As Europe struggles with a power shortage, Asia-Pacific’s power supply remains secure mainly because the region still uses a lot of coal, data has shown.
With liquified natural gas supplies in the region redirected to Europe, power generators in Asia not only have less access to LNG but have had to opt out of buying more expensive LNG driven by strong demand in Europe.
Europe is struggling with a gas shortage as Russia cuts its supplies, forcing many countries into an energy crisis in the lead up to winter. The U.K.’s National Grid has warned of possible power cuts.
S&P Global chief energy strategist Atul Aryal said while the crunch in Europe and the war in Ukraine have forced up prices of fuel such as oil and gas globally, it has not hurt Asia’s energy generation.
According to the International Energy Agency’s latest gas report, in the first eight months of the year, Asian spot or short-term LNG imports were down 28% compared to the same time last year. Overall LNG imports fell 7% year-on-year.
Bloomberg | Bloomberg | Getty Images
“In Asia, instead of using gas, countries are using coal because coal is here, coal is domestic and less expensive,” Arya told CNBC.
“The downside is that Asia, which is growing gas consumption, has stopped, at least for now.”
Unlike Europe which relies on gas for energy creation, gas is less relevant to Asia. It only forms 11% of its power mix and imported LNG forms a small part of that with most gas coming from domestic production, Wood Mackenzie head of Asia Pacific power & renewables research Alex Whitworth said.
Coal takes up a larger portion of the mix, although it is falling, Whitworth added. The share of coal in power generation for Asia-Pacific markets is more than 60%, he said.
The deployment of renewables takes time and will not ease security concerns in the short term … therefore, we are likely to see more of a push to boost the supply of fossil fuels and therefore the reliance on these dirtier fuels.
Warren Patterson
ING Economics
Separately, Asia’s LNG imports have fallen due to high prices.
Imports to China — now the biggest global LNG importer — fell the most by 59%. The decrease in LNG imports for Japan, Pakistan and India were 17%, 73% and 22% respectively, the IEA said.
The agency explained it wasn’t just high prices deterring Chinese buyers, but also the country’s slowing economy, milder winter temperatures and strong domestic production of its own gas and coal.
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These factors have set up opportunities for more coal use in Asia, amid efforts to reduce the use of fossil fuels. For example, Korea Electric Power Corporation has started using more coal in recent months, according to the Institute for Energy Economics and Financial Analysis.
The company used about 26% more coal in July this year compared with the previous month, but that was still lower than the volume used last year, data from IEEFA showed.
“KEPCO’s data suggests that both coal and LNG power generation have fallen since May as a result of higher prices year on year. However, there is a clear increase month on month of coal power generation,” IEEFA energy finance analyst Ghee Peh said.
LNG imports in China – now the biggest global LNG importer – fell the most at 59%.
Hector Retamal | Afp | Getty Images
This follows that Korea — which, like Japan, uses more gas than other Asian markets — so to some extent, have had to compete for limited gas like Europe. But, because of the availability of domestic supplies, they are more secure than Europe, Whitworth added.
In other words, Asia’s dependence on coal and relatively less reliance on gas imports mean it has higher energy security.
In general, tighter LNG supplies and higher prices now mean that some countries would have to rely on relatively “cheaper and dirtier fuels,” ING Economics head of commodities strategy Warren Patterson said in a recent note.
“One would expect that the high fossil fuel price environment would speed up the green push from governments across Asia, particularly given that a number of these economies are large net importers of energy,” Patterson said.
“However, clearly, the deployment of renewables takes time and will not ease security concerns in the short term.”
“Therefore, we are likely to see more of a push to boost the supply of fossil fuels and therefore the reliance on these dirtier fuels.”
LONDON — Westminster is in turmoil, the U.K. economy is floundering, and Tory MPs are about to pick their fifth prime minister in just over six years.
But in a sign of total normality in this fully-functioning Western democracy, Brits have instead spent much of the past week fixated on a livestream of a head of iceberg lettuce, wearing a wig.
Set up by tabloid the Daily Star, the paper’s newshounds bet big that a 60p supermarket lettuce would outlast Prime Minister Liz Truss, after her fledgling regime was gripped by unprecedented chaos in its first few weeks.
And they were right. Truss finally resigned Thursday, just 44 days into the job, making her the U.K.’s shortest-serving prime minister. The Daily Star broke out the Champagne, declaring: “The Lettuce Outlasted Liz Truss.”
So how did Truss put her salad days behind her, and why did she wilt under the public gaze?
Let POLITICO take you on a whirlwind tour of Truss’ 44-day premiership — but be warned, there are more than a few icebergs ahead.
Smashing the orthodoxy
September 6: It all started so well. After seeing off suave-but-dull rival Rishi Sunak in a rancorous Conservative leadership contest, Truss looked triumphant as she took the reins at No. 10 Downing Street and vowed to “transform Britain into an aspiration nation.” She had good reason to be cheerful, too, vacuuming up support from thousands of grassroots Tory members, getting the key Conservative-backing newspapers on side, and confidently brushing off the fact that the majority of her own Tory MPs had doubts about her competence. What did they know, after all? They’d only worked with Truss in Westminster for the past decade.
September 8: Upon taking office, Truss picked her close friend and neighbor Kwasi Kwarteng as her top finance minister, and immediately tasked him with taking on the stale “orthodoxy” at the Treasury. In a savvy first move, Kwarteng immediately sacked the most senior civil servant in the ministry — a man so clever his name is literally Tom Scholar — and so ensured that outmoded, orthodox qualities like “experience,” “credibility” and “economic literacy” were expunged at just the right time … amid a global economic crisis.
Also September 8: A busy day this one, what with Britain’s longest-reigning monarch dying that same afternoon. As the country mourned Queen Elizabeth II, Truss faced her first big communications test on the job: How to capture the nation’s deep sense of grief? She duly rose to the occasion, ripping up lines painstakingly prepared by career officials to deliver a heartfelt tribute with all the enthusiasm of a Q4 sales report. The country wept, for at least one Liz.
September 23: The queen’s death put normal politics on ice for a couple of weeks. But the pause allowed Team Truss to put the finishing touches on their very own Mona Lisa: the mini-budget. A sleeker, more aerodynamic budget than the normal kind, this mini version did away with tired conventions like “independent fiscal scrutiny by the government’s own watchdog,” and “making the sums add up.” Instead, Truss and Kwarteng pressed ahead with debt-funded tax cuts and a multi-billion pound plan to subsidize energy bills. Kwarteng also showed he retained a populist touch with crowd-pleasing measures such as cutting taxes for the U.K.’s super-rich and removing a cap on bankers’ bonuses, all in the middle of a cost-of-living crisis — before heading off to a Champagne reception with hedge fund bosses to party the night away. Cheers!
Woke markets cancel Truss
September 26: Eek. Then came the backlash. Financial markets — famously stuffed with tofu-munching lefties who hate conservatism and everything it stands for — failed to understand the mini-budget’s genius, while the unruly pound, which probably voted to Remain in the EU, crashed to its lowest-ever level against the U.S. dollar. Kwarteng, sounding a little shaken, promised he would publish all his fully-worked-out sums in, oooh, November? That sound OK?
September 28: The pound’s reign of terror continued, and, as U.K. borrowing costs soared and British pension funds teetered on the brink of collapse, those radical communists at the Bank of England were forced to step in with an unprecedented emergency bond-buying program “to restore market functioning.” Their hippie best mates at the International Monetary Fund also got in on the act, saying Kwarteng’s plans would “likely increase inequality” and urging the government to “re-evaluate” its tax measures. Chill out, guys!
Prime Minister Liz Truss is seen returning to Downing Street | Rob Pinney/Getty Images
October 3: Phew — she made it through to the Tory party conference. Political party conferences, after all, are normally a glorious victory lap for newly-crowned leaders, but Truss again decided to smash the status quo by turning hers into a deeply embarrassing few days of U-turns, backpedaling and noisy Tory infighting. Less than 24 hours after insisting she was sticking by her economic plan, Truss suddenly junked her centerpiece proposal to cut taxes for the rich. Kwarteng admitted the idea had “become a distraction” from the government’s “overriding mission.”
October 4: Indeed, the U-turn allowed the real “overriding mission” of the government — to needlessly piss off its own MPs — to shine through. No sooner had the tax cut been ditched than Truss’ ever-loyal Cabinet ministers were onto their next target, publicly pressuring the PM not to impose a real-terms cut to social security payments. One minister even capped off the day by telling a room full of drunk communications professionals that the government’s own comms strategy was “shit.” And who could argue?
October 10-11: A week after ditching their flagship policy, Truss’ government had another go at calming the still-spooked markets. Kwarteng’s new idea? Bringing forward the publication of his next fiscal plan to a date in no way guaranteed to be, erm, spooky: October 31. The Bank of England loved the cut of his jib, again stepping in with a major market intervention to prevent what it called a “fire sale” of U.K. government bonds. Which sounded worrying.
