Energy, Politics & Money - 27 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:
The continued growth in global oil demand, and its outlook over the coming 3 to 5 years
China’s build out of crude oil inventories
The Federal Reserve’s quarter of a percentage point interest rate hike
The geopolitics of industrial subsidies, which have kickstarted a global contest that’s straining alliances, threatening budgets and channeling unprecedented amounts of public cash into private companies
The second Russia-Africa summit
The real risk that the global push for biofuels will worsen an already bad outlook for deforestation
The green transition plan under development in Brazil, which aims at making the country the most ambitious economy in the world when it comes to decarbonization
The role renewable natural gas could play in the decarbonization of the transportation sector
Bloomberg’s survey of Tesla 3 owners, 5 years after the car was first launched
General Energy News
In the past few weeks, global oil demand has surpassed the monthly peak set in 2019 before the Covid-19 pandemic, writes Javier Blas for Bloomberg. The fresh record high in global oil consumption totals about 102.5 million, likely hit in the last few weeks in July. It is above the 102.3 million of August 2019. Strong gasoline demand plays an important role and is benefiting from three factors, says Blas. Even with the boom in electric cars, the absolute number of gasoline-powered cars is still increasing; consumers are holding onto their vehicles longer, delaying the improvement that comes with newer and more fuel efficient models; and in Europe, consumers have swapped their diesel cars for gasoline ones, giving the latter an unlikely boost. Inc conclusion, what’s clear is that under current trends, global oil demand will increase a further 3% to 4%the next five years, before settling at a high plateau. For now, there’s no sign that consumption will drop off a cliff any time soon.
China boosted its stockpiling of crude oil to the highest level in three years in June, taking advantage of cheap Russian crude, writes Reuters. The world's biggest oil importer added 2.1 million barrels per day (bpd) to commercial or strategic stockpiles in June. This was up from the 1.77 million bpd added in May and the most since June 2020, when imports surged as Chinese refiners lifted imports as crude prices slumped to the lowest in three decades as global demand collapsed during the initial stages of the COVID-19 pandemic.
China is to "strictly control" the approval and size of new coal-to-chemical projects as authorities prioritise strengthening supply of coal to power plants, writes Reuters. Coal-chemical processing uses coal as a feedstock to create a variety of industrial chemicals, such as synthetic ammonia and polyester. "Priority should be given to completing the country's task of ensuring coal supply for power generation and heating," reads a government statement, reiterating Beijing's previous commitment to use coal to underpin the country's energy security ambitions. The statement noted the restrictions on new capacity additions would not apply to the coal-to-oil or coal-to-gas sectors. The measures are therefore targeted at coal to downstream, non-fuel petrochemical processing.
Macroeconomics
The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, writes Reuters. The hike, the Fed's 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, a level last seen just prior to the 2007 housing market crash. Fed Chair Jerome Powell said the economy still needed to slow and the labor market to weaken for inflation to "credibly" return to the U.S. central bank's 2% target.
Geopolitics
Bloomberg looks at the geopolitics of industrial subsidies. The Biden administration is pouring subsidies into local manufacturing via landmark measures including last year’s Inflation Reduction Act. The goal is to entrench American leadership in industries of the future like clean energy and semiconductors, and create well-paid jobs at home. The effect, it says, has been to kickstart a global contest that’s straining alliances, threatening budgets and channeling unprecedented amounts of public cash into private companies. Morgan Stanley analysts estimate that governments worldwide have pumped more than $500 billion in direct subsidies for manufacturing low-carbon equipment. In Europe, one senior official says the US has effectively left the rules-based order, and a global race is under way that’s allowing companies to go “subsidy shopping.” The problem for the EU is that it has neither America’s leverage nor China’s deep pockets. In Asia, some of the main US allies have a long history of government backing for strategic industries, and they’re ready to ramp it up now. The picture is generally bleaker for low-income countries, though some have a shot at getting IRA funds available to nations that have free-trade deals with Washington, such as Mexico. That’s creating tensions too. In the end, a global subsidy war would likely bring “a fair amount of waste, an increase in economic distortions, and an uncertain set of ultimate outcomes,” says Stephen Olson, a former US trade negotiator. But that’s the way the ground is shifting. Not so long ago, industrial policy was a pejorative term “that brought to mind failed Soviet apparatchiks trying to dictate how many shoes a factory should produce,” Olson says. “Today we find ourselves in a completely different world. The intellectual and philosophical change is mind-bending.’’
The second Russia-Africa summit will be held this week, from July 27 to 28, in St. Petersburg, writes Semafor. At least 40 African heads of state and senior leaders are expected to attend. President Putin plans to discuss Ukraine with a group of African leaders over a working lunch on July 28. Cameron Hudson, an analyst with the U.S.-based Center for Strategic and International Studies, said African leaders have made comments in the run-up to the summit that suggest they are looking for signs of a peace process to end the “pernicious effects” of the conflict on Africa. “This is a decisive moment for both Africa and Putin in their relationship.”
Energy Transition & Technology News
As a mounting number of companies commit to various decarbonization solutions, renewable natural gas (RNG) could play an increasingly important role in the transportation sector – both as an outright replacement for diesel and gasoline and as the feedstock for bioproducts used in high-emissions, difficult to abate sectors, writes S&P Global. Renewable natural gas (RNG) – also referred to as biomethane – is biogas that is captured from decomposing organic waste from landfills, wastewater treatment facilities and livestock manure. RNG is often touted as a "fuel of the future" due to its low-to-negative carbon intensity and its interchangeability with fossil natural gas. Although production capacity is ramping up, RNG production is still only a small fraction of total US natural gas production, and the cost of RNG far exceeds that of conventional natural gas.
The meeting in Jamaica of the U.N.-backed regulator for deep sea mining ended without agreement on how the industry would be regulated, writes Reuters. Consequently, the Council of the International Seabed Authority (ISA) ruled out any immediate permission for mining to begin, but kept open a legal loophole that could allow it to begin next year. Critics say not enough research has been done into the industry and its impact on wildlife, and that the cost of remediation could far eclipse any advantage reaped by obtaining the metals. But proponents say mining the seafloor will support the energy transition in a less environmentally damaging way than land-based mining.
Climate Politics
A new report from the World Resources Institute found that deforestation is set to soar in the coming decades, as the world’s decarbonization and economic development goals collide, writes Semafor. As global demand rises for food, bioenergy crops, urban space, and timber, there isn’t enough real estate available to provide all of them. Land needed for wood production alone is expected to quadruple by 2050, the report found, requiring an area twice the size of India to be planted and harvested. Policies that support land-intensive climate “solutions” — especially biofuels and wood as a replacement for steel and concrete in construction — exacerbate the problem.
Brazil is set to launch a green transition plan worth hundreds of billions of dollars in public and private investments, writes the Financial Times. The package, which will be unveiled in August or September, will encompass about 100 initiatives including carbon trading, the bioeconomy and infrastructure adaptation across six policy areas. “The idea is to have the most ambitious plan to decarbonise an economy in the world, at least among developing countries,” says a senior official involved in the planning.
The Electrification of Transport
Tesla’s Model 3 is the car that ushered electric vehicles into the mainstream. On the day it was unveiled, people all over the world waited in lines by the hundreds to place a $1,000 reservation. By 2021, it became the first EV to sell more than a million units. 5 years on from the original launch, Bloomberg has asked owners about their experience over this time. They told Bloomberg they still love the sedan — especially the way it handles. Ratings were exceptional for performance, ease of use and design. The score on Reliability was high, and in other areas too satisfaction scores were universally high. Battery range remained on average 91% of the original rated capacity after 100,000 miles.