Energy, Politics, & Money - 2023.09.28
In this roundup of the most important news in the connected worlds of Energy, Politics & Money, we look at:
The exceptionally low inventory levels in Cushing, Oklahoma, which is offering a push to the WTI price as traders begin to worry about physical shortages of crude oi
China’s decision to issue no more fuel export quotas this year, which will put further pressure on an already tight global market for diesel
The headwinds that have combined to now face the US economy: higher interest rates, higher energy prices, the ending of Covid related support packages, large industrial strike action, and a possible government shutdown
Russia’s accusation that Ukraine’s missile strike on its Black Sea Fleet’s headquarters in Sevastopol was “planned in advance using Western intelligence means, NATO satellite assets and reconnaissance planes and was implemented upon the advice of American and British security agencies and in close coordination with them”
Why India is key for US geostrategy, and what challenges the US will face as it tries to win the country over to its side
The details of the US-led India-Middle East-European Economic Corridor (IMEC) project, and the challenges it faces
The perfect storm the offshore wind industry finds itself in, which is resulting in delayed and canceled projects
The internal push back at Shell to Wael Sawan’s (the CEO) plan to slow investment in renewables and low-carbon business as part of a strategy to boost returns
General Energy News
A decline in inventories at Cushing, Oklahoma - the delivery point for US futures - pushed WTI prices to $95 a barrel, writes Bloomberg. Stockpiles at Cushing have dropped for seven straight weeks and many traders consider them to be at the lowest levels that allow the tanks to operate normally, it also says. Stockpiles tumbled below 22 million barrels last week, the lowest since July 2022. As a result, last-minute supplies from the hub are becoming increasingly expensive and American crude is getting too pricey for overseas buyers.
The Chinese government has told the country’s major oil refiners not to expect any more fuel export quotas this year, writes Bloomberg. China’s refining system is mainly geared to supply the domestic market and Beijing controls the amount of fuel that can be exported. It uses an export quota system to balance the economic benefit of running its system at higher rates, with the emissions consequences of doing so. In EPM’s view, there has also been a geostrategic element in Chinese decision making around the amount. As Russian energy has been sanctioned by western countries, China has been taking more Russian crude oil, at discounts, increased its refining system utilization to levels higher than demanded by the local economy, and increased the export quantities to help the global market for refined products balance despite the sanctions. Beijing has granted around 40 million tons of fuel export quotas so far this year. That compares with 37.3 million tons in 2022. The very tight global market for diesel will feel the effect of the latest Chinese decision, which comes just a few days after Russia said it would halt exports of diesel and gasoline.
On Russia export ban, it will not be lifted anytime soon, says Reuters. Russian Energy Minister Nikolai Shulginov said, "I will say one thing - expectations of a quick lifting of the fuel export ban are futile - the measure will last as long as necessary to stabilise fuel supply and prices"
Macroeconomics
The US economy is facing new peril as a federal government shutdown draws near, strikes in the US Midwest rumble on and rising energy costs coupled with the expiry of pandemic-era fiscal support hit household budgets. The combination threatens to undermine consumers and businesses just as their resilience shows signs of cracking under the weight of higher interest rates, making a sharp slowdown in growth likely later this year, the Financial Times writes.
Geopolitics
Russia on Wednesday accused Ukraine’s Western allies of helping plan and conduct last week’s missile strike on the Black Sea Fleet’s headquarters on the annexed Crimean Peninsula, writes AP News. Russian Foreign Ministry spokeswoman Maria Zakharova said at a recent briefing:
There is no doubt that the attack had been planned in advance using Western intelligence means, NATO satellite assets and reconnaissance planes and was implemented upon the advice of American and British security agencies and in close coordination with them
EPM notes that this statement accuses the US and UK of direct involvement in the Ukraine war.
As to China, an opinion piece in Bloomberg argues that India is key to the US plan for maintaining hegemony in Eurasia. It could provide the US with the support it needs to deny China a free hand on land and sea. It can also function as the manufacturing hub towards which the supply chain is relocated away from China. But, it says, while India opposes Chinese hegemony, that doesn’t mean it loves American might. New Delhi wants a multipolar system, in which India stands among the great powers, rather than a unipolar system in which Washington and its allies tower above the rest. And as India’s influence grows, it will demand great-power prerogatives — including, perhaps, the right to trample the sovereignty of other democracies by targeting domestic enemies on their soil (like is alleged in Canada). It will not be straightforward for either the US or China to win India over. Right now, Modi’s government believes New Delhi holds all the cards. Indian officials have privately said they just don’t believe Washington will do anything to spoil the relationship, given how desperately America needs support against Beijing. They’re probably right.
India, of course, plays a critical role in the consortium of nations the US has brought together under the banner of the India-Middle East-European Economic Corridor (IMEC) project, the latest endeavor in its global infrastructure development strategy to counter Chinese influence. Energy Intelligence writes, IMEC is to consist of two distinct corridors — an eastern corridor linking India to the Mideast Gulf, and a northern corridor connecting the Gulf to Europe. The northern corridor is envisioned to include a railway network that will facilitate cross-border ship-to-rail transportation. The two corridors, once completed, would connect India to Europe through the UAE, Saudi Arabia, Jordan, Israel and Greece. IMEC represents a direct challenge to China’s decades-old Belt and Road Initiative (BRI). The fact that both the US and India are backing IMEC reflects the concern both nations share about the growing global economic clout of China, and the need to develop alternative development projects capable of competing with the Chinese. Among the challenges it will face is that IMEC plans to piggyback off existing Chinese BRI projects in some key areas. The new $1.7 billion port in Haifa, Israel, is an integral part of the project, but it is built and operated by the Shanghai International Port Group, for example.
Energy Transition & Technology News
A perfect storm of supply chain delays, design flaws and higher costs in the offshore wind industry has put dozens of projects at risk of not being delivered in time for countries to meet climate goals, industry executives, investors and analysts have told Reuters. So far this year, projects off Britain, the Netherlands and Norway have been delayed or shelved due to rising costs and supply chain constraints while Britain's renewable energy auction this month failed to attract any bids from offshore wind developers, also because of high industry costs.
Shell’s CEO Wael Sawan has come under pressure from internal stakeholders after outlining plans to slow investment in renewables and low-carbon business as part of a strategy to boost returns at an investor day last June writes Reuters. "For a long time, it has been Shell's ambition to be a leader in the energy transition. It is the reason we work here," said a public letter by employees addressed to Sawan and the Shell executive committee. The letter received more than 80,000 views and 1,000 likes.
The Electrification of Transport
The proposed anti-subsidy duties are an admission that European companies and governments have been slow to innovate, writes the Financial Times, which might remind you of what EPM wrote on the subject almost two weeks ago. The main issue isn’t the unfairness of emerging Chinese competition, it says. Germany’s car industry doesn’t lack government backing, after all. Volkswagen in particular is a partly state-owned enterprise through the stake owned by the German state of Lower Saxony. It has an outsize impact on German and EU regulatory and trade policy. The issue is the time it’s taken Europe’s car industry and its complacent governments to shoot into action. The trade restrictions being proposed by the commission aren’t a cure so much as a symptom. The fix for Europe’s malady lies within itself.