Actually, we really love the orthodoxy, please come back
October 14: After weeks of economic turmoil, Kwarteng was dragged home from a trip to Washington D.C. so that he could be sacked on the spot while still jet-lagged — a bad day at the office by anyone’s standards. Finally free of a chancellor who had repeatedly defied her by *checks notes* implementing her exact policy wishes to the letter, the PM then ripped up her long-standing pledge to ease taxes on big business, admitting in an epic eight-minute-long press conference that she’d gone “further and faster than markets were expecting.” We’ve all been there. Reaching out to the center of the Tory party, Truss appointed former Health Secretary Jeremy Hunt as her new chancellor, shoring up her faltering premiership for a full 36 hours.
October 16: Team Truss’ strenuous efforts to build bridges with her now-mutinous party ramped up another notch over the weekend, as a No. 10 insider branded her former leadership rival and ex-Cabinet colleague Sajid Javid — who had reportedly just been sounded out by Truss’ team itself about the chancellor job — “shit.” It didn’t go down too well with him, or his mates.
October 17: A biggie, as Hunt put a bullet in the entire Truss agenda, live on TV. In an astonishing move, the new finance minister issued a televised statement in which — by his own admission — he ripped up “almost all” the mini-budget pledges the Truss government had announced just a few weeks earlier. Even the energy support plan, clung to by Truss supporters as one of the few remaining positives of her premiership, was to be significantly pared back — although hard-pressed voters should be able to warm themselves this winter by standing near the giant “dumpster fire” that’s been Westminster the past six years. Truss capped another glorious day by avoiding an urgent question in the House of Commons and sending a junior Cabinet minister to reassure angry MPs that the British prime minister was not, in fact, “hiding under a desk.”
October 19: Very much the End Times. A rollercoaster of a day — if rollercoasters only went downhill — as an under-pressure Truss first offered up yet another U-turn, this time on pension payments; then a senior Truss aide was suspended as that clever “shit” quote to the Sunday newspapers got investigated by No. 10; then her home secretary was sacked and posted what was essentially an extended anti-Truss sub-tweet as a resignation letter; and then the government somehow turned a really boring House of Commons vote into a bitter row about “manhandling” its own MPs, as one of them literally cried on live TV. For those watching from abroad — this is why people in the U.K. drink a lot.
October 20: With the game finally up and her authority shot to pieces, Truss bowed to the inevitable and resigned Thursday, reeling off all her achievements in an 89-second statement on the Downing Street steps. Yet all is not lost. Tucked away in a newsroom in London, there’s one little lettuce who never lost hope. And in its still-crisp and delicious center lies the promise of national renewal. We can but dream.
You probably already know that because of market-capitalization weighting, a broad index such as the S&P 500 SPX, -0.67%
can be concentrated in a handful of stocks. Index funds are popular for good reasons — they tend to have low expenses and it is difficult for active managers to outperform them over the long term.
For example, look at the SPDR S&P 500 ETF Trust SPY, -0.71%,
which tracks the S&P 500 by holding all of its stocks by the same weighting as the index. Five stocks — Apple Inc. AAPL, +0.08%,
Microsoft Corp. MSFT, -0.85%,
Amazon.com Inc. AMZN, -1.11%,
Alphabet Inc. GOOG, -1.08%
But there are other considerations when it comes to diversification — namely, factors. During an interview, Scott Weber of Vaughan Nelson Investment Management in Houston explained how groups of stock and commodities can move together, adding to a lack of diversification in a typical portfolio or index fund.
Weber co-manages the $293 million Natixis Vaughan Nelson Select Fund VNSAX, -0.96%,
which carries a five-star rating (the highest) from investment-researcher Morningstar, and has outperformed its benchmark, the S&P 500.
Vaughan Nelson is a Houston-based affiliate of Natixis Investment Managers, with about $13 billion in assets under management, including $5 billion managed under the same strategy as the fund, including the Natixis Vaughan Nelson Select ETF VNSE, -0.87%.
The ETF was established in Sept, 2020, so does not yet have a Morningstar rating.
Factoring-in the factors
Weber explained how he and colleagues incorporate 35 factors into their portfolio selection process. For example, a fund might hold shares of real-estate investment trusts (REITs), financial companies and energy producers. These companies are in different sectors, as defined by Standard & Poor’s. Yet their performance may be correlated.
Weber pointed out that REITs, for example, were broken out of the financial sector to become their own sector in 2016. “Did that make REIT’s more sensitive to interest rates? The answer is no,” he said. “The S&P sector buckets are somewhat better than arbitrary, but they are not perfect.”
Of course 2022 is something of an exception, with so many assets dropping in price at the same time. But over the long term, factor analysis can identify correlations and lead money managers to limit their investments in companies, sectors or industries whose prices tend to move together. This style has helped the Natixis Vaughan Nelson Select Fund outperform against its benchmark, Weber said.
Getting back to the five largest components of the S&P 500, they are all tech-oriented, even though only two, Apple and Microsoft, are in the information technology sector, while Alphabet is in the communications sector and Tesla is in the consumer discretionary sector. “Regardless of the sectors,” they tend to move together, Weber said.
Exposure to commodity prices, timing of revenue streams through economic cycles (which also incorporates currency exposure), inflation and many other items are additional factors that Weber and his colleagues incorporate into their broad allocation strategy and individual stock selections.
For example, you might ordinarily expect inflation, real estate and gold to move together, Weber said. But as we are seeing this year, with high inflation and rising interest rates, there is downward pressure on real-estate prices, while gold prices GC00, -0.01%
have declined 10% this year.
Digging further, the factors also encompass sensitivity of investments to U.S. and other countries’ government bonds of various maturities, credit spreads between corporate and government bonds in developed countries, exchange rates, and measures of liquidity, price volatility and momentum.
Stock selection
The largest holding of the Select fund is NextEra Energy Inc. NEE, -1.89%,
which owns FPL, Florida’s largest electric utility. FPL is phasing-out coal plants and replacing power-generating capacity with natural gas as well as wind and solar facilities.
Weber said: “There’s not a company on the planet that is better at getting alternate (meaning solar and wind) generation deployed. But because they own FPL, some of my investors say it is one of the largest carbon emitters on the planet.”
He added that “as a consequence of their skill in operating, they re generating amazing returns for investors.” NextEra’s share shave returned 446% over the past 10 years. One practice that has helped to elevate the company’s return on equity, and presumably its stock price, has been “dropping assets down” into NextEra Energy Partners LP NEP, -2.61%,
which NEE manages, Weber said. He added that the assets put into the partnership tend to be “great at cash-flow generation, but not on achieving growth.”
When asked for more examples of stocks in the fund that may provide excellent long-term returns, Weber mentioned Monolithic Power Systems Inc. MPWR, -0.24%,
as a way to take advantage of the broad decline in semiconductor stocks this year. (The iShares Semiconductor ETF SOXX, +0.64%
has declined 21% this year, while industry stalwarts Nvidia Corp. NVDA, +0.70%
and Advanced Micro Devices Inc. AMD, -1.19%
are down 59% and 60%, respectively.)
He said Monolithic Power has been consistently making investments that improve its return on invested capital (ROIC). A company’s ROIC is its profit divided by the sum of the carrying value of stock it has issued over the years and its current debt. It doesn’t reflect the stock price and is considered a good measure of a management team’s success at making investment decisions and managing projects. Monolithic Power’s ROICC for 2021 was 21.8%, according to FactSet, rising from 13.2% five years earlier.
“We want to see a business generating a return on capital in excess of its cost of capital. In addition, they need to invest their capital at incrementally improving returns,” Weber said.
Another example Weber gave of a stock held by the fund is Dollar General Corp. DG, +0.33%,
which he called a much better operator than rival Dollar Tree Inc. DLTR, +0.14%,
which owns Family Dollar. He cited DG’s roll-out of frozen-food and fresh food offerings, as well as its growth runway: “They still have 8,000 or 9,000 stores to build-out” in the U.S., he said.
Fund holdings
In order to provide a full current list of stocks held under Weber’s strategy, here are the 27 stocks held by the the Natixis Vaughan Select ETF as of Sept. 30. The largest 10 positions made up 49% of the portfolio:
You can click on the tickers for more about each company. Click here for a detailed guide to the wealth of information available free on the MarketWatch.com quote page.
Fund performance
The Natixis Vaughan Select Fund was established on June 29, 2012. Here’s a 10-year chart showing the total return of the fund’s Class A shares against that of the S&P 500, with dividends reinvested. Sales charges are excluded from the chart and the performance numbers. In the current environment for mutual-fund distribution, sales charges are often waived for purchases of new shares through investment advisers.
FactSet
Here’s a comparison of returns for 2022 and average annual returns for various periods of the fund’s Class A shares to that of the S&P 500 and its Morningstar fund category through Oct. 18:
While there is excitement about the potential of renewable technologies such as tidal power, there are challenges when it comes to scaling up.
Laro Pilartes / 500Px | 500Px | Getty Images
The U.S. Department of Energy said $35 million in funding would be made available “to advance tidal and river current energy systems” under plans it hopes will provide a shot in the arm to a sector whose current footprint is tiny.
