Energy, Politics & Money - 22 September 2022
Independent analysis of global developments in energy, geopolitics, and money curated just for you!
In this roundup, EPM continues its analysis of Russia’s mobilization announcement and examine China’s position - it was involved in the process leading up to the announcement, which EPM believes indicates that it supports Russia’s move.
Furthermore, we look at:
Good news for the gas market coming out of the US, as Cheniere announces it can perform the maintenance necessary to meet regulatory requirements without having to shut down operations
The Fed hawkish announcement, which make a hard economic landing in the US – and around the world as we explained earlier – a certainty
A number if moves in the energy transition across Asia and Europe, where refineries will be forced to shut down and hydrogen hopes to take its place
A new low in Europe’s energy crisis, the nationalization of Uniper in Germany, and the rise in “anger politics” it is causing
General Energy News
Some good news regarding gas out of the US yesterday – that is, if you are supply-focused rather than environment-focused! After “kicking and screaming” that it should get a pass on environmental regulations, arguing complying would necessitate a shutdown of operations, Cheniere yesterday announced it would do the required upgrades to equipment and that this would not affect operations, writes Reuters. This should be good news for Europe and the global gas market, as a loss of US export capacity would in the current environment have been devastating.
Macro-Economics
As expected, the US Federal Reserve delivered its third straight interest rate increase of three-quarters of a percentage point on Wednesday and signaled a high likelihood of at least one more move of that size this year, writes Nikkei Asia. The Fed raised its target interest rate to a range of 3.00%-3.25%, the highest level since 2008, and new projections showed the policy rate rising to between 4.25%-4.50% by the end of this year before topping out at 4.50%-4.75% in 2023.
Geopolitics
Following Russia’s partial mobilization and threat of nuclear war yesterday, many are speculating as to China’s position in the affair. We note, based on a Nikkei Asia report, that Nikolai Patrushev, Secretary of the Russian Security Council and one of President Putin's closest allies, met with top Chinese diplomat Yang Jiechi on Monday, following the SCO meeting in Uzbekistan and just before Putin’s announcement on Wednesday. It is unlikely that Russia’s mobilization plan was not discussed, as in that case China would, for obvious reasons, have been infuriated yesterday. At EPM our (speculative) assessment is, therefore, that Russia’s Wednesday announcement was aligned with China and supported by it.
Our point of view is supported by the official Chinese reaction, we believe. Putin framed his announcement as necessary to protect the “territorial integrity” of Russia. When asked to comment on Putin’s remarks, Chinese foreign ministry spokesman Wang Wenbin said “the legitimate security concerns of all countries should be taken seriously”, writes The South China Morning Post.
The fact that the move was likely aligned with China did not matter to the protestors on the Russian street yesterday, more than 1,300 of whom were arrested writes Reuters. Domestic pressure on Putin over Ukraine is clearly also building.
Energy Transition & Technology News
Japan’s biggest oil refiner, Eneos, is drawing up plans to consolidate production as domestic demand slumps because of a shrinking population and efforts to cut emissions, writes Bloomberg. It expects domestic fuel demand to slump 50% by 2040, and will be closing refineries in response. In their place, Eneos last year agreed to buy a renewable energy company. It previously said that it planned to invest 400 billion yen ($2.8 billion) in renewable energy by the end of March 2023.
The European Commission on Wednesday said it has approved 5.2 billion euros ($5.15 billion) in public funding by 13 EU member states aimed at boosting the supply of renewable and low-carbon hydrogen, writes Reuters.
Reuters reports, Korea Zinc, petrochemicals group Hanwha Impact Corp and SK Gas collaboratively hope to build a green energy export hub in Australia's Queensland state, aiming to produce a million tonnes of green ammonia annually for export by 2032. The plan includes the build of up to 3 gigawatts (GW) of renewable energy capacity.
The Electrification of Transport
Bloomberg writes, some of the largest miners and metals traders are warning that in just a couple of years’ time, a massive shortfall will emerge for the world's most critical metal, copper. It is essential to modern life, with about 65 pounds (30 kilograms) in the average car, and more than 400 pounds in a single-family home. Considered the benchmark for conducting electricity, it is also key to a greener, electrified world. Millions of feet of copper wiring will be crucial to strengthening the world’s power grids, and tons upon tons will be needed to build wind and solar farms. Electric vehicles also use more than twice as much copper as gasoline-powered cars. Nevertheless, the price of copper has fallen by nearly a third since March as investors are selling on fears that a global recession will stunt demand in the short term. This is leading to under investment, which is setting up a scenario where the world could see a historic deficit of as much as 10 million tons in 2035.
The Global Energy Crisis
Exactly two months after injection 15 billion euro into Uniper to keep it afloat, Reuters writes Germany has been forced to again come to the rescue of the important player on European gas markets, this time through a complete nationalization costing an additional $14 billion. This explains why yesterday we at EPM asked the question whether Europe will be able to afford its bailout of households and businesses in its energy crisis. Early estimates of what this would cost ($1.5 trillion) indicate this bailout is likely to be bigger than that of the Global Financial Crisis of 2008. But, just as then, over time the number keeps growing, exceeding previous estimates continuously – see Uniper. And remember, its nationalization does not solve its problem. It is likely to require further state cash injections over the winter period, which is why shares in Uniper’s parent company Fortum actually went up after the nationalization announcement, as this liability is now largely of Fortum’s books.
Bloomberg reports that across Europe parties on the far right and left are making political gains as the tap in to the anger resulting from the continent’s energy crisis. Seven months after Russia attacked Ukraine, disquiet over inflation and collapsing living standards has seen the rise of some familiar political forces, echoes of the aftermath of the global financial crisis. The far-right Sweden Democrats placed second in this month’s election and will join the government for the first time. In Italy, an election on Sunday is expected to see victory for Giorgia Meloni, who has outflanked rivals on the right by championing “the defense of Italian national identity.” Concern is growing in Germany over a backlash against the economic price of efforts to contain Putin. France, meanwhile, is seeing a slip in support for the current sanctions against Russia.