Energy, Politics & Money - 22 December 2022
Independent, objective, and politically neutral analysis of interconnected global developments in the world of energy, geopolitics, and money curated to help you thrive or survive these chaotic times.
In this roundup, EPM takes a closer look at Bloomberg’s coverage of the Alliance to End Plastic Waste. EPM thinks it’s clearly an unmitigated PR disaster; But, more importantly, the whole enterprise communicates that the world’s leading petrochemicals players still do not fully grasp the criticality of engaging in waste management. Fundamentally, you just can’t steer the conversation away from capping virgin plastics production, towards waste management and recycling, without a sincere effort in the latter area. We fear, therefore, that the Alliance has so far only strengthened its opponents.
Furthermore, EPM examines:
Developments on the oil and gas markets in 2022, where the drivers have been governments, rather than producers and consumers, something which is unlikely to change in 2023
Daniel Yergin’s forecast for oil in 2023
The potential for a shift in monetary policy in 2023 calls for which are growing
The potential for a negotiated settlement in the Ukraine War in 2023
The scientific assessment that if 10% of green hydrogen leaks during its production, transportation, storage or use, the GHG benefits of using green hydrogen over fossil fuels would be completely wiped out
Climate and sustainability rulemaking in 2022, which will be forcing significant change in ESG reporting and corporate behavior in 2023 and beyond
The development of “green methane” to avoid the drawbacks of transporting hydrogen
The impact the EU’s price cap on natural gas may have supply to the continent in 2023 - EPM notes China will play a critical role
The outlook for ESG rulemaking in 2023
General Energy News
The biggest actors in oil and gas markets in 2022 were governments, writes the Financial Times. Russia decided to invade Ukraine, triggering massive sanctions from western countries and counter-sanctions by Russia. The G7 and the EU implemented regulation (price cap) that essentially suspended the normal functioning of the oil market. China grappled with its Zero COVID policy. In the US, the US deployed its strategic petroleum reserve as a tool to influence oil prices, while the Inflation Reduction Act sought to spur on development of New Energy solutions. The EU finally passed its carbon border tax.
An opinion piece in Energy Intelligence argues these interventions are a good thing, and should continue. It says “the oil and gas industry does not today, and likely will never satisfy the conditions required for a functioning competitive market”. Markets work when there are a large number of buyers and sellers, none of whom can influence prices, it says. Energy is different, it says.
Looking at 2023, Dan Yergin expects oil at $90, writes CNBC, but he says there’s a chance it could go as high as $121 – if and when China fully reopens. The two other wildcards identified are monetary policy (will it return to quantitative easing to support economic growth?) and Russia’s response to the price cap.
Macroeconomics
An opinion piece in Bloomberg argues that central banks are likely to end quantitative tightening in 2023, and shift focus to supporting economic growth.
Over at Project Syndicate, Joseph Stiglitz provides intellectual arguments in support of the monetary policy shift. Inflation already appears to be easing, he says, less due to monetary policy, and more due to – COVID related – bottlenecks in the supply chain being resolved. Well-directed fiscal policies and other, more finely tuned measures have a better chance of taming today’s inflation than do blunt, potentially counterproductive monetary policies, he says. better antitrust enforcement, investment in new housing and a reverse to a decades-old agricultural price-support policy are given as examples.
Geopolitics
Asia Times writes the public positions of both Ukraine and Russia appear unwielding, but this should not be taken as meaning the two sides are not talking. There have already been back-channel talks on a whole range of issues, brokered by mediators from Turkey, the UAE and Saudi Arabia. These informal channels of communication have enabled deals on nuclear security, fertilizer trade and prisoner swaps, and offer hope for a broader settlement in the conflict over 2023.
Energy Transition & Technology News
The green hydrogen express is gathering pace, but some scientists say the lack of data on leaks and the potential harm they could cause is a blind spot for the nascent industry, writes Reuters. Two scientists told Reuters that if 10% leaks during its production, transportation, storage or use, the GHG benefits of using green hydrogen over fossil fuels would be completely wiped out. The problem, they say, is that when hydrogen leaks into the atmosphere, it reduces the concentration of molecules that destroy the greenhouse gases already there, potentially contributing to global warming.
Fortescue Future Industries, one of the leading proponents of hydrogen, is exploring a more efficient way to ship the zero-emissions fuel overseas by using “green methane”, writes Bloomberg. Green methane would avoid the costs and technical difficulties of liquefying pure hydrogen, and allow the use of liquefied natural gas infrastructure. It is made by combining green hydrogen with CO2.
The Electrification of Transport
The United States Postal Service will spend nearly $10 billion to buy at least 66,000 electric vehicles by 2028, creating one of the largest electric truck fleets in the world, writes the New York Times.
The Global Energy Crisis
The EU's euro 180 per MWh gas price cap could tighten supplies to Europe in 2023, writes S&P Global as some Asian suppliers might opt to sell to other markets that do not have a cap. The €180/MWh cap equates to approximately $55/MMBtu. At EPM, we agree with this assessment. Much has been said about the record levels achieved by LNG prices in Europe over 2022. But, it must be remembered this occurred as Chinese demand was subdued due to its Zero COVID policy, which allowed the Chinese to resell cargoes to Europe. Now just imagine what will happen if and when Chinese demand returns to normal, most likely during the second quarter of 2023. And clearly, if and when the situation develops that the European price will be triggered, suppliers will do whatever they can to redirect their volumes to where the cap doesn’t apply.
ESG
Bloomberg has investigated the Alliance to End Plastic Waste, which has been, let’s call a spade a spade, a massive disappointment – if one compares its achievements with its announced objectives from a few years back. Bloomberg says, it was formed in January 2019, the Alliance announced plans to invest up to $1.5 billion over five years to “advance solutions to eliminate plastic waste in the environment”, but, “its efforts are scarcely making an impact”. Almost four years after its creation, the group says it’s “diverted” 34,000 tons of plastic from the environment, about 0.2% of its original target.
In the EPM view, in addition to this being disastrous PR, we feel the whole enterprise communicates clearly that the world’s leading petrochemicals players still do not fully grasp the criticality of engaging in waste management. On the one hand, to preserve the license to operate. On the other, to establish a reliable and cost-advantaged feedstock supply for recycling operations. Fundamentally, you just can’t steer the conversation away from capping virgin plastics production, towards waste management and recycling, without a sincere effort in the latter area. We fear, therefore, that the Alliance has so far only strengthened its opponents. (Note: maybe the challenge is that most plastics are not recyclable and producers do not want to be responsible for managing mountains of discarded plastic).
The past year was the busiest ever for climate and sustainability rule making, writes Reuters, which expects no let up in 2023. During 2022 the European Union, United States and the new, global International Sustainability Standards Board (ISSB) set out climate-related disclosure rules for companies to be finalised in 2023, meaning corporations can no longer hide behind an unregulated patchwork of voluntary norms. ESG rules will also fast become mandatory rather than optional in 2023.
Notice to our valued readers: This is EPM’s last post for 2022. We wish everyone a festive holiday season (and, for those who celebrate, a very Merry Christmas)! EPM will be back in early January 2023.