In a statement Tuesday outlining the move, the DOE said the funding opportunity — which is slated for release in 2023 — represented the “largest investment in tidal and river current energy technologies in the United States.”
A notice of intent related to the funding opportunity has been posted online. The DOE said it proposed “to develop a tidal or river current research, development, and demonstration site and to support in-water demonstration of at least one tidal energy system.”
Alejandro Moreno, who is acting assistant secretary for Energy Efficiency and Renewable Energy, said oceans and rivers represented “a huge potential source of renewable energy.” The DOE said the funding would come from the Bipartisan Infrastructure Law.
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Over the past few years a number of projects related to tidal power, including ones in the United States, have taken significant steps forward.
In July 2021, for instance, a tidal turbine dubbed “the world’s most powerful” started grid-connected power generation at the European Marine Energy Centre in Orkney, an archipelago located north of mainland Scotland.
In May 2022, a £4.6 million (around $5.18 million) facility that can test tidal turbine blades under strenuous conditions was officially opened, with those behind it hoping it will accelerate the development of marine energy technology and lower costs.
While there is excitement about the potential of renewable technologies such as tidal power, there are significant challenges when it comes to scaling up, a point the DOE acknowledged in its announcement.
“The U.S. tidal and river current energy industry requires long-term and substantial funding to move from testing devices one at a time to establishing a commercial site,” it said.
“The complexity of installing devices and navigating permitting processes, combined with a lack of connection to local power grids, have proven to be a consistent barrier to advancing tidal and river current energy.”
While tidal barrage developments were the initial focus of those operating in the marine energy industry — EDF’s La Rance tidal barrage dates back to the 1960s, for example — recent years have seen companies focus their attention on different systems.
These include tidal stream devices which, the European Marine Energy Centre says, “are broadly similar to submerged wind turbines.” Compared to other renewables, the overall size of tidal stream and wave energy projects is very small.
In data released in March 2022, Ocean Energy Europe said 2.2 MW of tidal stream capacity was installed in Europe last year, compared to just 260 kilowatts in 2020.
For wave energy, 681 kW was installed, which OEE said was a threefold increase. Globally, 1.38 MW of wave energy came online in 2021, while 3.12 MW of tidal stream capacity was installed.
By way of comparison, Europe installed 17.4 gigawatts of wind power capacity in 2021, according to figures from industry body WindEurope.
Newswise — An eco-friendly hydrogen combustor for domestic gas turbine that reduces carbon dioxide emissions has been developed and will be undergoing field test.
The Korea Institute of Machinery and Materials (President Sang Jin Park, hereafter referred to as the KIMM), an institute under the jurisdiction of the Ministry of Science and ICT announced that it has developed a hydrogen co-firing combustor for gas turbines used in power generation. This is the first time that such technology has been developed in South Korea, and KIMM has plans to perform a demonstration of its application to power plants.
Since July 2020, the research team led by Dr. Minkuk Kim, head of the Department of Zero-carbon Fuel and Power Generation at the KIMM Institute of Carbon Neutral Energy Machinery, has been developing an eco-friendly combustor for domestic gas turbines with 30% hydrogen co-firing, in collaboration with 13 industrial, academic, and research partners. A project for field demonstration will be started in 2023 with Korea East-West Power Company and Doosan Enerbility.
Hydrogen is highly reactive fuel so there is a risk of high temperatures and flashback. In order to prevent such risks, KIMM improved a fuel injection method, including fuel split, staging and modifying fuel holes. These were applied to the heavy duty gas turbine developed by Doosan Enerbility. As a result, it was possible that NOx and combustion instability were suppressed to the same level of the original LNG gas turbine while burning a mixture of 30% hydrogen fuel.
In the past, many efforts were made to promote the development of hydrogen co-firing combustors, but performance verification was difficult because there were no proper combustion test facilities in South Korea. So the combustor developed by KIMM was transferred to the German Aerospace Center (DLR) during the development process and successfully passed combustion tests in a high-pressure environment. These conditions mimic the actual operating conditions of the gas turbine, and its performance was verified accordingly. The development of hydrogen co-firing technology by domestic research institutes and its application to domestic gas turbines is a meaningful moment on the road to carbon neutrality in South Korea.
When gas turbines use fuel blended with 30% hydrogen, CO2 emissions can be reduced by 10.4% compared to 100% LNG power generation. KIMM plans to increase the percentage of hydrogen contents in fuel over 50% thereby 21.4% reduction of CO2 by 2024. In addition, the team is a focusing its research efforts with the goal of developing a 100% carbon-free hydrogen combustion technology by 2030.
KIMM also held a briefing on the development of a 300MW class gas turbine hydrogen co-firing combustor at the main office in Daejeon on October 12th. During this meeting, KIMM shared the details of their work on the core technology of modifying the hydrogen combustor. They also shared the results from Doosan Enerbility’s high-pressure combustion test results and announced Korea East-West Power Company’s Korea Institute of Future Convergence Technology’s plans to conduct power plant demonstrations of the hydrogen gas turbine.
At the briefing session, KIMM President Sang Jin Park stated, “In order to transition to an eco-friendly and carbon-free energy society, it is essential to develop hydrogen fuel conversion technology for medium and large-sized gas turbines and to conduct demonstrations at power plants. Currently, developments of combustion and turbine system are in their final stages. A decision of turbine manufacturers Doosan Enerbility and Korea East-West Power Company to test the new engine’s performance has made it possible to secure domestic hydrogen turbine technology that much sooner.” He also emphasized, “In order for domestic technology to be commercialized in a timely manner without failing, the government’s interest and support in selecting a demonstration site are necessary. This is because such a process is otherwise impossible through the will of the private sector alone due to the nature of the power generation industry.”
President Park added, “Unlike LNG heavy duty gas turbine in South Korea, which began as a fast follower, this hydrogen combustor is technologically equivalent to those from leading companies. If we can accelerate its commercialization through demonstration projects will help pave the way for South Korea’s next-generation new growth industry.”
###
The Korea Institute of Machinery and Materials (KIMM) is a non-profit government-funded research institute under the Ministry of Science and ICT. Since its foundation in 1976, KIMM is contributing to economic growth of the nation by performing R&D on key technologies in machinery and materials, conducting reliability test evaluation, and commercializing the developed products and technologies.
These research efforts were carried out with the support of the Ministry of Trade, Industry and Energy’s project for the “Development of a 50% Eco-Friendly High Efficiency Gas Turbine Combustor for 300MWe-class Power Generation” (2020-2024, KETEP 20206710100030).
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National Research Council of Science and Technology
After weeks of market turmoil and countless U-turns, British Prime Minister Liz Truss apologized late Monday for what she called “the mistakes that have been made” during the opening weeks of her already imperiled premiership.
“First of all, I do want to accept responsibility and say sorry for the mistakes that have been made,” Truss said in an interview with the BBC.
“I wanted to act, to help people with their energy bills, to deal with the issue of high taxes, but we went too far and too fast,” she added.
Truss also insisted that she would “definitely” lead her Conservative Party into the next general election, which is expected in 2024.
The new PM is already fighting to maintain her post after roughly six weeks in Downing Street. A growing number of Conservative MPs are openly plotting ways to oust the prime minister, who was forced to sack her close friend Kwasi Kwarteng as chancellor following a furious market response to her tax-cutting agenda.
Earlier Monday, Jeremy Hunt, Truss’ hastily-appointed replacement chancellor, used a television address to essentially tear up the manifesto which Truss ran on to ultimately win the summer’s Tory leadership contest.
“Growth requires confidence and stability,” Hunt said, in a clear admission Truss has been unable to provide either since her appointment as prime minister on September 6.
The struggling prime minister later dodged a request from the opposition Labour Party for her to appear in the House of Commons and explain the thinking behind her replacement of Kwarteng with Hunt.
Her stand-in for that parliament appearance, Commons leader Penny Mordaunt, was forced to deny that Truss was hiding from scrutiny.
“Well, the prime minister is not under a desk, as the honorable lady says,” Mordaunt said.
PARIS — U.S. President Joe Biden needs to watch out; France is resuming its traditional role as Europe’s troublemaker on the transatlantic trade front.
It had seemed like the bad blood between Brussels and Washington was easing on Biden’s watch. Facing a common foe in China, the EU and the U.S. last year struck a truce on the tariffs that former President Donald Trump slapped on European steel and aluminium. Over this year, Russia’s war against Ukraine has meant that America and Europe needed to present a united front, at least politically.
Cracks are now starting to re-emerge, however. The EU is furious that the U.S. is pouring subsidies into the homegrown electric car industry. Accusing Washington of protectionism, Europe is now threatening to draw up its own defenses.
Unsurprisingly, French President Emmanuel Macron is leading the charge. “The Americans are buying American and pursuing a very aggressive strategy of state aid. The Chinese are closing their market. We cannot be the only area, the most virtuous in terms of climate, which considers that there is no European preference,” Macron told French daily Les Echos.
Upping the ante, he called on Brussels to support consumers and companies that buy electric cars produced in the EU, instead of ones from outside the bloc.
There are good reasons why the Europeans are fretting about their trade balances.
