Energy, Politics, & Money - 2023.11.02
In this roundup, we take a look at:
Shell’s (and BP’s) third quarter profit, and how it intends to use it
The US Fed decision to hold interest rates steady for the time being
What petrochemicals earnings are saying about the state of the global economy
Increasing pressure from the world’s elites on Israeli prime minister Netanyahu to resign
The recognition by Ukraine that their war with Russia is now in a stalemate
The major challenges facing the offshore wind energy, with one executive describing the situation in the US in particular as “fundamentally broken”
How fossil fuels will continue to be at the heart of the debate at the coming COP28, with the organizer’s plan to focus on “unabated fossil fuels” experiencing significant pushback
The share of battery powered vehicles in California car sales, which has reached 20%
General Energy News
Shell reported adjusted net income from July to September of $6.22 billion, an increase of 23% from the prior quarter but down about a third from a year earlier, writes Bloomberg. The company will use the funds to repurchase $3.5 billion of shares over the next three months, an increase from $3 billion in the prior period.
BP’s underlying replacement cost profit, used as a proxy for net profit, was $3. 3 billion in the third quarter, writes CNBC. This was a drop from $8.15 billion over the same period last increase, but an increase from the $2.59 billion of profit recorded in the second quarter. Does this mean they will stick with their energy transition strategy? We’ll find out.
Macroeconomics
The US Federal Reserve has decided to hold interest rates steady for the time being, writes Reuters. Fed Chair Jerome Powell said the situation remained something of a riddle, with US central bank officials willing to raise rates again if progress on inflation stalls, but at the same time wary that a rise in rates may begin to weigh on the economy more than necessary.
SABIC’s quarterly earnings highlighted the struggle for chemical companies, as they face a decline in global demand, particularly from China, and continued lower prices for their products, writes Bloomberg. High interest rates and inflation are keeping the market fragile, and SABIC expects margins to remains under pressure for the rest of this year. Earlier BASF reported lower sales across all geographical areas, and said it sees 2023 earnings coming in at the lower end of its guidance.
Geopolitics
Building on our EPM analysis of the Gaza War from last Monday, global elite opinion is building that Israeli prime minister Netanyahu needs to step down as he is a major obstacle to the US’ proposed two state solution that, it is argued, could be a permanent solution for the Palestinian issue. Here is the Foreign Affairs article arguing the case. Here is The Guardian. And here is the Economist.
Meanwhile, despite rhetoric, the US and Iran are actually trying to prevent the Gaza War that would lead to energy crisis compounding the diplomatic one, writes Javier Blas for Bloomberg. For as much as Iran’s proxy groups are harassing Israeli and US troops, Tehran doesn’t seem in a hurry to enter a regional war. Nor is Washington rushing to strictly enforce its longstanding set of oil sanctions on the Islamic Republic, a move that would reduce global oil supply going into 2024. Washington hasn’t even taken the step of verbally threatening Iran with sanctions enforcement.
Over in Ukraine the realization has set in that the war is in a stalemate. In an interview with the Economist, Ukraine’s commander-in-chief, General Valery Zaluzhny, says the battlefield today reminds him of the great conflict of a century ago. “Just like in the first world war we have reached the level of technology that puts us into a stalemate,” he says. The general concludes that it would take a massive technological leap to break the deadlock. “There will most likely be no deep and beautiful breakthrough.” EPM is glad that the good general has come out and said what many have been thinking. The hope is that this leads to a negotiated settlement and a Marshall like plan to rebuild.
Energy Transition & Technology News
The offshore wind industry, one of the fastest growing energy sectors, has recently suffered a string of major setbacks due to equipment reliability issues, supply chain problems and sharp cost increases. As a result, Reuters writes, Orsted, the world's largest offshore wind developer, on Wednesday flagged major write downs of up to $5.6 billion after halting development of US offshore wind projects; while BP and its partner Equinor began to study options for developing huge projects off the coast of New York after writing down US $840 million of their value. BP's renewables boss says the US offshore wind industry is "fundamentally broken", Reuters writes, citing problems including permitting, the time lag between signing power purchase agreements and projects being built and a lack of inflationary adjustment mechanisms.
CNBC has more details about Orsted’s US project cancellation. Its Ocean Wind 1 project would have been New Jersey’s first offshore wind farm and would have generated enough electricity to power half a million homes starting in 2025. The second, The similarly sized Ocean Wind 2 project would have followed a few years later. $2.8 billion of Orsted’s write off was connected to the Ocean Wind 1 project, Orsted said.
Climate Politics
The Financial Times writes that fossil fuels will continue to be at the heart of the debate at the coming COP28. The organizers wish to focus on ending “unabated fossil fuels”, i.e. those not decarbonized via carbon capture. However, many participants wish to end fossil fuels all together. The group of 15 nations known as the High Ambition Coalition joined a cohort of countries pushing for a global accord to dump oil and gas, FT writes. “Fossil fuels are at the root of this crisis. We must work together to develop a comprehensive global clean energy access approach to accelerate the transition away from fossil fuels,” said a statement signed by 15 ministers, including some from poorer countries such as Ethiopia, Vanuatu and Samoa. The production and use of fossil fuels needed to be wound down, including an “urgent phase-out of coal-fired power generation”, the group says. It also described carbon capture as technically questionable, and politically primarily a delay tactic.
The Electrification of Transport
According to Bloomberg one out of every five cars sold in California is now powered by a battery. In the first nine months of 2023, electric vehicles accounted for 21.5% of cars sold in California, a figure that’s more than doubled in the past two years. When combined with hybrid, plug-in hybrid and fuel-cell vehicles, the year-to-date figure is 35.4%.