Energy, Politics & Money - 9 June 2023
In this roundup, a lot of energy transition news. We look at the state of decarbonization in the maritime and construction industries; the inevitability of a continued dependence on China for batteries for the foreseeable future, despite the IRA; ExxonMobil’s view on energy transition politics, and oil company energy transition strategy; BloombergNEF’s latest annual Long-Term Electric Vehicle Outlook (EVO); and an overview of the IOCs’ hydrogen strategies.
Furthermore, we look at:
- The continued decline in the oil price, driven by the signs that China’s recovery is stalling, need to maintain higher interest rates in the US (and Europe) to rein in inflation, and Russia’s higher than expected exports of crude
- The threat of deflation that has arisen in China, a further sign the economic recovery there is underperforming versus the assumptions in the crude oil demand forecasts that speak of “$100 oil by year end”
- COP28 president Sultan Al Jaber’s adjusted messaging, saying a phasedown of fossil fuels is inevitable, in order to appeal to a broader audience
- The trend toward standardization of charging plugs in North America, where GM will join Ford in adopting Tesla’s solutions
- BYD’s new brand for off-road and sports electric vehicles (EV), called Fang Cheng Bao
General Energy News
During the week that followed the surprise OPEC+ / Saudi Arabia production cut, taking the total cut to 4.6 million barrels per day, crude oil prices continued their decline, writes Bloomberg. WTI has fallen to near $71 a barrel, and is down about 1% this week. The US oil benchmark has fallen around 15% from a peak in mid-April. Brent is at $75.58 a barrel. Behind the trend is, primarily, the signs that China’s recovery is stalling, and need to maintain higher interest rates in the US (and Europe) to rein in inflation. Russia’s exports of crude have also been more resilient than anticipated, adding to supply.
A report in Haaretz that the US is working with Iran to achieve a deal that would pave the way for more Iranian crude exports, has not been helpful for the oil price writes Bloomberg. The US State Department said the report is false, however.
Macroeconomics
China's factory gate prices fell at the fastest pace in seven years in May and quicker than forecasts, writes Reuters, due to weak demand cast a dark cloud over the fragile economic recovery. As rising interests rates and inflation squeeze demand in the United States and Europe, China is in contrast battling a sharp decline in prices with factories receiving less for their products from key overseas markets. Another sign, in the EPM view, the economic recovery in China is underperforming versus the assumptions in the crude oil demand forecasts that speak of “$100 oil by year end”.
Geopolitics
Energy Transition & Technology News
A survey of the owners of more than 14,000 ships has found that while decarbonisation ambitions are high, progress in delivering even well-established fuel and emission-saving technology and operations remains very low, writes TradeWinds. Some 73% of the owners questioned viewed a net zero emissions goal as either critical or a high priority, and 77% have set concrete decarbonisation targets. Yet only 27% have a solid decarbonisation road map in place. The clearest difference between the three broad groups was in their outlook on future fuel choices, with almost all frontrunners planning to adopt biofuels, and concrete plans to adopt either ammonia or methanol in the next few years being in place for 70% of frontrunners. Followers and conservatives will be slower to adopt biofuels, and even slower to look at methanol or ammonia as fuel. Drop-in fuels would be a key interim solution for most frontrunners, while there was interest from a majority of owners of all three archetypes in shipboard carbon capture as an important potential technology.
In Bloomberg a review of how the construction industry is managing decarbonization. Construction, across its entire supply chain, is responsible for around 23% of all greenhouse gas emissions. Most originate in the creation of building materials (especially concrete and steel) or transporting them to where they’re needed. But around 5.5% of emissions come directly from construction sites—predominantly through the burning of fossil fuels that power machinery and generators. Now, in some of the leading markets, the machinery used, from excavators to wheel loaders, is electrifying, powered either by battery or directly from the grid. This means construction sites become free of engine noise and direct emissions.
According to the influential Center on Global Energy Policy at Columbia University, the US will not manufacture enough battery parts to meet demand by the end of the decade despite subsidies in its landmark IRA, writes the Financial Times. It estimates North America produces enough cathodes and anodes, crucial parts of a battery, to meet only 18 per cent and 8 per cent of current demand, respectively. Given the coming jump in battery use, production of these parts are not expected to meet demand over the next decade. “China is ahead in terms of supply chain security, in terms of technology. Changing that within nine years is a very difficult thing to do,” said one of the authors of the report. “The [Inflation Reduction Act] is making a dent, but it’s not changing the reliance, especially of cathode imports, by the end of the decade.”
ExxonMobil CEO Darren Woods says European leaders looking to tackle climate change should look to US policy and “let the market work”, instead of regulations, writes Bloomberg. “I think it’s a huge mistake to be picking winners and losers and focusing on specific technologies,” Woods said. He also provided insight into the company’s energy transition thinking. While other oil majors are looking to develop wind farms and solar parks, Exxon is focused on technologies that dovetail with the company’s strengths, Woods said. “At the end of the day, we’re a molecule company, not an electron company…. Carbon capture is going to play a really important role. It is a technology that exists today. It’s one that we have a lot of experience in,” Woods also said. “Think carbon capture and storage, think hydrogen, think biofuels, all of those recognized by credible third parties are going to be needed as part of the solution.”
BloombergNEF’s has released it latest annual Long-Term Electric Vehicle Outlook (EVO). EV adoption is set to soar in the coming years, with over 100 million passenger EVs expected on the roads by 2026 and over 700 million by 2040, up from 27 million at the beginning of this year, it says. And, that electrification is now spreading quickly to all sectors of road transport from rickshaws to heavy trucks and is also picking up in emerging economies like India, Thailand and Indonesia.
Forbes carries an overview of the hydrogen strategies of the IOCs. The hydrogen vision is well-suited to big oil’s strengths: multi-billions of funding dollars, extensive project management, and lots of workers to make things happen, it says. But, broad market application of hydrogen, beyond a niche market of aviation and shipping fuel, and manufacture of metals and chemicals (fertilizers and plastics), seems uncertain and may be a case of too little too late and too expensive.
Climate Politics
Pressure has been building on COP28 president Sultan Al Jaber. His role as CEO of ADNOC has always been a sore point for environmentalists. His focus on scaling down emissions rather than fossil fuel usage was another point of contention. And the recent revelation that ADNOC had access to the emails he sent and received in his role as COP28 was a third. The call by certain European and American politicians to have Al Jaber replaced as COP28 president, should not have surprised anyone, therefore. It seems that Al Jaber has taken note and adjusted his message to appeal to a broader audience. Reuters writes he now says a phasedown of fossil fuels is inevitable. "The phasedown of fossil fuels is inevitable. The speed at which this happens depends on how quickly we can phase up zero carbon alternatives, while ensuring energy security, accessibility and affordability," he said at an event on the sidelines of the UN climate talks in Bonn.
The Electrification of Transport
General Motors will join Ford in adopting Tesla's North American charging plug standard, writes Reuters. Investors applauded the deal, and the prospect of one charging hardware standard for the North American market. GM shares rose more than 4% after the bell and Tesla shares rose 4%. Tesla, GM and Ford together account for about 70% of current U.S. EV sales.
In China BYD has announced a new brand of electric vehicles (EV), called Fang Cheng Bao, which translates from Chinese literally as "Formula" and "Leopard", focusing on off-road and sports cars, as the company looks to meet more diversified consumer demand, writes Reuters.
The Global Energy Crisis
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