The war has delivered a huge terms-of-trade shock, with spiraling energy costs hauling the EU into a yawning bloc-wide trade deficit of €65 billion in August, from only €7 billion a year earlier. In one manifestation of those strains, Europe’s growing reliance on American liquefied natural gas to substitute for lost Russian supplies has re-ignited tensions.
Macron’s comments are a reflection of EU consternation over Washington’s Inflation Reduction Act, which incentivizes U.S. consumers to “Buy American” when purchasinga greener car. The EU argues that requiring that car needs to be assembled in North America and contain a battery with a certain percentage of local content discriminate against the EU and other trade partners.
The European Commission hopes to convince Washington to find a diplomatic compromise for European carmakers and their suppliers. If not, that leaves the EU no choice but to challenge Washington at the World Trade Organization, EU officials and diplomats told POLITICO — even if a new transatlantic trade war is the last thing both sides want to spend their time and money on.
Macron’s comments “are clearly a response against the Inflation Reduction Act,” noted Elvire Fabry, a trade policy expert at the Institut Jacques Delors in Paris. “Macron plays the role of the bad cop, compared to the European Commission, which left Washington some political room to make adjustments,” she noted.
‘American domination’
The Commission hopes to find a diplomatic compromise with the U.S. for European carmakers and their suppliers | Ludovic Marin/AFP via Getty Images
France has traditionally been the bloc’s most outspoken country when it came to confronting Washington on a wide range of trade files. Paris, for instance, played a key role in killing a transatlantic trade agreement between the EU and U.S. (the so-called “TTIP”). Its digital tax angered U.S. Big Tech and triggered a trade war with the Trump administration.
More recently, during its rotating Council of the EU presidency, Paris focused on trade defense measures, which will give Brussels the power to retaliate against unilateral trade measures, including from the U.S.
New tensions are bad news for the upcoming meeting of the Trade and Tech Council early December, which so far has had trouble to show that it’s more than a glorified talking shop.
France won’t be left alone in a possible trade war on electric cars. According to Fabry, these tensions will bring Paris and Berlin closer, as the German car industry is also particularly affected by the U.S. measures.
But the “Buy American” approach is not the only bone of contention. The fact that Europe is increasingly relying on gas imports from the U.S. brought European discontent to the next level.
Although gas import prices fell in September from their all-time highs in August, they were still more than 2.5 times higher than they were a year ago. And, taking into account increased purchase volumes, France’s bill for imports of LNG multiplied more than tenfold in August, year on year, by one estimate.
Economy and Finance Minister Bruno Le Maire last week warned that Russia’s war against Ukraine should not result in “American economic domination and a weakening of Europe.” Le Maire criticized the U.S. for selling LNG to Europe “at four times the price at which it sells it to its own companies,” and called on Brussels to take action for a “more balanced economic relationship” between the two continents.
That very same concern is shared by some Commission officials, POLITICO has learned, but also among French industrialists.
It is “hardly contestable” that the U.S. had some economic benefits from the war in Ukraine and suffered less than Europe from its economic consequences, said Bernard Spitz, head of international and European affairs at France’s business lobby Medef.
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China’s President Xi Jinping has some good news for Europe — his country’s draconian zero-COVID policies aren’t likely to be dropped.
That’s a relief for European buyers of liquefied natural gas, as China’s economic slowdown has freed up LNG cargos crucial to replacing the Russian gas that used to supply about 40 percent of European demand.
“Regardless of what you think about the Chinese zero-COVID policy, simply looking at it only from the perspective of European gas supplies, it would be very helpful if China continued this policy,” said Dennis Hesseling, head of gas at the EU’s energy regulator agency ACER.
Xi took to the stage Sunday to kick off the week-long 20th Communist Party congress, and he doubled down on the zero-COVID approach, calling it a “people’s war to stop the spread of the virus.”
The once-in-five-year summit is “mostly a political meeting for within the party itself” but it does send crucial signals, said Jacob Gunter, a senior analyst at the China-focused MERICS think tank. So far it indicates China plans to “stick with [zero-COVID] for a while,” he said, adding that’s partly because government pandemic messaging has so spooked the population that lifting it would cause “chaos,” while Chinese vaccine hesitancy also remains high.
Since the outbreak of the pandemic in 2020, China has ruthlessly pursued its policy of crushing the coronavirus, involving snap lockdowns of entire cities accompanied by mass testing, surveillance and border closures. The slowdown in growth and depressed demand led to China’s LNG imports sinking by one-fifth, or 14 billion cubic meters, year-on-year for the first eight months of 2022, according to Jörg Wuttke, president of the EU Chamber of Commerce in China.
China and the EU each imported around 80 million tons of LNG in 2021, but China’s imports will fall to 64 million tons this year, according to data by market intelligence firm ICIS. That’s helping the EU buy gas on the global market and using it to fill the Continent’s storages ahead of the winter heating season.
“Europe is lucky that China has a severe economic downturn which will last well into 2023,” said Wuttke, adding that the drop in demand from China — historically the world’s largest LNG importer — is “roughly equivalent to the entire annual LNG imports of Britain.”
2023 worries
China’s President Xi Jinping | Anthony Wallace/Pool/AFP via Getty Images
With EU gas storage now over 90 percent full, the conversation in Brussels has already begun to shift to securing enough supplies for next year. At last week’s summit of EU energy ministers, International Energy Agency chief Fatih Birol warned that “next winter may well be even more difficult.”
As things stand, Beijing’s LNG imports are likely to rise back to 2021 levels next year, according to senior ICIS gas analyst Tom Marzec-Manser, with deliveries typically increasing around the winter season and then likely to ramp up again next summer.
China has already ordered its state-owned gas importers to stop reselling LNG to the EU to preserve stocks for the winter season at home.
But if the zero-COVID policy is scrapped, that could lead “to a step-change in growth again,” said Marzec-Manser.
European countries are well aware of this risk.
In a presentation given by ACER during last week’s informal Energy Council, ministers were told that “China’s COVID-driven demand decline in LNG volumes is currently being absorbed” by the bloc. “This raises questions as to when China’s LNG demand may turn back towards normal growth rates,” it added.
Although Russian shipments have fallen to less than 9 percent of EU demand, some Kremlin gas is still getting through. But “that may not be available at all next year,” said ACER’s Hesseling, adding that if there is no Russian gas and Chinese demand comes roaring back, more radical energy-saving measures would be needed in the EU.
EU leaders will meet later this week to discuss further measures to tackle sky-high energy prices in Europe, including measures for next year such as joint gas purchasing.
According to one senior EU diplomat, “competition from Asia [is] mentioned constantly,” adding that “it’s quite evident” a change in Beijing’s lockdown policy “may raise global demand and raise prices.”
“China is indeed a competitor and that needs to be taken into account whatever we might be doing,” they said.
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Tesla shares could decline dramatically — and that could mean disaster for a number of stocks that have already seen deep share-price cuts, according to equity research firm New Constructs.
The research firm, which uses machine learning and natural language processing to parse corporate filings and model economic earnings, called the stocks in danger “zombie stocks,” and defined them as companies with poor business models that are burning cash at an alarming rate and are at risk of seeing their stock decline to $0 per share.
The research firm estimates there could be some 300 zombie companies across the marketplace.
“The Federal Reserve’s aggressive rate hikes so far in 2022 have ended the era of free money and exposed a worrisome dynamic throughout capital markets: zombie stocks,” wrote New Constructs CEO David Trainer, in a note.
New Constructs does not define Tesla Inc. TSLA, +7.01%
as a “zombie stock,” citing CEO Elon Musk’s ability to raise capital, but does see the electric car manufacturer as a bellwether for the sector. “It shares many of the common characteristics of a zombie stock, such as an outrageous valuation and high cash burn,” wrote Trainer. “We believe Tesla’s unrelenting share price rise over the past three years – where investors completely ignored company fundamentals – inspired the birth of many of today’s zombie stocks.”
The company’s stock was trading around $220 on Monday, an increase of over 1,000% compared to three years ago. But Trainer feels that Tesla is at risk of falling more than 80% to $25 a share.
Tesla’s stock has fallen 37.6% in 2022, outpacing the S&P 500 Index’s SPX, +2.65%
decline of 22.7%.
“Its valuation remains nosebleed high because the cash flow expectations baked into the stock price are unreasonably optimistic,” Trainer wrote. “Our message to investors is to take profits in Tesla and avoid zombie stocks at all costs.”
“Investors are now fed up with these kinds of companies, especially amid this year’s stock market volatility,” wrote New Constructs’ Trainer. “If investors start to give up on Tesla and take profits on the stock, which is up over 1,000% over the past three years, that spells terrible news for all of the other zombie stocks that don’t have the cash-raising luxury that Tesla has.”
