Energy, Politics & Money - 30 October 2022
Independent analysis of interconnected global developments in the world of energy, geopolitics, and money curated for you!
In this roundup, we look at US Secretary of State Antony Blinken’s comments regarding Saudi Arabia’s recent actions regarding Ukraine. Riyadh's decision to provide $400 million in humanitarian aid to Ukraine and its vote at the United Nations General Assembly last week condemning Russia's annexation of four partly occupied regions in Ukraine, were “a few interesting things”. In EPM's view, Blinken's views confirm our original assessment that OPEC+ quota cuts should not be interpreted as a real disconnect in US – Saudi relations.
Furthermore, we look at:
The IEA’s most recent energy outlook, which forecasts an acceleration of the energy transition, and as a result peak oil demand this decade and peak emissions in 2025.
China’s support for the crude oil price over recent days, with in our EPM view confirms the OPEC+ assessment that “normal demand” is weakening, and we would have seen a decrease in the crude oil price had it not been for the OPEC+ quota cut 2 weeks ago and this additional China buying last week.
The third-quarter earnings announcements by Shell and Equinor, both whom say they will use the money for additional shareholder payments, which according to some means they are wasting an opportunity.
Another IMF downgrade of its growth forecast, this time for Asia.
The significant ambitions of BP subsidiary Lighthouse in solar and electricity storage.
The strong decrease in European gas usage. It has left some people cheering, but at EPM we believe it is most likely due to industrial shutdowns and slowdowns and thus not good news.
Nevertheless, German energy minister aims to “double down” on his plans to cut energy relations with Russia comprehensively.
General Energy News
IEA ENERGY OUTLOOK 2022
The International Energy Agency released its Energy Outlook 2022. The Guardian has summarized the key points included in it, such as that the IEA expects massively increased government spending on clean fuels in response to Russia’s invasion of Ukraine. Consequently, it expects demand for fossil fuels will peak this decade, as will global carbon emissions.
CHINA SNAPPING UP CRUDE OIL
According to Bloomberg, China has snapped up millions of oil barrels in a late buying spree as refiners plan to boost fuel exports through the end of the year, offering significant support to the crude oil price over recent days. EPM sees this as important, as it confirms the OPEC+ assessment that “normal demand” is weakening, and we would have seen a decrease in the crude oil price had it not been for the OPEC+ quota cut 2 weeks ago and this additional China buying last week.
RECORD Q3 PROFITS
SHELL
Shell posted a third-quarter profit of $9.45 billion, reports Reuters. As in previous quarters, it will use the money for additional dividends and share buy-backs.
EQUINOR
Equinor also posted strong results of $24.3 billion, a new record reports Reuters, also to be used for additional shareholder payments.
BIG OIL – WASTING BUMPER PROFITS?
According to an opinion piece in The Financial Times, the way the Big Oil companies are using their bumper profits means they are wasting an opportunity. Companies are not investing much of it back into their business, traditional or renewable, which does not bode well for the energy transition – and, we at EPM feel, neither for energy security.
Macro-Economics
IMF – CUTS GROWTH OUTLOOK FOR ASIA
The IMF has cut its growth outlook for Asia, reports Reuters. Its growth forecast for the region is now 4.0% for this year and 4.3% next year, down 0.9% point and 0.8 point from April, respectively. The slowdown follows a 6.5% expansion in 2021. “The region faces new headwinds from global financial tightening and an expected slowdown of external demand”, the Fund warns. It also highlights the pain caused by China’s Zero Covid policy, as well as the slowdown in that country’s real estate sector – all subjects EPM has covered extensively here at EPM – ahead of the experts at the IMF.
Geopolitics
US SAUDI RELATIONS – ALL IS GOOD
According to Reuters, US Secretary of State Antony Blinken’s said regarding Saudi Arabia’s recent actions regarding Ukraine that “These are positive developments. They don't compensate for the decision that was made by OPEC+. ... But we'll take note of that”. Blinken referred to Riyadh's decision to provide $400 million in humanitarian aid to Ukraine and its vote at the United Nations General Assembly last week condemning Russia's annexation of four partly occupied regions in Ukraine. In EPM’S view this confirms our original assessment regarding the OPEC+ quota cut, and the “verbal spat” between the US and Saudi that resulted: we argued these did not truly indicate a real disconnect in US – Saudi relations, but should be seen as “political maneuvering”. Bloomberg further reports that Blinked said the US ambition is to recalibrate its relationship with Saudi Arabia, in a way that “better reflects our own interests”.
