Operationally, pulling oil out of tanks when levels fall below the so-called “suction line” is difficult and expensive, and the quality of crude can be compromised by the presence of water and sediment. 

For now, traders are expecting stockpiles to halt their decline by October and possibly start building up again, depending on how exports shape up. Indeed, this week’s drawdown was less than 1 million barrels — the first time that’s happened since early August.

Cushing’s role in global oil markets has also diminished in recent years since the US lifted an export ban. Most barrels now flow straight from the prolific oilfields in Texas’ Permian Basin to the coast, where they are shipped to overseas buyers.

Shale oil producers are complaining about rising costs, the burden of regulatory compliance and supply chain disruptions. The net result is they are in no mood to invest heavily in new supply when there is such an uncertain regulatory cloud hanging over their businesses. That’s inhibiting the non-OPEC+ supply response to higher prices. The Strategic Oil Reserve cannot be emptied twice, so that is an additional factor supporting prices.

Honeywell (Nasdaq: HON) today announced a strategic collaboration with ESS Tech, Inc. (ESS) (NYSE: GWH) to advance technology development and market adoption of iron flow battery (IFB) energy storage systems. Honeywell has made an investment in ESS as part of this collaboration.

The relationship builds upon each company’s development of energy storage systems, and brings together ESS’ market-leading, patented IFB design with Honeywell’s advanced materials and energy systems expertise.

“The demand for long-duration energy storage represents a compelling market opportunity within the energy transition and the combination of Honeywell and ESS technology can accelerate decarbonization for the commercial, industrial and utility sectors,” said Bryan Glover, chief growth officer, Honeywell Performance Materials and Technology (PMT) group. “Our strategic collaboration with ESS will accelerate Honeywell’s ability to bring comprehensive solutions to our customers while working to advance long-duration energy storage across all industries requiring expansive energy storage.”

“Today, we are creating superior technology in the critical long-duration energy storage industry,” said Eric Dresselhuys, CEO of ESS. “Combining ESS’ innovative technology and deployment experience with Honeywell’s storage and control system expertise will enable us to drive the clean energy transition and deliver value to our customers, shareholders and communities.”

Iron flow batteries are not designed to be moved. ESS’s models fit into shipping containers and are filled with water. They are designed to provide back-up power for approximately 6 hours but potentially double that. With long duration and 20,000 cycles these are long-term designs that can plug into existing infrastructure

Russia’s decision to ban exports of all types of diesel is adding to pressure in an already tight global market. The lifting of the ban, which came into force on Sept. 21, will depend on how quickly supplies are replenished in the domestic market, according to First Deputy Prime Minister Pavel Sorokin.

One thing most people are not aware of is gasoil is the same as diesel in the futures markets. Additional heating oil is diesel with anti-clogging agent so it doesn’t freeze in cold weather.

Insecurity of supply from Russia has already been priced into the market with the result that European countries are importing more diesel from both the USA and Middle East.

Lucid's liquidity clock was wound until late 2024 with its $3 billion stock sale in June, yet further large injections, perhaps as soon as late 2024, could help stem the cash burn while the company scales operations. Stiff competition in the luxury-end of the auto industry from peers like Mercedes, Tesla, Audi and BMW, and the potential for an economic downturn, add substantial risk to Lucid's journey toward profitability. A takeover by the Kingdom of Saudi Arabia (60% stake in Lucid via the Public Investment Fund) is possible, yet the timing is questionable relative to the company's convertible bonds' 2026 maturity. The potential of such an action makes our view of event risk favorable -- and a consideration given the country's Vision 2030 plan - but it does make the bonds more of a lottery ticket than well-defined credit.

Building an automotive brand is capital intensive. Tesla got first mover advantage by being the first to provide electric vehicles consumers desired and monopolized the carbon emission sales market for several years. Every subsequent company must be even more efficient and needs to produce even better products. The challenge of funding in a rising interest rate environment is a clear problem. Having a big brother to help with liquidity is certainly a bonus.

Sunak said in a speech on Wednesday in London that he would push back by five years to 2035 a plan to bar the sale of new petrol and diesel cars, casting the decision as an effort to protect families struggling with bills. The vast majority of vehicles sold in the UK would likely be electric by 2030 without government intervention, he said.

“At least for now it should be you, the consumer, who makes that choice, not the government forcing you to do it,” Sunak said in Downing Street. 