Two solar power providers stand to gain as the alternative energy type becomes more in vogue, Susquehanna said. Analyst Biju Perincheril initiated Sunnova Energy and SunPower as positive. The analyst slapped a $38 price target on Sunnova, implying upside of 126.5% from Friday’s close of $16.78 trading price. Priced slightly lower at $16.73, SunPower could gain 49.4% based on its $25 target. “We think the risk/reward in residential solar installation names looks attractive with the recent weakness and IRA tailwinds for the sector,” Perincheril said in a note to clients. Perincheril said the industry has short-term headwinds related to higher costs for equipment and financing, supply chain constraints and utility underconnection. But as those growing pains work themselves out, the market is on track to grow 26% in the second half of the year after adding 36% in the first half. Rising utility costs have helped increase demand for both 2022 and 2023 despite some moderation from a California tax credit step down, Perincheril said. The move toward electric vehicles will in turn help adoption of solar, Perincheril noted, as electricity requirements for car charging are easier to meet with solar. Solar as an industry has been boosted by the Inflation Reduction Act , which provides benefits like tax credits for consumers who make the jump to alternative energy. Solar is becoming increasingly popular as consumers look to long-term savings despite up-front costs. Perincheril noted that despite growing 10-fold in the last decade, just 4% of single-family homes have solar – meaning there’s still a huge market to tap into. “Despite the supply chain headwinds and rising prices, residential solar installations have been quite resilient,” Perincheril said. As the market becomes more penetrated, Perincheril said its likely national brands with infrastructure already in place such as Sunnova and SunPower that stand to see the biggest wins. These larger retailers can also benefit from having end-to-end offerings that span selling, installation and financing, which will further separate them from smaller companies. — CNBC’s Michael Bloom contributed to this report.
(BEP), Cameco agreed to buy Westinghouse Electric, a servicer to nuclear power plants, for $7.88 billion, including debt. Cameco will own 49% of the joint venture once the deal is completed.
Dan Brouillette (left) was President Trump’s energy secretary from 2019-2021. Ernest Moniz served … [+] under President Obama from 2013-2017. The two men shared a stage Oct. 12, 2022 at Columbia University’s Global Energy Summit.
Columbia University | SIPA
Two former U.S. energy secretaries agreed on almost everything at a joint appearance Wednesday, including the opportunity to tell Germany ‘I told you so.’
Trump’s second energy secretary, Dan Brouillette, brought up Germany right off the bat at Columbia University’s Global Energy Summit in New York.
“We felt very strongly that Germany had become too dependent on one source of gas supplier—i.e., Russia. Gazprom,” said Brouillette, who held several lobbying jobs and congressional staff jobs before helming the Energy Dept. from 2019-21.
“We tried to make the point. They disagreed with us, and that was their right to do so. But today I’m watching Germany take some very dramatic steps to broaden out their energy supply, if you will, to diversify their portfolio overall.”
Ernest Moniz, the Nobel-Prize winning physicist who served as President Obama’s second energy secretary from 2013-2017, made sure Brouillette understood that Germany had heard that warning before.
“Along the lines of what Dan said, in fact, the rather stern lectures to our German colleagues about the bad hygiene of their energy security situation predated your administration,” Moniz said.
“I can recall the heavy perspiration of the German ambassador in my office, for example. So this has been a consistent theme across administrations that the German situation just wasn’t healthy, and unfortunately it’s come back to bite them and all of us frankly.”
Germany famously shut down its nuclear reactors after the 2011 Fukushima Disaster and invested heavily in renewables, which helped make solar-photovoltaic the cheapest energy technology for the world. But Germany counted on Russian natural gas as a bridge fuel for the transition. Since Russia invaded Ukraine, Germany and the rest of Europe have seen that supply squeezed, threatened, and sabotaged. Energy prices have soared globally, but particularly in Europe.
According to Moniz, Germany did an excellent job envisioning a clean-energy economy in 2050, but a poor job managing the 30-year transition to arrive there, which—he agreed with Brouillette—will require traditional fuels, such as fossil fuels and nuclear.
Trump’s lobbyist and Obama’s physicist agreed on most things: on the need for a diverse portfolio of energy sources, on the recognition that energy security and environmental security go hand in hand, on the collective responsibility among nations to manage energy security, and on almost everything else:
Brouillette: “We don’t disagree as much as you might think. Ernie was instrumental in creating the export of LNG (liquified natural gas) and creating those policies that allowed us to produce more here in the United States. It created a global market for U.S. natural gas.”
Moniz: “It’s true that we did most of the approval of licenses for export.”
But then Brouillette crossed a bridge too far:
Brouillette: “As we think about transition I don’t think we should think about it as one fuel source completely replacing the other.
“If you think about human nature, if you think about humanity from whatever time period that you want, the transition has never been from one type of fuel to another…. The transition, if you will, has always been from less energy to more energy. That’s been the transition of humankind, that’s where we need to continue to go, and yes within the portfolio sometimes things will change. We’ll use less coal than we did, say, 50 years ago, as part of the portfolio, but it will always be additive. We will always be adding more energy, because that’s what society needs. It’s what economies grow on. It’s what populations are going to demand.”
Moniz: “I’m sorry. I’m going to have to now finally disagree with my colleague. The additive comment has got to be parsed by level of development of economies. So the industrialized world, yeah, we may have some increase in energy use, but not material, the way that you were describing, all the new fuels being additive.
“And in fact, that’s another reason why in the industrialized world we are facing a more difficult challenge in the sense that there’s going to have to be a lot of displacement of incumbent fuels and technologies going forward.”
Tether, the world’s largest stablecoin, has slashed back its commercial paper holdings to zero, replacing them with U.S. Treasury bills instead, according to a blog post. The popular U.S.-dollar-pegged cryptocurrency said the move is part of tether’s “ongoing efforts to increase transparency” and back its tokens with “the most secure reserves in the market” — in the ultimate hope of ensuring investor protection.
“Tether has led the industry in transparency releasing attestations every three months, constantly reviewing the make up of its reserves,” continued the statement.
Commercial paper is a form of short-term, unsecured debt issued by companies, and it is considered to be less reliable than Treasury bills. In October, Tether’s Chief Technology Officer, Paolo Ardoino, tweeted that 58.1% of its assets were in T-bills, up from 43.5% in June. It is unclear where that percentage currently stands, but Ardoino did write in a post on Thursday that Tether was able to pay $7 billion, or 10% of its reserves, in 48 hours.
“Ask your bank or other stablecoins if they can do that, in same time frame of course,” he wrote.
Thursday’s statement went on to note that zeroing out the balance of its commercial paper holdings was also meant to be a step toward “greater transparency and trust, not only for tether but for the entire stablecoin industry.”
The stablecoin corner of the crypto market has certainly had trust issues in the last year.
Last year, tether had to pay a multimillion dollar fine following a legal battle with the New York attorney general’s office over concerns related to the viability of its reserves, and in May, the collapse of terraUSD (UST), which was once one of the most popular stablecoin projects, cost investors tens of billions of dollars.
The fall of UST resulted in a falling domino effect across the wider crypto ecosystem. Part of the fallout involved tether temporarily losing its dollar peg and dipping as low as 95 cents.
But well before UST’s dramatic implosion, Tether — the company behind the stablecoin of the same name — was facing serious regulatory backlash over its reserves.
Most stablecoins are backed by fiat reserves, the idea being that they have enough collateral in case users decide to withdraw their funds. (UST was among a new breed of “algorithmic” stablecoins that attempt to base their dollar peg on code.)
Previously, Tether claimed all its tokens were backed one-to-one by dollars stored in a bank. However, after a settlement with the New York attorney general, the company revealed it relied on a range of other assets, including commercial paper, to support its token.
In April, Ardoino told CNBC that the company was well equipped to deal with mass redemptions, but New York Attorney General Letitia James’ office previously alleged that Tether sometimes held no reserves to back its cryptocurrency’s dollar peg. It said that, from mid-2017, the company had no access to banking and misled clients about liquidity issues.
“Tether’s claims that its virtual currency was fully backed by U.S. dollars at all times was a lie,” she added. Tether said in a statement on its website that contrary to speculation, “after two and half years there was no finding that Tether ever issued tethers without backing, or to manipulate crypto prices.”
While not yet large enough to cause disruption in U.S. money markets, tether could eventually reach a size where its owning of U.S. Treasuries becomes “really scary,” Carol Alexander, a professor of finance at Sussex University, said.
“Suppose you go down the line and, instead of $80 billion, we’ve got $200 billion, and most of that is in liquid U.S. government securities,” she said. “Then a crash in tether would have a substantial impact on U.S. money markets and would just tip the whole world into recession.”
US President Joe Biden being welcomed by Saudi Arabian Crown Prince Mohammed bin Salman at Alsalam Royal Palace in Jeddah, Saudi Arabia on July 15, 2022.
Anadolu Agency | Anadolu Agency | Getty Images
DUBAI, United Arab Emirates — The Biden administration asked Saudi Arabia, the de-facto leader of oil producer group OPEC, to delay its decision on oil output by a month, the kingdom said in a statement.
The Saudis declined, and in early October OPEC+ — which includes non-OPEC oil exporters like Russia — announced its largest supply cut since 2020, to the tune of 2 million barrels per day starting from November. That means tighter supplies and higher prices at a time of already high inflation and worries of a global recession, which angered U.S. lawmakers who are now calling for a “reevaluation” of relations with the Saudi kingdom.
