Energy, Politics, & Money - 2023.10.18
In this roundup, we take a closer look at the lack of decarbonization plans for the shorter-term among the world’s biggest industrial companies; as well as global shipping’s challenges to find the sustainable fuel it said it would use to decarbonize; and the realization the US will not be able to achieve its offshore wind target for 2030.
All of this strengthens EPM’s belief in our view that actual decarbonization delivery will under-perform versus target, expectation and hope. And, we add, we foresee a further slowing down in the pace of decarbonization if and when the global economy enters into a recession, which is our base case outlook for 2024, as more countries will then prioritize the cost of energy over its sustainability.
Furthermore, we look at:
TotalEnergies’ and Shell’s 27-year LNG purchase contracts with Qatar, which in the EPM view indicates they have changed their outlooks and are now more confidently assuming longer term demand for fossil-based energy
China’s economic growth over the third quarter of 2023
The future of China’s Belt and Road Initiative, which marks its 10th anniversary this week
What China wants from the US, as a prerequisite for a better diplomatic dialogue; what this means for the most likely forward trajectory of US – China relations; and why China is moving fast to further improve its relationship and collaboration with Russia
The resumption of talks between the government of Venezuela and its US backed opposition, which could result in US sanctions being lifted on Venezuelan crude oil
China’s first certification of an eVTOL aircraft, which brings it a step closer to commercial operation
General Energy News
Qatar has further expanded its long-term gas supply to Europe, reaching a supply deal with the Netherlands to provide 3.5 million metric tons of liquefied natural gas (LNG) a year for 27 years. Two LNG sale and purchase agreements were signed between affiliates of QatarEnergy and Shell, in a deal that mirrors one reached with TotalEnergies last week, writes Reuters. In the EPM view, this indicates something of a change of heart among European majors. Around a year ago the Europeans refused to enter longer-term agreements as they feared LNG assets would become stranded over the medium term as a result of the energy transition and decarbonization ambitions around the world. The fact that they are now willing to enter in longer term agreements again in the EPM view indicates they have changed their outlooks and are now more confidently assuming longer term demand for fossil-based energy.
Macroeconomics
China's year-on-year economic growth slowed to 4.9% in the July-September period, down from 6.3% the quarter before, writes Nikkei based on official statistics. The result beat an average market forecast of 4.4%, based on a poll of economists by Nikkei. During the third quarter, China made several interest rate cuts to boost borrowing by businesses and households. A reduction in the down-payment thresholds for new home purchases was among the measures introduced to boost demand in the subdued property sector.
Meanwhile, China is celebrating the 10th anniversary of its Belt and Road initiative on Tuesday and Wednesday this week. President Xi is scheduled to deliver a keynote speech on the second day of the celebratory forum, writes Nikkei, and guests have been arriving one after another, including Russian President Vladimir Putin. From Beijing's standpoint, the BRI has largely achieved its two original goals, Nikkei says. One was to deploy "excess construction and financial capacity at home to return-generating projects abroad". The other was to build strategic leverage by spreading goodwill toward China in participating countries and gaining policy influence over governments. 150 countries and 30 international organizations have by now signed BRI cooperation agreements, with construction contracts reaching $2 trillion. Critics say this has contributed to debt distress in developing countries. China consistently rejects the charge that it has led some countries into a "debt trap." Looking ahead, China appears to be shifting the focus of the BRI, from an emphasis on large-scale infrastructure projects to what it deems "small and beautiful" technology-based cooperation. Beijing has also pledged to cease fossil fuel investments in favor of clean energy development.
Geopolitics
China welcomes a summit between President Xi Jinping and US counterpart Joe Biden on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco next month, but this can take place only if it feels respected by the American side, a Chinese diplomat said according to Nikkei. Xu Xueyuan, deputy chief of mission of the Chinese Embassy in the U.S., said the U.S. needs to show consideration for four areas bearing on China's "core interests." These four areas -- the "bottom lines or the red lines," as Xu put it -- are (1) Taiwan, (2) democracy and human rights, (3) China's path to development and its political and economic system, and (4) China's right to development. Xu spent time spelling out the fourth element, saying Beijing needs to feel that the US will welcome an economically stronger China.
