Energy, Politics, & Money - 2023.09.12
Independent, objective, & neutral analysis of global developments curated from sources covering global developments in energy, geopolitics, & investment.
In this roundup, we look at:
How the Saudi production cut is altering the global crude flows, strengthening demand for Russian, Iranian, US and Brazilian crudes
OPEC sticking to its forecasts for robust growth in global oil demand in 2023 and 2024
Why the IEA believes the world is at “the beginning of the end” of the fossil fuel era
The weakness of the European economy, evidence by the growth forecasts for the two economy at the heart of the continent, Germany and France; and the particularly severe struggles of the construction sector in Germany
Why Russia believes the Ukraine War will drag on for significantly longer
The progress in the area of “thermal batteries”, an early stage decarbonization solution for heavy industries
The formal approval of the increase in the EU's renewable energy targets, to 42.5% of EU energy by 2030, replacing a current 32% target for that date
The risk of another energy crisis this winter
The view of major institutional oil and gas investors regarding the question, “dividends and share buybacks or spending on energy transition”
Amazon’s backing of Occidental’s DAC (Direct Air Capture) project
General Energy News
As a result of its production cut, Saudi Arabia is making less barrels of medium sour grade crude available to Asia, writes Reuters. Many of the newer, complex refineries in Asia prefer medium sour crude as it offers a higher yield of middle distillates such as diesel and jet fuel. And the lower exports from Saudi Arabia and several other Middle East producers, such as Kuwait and the United Arab Emirates, has left Asian refiners scrambling to secure supplies. As a consequence, prices for these grades have outperformed the light sweet benchmarks, and this is impacting the ways in which crude is flowing around the world. The winners are Russia, Iran, the US and Brazil, who now see stronger demand for their barrels.
OPEC is sticking to its forecasts for robust growth in global oil demand in 2023 and 2024, citing signs that major economies are faring better than expected despite headwinds such as high interest rates and elevated inflation, writes Reuters. World oil demand will rise by 2.25 million barrels per day (bpd) in 2024, compared with growth of 2.44 million bpd in 2023, the Organization of the Petroleum Exporting Countries said in a monthly report. Both forecasts were unchanged from last month.
The OPEC demand outlook leads to a supply shortfall of more than 3 million barrels a day next quarter — potentially the biggest deficit in more than a decade, writes Bloomberg.
Looking further out, the IEA says the world is at “the beginning of the end” of the fossil fuel era, writes the Financial Times. It projects that the consumption of the three major fossil fuels coal, oil and gas will start to decline this decade because of the rapid growth of renewable energy and the spread of electric vehicles. The IEA, which is primarily funded by the OECD, said last year that fossil fuel demand in aggregate could peak around 2030. But it has now brought forward its projections because the rollout of renewable technologies has accelerated in the past 12 months.
Macroeconomics
The European Commission says the two economies at the heart of Europe are on diverging paths this year, with Germany forecast to be in a recession with a 0.4% contraction and France expected to grow 1.0%, writes Reuters. However, France's improved outlook stems in no small part from a particularly strong second quarter when the economy grew 0.5% thanks to exceptionally strong exports of aircraft and the delivery of an ocean liner, not to mention a boost from firms rebuilding inventories. "Germany's not doing very well, that's for sure, but to say that means France is doing well would be pushing it," Reuters quotes one analyst as saying in response. "We can expect [French] growth to be very modest in 2024," he added.
The construction sector in Germany is among those hardest hit in the current downturn, writes the Financial Times. Cancelled building projects and financial distress among landlords and builders in Germany have hit their highest levels since reunification three decades ago. 20.7 per cent of construction companies said they had been forced to scrap a project in August, up from 18.9 per cent in the previous month, according to a survey of 500 businesses. “The probability increases month by month that more and more firms will go out of business,” said Klaus Wohlrabe, head of surveys at Ifo, a think-tank, warning that almost 12 per cent of residential construction companies were reporting financing difficulties — the highest level since its survey started 32 years ago. The proportion of construction companies reporting a lack of new orders also rose to 44.2 per cent in August, up from 40.3 per cent in the previous month and 13.8 per cent a year ago.
Geopolitics
Speaking at an economic forum in Russia's Pacific port city of Vladivostok, Russian president Vladimir Putin indicated he was bracing for a long war in Ukraine, saying that Kyiv could use any ceasefire to rearm and that Washington would continue to see Russia as an enemy no matter who won the 2024 US election, writes Reuters. For there to be any chance of talks, said Putin, Ukraine would first have to cancel its self-imposed legal ban on peace talks and explain what it wanted. As to the impact of US elections on the trajectory of the war, Putin said "There will be no fundamental changes in the Russian direction in US foreign policy, no matter who is elected president … The US authorities perceive Russia as an existential enemy."
Energy Transition & Technology News
Antora Energy, a thermal battery startup backed by Bill Gates’ Breakthrough Energy Ventures, has launched its first commercial-scale system, writes Bloomberg. Unlike a lithium-ion battery, which stores electricity as chemical energy, Antora’s thermal battery system keeps it as heat inside carbon blocks at temperatures above 1,800C (3,272F). It can discharge that energy directly as heat or as electricity, which it can do by converting the heat back to electricity via thermo-photovoltaic cells, similar to those found in solar panels. The technology could prove particularly useful at industrial facilities like cement and steel plants, which require high heat in the manufacturing process, 24/7, making it difficult for them to rely on intermittent renewable energy sources like wind and solar. Antora’s battery is designed to store and discharge renewable electrical energy, either in the form of heat or electricity, smoothing out intermittency issues.
Climate Politics
European Union lawmakers gave their final approval on Tuesday to legally binding targets to expand renewable energy faster this decade, writes Reuters. The law significantly raises the EU's renewable energy targets, requiring 42.5% of EU energy to be renewable by 2030, replacing a current 32% target for that date.
The Global Energy Crisis
Paul Hodges of New Normal looks at the risk of another energy crisis this winter. The Saudi and Russian production cuts are leaving the oil market exposed to shortage-induced price spikes, while the strike action at production facilities in Australia could cause the same for LNG – especially if Europe were to experience a colder-than-normal winter.
Other
Major institutional oil and gas investors would be open to receiving lower dividends and fewer share buybacks in favor of more spending on some energy transition projects, consultancy Deloitte says in a study reported on by Reuters. About 75% of surveyed investors stated that they would continue holding shares to accelerate investments in lower-carbon technologies, even if yields shrank to as little as 3%. The study also showed a divergence in spending preferences. About 40% of the 150 C-suite company executives surveyed cited hydrogen and carbon capture and storage technologies as critical for their strategy. But Investors preferred "more transformational technologies" such as electrification of transportation and electric charging stations.
Amazon is backing a massive project by oil giant Occidental to suck carbon from the air through DAC (Direct Air Capture) writes Bloomberg. The Seattle-based company said that it will purchase 250,000 metric tons of carbon removal services over 10 years from the oil driller’s carbon-removal subsidiary, 1PointFive. Amazon didn’t disclose how much it would pay per ton of carbon removed as part of the Oxy deal.