrolyzers are deployed, the cheaper they’ll become,” BNEF says.
The Global Energy Crisis
The Financial Times says that this week’s violent surge in European gas prices underscores how the region’s success in weaning itself off Russian energy has left it more vulnerable to the ebb and flow of volatile global energy markets – something EPM argued yesterday as well.
Other
S&P Global will no longer publish ESG scores along with its credit ratings, writes Bloomberg. The ESG ratings left investors confused, it says. There’s little consensus on how to assess the long-term financial impact of environmental, social and governance factors on issuers, which makes ESG rating a subjective assessment. S&P had sought to address such concerns a few years back by adding an alphanumerical scale intended to enhance its text descriptions of an issuer’s ESG credentials. That decision met with enough investor resistance to merit scrapping the alphanumerical model and instead publishing only text descriptions.