Notably, the White House’s request would have delayed the decision until after the U.S. midterm elections.
In a statement dated Wednesday, the Saudi government defended its move and said all OPEC decisions are based on economic forecasts and needs.
“The Government of the Kingdom clarified through its continuous consultation with the US Administration that all economic analyses indicate that postponing the OPEC+ decision for a month, according to what has been suggested, would have had negative economic consequences,” the statement read.
Responding to the Saudi claims, Pentagon spokesman John Kirby reframed the exchange and accused the kingdom of aiding Russia’s revenues and hampering the impact of Western sanctions on Moscow for its war in Ukraine.
“In recent weeks, the Saudis conveyed to us – privately and publicly – their intention to reduce oil production, which they knew would increase Russian revenues and blunt the effectiveness of sanctions. That is the wrong direction,” Kirby said. “We presented Saudi Arabia with analysis to show that there was no market basis to cut production targets, and that they could easily wait for the next OPEC meeting to see how things developed.”
Kirby said, without giving examples, that other OPEC members opposed Saudi Arabia’s move, and reiterated the Biden administration’s vow to reexamine its relationship with Riyadh.
“Other OPEC nations communicated to us privately that they also disagreed with the Saudi decision, but felt coerced to support Saudi’s direction,” he said. “As the President has said, we are reevaluating our relationship with Saudi Arabia in light of these actions, and will continue to look for signs about where they stand in combatting Russian aggression.”
On Tuesday, President Joe Biden said that there would be “consequences” for Saudi Arabia’s oil production cut, which the kingdom is carrying out in coordination with other OPEC members and non-OPEC allies like Russia. Many in Washington saw this as a snub and a blatant display of siding with Moscow.
U.S. lawmakers have urged the cutting of military sales to Saudi Arabia, America’s top weapons buyer, and are encouraging the passing of anti-trust legislation that would go after OPEC.
Riyadh rejected the accusations of making any politically-motivated moves.
“The Government of the Kingdom of Saudi Arabia would first like to express its total rejection of these statements that are not based on facts, and which are based on portraying the OPEC+ decision out of its purely economic context. This decision was taken unanimously by all member states of the OPEC+ group,” the Saudi government statement said.
“The Kingdom affirms that the outcomes of the OPEC+ meetings are adopted through consensus among member states, and that they are not based on the unilateral decision by a single country. These outcomes are based purely on economic considerations that take into account maintaining balance of supply and demand in the oil markets.”
The developments spotlight the growing tensions in the nearly 80-year-old U.S.-Saudi relationship, as both parties suggest the other is failing to uphold their end of the bargain in a friendship broadly based on the principle of energy for security.
They also highlight how little control Washington has on Saudi and OPEC energy policy.
“The relationship between Saudi Arabia and the US has soured after OPEC+ opted to cut oil quotas – Saudi Arabia is clearly leaning away from the US orbit,” James Swanston, Middle East and North Africa economist at London-based consultancy Capital Economics, said in a client note Thursday.
Still, the Saudi government stressed the continued importance of its relationship with the U.S.
“The Kingdom affirms that it [views] its relationship with the United States of America as a strategic one that serves the common interests of both countries,” it said in its statement.
“The Kingdom also stresses the importance of building on the solid pillars upon which the Saudi-US relationship had stood over the past eight decades. These pillars include mutual respect, enhancing common interests, actively contributing to preserve regional and international peace and security, countering terrorism and extremism, and achieving prosperity for the peoples of the region.”
An oil supply cut from the Organization of the Petroleum Exporting Countries threatens to deepen a global energy crisis by sending oil prices higher at a time of already elevated inflation and weak economic growth, the International Energy Agency said.
Last week’s two million barrel-a-day reduction in the group’s output targets, which incurred sharp criticism from the U.S. and its partners, will tighten the oil market further at a moment of extreme vulnerability with few additional sources of supply available to compensate, the Paris-based agency said Thursday.
The cut’s impact will be to exacerbate a mix of high oil prices and weakening global growth, both of which would undermine longer-term demand for oil, the IEA said, as it slashed its oil-demand forecasts.
“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” the IEA said in its monthly market report.
The IEA cut its oil-demand growth forecasts by 470,000 barrels a day for 2023, to 1.7 million barrels a day. It also lowered its 2022 oil-demand growth forecast by 60,000 barrels a day, to 1.9 million barrels a day. Oil demand growth has steadily fallen throughout the year and is forecast to contract in the fourth quarter by 340,000 barrels a day, the IEA said.
OPEC has said higher oil prices are necessary to spur fresh investments in oil production but the IEA said constraints among oil producers meant additional supplies would be scant. U.S. shale oil producers facing higher costs are withholding investment, while most Western nations are consciously moving away from fossil fuels. OPEC’s own members are struggling with a lack of spare capacity.
The cut has undone a trend of steadily recovering oil supply following the Covid-19 pandemic “with the resulting higher price levels exacerbating market volatility and heightening energy security concerns,” the IEA said.
The IEA’s report characterizes the supply cut as a lose-lose situation for both oil producers and consumers, as buyers of oil suffer from higher prices in the short term, while oil producers stand to see weaker demand as a result.
The cut also comes ahead of an EU embargo on Russian oil and a plan by the Group of Seven wealthy nations to cap oil prices, both of which analysts warn could further undermine global energy supplies.
Russia has said it would cut production and withhold supplies from nations participating in the price cap mechanism. Meanwhile, time was running out for EU states to find alternative sources of energy to compensate for the still-high levels of oil currently imported from Russia, the IEA said.
Russia’s oil exports to the EU fell by 390,000 barrels a day in September, to 2.6 million barrels a day, the IEA said. The EU has just two months until the embargo on Russian crude imports comes into force, but still needs to find an alternative source for 1.3 million barrels a day of Russian oil, it warned.
OPEC has said its production cut is aimed at stabilizing oil markets and countering declining oil-demand growth. On Wednesday, in its own report, the group sharply slashed its forecasts for global economic growth and oil demand.
For 2022, the IEA now expects total oil demand of 99.6 million barrels a day and 101.3 million barrels a day in 2023.
The agency cuts its forecast for global oil supply next year by 1.2 million barrels a day to 100.6 million barrels a day and by 200,000 barrels a day to 99.9 million barrels a day for 2022.
The EU’s energy crisis response is getting bigger, slowly. But so, too, is the threat posed by Russia’s freeze on Europe’s gas supply.
A new package of measures to bring down the price of gas and protect consumers this winter and beyond — including plans to fully leverage the EU’s collective buying power — will be formally proposed by the European Commission next week.
But there remains uncertainty about key aspects of the package — including whether the preferred intervention of many countries, an EU-wide cap on gas prices, will be part of it, and if so, in what form. It could also take until November to get next week’s proposals fully signed off and operational, officials said.
Even as energy ministers deliberated over the measures in Prague on Wednesday, Russia issued new, veiled warnings about the depths of Europe’s vulnerability.
Speaking at an energy conference in Moscow, the head of Gazprom Alexey Miller warned European homes could still freeze this winter even though EU countries have nearly filled their gas storage capacity.
At the same event, Vladimir Putin discussed the sabotage of the Nord Stream pipelines — an act that many Western governments suspect was the work of Russia. Then he added pointedly that the incident had shown how “any critical infrastructure in transport, energy or communication infrastructure is under threat — regardless of what part of the world it is located, by whom it is controlled, laid on the seabed or on land.”
Noting that one of the pipelines is still potentially operational after the attack, Putin insisted Russia was ready to send gas through it to ease Europe’s pain this winter — bringing his overarching strategy of gas blackmail against Europe right up to date.
“The ball, as they say, is on the side of the European Union. If they want it, let them just open the tap,” Putin said. “We are ready to supply additional volumes in the autumn-winter period.”
Putin may still be hoping that when the reality of winter without Russian gas begins to bite, European governments will be more open to such overtures — and more willing to rein in support for Ukraine in exchange for an energy lifeline.
For the EU’s part, Energy Commissioner Kadri Simson was clear that while the bloc faced “difficult times,” countries would withstand the challenges ahead if they “act together, decisively and in solidarity.”
Speaking at the close of an informal summit of EU energy ministers on Wednesday, she added that the next crisis package will also contain a proposal for a new benchmark price for gas and further measures to reduce demand across the bloc.
But while a row over capping the price of gas has dominated the debate in recent weeks, momentum has shifted to the idea of joint purchasing on the international market. It is hoped that through this measure the bloc can avoid the situation seen this year when member states outbid one another for supplies when filling gas storage facilities — driving up the price for all.
European Commissioner for Energy Kadri Simson | John Thys/AFP via Getty Images
In an informal policy paper issued on Wednesday, Germany and the Netherlands set how such a measure could work, by beefing up the existing EU Energy Platform, which was established months ago but then barely used. Efforts to buy gas jointly should be coupled with better EU-wide coordination of gas storage next year, the German and Dutch paper said.
The proposals point to the extent to which the EU is no longer simply planning how to survive this winter without rolling blackouts. It’s now firmly planning for a crisis next winter too.
