Energy, Politics, & Money - 2023.08.30
In this roundup, we look at:
The record volume of Russian LNG arriving in Europe this year
The Nikkei Asia view on the Chinese economy, current reality and likely future
The 5 trends that will be driving global economic growth
The coup in Gabon, the latest in a string of coups in a part of the world that in recent history has been dominated by France; and the role of U.S. trained military personnel in these coups
The challenges faced by Orsted in its offshore wind projects in the U.S.; and whether this is a one-off event or an indication of a bigger problem that has resulted from the offshore wind energy industry’s focus on ever-bigger turbines
The fear of German companies concerning the energy transition, which they see as bringing more risks than opportunities for their competitiveness, and which is incentivizing a relocation of energy intensive industries away from Germany; a trend that is exemplified by BASF’s recent investment decisions
The EU’s new green policy chief Maros Sefcovic promise not to dilute efforts to fight climate change
Vanguard’s decision to follow BlackRock and is cutting support for shareholder resolutions on ESG subjects down to 2%
General Energy News
Russian LNG accounted for 21.6mn, or 16 per cent, of the EU’s total 133.5mn cubic metres of LNG imports (equivalent to 82bn cubic metres of natural gas) between January and July, writes the Financial Times. This makes Russia the EU’s second biggest supplier of LNG, following the U.S.. At spot market prices the cost of the LNG imported from January to July amounted to €5.29bn.
Macroeconomics
Nikkei Asia has summarized China’s economy in 2023 so far. It says
When China ended its COVID-19 controls late last year, many economists expected a boom in consumption fueled by pent-up demand. But while the country showed some signs of recovery in the first quarter of this year, growth has since been disrupted by a global economic slowdown, tepid domestic demand and banks increasingly vulnerable to the ailing real estate sector.
As to the outlook, it says
A string of weak economic data released recently is further shaking confidence in China's prospects. In July consumer prices fell for the first time in two years, raising the specter of deflation, while loan growth fell to its lowest level since 2009. In mid-August the government said it would no longer release age group-specific unemployment data. This came after youth unemployment hit a record 21.3% in June.
Stephen Roach, a senior fellow at the Paul Tsai China Center of Yale Law School, told Nikkei Asia that he does not see a "Lehman moment type crisis" in China at present, as China has a substantial amount of domestic savings and foreign reserves and limited exposure to short-term foreign capital, enabling it to avoid a meltdown and global contagion. But "China is [at] a pivotal point in its economic development," he said. Naoto Saito, head of research at Daiwa Institute of Research, says the way to avoid slipping into "Japanification" is to "allow private enterprises to thrive."
China's largest private property developer, Country Garden, is due to report its first-half results, writes Reuters. liquidity stress in the company became public this month after it missed two dollar coupon payments and sought to extend an onshore private bond repayment. Analysts expect the earnings announcement to provide more insight into the extent of the problem the company is dealing with. Country Garden's total liabilities stood at about $194 billion at the end of 2022. It has already flagged a net loss of up to 55 billion yuan ($7.55 billion) in the first six months, a staggering slide from the 6.7-billion-yuan loss it posted in the second half of 2022 and from the net profit of 1.9 billion yuan it posted a year earlier.
The Financial Times has an opinion piece about the 5 trends that will be driving global economic growth. The first and most immediate is a monetary policy adjustment, from reducing inflation to keeping it under control. The second, “extreme supply shifts”, such as those caused by coronavirus lock downs and geopolitical conflicts such as Russia’s war in Ukraine. The third is a decrease in labour participation due to an aging population. The fourth, strained public finances, such as in the U.S. whose federal budget deficit is not twice the size of 2022. The fifth, the rise of India and the relative decline of China, with the prior becoming the main driver of global economic growth in the place of the latter. Taken together, this means that while the global economy could expand about 4 per cent a year sustainably in the first decade of the 21st century, a figure that fell to about 3.5 per cent in the 2010s, it seems 3 per cent is the speed limit for the coming decade.
