Energy, Politics & Money - 24 February 2023
Independent, objective, and politically neutral analysis of global developments in the world of energy, geopolitics, and money curated for you!
In this roundup, EPM takes a closer look at China’s proposed peace plan for the Russia-Ukraine War. As expected, it calls for “respect for sovereignty”, which Russia would probably have preferred not to be included, and a ceasefire to enable peace talks, which the US would probably have preferred not to be included. The latter is evident in the US response to the Chinese initiative – the first to call for peace talks since the conflict in Ukraine began, we note at EPM – which called for China to just pressure Russia to abandon its activities in Ukraine and repeated the US claim that China is preparing “lethal aid” to Russia.
Furthermore, we look at:
The weakness of oil and gas prices, which is linked to weakness in the macro-economic environment
The updated S&P Global periodic table for crude oil, which now includes carbon intensity
The US insistence it will not radically adjust the IRA, despite complaints from Europe
The continued US push to cut China off from access to advanced microprocessors
The five technologies and processes that need to be moved forward in order to enable fusion, according to the US Department of Energy
The carbon removal industry’s coming together in the US, to form a coalition that will lobby the US government for new policies to help commercialize their technologies
The planned revisions to the Greenhouse Gas Protocol – the global standard-setter on carbon emissions accounting – which are likely to rock environmental commodity markets
General Energy News
Oil and gas prices are in another mini-slump, nearly three years after they were hit by the first wave of the COVID-19 pandemic in North America and Western Europe, writes John Kemp of Reuters. In real terms, oil prices are in the 67th percentile for all months since 1990, down from the 86th percentile in May, while U.S. gas prices have slumped to only the 3rd percentile, down from the 86th percentile in August. This is due to the manufacturing cycle, i.e. a weaker macro-economic environment, says Kemp. Historically, oil and gas cycles have been closely correlated with each other and with US manufacturing activity. And the US manufacturing activity appears to be in decline at present, with the ISM index falling below the 50-point threshold dividing expansion from a contraction every month between November 2022 and January 2023.
In addition to pressures on prices, persistent cost inflation is a further risk to US shale oil and gas profitability this year, the heads of the sector’s largest producers have warned even as they report record-smashing results for 2022, according to the Financial Times.
S&P Global has updated its periodic table for crude oil, and it now includes carbon intensity – something which we at EPM believe will become a determinant for price just as contaminants such as Sulphur and mercury are today.
Geopolitics
China has released its 12-points based peace for Ukraine. Titled “China’s Position on the Political Settlement of the Ukraine Crisis”, as per the Chinese ministry of foreign affairs website, it calls for “respecting the sovereignty of all countries”, “Abandoning the Cold War mentality”, and ceasing hostilities to enable peace talks. Additionally, it urges an end to Western sanctions on Russia, and calls for measures to prevent attacks on civilians and civilian facilities, keep nuclear facilities safe, establish humanitarian corridors for civilians and ensure the export of grain after disruptions inflated global food prices. Nothing unexpected is the response of EPM, although we note this Chinese proposal is the first to call for peace talks since the conflict in Ukraine began.
Al Jazeera covered the accompanying statement by the ministry:
All parties must stay rational and exercise restraint, avoid fanning the flames and aggravating tensions, and prevent the crisis from deteriorating further or even spiralling out of control. All parties should support Russia and Ukraine in working in the same direction and resuming direct dialogue as quickly as possible, so as to gradually deescalate the situation and ultimately reach a comprehensive ceasefire.
AP covered the American response to the proposal, which was, as we at EPM expected, not positive. America just wants China to put pressure on Russia to abandon what it is doing in Ukraine, a spokesman for the US State Department effectively said – just before reiterating the US claim that China is preparing “lethal aid” to Russia.
The US will make “no apologies” for prioritising American jobs in its bid to lead the global clean energy contest, John Podesta, Joe Biden’s senior clean energy adviser and the White House official responsible for the $369bn green funding drive, has said in an interview with the Financial Times.
At EPM, we mentioned before we did not expect the US to buckle under European complaints – no matter how justified these are as the approach of subsidies for domestic manufacturing only is against WTO rules. What the US doing with the IRA is industrial development policy, designed to support the country in its geostrategic competition with China. As such, the IRA is really a geostrategic bill, and as we said many times before, geostrategy / geopolitics trump economics.
The United States will likely limit the level of advanced semiconductors made by South Korean companies in China, a senior US official said according to Reuters. At EPM we can help but not notice how odd that really us: a Korean company, operating in China, yet the US feels it has jurisdiction. But more importantly, it indicates the US is not backing down on its ambition to cut China off from access to advanced microprocessors.
Energy Transition & Technology News
The US Department of Energy has identified a research and development agenda for a suite of technologies and processes to enable fusion, writes Forbes. These five are Fusion-Proof Materials, A Tritium Breeder, An Exhaust System, More Efficient Lasers, Repetition.
Climate Politics
More than 20 companies in the burgeoning carbon removal industry on Thursday launched a coalition to lobby the US government for new policies to help commercialize the nascent technology, writes Reuters. After the passage of the federal infrastructure bill and the Inflation Reduction Act, investors have been pouring millions into the emerging field. The coalition, named CRA, represents companies developing technologies to remove carbon emissions, buyers of credits from carbon removal projects and groups supporting the development of the field to create a unified industry voice in policy discussions with lawmakers and government officials.
Environmental commodity markets could be in for a shock as the Greenhouse Gas Protocol - the global standard-setter on carbon emissions accounting - prepares to revise its rules, writes S&P Global. The protocol is in the process of updating its rules on how companies report Scope 1, 2, and 3 emissions. A major point of contention is over what is known as market-based accounting – a system that allows companies to meet emissions targets by making contractual agreements or by buying environmental certificates.
Other
HSBC has added greenwashing to a list of risks it foresees in its future ability – and the future ability of other banks – to access capital markets, writes EDIE. The bank says
Companies face a heightened regulatory focus on both human rights issues and environmental crimes, from a financial crime perspective.
This comes on a report from our friends at Follow the Money who conclude that
Anyone who invested in a sustainable investment fund last year could now be discovering that ‘their’ fund is less sustainable than promised.
Over 25% of the supposedly most sustainable funds in Europe were recently reclassified as less sustainable after the European Commission and regulators clarified rules for sustainable funds. Many funds were designated more sustainable than they actually were. According to Reuters, the EU's Sustainable Finance Disclosure Regulation (SFDR) is designed to tackle misleading claims from fund managers over their sustainability efforts. The disclosure requirement is gradually being rolled out, and from January 2023 it requires more detailed information from funds to back up their disclosures and limit ‘greenwashing’ by banks and financial services firms. Adding ‘green washing’ risk was a good move on HSBC’s part. However, in EPM’s view, the extent of restatements shows how much work is still needed in the area of sustainability finance.