Executive Director of the International Energy Agency Fatih Birol, who also attended Wednesday’s summit in Prague, warned ministers that “the next winter may well be even more difficult.”
That message was echoed in a sobering briefing from the EU Agency for the Cooperation of Energy Regulators, which outlined how challenging 2023 and potentially 2024 could be for the bloc’s energy supply. Amid an expected surge in demand in Asia for liquefied natural gas (LNG), the EU will face greater competition for limited LNG supplies from sources such as the U.S. and Qatar.
In short, every molecule of gas that remains in European storage after this winter might be vital — and Vladimir Putin knows it.
Victor Jack and America Hernandez provided additional reporting.
US President Joe Biden and Saudi Crown Prince Mohammed bin Salman arrive for the family photo during the Jeddah Security and Development Summit (GCC+3) at a hotel in Saudi Arabia’s Red Sea coastal city of Jeddah on July 16, 2022.
Mandel Ngan | Afp | Getty Images
President Joe Biden is angry at Saudi Arabia for its decision to slash oil production along with its OPEC allies against U.S. wishes, and he’s made no secret of it.
With the global economy on a knife-edge and energy prices high, Washington sees the kingdom’s move – which it made in coordination with Russia and other oil-producing states – as a snub and a blatant display of siding with Moscow.
The oil producer group in early October announced its largest supply cut since 2020, to the tune of 2 million barrels per day from November, which its members say is designed to spur a recovery in crude prices to counter a potential fall in demand.
For this, Biden said in an interview with CNN on Tuesday that there would be “consequences.” He did not go into further detail as to what those consequences might be.
But what are the Biden administration’s options, and could they backfire?
The Saudi-U.S. relationship was founded, broadly speaking, on the principle of energy for security. Washington has since the 1940s provided billions of dollars in military and security aid to Saudi Arabia. But in recent years, and particularly since the Obama administration began making diplomatic inroads with Iran, Riyadh feels the U.S. commitment to its security has waned.
“The truth is, neither side has been holding up their end of the bargain for nearly 10 years now,” Michael Stephens, an associate fellow at the Royal United Services Institute in London, told CNBC.
“And what you’re seeing, I think, are permanent fractures in the relationship that are based on the fact that neither side really sees as much strategic benefit in the other as they did 20 years ago,” Stephens said, adding that Saudi Arabia’s OPEC oil production cut “is a reflection of that.”
The potential “consequences” Washington can put into action include cutting its military support to the Saudi kingdom, and going after OPEC with U.S. laws.
A file photo of cannisters containing Patriot missiles to intercept missiles fired at Saudi Arabia or its neighboring countries.
Greg Mathieson | Mai | The LIFE Images Collection | Getty Images
Indeed, just one day before Biden’s comments, Sen. Bob Menendez, D-N.J., chairman of the Senate Foreign Relations Committee, demanded that the U.S. immediately halt all cooperation with Saudi Arabia — including weapons sales.
“The United States must immediately freeze all aspects of our cooperation with Saudi Arabia, including any arms sales and security cooperation beyond what is absolutely necessary to defend U.S. personnel and interests,” Menendez said in a statement.
In an earlier interview with CNBC, Sen. Chris Murphy, D-Conn., asked, “What’s the point of looking the other way when the Saudis chop up journalists and repress political speech inside Saudi Arabia if when the chips are down, the Saudis effectively choose the Russians over the U.S.?”
Even Sen. Bernie Sanders, I-Vt., weighed in, demanding in a tweet that: “If Saudi Arabia, one of the worst violators of human rights in the world, wants to partner with Russia to jack up US gas prices, it can get Putin to defend its monarchy. We must pull all US troops out of Saudi Arabia, stop selling them weapons & end its price-fixing oil cartel.”
Beyond withholding military aid, there are legal channels the U.S. government can pursue.
One is the NOPEC bill, which stands for No Oil Producing and Exporting Cartels. This would classify OPEC as a cartel and subject its members to antitrust legislation.
Something long discussed by lawmakers, the bill is designed to protect U.S. consumers and businesses from artificial oil spikes.
It passed a Senate committee in early May and hasn’t yet been signed into law, but could expose OPEC countries and partners to lawsuits for coordinating supply cuts that raise global crude prices.
The bill would still need to be passed by the full Senate and House and signed into law by the president to go into effect. OPEC ministers have previously criticized the NOPEC bill, warning it would bring greater chaos to energy markets.
The decision by OPEC+ – which constitutes OPEC and its non-OPEC allies like Russia – to cut its output “underscores the extent to which the Biden administration has lost its ability to influence Saudi OPEC+ policy,” said Torbjorn Soltvedt, principal MENA analyst at risk intelligence firm Verisk Maplecroft.
“The White House has few good options despite Biden’s warning of ‘consequences’ after the cut,” he said, noting U.S. lawmakers’ threats of antitrust legislation and removal of U.S. military assets from Saudi Arabia.
While both courses of action would send a clear message, they could backfire for both the U.S. and for crude prices.
“Both of these options would threaten to break already fraught relations, which in turn would put even greater upward pressure on oil and fuel prices,” Soltvedt said.
“In short, a breakdown in U.S.-Saudi relations would mean a higher Middle East risk premium for the global oil market and higher oil and fuel prices,” he said. “This is the opposite of what the White House is trying to achieve ahead of midterm elections in November.”
It’s also key to note that the 2 million barrel per day cut will not in fact be as big as that headline figure; several member states have already been far short of their individual production ceilings, and Iraq for instance has indicated it will be producing more than its assigned quota.
Still, many American politicians have long been out of patience with the nature of the U.S.-Saudi relationship, especially as U.S. imports of Saudi oil have shrunk over the years and more than 80% of the Middle East’s crude exports now go to Asia.
This, Soltvedt said, has made a growing number of U.S. lawmakers “question why the American Navy should underwrite the security of Middle Eastern oil exports when those barrels are increasingly going East rather than West.”
The administration of President Gabriel Boric, a self-described environmentalist, is facing a growing rift between scientists, social leaders and energy companies that have differences with regard to the production of green hydrogen in Magallanes. The first wind turbines have already been installed in the Magallanes region, in the far south of Chile, such as these in Laredo Bay, east of Cabo Negro, where companies are pushing green hydrogen projects in a scenario where environmental costs are beginning to take center stage. CREDIT: Courtesy of Erika Mutschke
by Orlando Milesi (santiago)
Inter Press Service
SANTIAGO, Oct 12 (IPS) – In Magallanes, Chile’s southernmost region, doubts and questions are being raised about the environmental impact of turning this area into the world’s leading producer of green hydrogen.
The projects require thousands of wind turbines, several desalination plants, new ports, docks, roads and hundreds of technicians and workers, with major social, cultural, economic and even visual impacts.
This long narrow South American country of 19.5 million people sandwiched between the Andes Mountains and the Pacific Ocean has enormous solar and wind energy potential in its Atacama Desert and southern pampas grasslands. This has led to a steady increase in electricity generation from clean and renewable sources.
In 2013, only six percent of the country’s total electricity generation came from non-conventional renewable sources (NCREs) – a proportion that climbed to 32 percent this year. Installed NCRE capacity in September reached 13,405 MW, representing 40.7 percent of the total. Of the NCREs, solar energy represents 23.5 percent and wind power 12.6 percent.
In Chile, NCREs are defined as wind, small hydropower plants )up to 20 MW), biomass, biogas, geothermal, solar and ocean energy.
According to the authorities, the wind potential of Magallanes could meet 13 percent of the world’s demand for green hydrogen, with a potential of 126 GW.
Green hydrogen is generated by low-emission renewable energies in the electrolysis of water (H2O) by breaking down the molecules into oxygen (O2) and hydrogen (H2). It currently accounts for less than one percent of the world’s energy.
However, it is projected as the energy source with the most promising future to advance towards the decarbonization of the economy and the replacement of hydrocarbons, due to its potential in electricity-intensive industries, such as steel and cement, or in air and maritime transportation.
The National Green Hydrogen Strategy, launched in November 2021 by the second government of then right-wing President Sebastián Piñera (2018-2022), seeks to increase carbon neutrality, decrease Chile’s dependence on oil and turn this country into an energy exporter.
The government of his successor, leftist President Gabriel Boric, in office since March, created an Interministerial Council of the Green Hydrogen Industry Development Committee, with the participation of eight cabinet ministers.
A spokesperson from the Ministry of Energy told IPS that “this committee has agreed to bring forward, from 2025 to 2022, the update of the National Green Hydrogen Strategy and the new schedule for the allocation of state-owned land for these projects.”
“We will promote green hydrogen in a cross-cutting manner, with an emphasis on harmonious, fair and balanced local development. By bringing forward the update of the strategy, we seek to generate certainty for investors and to begin to create the necessary regulatory framework for the growth of this industry in our country,” he said.
