Energy, Politics, & Money - 2023.08.16
Providing independent, objective, & neutral analysis of global developments curated from sources covering the world of energy, geopolitics, & investment.
In this roundup, EPM looks at:
The question “Can the rest of the globe expand if China is struggling?”
The formalization of military collaboration between Australia and Japan, which is a step forward in the US strategy against China in Asia, that quite clearly is military focused
China’s efforts to counter the US strategy in Asia, through offering economic incentives to the countries in its direct vicinity, the 10 countries united in the Association of Southeast Asian Nations (ASEAN)
The decline in ammonia prices, which is creating problems for companies with plans to invest in the blue and green versions of the product
The impact of the CHIPS Act and the IRA, about a year after they were signed into law (110 major projects, worth $224bn and 100,000 jobs); and how this is leaving Europe far behind
CATL’s new superfast-charging battery
Macroeconomics
Economic woes in China are proving way deeper than initially feared, writes Bloomberg. This week’s data show that almost all the putative motors of the Chinese economy were growing only at a very disappointing rate. This was true of industrial investment, investment in real estate, investment in fixed assets (such as infrastructure), and retail sales. This raises an important question: Can the rest of the globe expand if China is struggling? The People’s Bank of China has lowered the rate on its one-year loans by 15 basis points to 2.5%, the second cut since June and the most since 2020, in order to prop up demand. But President Xi Jinping has so far resisted plans for further stimulus, to help out the property sector and give consumers more cash to spend. There are different views as to how this will affect the global economy. Some analysts say China will eventually increase stimulus to avoid things spiraling out of control. Other says that with debt to GDP approaching 300% already, there are limits to fiscal stimulus.
Geopolitics
The Reciprocal Access Agreement between Australia and Japan came into force on Sunday, writes Nikkei Asia. It is designed to ease military collaboration between the two countries, by relaxing immigration control for troops and simplifying procedures for transporting weapons and ammunition. The agreement is a pillar of the US military strategy against China. The agreement "shows the desire for a free and open Indo-Pacific, and it's clearly one that's shared by our allies and partners," Pentagon Deputy press spokesperson Sabrina Singh told reporters. "Agreements like this will help us enforce the international rule-based order and will continue to provide security and prosperity to the region.". The three countries are moving to include the Philippines in the coalition, Nikkei Asia adds.
While the US focuses on military containment of China in Asia, China itself is focusing on trade in order to build influence in the region. Nikkei Asia writes China is the biggest trading partner of all 10 countries in the Association of Southeast Asian Nations (ASEAN). China is also the largest provider of aid in the region, and its official position vis-à-vis its neighbors is open and welcoming. General Li Shangfu, China's defense minister, said at the Shangrila Dialogue in Singapore in early June that China was bound through "geography, culture and family bonds" to its neighbors. "We treat each other like brothers and sisters," he said. But, there is distrust among ASEAN, for no small reason due to China’s aggressive maneuvering in the South China Sea, and Beijing's mistreatment of its Uyghur Muslim minority in Xinjiang which upsets the populations of states like Indonesia and Malaysia.
While China is trying to win friends through economics, the ASEAN states themselves are trying to benefit from China’s money without politically allying with Beijing. Most ASEAN countries still see the US as a more trustworthy political partner. Whether things stay like this, or whether more ASEAN countries will openly pick sides (as the Philippines recently did with its swing back into the US camp), time will tell.
But Nikkei Asia notes that analysts should not make rash judgements about developments based on public statements by officials from ASEAN countries. It notes that in public, there is an incentive for officials from ASEAN countries to criticize the US or the West more broadly, as this enables them to come across as “strong nationalists” for their domestic audiences and usually does not result in much of a response from the US or the West. At the same time, China usually responds fast and harshly when criticized publicly, as a result of which officials from ASEAN countries tend to shy away from public comments against China.
The US is pushing Iran to stop selling armed drones to Russia, as part of discussions on a broader “unwritten understanding” between Washington and Tehran to de-escalate tensions and contain a long-simmering nuclear crisis, writes the Financial Times. The Biden administration has raised the issue with the Islamic regime at indirect talks in Qatar and Oman this year. The US and Iran have reached agreements on most issues, but the discussions will continue in Qatar and Oman, particularly on Russia, FT says.
Energy Transition & Technology News
Low-carbon ammonia project developers across the world are facing challenges securing final investment decisions, amid a downtrend in global spot ammonia prices and demand uncertainties, writes S&P Global. The cost difference between current unabated fossil fuel-based hydrogen and ammonia, and lower emission technologies, is significantly greater. The current costs for electrolysis-based hydrogen production are double that of conventional steam-methane reforming (without CCS), utilizing natural gas as a feedstock. Renewable-derived (green) ammonia prices for the USGC delivered into Northwest Europe were $789.58 on August 14, falling 0.28% since December 1 last year, while traditional spot CFR Northwest Europe ammonia values were $380/mt on August 14, down 63.91% over same timeframe. This widened the green - traditional ammonia spread to $410/mt from $216/mt.
Climate Politics
The Financial Times has analysed the impact of the CHIPS Act and the IRA, about a year after they were signed into law. It has identified more than 110 large-scale manufacturing announcements — including in semiconductors, electric vehicles, batteries and solar and wind parts — spurred by the landmark legislation. The FT conclusion is $224bn worth of projects and 100,000 jobs. While the pace of announcements has slowed, each month since the acts passed has brought new projects. This month, Singapore-based Maxeon Solar Technologies announced a $1bn solar panel facility in Albuquerque, New Mexico, and US manufacturer First Solar picked Louisiana for its fifth factory, worth $1.1bn — the largest capital investment in the region’s history. South Korean and European companies have led the foreign capital influx, announcing 20 and 19 projects, respectively. More than 80 per cent of cleantech and semiconductor investments announced in the past year are heading to Republican districts, despite there having been no votes from congressional Republicans for the IRA and only lukewarm support for the Chips Act. In these areas the investment plans are causing inflationary pressures. The biggest challenge right now is finding the labour to build the factory. Tight supplies for raw materials is a further hindrance.
The US is leaving Europe far behind, the Financial Times also writes. In the EU early-stage clean technology startups attracted just $8.7bn worth of investment in the year since the IRA came into force. By contrast, more than $21.7bn has been committed to similar projects in the US.
The Electrification of Transport
Battery giant CATL has unveiled a new superfast-charging battery, writes Bloomberg. The new ‘Shenxing’ cell can charge to a range of 400 kilometers (248 miles) in just 10 minutes. It is also capable of powering up in extreme weather conditions, the company said. The lithium-iron-phosphate (LFP) battery is capable of 700km of range on a full charge. Mass production of the superfast-charge battery will start by year-end, and it will be commercially available from the first quarter of 2024.