Geopolitics
Another military coup in a former French colony in Africa. Reuters reports that a group of senior Gabonese military officers appeared on national television in the early hours of Wednesday and said they had taken power, minutes after the state election body announced President Ali Bongo had won a third term in the OPEC-member country. The coup would represent the eighth in West and Central Africa since 2020. The coup attempt is the latest in a string of coups (following Mali, Guinea, Burkina Faso, Chad and Niger) in a part of the world that in recent history has been dominated by France. On the subject, Responsible Statecraft earlier noted the prominent role played in these (and other) coups in former French colonies in Africa. It says that at least 15 U.S.-supported officers have been involved in 12 coups in West Africa and the greater Sahel. The list includes military personnel from Burkina Faso (2014, 2015, and twice in 2022); Chad (2021); Gambia (2014); Guinea (2021); Mali (2012, 2020, 2021); Mauritania (2008); and Niger (2023). At least five leaders of the most recent coup in Niger received U.S. training. They, in turn, appointed five U.S.-trained members of the Nigerien security forces to serve as governors. In the EPM view, this appears to be a contemporary, African version of the Great Game.
Energy Transition & Technology News
Denmark's Orsted, the world's number 1 offshore wind farm developer, said it anticipates impairments of up to 5 billion Danish crowns ($729.78 million) on its U.S. portfolio, Reuters writes. The Ocean Wind 1, Sunrise Wind, and Revolution Wind projects are adversely impacted by a handful of supplier delays, the company said.
The rapid pace of evolution spurred on by wind farm developers and turbine makers has helped push down costs and proved that the industry can play an important part in decarbonising the energy system. But, the Financial Times writes, critics fear that experiences such as those of Orsted in the U.S. indicate that the race may now be starting to do more harm than good, as supply chains struggle to catch up and questions over technical risk and profitability for turbine makers arise. From the early models in the 1990s of less than one megawatt, turbines are now being developed with a capacity of 18 megawatts or more, with blades longer than football pitches supported by towers rising more than 100 metres above the water’s surface. Many industry executives want an end to the era of turbine growth with a period of standardisation of turbine models seen as the best way to help developers meet rapid growth targets. “The acceleration in the cycles for developing new wind turbine models in recent years has not been helpful,” says Christoph Zipf, a spokesman for trade group WindEurope. “It needs to slow down.”
German companies see the energy transition bringing more risks than opportunities for their competitiveness, writes Reuters on the basis of a Chambers of Commerce survey. "The confidence of German business in energy policy has currently sunk to a low point," said study lead Achim Dercks at the presentation of the results. "Worries about their own competitiveness have never been greater." In energy-intensive sectors, three out of four companies see themselves negatively or very negatively affected by the energy transition. "In view of the great importance of industry for Germany as a business location, these figures are alarming," said Dercks. Many German companies are strongly concerned about an inadequate energy supply, even in the medium and long term. Although the majority of the companies want to stay in Germany despite the challenges, the percentage of companies considering leaving or leaving the country is on the rise. Almost one-third of industrial companies are planning to relocate production abroad or to reduce their production domestically, doubling the 16% of last year.
On the subjects of German industry’s worries their country’s energy situation, the Financial Times adds the story of BASF, which chose China as the location for its €10bn state-of-the-art petrochemicals plant. It mentioned ready access to large amounts of environmentally-friendly energy as one of the reasons for the decision. At the same time, it announced a “permanent” downsizing at its headquarters in Ludwigshafen. “If the conditions in Europe are not good, we will try to decarbonise in other regions faster,” BASF chief executive Martin Brudermüller had said when the company announced its most recent earnings in July. “We get great support in China,” he said. He added that companies were also looking to invest more in the U.S., pointing to the country’s Inflation Reduction Act as motivation. The act, which offers $369bn in subsidies for domestic clean energy investments in the U.S., provided a “business case for transformation”, Brudermüller said.
Climate Politics
While the EU is facing growing push back on its green policies from member countries and EU lawmakers, the bloc’s new green policy chief Maros Sefcovic has vowed not to dilute efforts to fight climate change, writes Reuters. "We are not going to dilute our ambition," he said. "What I believe is that we need to improve our communication and to be able to come faster, earlier and be more precise in our reactions to some of the natural worries which are there in some sectors."
Other
Vanguard supported just 2% of shareholder resolutions on environmental and social issues at U.S. companies this year, down from 12% last year, writes Reuters. Vanguard said the declining support rate reflected a rising number of proposals - 359 this year, up from 290 a year ago, coupled with improvements in company disclosure that it said made many resolutions unnecessary. Earlier, BlackRock said it had backed ESG resolutions just 7% of the time in 2023, down from 22% last year. Vanguard's drop in support was even steeper.