Energy, Politics, & Money: 2023.10.25
In this roundup, we look at:
Why the IEA World Energy Outlook 2023 is affected by the “Horizon Effect” bias, and what this means for its fossil energy demand forecast
The next phase in China’s plan for its refining sector, which is about optimization after two decades of growth, and represents a major change from the status quo of the past 25 years
The confirmation from Saudi Arabia that is still open to a formal agreement with Israel, once the issue of the Gaza War is resolved
The additional US export restrictions for chips used in AI applications; and the opinion that says this will not hold back China’s AI progress
Why for over half of the world’s economies, fossil fuel use peaked at least five years ago already
The pushback by environmental campaigners against the EU’s plan to provide subsidies for projects that repurpose gas pipelines for hydrogen
Why the EU must cut greenhouse gas pollution almost three times more quickly than it has over the past decade to meet its climate targets
General Energy News
Mike Lynch of Forbes says the IEA World Energy Outlook 2023 is affected by the “Horizon Effect” bias. This is where a near-term forecast resembles recent trends, but just beyond the visible terrain it is assumed that the trend would not just change but be reversed. The IEA in its Stated Policies scenario assumes countries will live up to their current commitments. If they do, fossil energy demand will soon peak (but consumption won’t suddenly taper off to zero either). But as EPM also mentioned yesterday, it is far from a given that countries around will indeed live up to their current ambitions and targets.
China has set a minimum size for new oil refineries and will ban small crude processors that claim to be chemicals or bitumen producers under its plan to limit total capacity at 1 billion metric tons by 2025, its state planner said according to Reuters. China, the world's top crude oil importer, first unveiled the cap of 1 billion tons, or 20 million barrels per day (bpd), two years ago, in an effort to streamline its sprawling refining industry and curb carbon emissions. The policy is likely to see Beijing tighten approval of new refineries and favour expansion and revamping of existing plants operated by major players such as state refiners, as well as those integrated with petrochemicals production. The measures, together with a slowdown in the Chinese economy and domestic fuel demand, are also expected to prompt independent refiners to look overseas to build new plants. EPM adds that the measures place a hard cap on the amount of crude that will be imported by China, leaving little to no room for growth from current levels. In addition, because of the petrochemicals focus, it should also be assumed that China’s petrochemical imports as will decrease across the board, and quite likely the country will become an exporter. All these represent major changes from the “status quo” over the past 25 years or so.
Geopolitics
In a conversation with US president Biden, Saudi Arabia’s crown prince Mohammed bin Salman has said the negotiations underway to normalize ties between Israel and Saudi Arabia before the outbreak of the Gaza war can eventually continue, writes the Times of Israel. This is aligned to EPM’s original assessment that the Gaza War would not be the end of the US for normalization. Rather, that it would most likely be used by the US to put more pressure on Israeli prime minister Netanyahu to agree with this US plan for a comprehensive relationship reset across the Middle East, including Saudi Arabia, Iran and the Palestinians.
The US government has told Nvidia it must stop shipping some of its high-end artificial intelligence chips to China without licenses immediately, writes Nikkei. The US Department of Commerce released a set of new semiconductor export restrictions on October 18. The new curbs were to take effect November 16. But Nvidia said it was informed by Washington on Monday that the stricter export controls would apply as of that day. In effect, Nvidia must halt shipping A800 and H800 chips to China without licenses from the US. These were two alternatives the company offered to the China market for its – already banned – A100 and H100 AI processors after the US imposed the original AI chip export restrictions in October 2022.
An opinion piece in Nikkei argues that it is unlikely the US sanctions will succeed in halting China’s advances in AI. China created its industrial AI policy seven years ago, long before the US government came up with any kind of AI overview, it says. As a result, China is now arguably more advanced in AI than the US. In August, Beijing authorized the public release of new generative AI services from Tencent, Baidu, Huawei Technologies, Alibaba Group, JD.com, ByteDance, iFlytek and Kuaishou Technology. Overnight, there are now more major technology companies in China offering their own advanced chatbots than in the US More importantly, Beijing is already engaged in embedding AI throughout China's social infrastructure. Chatbots now generate calls from public service centers. Public parking lots are managed by smart systems without a need for human attendants. Hospital and other public facilities have their own AI systems to deal with the public. In short, AI is already taking over in China. It is transforming Asia's largest economy despite the Biden administration's best efforts. The author argues that if the US does not want to fall behind China in the AI race, it is America that will have to change its objectives and plans.
Energy Transition & Technology News
A new report from analyst firm Ember has found that for over half of the world’s economies, fossil fuel use peaked at least five years ago, writes Forbes. Consequently, carbon emissions from these countries have also fallen–20% over the past decade. According to the report, these 107 countries represent 38% of global energy demand and many of them have seen a decline in greenhouse gas emissions despite growth in energy demand.
Carbon Capture continues to divide society, writes CNBC. At the recent ADIPEC meeting of the oil and gas industry the technology was touted as a decarbonization solution. However, CNBC notes, the technology is divisive and has been questioned by a range of organizations. For example, Greenpeace expressed strong views on the subject:
Carbon capture is not zero carbon; is unlikely to see dramatic cost reductions or be scalable; and is often used for greenwashing by oil and gas companies so they can carry on polluting. It doesn’t do what it says on the tin and certainly should not be prioritised as part of a green industrial strategy.
Climate Politics
Environmental campaigners have attacked a critical part of the EU’s plans to green its energy supply, describing a register of almost 150 projects proposed for special treatment as a “wish list” for oil and gas majors, writes the Financial Times. New projects are selected for Projects of Common Interest, or PCI, status every two years. The schemes, which are entitled to apply for a pot of €5.4bn worth of EU funds, must be deemed as crucial to the bloc’s energy security and decarbonisation goals. The environmental campaigners are arguing against projects to refurbish existing gas pipelines for hydrogen, arguing these projects are really designed to protect the interests of oil and gas companies.
Meanwhile, the EU must cut greenhouse gas pollution almost three times more quickly than it has over the past decade to meet its climate targets, a European Commission report has said, according to The Guardian. The EU has promised to pump 55% less planet-heating gas into the air in 2030 than it did in 1990. But over the past three decades it has cut emissions by just 32%, leaving behind “significant gaps” for the next seven years, the commission found in its latest State of the Energy Union report. Current policies will cut emissions in 2030 by just 43%, according to new estimates from the European Environment Agency project. The figure rises to 48% if they include policies that have been planned but not yet put in place, but still leave a deficit in climate action of seven percentage points.