CHINESE COMMUNIST PARTY DEVELOPMENTS
Nikkei Asia carries an analysis of the peculiar exit of Hu Jintao at the recent Chinese Communist Party's national congress. An anonymous source says, all leaders sitting on the main stage of the Great Hall of the People tried to avoid eye contact with Hu. What everybody was fearing was being stopped by Hu and given a piece of his mind. Whatever Hu's talking point was, it was not something they wanted to hear. It is probably true that Hu was not feeling well during the closing ceremony of the national congress, the source says. But precisely because he was unwell, there was the possibility he would go off script – and publicly express frustration with president Xi Jinping. As the what the cause of Hu’s frustration could have been, the analysis speculates it is likely to have been over the forced exit from the Politburo of everyone not Xi loyalist.
US NUCLEAR POSTURE REVIEW
The Biden administration released its Nuclear Posture Review on Thursday, alongside the National Defense Strategy and the Missile Defense Review. According to Nikkei Asia, the document says that “By the 2030s the United States will, for the first time in its history, face two major nuclear powers as strategic competitors and potential adversaries”, referring to Russia and China. In response, it signals a US willingness to use nuclear weapons in order to discourage adversaries from conducting nuclear attacks on allies. The document says “The United States would only consider the use of nuclear weapons in extreme circumstances to defend the vital interests of the United States or its allies and partners”. This, we note at EPM, effectively means the US military strategy does not rule out pre-emptive nuclear strikes on other countries, not only if it fears an attack on its home soil, but also if it believes others interests internationally are threatened. A position which appears an escalation from earlier strategic positionings and certainly increases the risk of the world experiencing nuclear war.
Energy Transition & Technology News
DECARBONIZING AIR TRAVEL
An opinion piece in Nikkei Asia argues that the decarbonization of air travel should start with electrification of shorter range travel. As is the case with electric vehicles, for these trips “Electric airplanes are … better for the planet [but] they will also be cheaper to run, more reliable, easier to maintain, significantly quieter and more exciting to fly on”, the article posits. (EPM could do without the excitement part 😉)
LIGHTSOURCE BP – RAPIDLY GROWING SOLAR FARM BATTERY CAPACITY
Lightsource BP aims to rapidly grow battery capacity at its solar farms around the world to reach 4 gigawatts (GW) by 2025, writes Reuters. It plans to develop 25GW of solar projects by 2025, up from 5.7GW today and 1.6GW when BP first invested $200 million to buy a 43% stake in the company in 2017.
Climate Politics
WORLD ON TRACK FOR TEMP INCREASE OF 2.4C
According to The Financial Times, current policies leave the world on track for a temperature rise of between 2.4C and 2.6C by 2100. S&P Global says there is no pathway to the target of 1.5 degrees Celsius in place at the moment.
The Global Energy Crisis
JAPAN $200 BILLION STIMULUS – REDUCING HIGH ENERGY COSTS
Japan’s government aims to ease burden of higher energy costs on businesses and households through a $200 billion stimulus plan, reports Nikkei Asia. The plan will include electricity and gas subsidies for consumers and businesses, set to begin in January.
GERMANY TO HALT RUSSIAN ENERGY IMPORTS ASAP
Germany will seek a complete halt to energy imports from Russia as soon as possible, the country's finance minister, Christian Lindner, said in a recent interview with Nikkei Asia. He listed energy procurement alternatives such as using floating terminals to stockpile liquefied natural gas (LNG) and using more renewable energy. At EPM we could cynically respond saying that Germany’s deindustrialization, currently underway due to the punishing energy prices that have resulted from Germany’s abrupt change in energy policy, will certainly make it easier for the country to achieve this ambition. Just at a terrible cost for its economy…
EUROPEAN PLAN TO REDUCE GAS USE WORKING?
Reuters reports European gas use plunged by 14% in August compared with the five-year average for the month, and by 15% in September. Germany, Europe's biggest gas user and industrial powerhouse, cut its gas consumption by 28% in August and 7.4% in September, while Italian gas use dropped by 22% in September and Dutch gas use by nearly a third. While it is easy to construe this as positive news, at EPM we do not discard the possibility that this is due to industries shutting or slowing down.
An opinion piece in The Financial Times does not agree with the EPM assessment. It argues the recent decrease in the natural gas price means the end of Europe’s energy crisis is in sight. Considering it is still only October, and winter weather has so far been supportive of Europe, at EPM this “cry of victory” is way to early. Peak winter is December until February, after all.