In the area known as Cabo Negro, in the Chilean region of Magallanes, several companies have installed wind turbines to generate wind energy. The installation of thousands of turbines will affect the landscape of Magallanes and environmentalists believe it will impact many birds that migrate annually to this southern region. CREDIT: Courtesy of Erika Mutschke
Warnings from environmentalists
In a letter to the president, more than 80 environmentalists warned of the risk of turning “Magallanes y La Antarctica Chilena” – the region’s official name – into an environmental sacrifice zone for the development of green hydrogen.
“The energy transition cannot mean the sacrifice of migratory routes of birds that are in danger of extinction, otherwise it would not be a fair or sustainable transition,” said the letter, which has not yet received a formal response.
Environmentalists argue that the impact is not restricted to birds, but also affects whales that breed there, due to the effects of desalination plants, large ports and harbors.
Carmen Espoz, dean of science at the Santo Tomás University, who signed the letter, told IPS that “the main warning that we have tried to raise with the government, and with some of the companies with which we have spoken, is that there is a need for zoning or land-use planning, which does not exist to date, and for independent, quality baseline information for decision-making” on the issue.
Espoz, who also heads the Bahía Lomas Center in Magallanes, based in Punta Arenas, the regional capital, clarified that they are not opposed to the production of green hydrogen but demand that it be done right.
It is urgently necessary, she said in an interview in Santiago, to “stop making decisions at the central level without consultation or real participation of the local communities and to generate the necessary technical information base.”
The signatories asked Boric to create a Regional Land Use Plan with Strategic Environmental Assessment to avoid unregulated development of projects.
“We are not only talking about birds, but also about profound social, cultural and environmental impacts,” said Espoz, who argued that the model promoted by the government and green hydrogen developers “does not have a social license to implement it.”
Sunset at Laredo Bay in the Magallanes region where the Chilean government will have to decide on what changes in the grasslands are acceptable, in the face of a flood of requests to use the area for largescale green hydrogen projects. CREDIT: Courtesy of Erika Mutschke
The bird question
Prior to this letter to Boric, the international scientific journal Science published a study by Chilean scientists warning about potential impacts of wind turbines on the 40 to 60 species of migratory birds that visit Magallanes.
“It is estimated that the installation of wind turbines along the migratory paths of birds could affect migratory shorebird populations, which is especially critical in the cases of the Red Knot (Calidris canutus rufa) and the Magellanic Plover (Pluvianellus socialis),” said Espoz.
Both species, she said, “are endangered, as is the Ruddy-headed Goose (Chloephaga rubidiceps).”
She added that if 13 percent of the world’s green hydrogen is to be generated in southern Chile, some 2,900 wind turbines will have to be installed by 2027, “which could cause between 1,740 and 5,220 collisions with bird per year.”
Jorge Gibbons, a marine biologist at the University of Magallanes, based in Punta Arenas, said the big problem is that Magallanes does not have a baseline for environmental issues.
“The scale of production creates uncertainties, heightened because there is no baseline. The question is whether Chile currently has the capacity to carry out large-scale green hydrogen projects,” he told IPS from the capital of Magallanes.
Gibbons believes it would take about two years to update the data on the dolphin and Southern Right Whale (Eubalaena australis) populations
“The greatest risks to dolphins will be seen in the Strait of Magellan. I am talking about Commerson’s Dolphins (Cephalorhynchus commersonii), which are only found there in Chile and whose population is relatively small,” he said.
He proposed studying the route to ports and harbors of these species and to analyze how they breed and feed.
“The issue is how noise disturbs them or interrupts their routes. These questions are still unanswered, but we know some things because it is the best censused species in Chile,” he explained.
According to Gibbons, the letter to Boric is timely and will help reduce uncertainty because “the process is just beginning and the scientific and local community are now wondering if the plan will be well done.”
Conflict of interests
The partnership between HIF Chile and Enel Green Power Chile withdrew from the Environmental Evaluation System the study of the Faro del Sur Wind Farm project, involving an investment of 500 million dollars for the installation of 65 three-blade wind turbines on 3,791 hectares of land in Magallanes.
The study was presented in early August with the announcement that it was “a decisive step for the future of green hydrogen-based eFuels.”
But on Oct. 6, its withdrawal was announced after a series of observations were issued by the Magallanes regional Secretariat of the Environment.
“The observations of some public bodies in the evaluation process of this wind farm exceed the usual standards,” the consortium formed by the Chilean company HIF and the subsidiary of the Italian transnational Enel claimed in a statement.
The companies argued that “the authorities must provide clear guidelines to the companies on the expectations for regional development, safeguarding the communities and the environment.
“In light of these exceptional requirements, it is necessary to understand which requirements can be incorporated and which definitely make projects of this type unfeasible in the region,” they complained.
The government reacted by stating that it is important to remember that Faro del Sur is the first green hydrogen project submitted to the environmental assessment process in Magallanes.
“During the process, some evaluating entities made observations on the project, so the owners decided to withdraw it early, which does not prevent them from reintroducing it when they deem it convenient,” the Ministry of Energy spokesperson told IPS.
He added that the ministry stresses “the conviction to develop the green hydrogen industry in the country and that this means sending out signals, but in no case should this compromise environmental standards and citizen participation in the evaluation processes.”
TOKYO (AP) — Asian shares were mostly lower on Wednesday following another volatile day on Wall Street, as traders braced for updates on inflation and corporate earnings.
South Korea’s Kospi 180721, +0.34%
lost 0.1% to 2,189.86 after the Bank of Korea raised its key rate by 0.5 percentage point, amid the backdrop of Fed rate hikes in the U.S. and growing inflation risks from the weak won and rebounding global oil prices.
In currency trading the Japanese yen declined to a 24-year low against the U.S. dollar JPYUSD, -0.24
at 146 yen-levels, raising expectations of another intervention by Tokyo to prop up the yen. By midday the dollar USDJPY, +0.24%
was at 146.17 yen, up from 145.80 late Tuesday. The euro EURUSD, +0.12%
cost 96.96 cents, inching down from 97.07 yen.
The weaker yen raises costs for both consumers and businesses who rely on imports of food, fuel and other needs, but the bigger purchasing power for foreign currencies is expected to boost tourism. Japan reopened fully to individual tourist travel this week after being closed for more than two years because of the pandemic.
Japan’s benchmark Nikkei 225 lost 0.2% to 26,348.73 in morning trading. Australia’s S&P/ASX 200 ASX10000, -1.54%
gained nearly 0.2% to 6,656.00. Hong Kong’s Hang Seng slipped 2% to 16,491.39, while the Shanghai Composite shed 1.2% to 2,943.24.
On Tuesday, the S&P 500 SPX, -0.65%
fell 0.7%, marking its fifth straight loss, closing at 3,588.84. The Nasdaq COMP, -1.10%
dropped 1.1% to 10,426.19. The Dow Jones Industrial Average DJIA, +0.12%
added 0.1% to 29,239.19, while the Russell 2000 index RUT, +0.06%
rose 1 point, or about 0.1%, to 1,692.92.
Recession fears have been weighing heavily on markets as stubbornly hot inflation burns businesses and consumers. Economic growth has been slowing as consumers temper spending and the Federal Reserve and other central banks raise interest rates.
The International Monetary Fund on Tuesday cut its forecast for global economic growth in 2023 to 2.7%, down from the 2.9% it had estimated in July. The cut comes as Europe faces a particularly high risk of a recession with energy costs soaring amid Russia’s invasion of Ukraine.
Wall Street is closely watching the Federal Reserve as it continues to aggressively raise its benchmark interest rate to make borrowing more expensive and slow economic growth. The goal is to cool inflation, but the strategy carries the risk of slowing the economy too much and pushing it into a recession.
“The market desperately wants a reason for the Fed to be able to stop tightening and the data recently hasn’t given them that opening with respect to inflation,” said Willie Delwiche, investment strategist at All Star Charts.
Computer-chip manufacturers continued slipping in the wake of the U.S. government’s decision to tighten export controls on semiconductors and chip manufacturing equipment to China. Qualcomm QCOM, -3.99%
fell 4%.
Investors still expect the Fed to raise its overnight rate by three-quarters of a percentage point next month, the fourth such increase. That’s triple the usual amount, and would bring the rate up to a range of 3.75% to 4%. It started the year at virtually zero.
The government will also release its report on wholesale prices Wednesday, providing an update on how inflation is hitting businesses. The closely watched report on consumer prices will be released on Thursday, and a report on retail sales is due Friday.
“Everyone is still hoping that every inflation report will be the one that shows that pressure is alleviating,” Delwiche said.
Wall Street is also gearing up for the start of the latest corporate earnings reporting season, which could provide a clearer picture of inflation’s impact.
Among the companies reporting quarterly results this week: PepsiCo PEP, +0.48%,
Delta Air Lines DAL, -1.97%
and Domino’s Pizza DPZ, -1.99%.
Banks including Citigroup C, -2.76%
and JPMorgan Chase JPM, -2.89%
will also report results.
In energy trading, benchmark U.S. crude CL00, -0.75%
lost 82 cents to $88.53 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude-oil prices fell 2% Tuesday. Brent crude BRN00, -0.56%,
the international pricing standard, fell 62 cents to $93.67 a barrel.
