Energy, Politics & Money - 21 July 2023
Providing independent, objective, & neutral analysis of global developments curated from sources covering the world of energy, geopolitics, & investment.
In this roundup, we look at:
Russia’s confirmation that it will cut oil production and exports, to support the oil price
The new US sanctions on the Russian oil industry
The profit warnings coming out of corporate China, and the first responses by the Chinese government to support consumption and investment
Europe’s economic decline
China’s efforts to develop ultra-deep drilling technology
The question “can the IRA survive a Biden exit?”
The EU decision to include all forms of nuclear in its “green technologies” list
The partnership between Volkswagen’s Audi division and China’s SAIC to develop electric vehicles
The trend among major brands, including IKEA, to take up stakes in suppliers of raw materials and energy, to meet emissions targets and limit supply disruptions
General Energy News
Russia's energy ministry and Deputy Prime Minister Alexander Novak have confirmed that the country will reduce its oil exports in addition to its OPEC-plus pledge to cut production, writes Energy Intelligence. The ministry said this week that in line with Russia's decision to voluntarily cut oil exports in August by 500,000 barrels per day, the country's export schedule for July-September will be cut next month by some 2.1 million metric tons, or roughly the planned 500,000 b/d reduction.
Meanwhile, the US has imposed new sanctions on a raft of Russian oil services companies and senior officials in the energy ministry, as the Biden administration ratchets up its pressure on Moscow over the war in Ukraine, writes S&P Global.
Macroeconomics
Chinese companies warn that weak demand is pushing down prices of key industrial products from petrochemicals and steel to paper and cement, writes Nikkei Asia. Almost a third of mainland-listed companies have released first half earnings previews, with less than half making positive announcements. One of the biggest red flags involves demand for steel, a key component in a wide range of sectors, such as automaking and construction. Although there are positive signs from certain sectors, such as electric vehicles and robotics, the gloomier reports from companies have led some analysts to see the economy as getting worse rather than improving. In response to the wave of negative economic news, Chinese authorities have announced a raft of measures on Friday to help boost sales of automobiles and electronics, and warned local governments against rolling out policies that would fuel vicious competition, writes Nikkei Asia.
The Asian Development Bank cut next year's economic growth forecast for developing Asia, writes Nikkei Asia. The ADB's lowering of its 2024 estimate to 4.7% from 4.8% reflects a global outlook that is "dimmed by lagged effects from interest rate hikes." The bank maintained its projection for 2023 at 4.8%, which EPM finds surprising given the fact that China is significantly underperforming mainstream expectations.
We highlight an excellent analysis of the European economic outlook in the Wall Street Journal earlier this week. The continent is getting poorer, it says. The data says, the French are eating less foie gras and drinking less red wine. Spaniards are stinting on olive oil. Finns are being urged to use saunas on windy days when energy is less expensive. Across Germany, meat and milk consumption has fallen to the lowest level in three decades and the once-booming market for organic food has tanked. Italy worries over the price for pasta. Overall, consumption spending is in free fall, which Europe tipped into recession at the start of the year. Europe’s current predicament has been long in the making, WSJ says. An aging population with a preference for free time and job security over earnings ushered in years of lackluster economic and productivity growth. Then came the one-two punch of the Covid-19 pandemic and sanctions on Russia over its war in Ukraine.
Energy Transition & Technology News
China has begun drilling a 10,000-meter hole in the ground for the second time this year as it seeks ultra-deep reserves of natural gas, writes Bloomberg. China National Petroleum Corp. on Thursday began drilling the Shendi Chuanke 1 Well in Sichuan province, with a designed depth of 10,520 meters (6.5 miles). The project follows a similar-sized well that CNPC began drilling in Xinjiang in May, described at the time as the deepest ever undertaken in China. While the earlier well was described as experimental in nature, with the project designed to test drilling technologies and provide data on the Earth’s internal structure, the Sichuan undertaking is seeking to find ultra-deep reserves of natural gas.
The Financial Times looks at the question “can the IRA survive a Biden exit?”. The IRA has upended the investment proposition for a host of green technologies, from carbon capture. The IRA’s tax credits are set to last for a decade before they expire. The hope is that enough capital has poured in at that point to scale up and cut the costs of nascent technologies that could help in the scramble to decarbonise. But for some early stage industries, there are question marks over whether that will be enough time. In addition, a number of Republicans have also suggested they would seek to scrap the subsidies if the party regained control of Congress, which FT says will be difficult to achieve.
Climate Politics
The EU has reintroduced nuclear power as one of the preferred green technologies, writes Euractiv. The list of technologies eligible to receive EU financial support now includes renewable energy technologies, nuclear fission and fusion technologies, energy storage, carbon capture and storage (CCS), hydrogen transport infrastructure, and electrolysers, among others. This means nuclear energy of all types is now included, a departure from the Commission’s initial list, which had only innovative third and fourth-generation nuclear power technologies.
The Electrification of Transport
A move by Volkswagen’s Audi division to partner with SAIC to develop electric vehicles marks a turning point in China’s automotive industry from learning from foreign manufacturers to innovating its own technology, writes Bloomberg. The two companies will accelerate the electrification of their portfolio as China’s auto market rapidly shifts to EVs. Audi needs to accelerate its electrification in China to maintain market share, but new EV launches have been constrained by VW’s long development cycle, especially for its new Premium Platform Electric. As China’s largest auto group, SAIC has accumulated a complete set of EV technologies, and the success of its MG brand in Europe and the emerging IM Motor premium marque shows its capability in producing competitive cars across market segments, including the high-end.
Other
Major brands, including the investment arm of the IKEA group, are following automakers' lead in snapping up stakes in suppliers of raw materials and energy, seeking greater control over their production to meet emissions targets and limit disruptions, writes Reuters.