EPM believes this is further confirmation of our analysis of the US – China diplomatic relationship at present. We have said, China believes the US is not treating it fairly, and that the US diplomatic overtures toward it are hypocritical while it, at the same time, tightens sanctions on China and is organizing a multinational military build up designed to constrain the country. As such, before China commits to a real and meaningful dialogue, it wants the US to show, through practical actions, that it too is committed to a real and sincere dialogue. Meaning, China wants the US to first take a step toward ending its sanctioning of China. Until the US does that, the Chinese will politely listen whenever the US wants to talk, but it will not take these conversations seriously. This insight into the Chinese position is important as it supports development of a view as to how the US – China relationship is likely to develop. If the US stays on its current course, this means the economic relations will worsen. As a result, diplomatic relations will not improve either, and the two countries will remain on a path toward hot war.
While China is holding off vis-à-vis the US, it is truly aligning closer with Russia, EPM believes. Bloomberg writes that Chinese president Xi Jinping has said that China supports Russia’s efforts in safeguarding its national sovereignty and development interests, and is seeking a breakthrough in a Sino-Russian gas pipeline that runs through Mongolia. The Chinese leader also said deepening ties between China and Russia are not temporary but a long-term solution.
Venezuela's government and opposition have resumed talks, and appear to have a reached a deal on the country’s 2024 elections, writes Reuters. "We are on the verge of signing new agreements with the opposition, agreements beneficial for peace and the upcoming election," president Maduro said in a televised address. The US has long said it would lift some of its sanctions in exchange for democratic concessions from Maduro. The US could quickly follow the government-opposition agreement with authorization lifting restrictiosn related to Venezuela's oil business writes Reuters. Among other steps under consideration is restoring Venezuelan banks' access to the global financial system, which could facilitate further oil-related transactions.
Regarding the Ukraine war, Reuters writes that after media reports that the U.S. secretly provided Ukraine with ATACMS (Army Tactical Missile Systems) in recent days, the White House indeed confirmed that it has recently provided Kyiv with the weapons capable of hitting targets up to 165 km (102 miles) away. Ukraine also confirmed its forces used the ATACMS. Ukrainian Special Forces said nine helicopters, an air defence missile launcher, runways and other equipment had been destroyed near Luhansk in Ukraine's east and in Berdiansk in the south, on the Sea of Azov, both under Russian control.
Energy Transition & Technology News
Fewer than one in five of the world's biggest polluting companies have short-term emissions reductions targets in line with keeping global temperature rises below 1.5 degrees Celsius, Reuters writes based on an analysis by investor pressure group Climate Action 100+'s (CA100+). The number of companies pledging to hit net-zero emissions by 2050 has jumped in recent years, but these long-term aspirations are not backed up by shorter-term plans including on capital expenditure. Just 2% of companies plan to phase out investments in unabated carbon-intensive assets by a specified year, CA100+ said, while not one of the 32 upstream oil and gas companies it speaks to have capex plans aligned with the global climate pact agreed in Paris in 2015.
The world is not on track to grow zero-emission fuels supply to the extent that it can provide 5% of international shipping’s fuel needs by 2030, Reuters writes. Current scalable zero-emissions fuel (SZEF) production in the pipeline would cover just a quarter of the fuel needed by 2030. The IMO’s target of 5% to 10% of fuel demand for shipping in 2030 would amount to about 5.3 million metric tons of hydrogen, 29.8 million metric tons of ammonia, or 28.1 million metric tons of methanol. It is estimated that the industry will have to invest about $40 billion annually in SZEF bunkering and production, which it is no where near to achieving.
When President Joe Biden in 2021 laid out a target of deploying 30 gigawatts of offshore wind capacity during the next nine years, the plan was deemed bold and ambitious, but many saw it as within reach. Bloomberg writes that just two years later, the wind industry has another word for it: impossible. The industry is having a tough time, dealing with inflation and higher borrowing costs. At the same time, partners are forcefully rejecting developers’ pleas for higher rates. The end result is that projects are being shelved.
These news reports strengthen EPM’s belief in our view that actual decarbonization delivery will underperform versus target, expectation and hope. And, we add, we foresee a further slowing down in the pace of decarbonization if and when the global economy enters into a recession, which is our base case outlook for 2024, as more countries will then prioritize the cost of energy over its sustainability.
The Electrification of Transport
Chinese drone startup EHang has announced that its EH216-S eVTOL aircraft has received a certification approval from the Civil Aviation Administration of China (CAAC), indicating the model's airworthiness, writes Nikkei. The fully automated EH216-S seats two people and has a range of 30 kilometers. With the certification, it is now a step closer to commercial operations.