Energy, Politics, & Money - 2023.09.14
Independent, objective, & neutral analysis of global developments curated from sources covering global developments in energy, geopolitics, & investment.
In this roundup, we look at:
Why Saudi Arabia is already enjoying $100 per barrel oil
TotalEnergies’ progress in the offshore Guyana-Suriname basin
The shortlist of candidates to replace Bernard Looney as BP CEO
Why the pessimism about China is considered overdone, by some
The new security agreement between the US and Bahrain, C-SIPA, which is designed to become a model for US relations with countries in the Middle East
Whether the departure of BP CEO Bernard Looney will drive a strategic rethink at the company
Petrobras’ decision to strategically expand its portfolio, by venturing into offshore wind
The EU’s offer of support to the European wind energy industry
How the IRA is driving renewables growth in the US, not only installed capacity but also domestic manufacturing
Why former US vice-president and climate campaigner Al Gore believes the fossil fuel industry has “captured” the COP process, and why he believes this is bad for the global fight against climate change
The EU investigation into Chinese EVs, to establish whether or not these vehicles benefit from unfair state subsidies
General Energy News
Javier Blas of Bloomberg notes that while the news generally focuses on two crude grades, Brent, and West Texas Intermediate, traded in London and New York, respectively, other grades supply more of the physical market. Saudi Arabia’s Arab Light grade is one of the key sources for refiner around the world, and while Brent and WTI are hovering around the $90 per barrel mark, Arab Light is already touching the magical $100-mark. On Wednesday, the price of Saudi’s flagship oil grade Arab Light rose to almost $98.47 a barrel in Europe. Over the last 40 years, Arab Light has traded above $100 only a handful of times — in 2008, between 2012 and 2014, and in 2022. Part of the explanation is that the world is short on heavier, sourer grades of crude oil such as the ones Saudi Arabia produces. This has to do with the production cuts implemented by Saudi and Russia, but also the sanctions on Russia, Iran and Venezuela, which the increase in US oil production is mostly in the lighter grades coming from Shale reservoirs.
The miracle that is oil production in Guyana is expanding to neighboring Suriname, writes Reuters. TotalEnergies will begin studies for developing a $9 billion oil and gas project at Suriname's most promising offshore area, the French energy firm said during a visit by its CEO to the South American country. Suriname's oil potential is closely watched as some of its fields are adjacent to the Stabroek block in Guyana, where an Exxon Mobil-led consortium has found 11 billion barrels of oil. TotalEnergy's Block 58 could become Suriname's first commercial offshore project. Following well appraisal drilling this year, the company confirmed cumulative resources of nearly 700 million barrels of oil and gas at block 58's two main fields. The discoveries will allow production of up to 200,000 barrels per day of mostly crude, while associated natural gas initially will be re-injected to maintain crude output, and could be exported in further project stages.
Reuters has published the list of candidates to replace Bernard Looney as BP CEO. Potential internal contenders include Chairman Lund himself, executive vice-president for production and operations Gordon Birrell, and executive vice-president for regions William Lin. External candidates include three former BP executives, including CEO of Rolls-Royce Tufan Erginbilgic, who previously headed BP's downstream business, and Brian Gilvary, chairman of Ineos Energy and Auchincloss' predecessor as BP CFO. Both lost out to Looney in the race to succeed CEO Bob Dudley in 2020. Al Cook, CEO of diamonds giant De Beers and previous senior executive at BP and Equinor is also seen as a potential candidate.
Macroeconomics
An opinion piece over at Bloomberg argues that pessimism about China’s economy is overdone. Western analysts suffer from a serious case of confirmation bias, the author argues. They start from the position that the Chinese system is failing and then look for evidence to support that conclusion, he says. When Hu Jintao, the consensus-oriented former Communist Party general secretary, was in charge from 2002 to 2012, they said that without a stronger guiding hand China faced stagnation. When Xi Jinping proved a more muscular leader, the narrative pivoted to the risks of dictatorship. The author’s view regarding China’s current economic reality is as follows. While it is suffering under real estate sector stress, other sectors of the economy are actually booming. The Chinese real estate is likely to undergo an adjustment, but with close central government management, that is more likely to be in the form of a deflation than the “pop” of a collapse. The new sources of growth for the Chinese economy, which will offset at least some of the pain that will result from real estate, includes electric vehicles and more broadly the green economy – solar, wind, batteries included. Meanwhile, the recent launch of Huawei’s 5G phone indicates that China is closing the gap in semiconductors, which would open up new, additional opportunities for growth.
