World Energy News for 8 July 2022
General Energy News
Oil has been having quite a ride this week, primarily driven by “speculator sentiment”. The Economic Times has summarized the main drivers: “Crude oil fell 7 per cent on Friday and was down around 9 per cent for the week as a highly uncertain outlook for global growth and fuel demand following numerous rate hikes around the world this week weighed on markets.”
Over at Reuters, John Kemp reports, “Global distillate consumption has begun to decelerate in response to high prices and slowing manufacturing and freight activity, which should take some heat out of oil prices in the next few months.”
As Europe’s decision on natural gas and nuclear highlighted, in the midst of a Global Energy Crisis, environmental concerns appear to be taking the backseat for now – and one could argue, rightly so. The Biden administration is now faced with a similar dilemma, for supporting Europe requires it to agree to the request by Cheniere, reported on by Reuters: “Cheniere Energy has asked the Biden administration to exempt it from limits on emissions of cancer-causing pollutants, arguing they would force the top U.S. exporter of liquefied natural gas to shut for an extended period and endanger the country's efforts to ramp up supplies to Europe… Denying Cheniere could reduce America’s LNG exports for months or years, while granting its request would mean ongoing emissions of toxic pollutants into poor and minority neighborhoods Biden has vowed to protect.”
Energy Transition & Technology News
The Macro Environment (economics & geopolitics)
Behind our forecast for a severe economic storm over the coming 18 – 24 months lie a number of factors, not in the least the trend of monetary tightening globally. As Reuters reports, the strength of the US jobs numbers “will likely stiffen resolve at the Federal Reserve for a three-quarter-point interest rate increase at the central bank's July meeting”
Monetary tightening is having a number of different impacts globally. Among them is a financial crisis in the developing. Bloomberg looked at the issue and came with the following insights: “A quarter-trillion dollar pile of distressed debt is threatening to drag the developing world into a historic cascade of defaults. Sri Lanka was the first nation to stop paying its foreign bondholders this year… Now, focus is turning to El Salvador, Ghana, Egypt, Tunisia and Pakistan… And as crises have shown over and over again in recent decades, the financial collapse of one government can create a domino effect — known as contagion in market parlance — as skittish traders yank money out of countries with similar economic problems and, in so doing, accelerate their crash.”
Another element of the coming economic storm is food – both its supply to the global market and prices, which of course go hand in hand. According to Nikkei Asia, export bans, higher tariffs and other barriers have by now been imposed on 17% of the international food market on a caloric basis. Wheat prices have risen 20% since the start of the year, while corn prices climbed 30% at one point. Rice also faces upward pressure, and many other products are fetching historic prices. Clearly, this situation risks developing into famine and unrest affecting entire regions.
The Electrification of Transport
Toyota Motor is the leading holder of solid-state battery patents, a Nikkei Asia study shows, demonstrating that Japanese companies aim to dominate the next-generation power source for electric vehicles.
Financial Times goes deep in analyzing the man behind BYD, the Chinese company that is today the biggest seller of electric vehicles globally. “Twenty years ago, Wang unveiled plans for his BYD group to buy a failing state car manufacturer that had attempted to develop a sideline in making missiles. His logic: rip out the petrol guzzling internal combustion engines from the cars and replace them with batteries… six years later, Wang pulled off a coup when Warren Buffett invested $232mn in BYD. This week, Wang’s vision — and Buffet’s bet — was validated when BYD snatched Tesla’s crown as the most popular maker of battery-driven cars.”
ESG
Special features – The Global Energy Crisis
Russia’s president Vladimir Putin shared his thoughts on how the sanctions against his country are impacting the global energy balances. According to the Financial Times, Putin said “sanctions on Russia end up causing much more harm to those countries that impose them”, and that “further use of sanctions could lead to even more severe consequences, even, without exaggeration, catastrophic consequences on the global energy market”. The question is whether Putin’s comments are fact-based analysis -- in which case they are hard to argue with. Or whether they are a threat – in which case expect some thoughtful Russian measures aimed at worsening the pain for Europe, similar to the gas supply restrictions and the currency change on gas contracts.
Of the world’s leading economies, Germany is probably the one worst affected by the Global Energy Crisis. Nordstream 1 gas flows have already been significantly curtailed to around 40% of capacity, according to Russia because the completion of maintenance on equipment is being delayed by the sanctions. According to Bloomberg, there is hope of this issue being resolved, as Germany expects Canada to release the key pipeline part caught up in sanctions.
At the same time, however, Reuters reports that on the 11th of June, additional maintenance will reduce Nordstream 1 throughput to zero for 10 days. But since this creates an opportunity for Russia to put Germany under further pressure, it should not be rules out this maintenance will take longer – which would have devastating consequences for German society and economy. The Ukraine War has morphed into a global economic war, after all.
Reuters includes the Indian perspective in its review of country’s buying of Russian oil: “After China, India has done more than any country to compensate for the drop in demand for Russian oil from elsewhere… The officials say New Delhi wants to avoid repeating what it sees as the mistakes of the past: abiding by sanctions on Iran and winding down oil imports, only to see its main regional rival China continue unpunished and benefit economically.” An added factor undoubtedly is the fact that the Indian economy is so dependent on imported oil and gas, that it is significantly exposed to energy price shocks, and thus simply can not afford not to take advantage of the discounts offered by Russia.
Other
Nothing to share today.