Energy, Politics & Money - 25 August 2022
Curated news from the ever evolving worlds of energy, geopolitics, and money view just for you!
Welcome to the Energy, Politics & Money news feed of Thursday 25 August 2022, feature analysis and insight in interconnected worlds of energy, geopolitics, and the economy.
In this roundup, we look at:
US shale producers rethinking strategy?
European hedge funds are betting against Italian sovereign debt
China’s efforts to stabilize its economy
Qatar’s plan to use renewables to power the North Field expansion
Australia’s new climate legislation setting the foundation for a green economy boom
And, so much more…
General Energy News
Bloomberg reports on an analysis by Deloitte which says that at current oil and gas prices, US shale producers are on course to make nearly $200 billion this year, enough to make the industry debt-free by 2024. The question this raises is whether this will cause US producers to rethink their Shale strategies. We went from “drill baby drill” to “pay baby pay” under the influence of Covid. Will US Shale return to a growth focus once it is out of debt or will the industry have learned from its past?
The Macro Environment (economics & geopolitics)
According to The Financial Times, hedge funds have built up the biggest bet against Italian debt since 2008 speculating that the Europe macro-economic environment will cause a sovereign debt crisis in Italy as the ECB’s ability to offer is constrained by the US policy of monetary tightening by the Federal Reserve and the impact it is having on the value of the Euro vis-à-vis the US dollar.
Over at Nikkei Asia, we note an interesting analysis of how US Fed monetary tightening could negatively impact China. It is argued that it comes at exactly the wrong moment for China as it needs monetary easing to effectively deal with its real estate problems. But, if Chinese interest rates move in the opposite direction of the US’s, this will induce capital outflows from China thereby creating a situation akin to 1997 (and which is not sustainable indefinitely). As this happens, and while the trend towards de-globalization is underway, this asks some tough questions of China’s policy makers.
But, for Chinese policy makers, the above questions are of secondary importance in the current situation. Reuters reports China announced it will promote fiscal, monetary, and industrial policies to stabilise its labour market. This is in line with EMP’s assessment that a “Lehman style” implosion of the Chinese economy under influence of its real-estate problems is unlikely in the very short-term.
As to geopolitics, Bloomberg reports the US has formally responded to Iran’s comments on Europe’s proposal for a new deal. Analysts argue this brings the deal a step closer to fruition. We argue the US is unlikely to conclude the deal quickly. Unlike Europe, which is hungry for Iranian crude, and Iran, which is hungry for the revenues associated with exporting crude to Europe, the US does not need to rush things to conclusion. And, in any negotiation, the one with the most time is usually the party with the strongest position. Hence, we expect the US to leverage its position to get extract additional concessions from Iran and Europe – all which will take time additional time.
Bloomberg also discusses the conflict between Europe and Russia and how it is likely to develop over time. In essence, Europe and Russia are engaged in a “cold, economic war”. Europe sanctioned Russia and it responded by cutting gas supplies significantly. So far, the latter has had the bigger impact. Europe finds itself in an energy crisis – the source of short and long-term economic problems –pushing the value of the Euro down. The next phase in the conflict, Bloomberg says, targets the hearts and minds of the Europeans. The Russian message: “European politicians are applying stupid policies against Russia, which are hurting the interests of average Europeans”. Russia’s objective? Undermine popular support for Europe’s sanctioning policy against it by highlight the reals cost of suffering for the average European.
Energy Transition & Technology News
Australian coal and metals miner South32 argues the greening of heavy industries such as steel and aluminum can be achieved through green hydrogen reports Bloomberg. Consequently, the company said it wouldn’t be investing in new metallurgical coal projects, and would wind down its business in the fuel that’s currently key to steel-making once existing mines are fully depleted. Of course, we highlight, that this could create a tension similar to what was seen in the energy markets before the Ukrainian crisis. Investments in supply are halted in anticipation of a transition, affecting supplies before the transition is complete, causing a shortage and thus a spike in prices.
Qatar intends to power the expansion of the LN capacity through renewable energy. It is targeting a 5 GW capacity, writes S&P Global, and Qatar Energy Renewable Solutions has awarded an engineering, procurement and construction contract to Samsung, for two solar plants with a total capacity of 875MW.
Climate Politics
In Australia, many expected the election of Labour leader Anthony Albanese to drive a shift in the country’s stance on climate. The new government did indeed adopt a climate bill that was much more aggressive than any proposed by its predecessors and is aimed at cutting emissions 43% from 2005 levels by 2030. And, it is leveraging this commitment to generate additional interest in doing green business in Australia. As a result, Bloomberg reports, international companies are eager to enter the country to develop projects in renewables, hydrogen, electric transport, and the mining of minerals required for the Energy Transition. If Australia plays its cards right, it could experience a green-induced economic boom over coming years (and hopefully manage the benefits better than it did from developing the LNG sector).
China’s National Development and Reform Commission (NDRC), National Bureau of Statistics (NBS) and Ministry of Ecology and Environment (MEE) published plans to standardize carbon emissions statistics and accounting systems writes ESG Investor.
The plan is to establish the unified carbon emission accounting system by 2023 with improvements to the framework and system being accepted until 2025.
The Global Energy Crisis
Germany’s government has approved a bylaw restricting the heating of public buildings and banning illuminated advertising hoardings, in an effort to save energy and tackle soaring energy costs, reports The Guardian.
Sadly, as we have discussed previously, government intervention in European energy markets will not prevent the energy crisis from severely affecting the economy. The region already reserved $279 billion to support energy users. But Bloomberg compares that to throwing gasoline on a fire and does not address the fundamental imbalance between supply and demand – the cause of price spike – but, rather, these policies incentivize demand and thereby make the problem worse. We argue that, due to Europe’s inability to increase supply significantly in the short-term, it will have to manage consumer and industrial demand. But, demand management policies will cause an economic crisis, so it best spend for European Governments to spend money on helping people manage their way through the crisis.