Geopolitics
The US and Bahrain have upgraded their defense relationship under a new security and economic deal that could become a template for Washington’s commitments to other Middle East allies, writes Bloomberg. The agreement, known as the Comprehensive Security Integration and Prosperity Agreement, or C-SIPA, aims to promote cooperation between the US and Bahrain across areas including defense, security, technology and trade. The pact upgrades the US security commitment to Bahrain, but stops short of a NATO-style Article 5 defense guarantee that would require it to respond to an attack on its ally as an attack on itself. Instead, the pact aims to deter threats, according to a senior administration official. In the event of an attack against Bahrain the US is committing to immediately consult with its ally and discuss ways to respond. Under C-SIPA, the US and Bahrain will also explore the development of so-called Small Modular Reactors, mini nuclear power plants that could be used by Bahrain as part of its transition to cleaner forms of energy. The agreement, which does not require Congressional approval, includes provisions that would allow other Middle East nations to join in due course.
Energy Transition & Technology News
Reuters says that the departure of BP CEO Bernard Looney will drive a strategic rethink at the company. On the face of it, it shouldn’t. But, since the start of Looney’s tenure in February 2020, during which the company crafted what could be considered the most ambitious energy transition strategy in the oil & gas industry, BP shares have returned 31% including dividends, compared with 46% for Shell and 129% for Exxon. The EPM perspective is that considering the impact Wael Sawan has had on BP’s competitor Shell, a strategy shift at BP is not unlikely. If, however, you believe in the IEA view that demand for oil and gas will peak this decade, it would be any strategic shift back to an oil and gas focus would be untimely.
Meanwhile, Brazilian state-run oil firm Petrobras has decided to become a top wind power developer, writes Reuters. Chief Executive Jean Paul Prates said that the company issued a license request with Brazilian environmental protection agency Ibama for offshore wind projects in 10 areas totaling up to 23 gigawatts (GW) of capacity. The firm is also testing generation solutions for offshore wind power such as floating wind plants, Prates added. The company also studies the purchase of a minority share of offshore wind farms outside Brazil. The move follows the announcement of a partnership with motor maker WEG on Wednesday to develop the most powerful wind turbine made in the country.
The European Union will put forward a package of measures to support its wind power industry, writes Reuters. As EPM discussed on a number of occasions recently, the industry is struggling with inflation in its supply chain, as well as growing competition from Chinese manufacturers. In response, European Commission President Ursula von der Leyen said, "We will fast-track permitting even more. We will improve the auction systems across the EU. We will focus on skills, access to finance and stable supply chains". Energy industry lobby Eurelectric welcomed the EU announcement, but called for urgent support to upgrade Europe's power grids to handle a large influx of renewable energy. In addition, EPM expects that eventually there will also be calls by European companies for the EU to protect domestic manufacturing of turbines.
WoodMackenzie has analysed how the IRA is driving forward renewables in the US. According to a Reuters report on the analysis, in addition to tripling annually installed capacity to 110 gigawatts (GW), it is also driving a resurgence in manufacturing, it says. By 2032, the result could be a 60% carbon-free power sector.
Climate Politics
Former US vice-president and climate campaigner Al Gore says the fossil fuel industry has “captured” the global UN negotiations on climate change “to a disturbing degree”, writes the Financial Times. It is “time to abandon the mistaken assumption” that oil and gas companies and petrostates were “good faith participants” during the UN process, he says. Most in the sector wanted to “block and delay and prevent anything that would reduce the sale and burning of fossil fuels”, Gore added. “It’s simply not realistic to believe that they are going to take the lead in solving this crisis.”
The Electrification of Transport
The European Commission has opened an investigation into Chinese EVs, to establish whether or not these vehicles benefit from unfair state subsidies, writes Reuters. The anti-subsidy investigation covers battery-powered cars from China, so also includes non-Chinese brands made there, such as Tesla, Renault and BMW. The EU investigation is looking at a broad range of possible unfair subsidies, from prices for raw materials and batteries, to preferential lending or cheap provision of land. In the EPM view, this is a predictable response to the fact that the Chinese moved much faster in the EV space than the European, and are continuing to move faster. The result is that, indeed, Chinese EVs are set to out compete their European competitors. It would be a tremendous waste if the EU investigation was about protecting European car companies against the consequences of their own failures in foresight and strategy.
China has hit back at the European Union’s investigation into electric vehicle subsidies, writes Bloomberg. The EU investigation may lead to tariffs close to the 27.5% level already imposed by the US on Chinese EV, it notes. A top industry body in China criticized the move. “China’s strong export of new energy vehicles isn’t because it has received huge state subsidies, but because China’s industrial chain is highly competitive,” Cui Dongshu, secretary general of the China Passenger Car Association, said. “The EU should take an objective view of the development of China’s electric vehicle industry, rather than arbitrarily using unilateral economic and trade tools” to stymie growth, he added. A leading Communist Party newspaper suggested retaliatory steps could be taken. China’s Global Times newspaper said in a commentary:
Clearly, Europe is afraid. They are afraid of competition from China, so they want to seek trade protectionism as a protective umbrella for European automakers who are slowly transitioning toward electrification. If unfair action is taken by the EU, China has various tools to use as countermeasures to protect the legal interests of Chinese firms.