While Sunak insisted he was still committed to reaching net zero by 2050 and not watering down any targets, he said the UK must act in a “more proportionate way.” He affirmed his belief that climate change was “real and happening,” but said that the debate over the issue had been “charged with far too much emotion and not enough clarity.” 

Is common sense breaking out in the UK, or is this policy reversal a calculated play for the electorate’s unspoken middle ground? Perhaps it is both. The harsh reality for consumers is the efforts to achieve zero emissions are more expensive and wages are not rising quick enough to compensate the majority.

The ADVANCE Act would:

Facilitate American Nuclear Leadership by:
Empowering the Nuclear Regulatory Commission (NRC) to lead in international forums to develop regulations for advanced nuclear reactors.
Establishing a joint Commerce Department and Energy Department initiative to facilitate outreach to nations that are seeking to develop advanced nuclear energy programs.

 Develop and Deploy New Nuclear Technologies by:

Reducing regulatory costs for companies seeking to license advanced nuclear reactor technologies.
Creating a prize to incentivize the successful deployment of next-generation nuclear reactor technologies.
Requiring the NRC to develop a pathway to enable the timely licensing of nuclear facilities at brownfield sites.

 Preserve Existing Nuclear Energy by:

Modernizing outdated rules that restrict international investment.
Extending a long-established, indemnification policy necessary to enable the continued operation of today’s reactors and give certainty for capital investments in building new reactors.

 Strengthen America’s Nuclear Fuel Cycle and Supply Chain Infrastructure by:

Directing the NRC to establish an initiative to enhance preparedness to qualify and license advanced nuclear fuels.
The bill identifies modern manufacturing techniques to build nuclear reactors better, faster, cheaper, and smarter. 

The primary objection to nuclear energy is cost. Anything that reduces the capital intensity of the construction process is good news. That’s why the streamlining of the regulatory process is so important.

The environmental and safety argument is easily addressed through multiple studies that highlight how safe nuclear power plants are. The challenge is most existing reactors were designed with nuclear bombs in mind. The risk of proliferation twinned with safety scare mongering has been enough to sour the sector in the minds of consumers.  

“It’s a risk-reward decision, because if something bad happens at 18,000 feet, that’s an expensive mistake,” Kaes Van’t Hof, president of Diamondback, said on a call with analysts. The company has even gone sideways deep under the home of company chief Travis Stice. So far, he said, the results of the longer laterals have been positive. “The drilling guys can do it, there’s no doubt about that.”

Pioneer, the largest independent producer in the Permian, has an inventory of more than 1,000 future wells that run at least 15,000 feet horizontally — or about 2.8 miles — and some even exceed 18,000 feet. That’s about 3.4 miles, or the length of 50 football fields. The longer horizontal wells generate more oil, cost less per lateral foot and require fewer vertical holes and fracking workers, Pioneer’s president and incoming chief executive officer, Rich Dealy, said on an August conference call.

Servicers, the hired hands of the oil patch, are for the most part eager to take on these kinds of risky, big-ticket jobs. An average 2-mile lateral well costs $6.5 million, all in, compared to around $9 million for a 3-mile lateral well, according to data from Bernstein. Pioneer and Diamondback didn’t say whether they’ve had any problems when they extend the laterals or how much they’ve spent, though Dealy said on the call that the roughly 3-mile laterals result in capital savings of about 15% per foot. Longer horizontals are particularly popular in the Marcellus Shale of the US Northeast as well as the Midland Basin of the Permian in Texas.

Unconventional wells are more capital intensive. The surge of capital chasing returns in a zero rate environment fuelled the initial surge in the early 2010s. Today capital decisions are more disciplined. They rely on higher expected prices and returns and less on acreage because access to capital has been constrained. The success of the anti-carbon movement and higher rates have led that transition.

"Growing interest in nuclear energy is being seen around the world," said Freebairn, noting this his company has been highlighting events in Eastern Europe and North America.

For now, nuclear power provides around 10% of the world's electricity, according to the International Energy Agency.

It comes from roughly 440 reactors in 31 countries with about 390 gigawatt electrical (GWe) capacity, according to UxC's Hinze. If total power demand grows by 2% to 3% as agencies like the IEA predicts over the next 10 to 20 years, and nuclear power keeps it share of the total in the 8% to 10% range, then Hinze expects nuclear power should reach at least 500 GWe by 2040 and as high as 550 GWe.

That would represent a roughly 40% growth over the current market size, he said.

There are potential downside risks to nuclear power growth, including competition from fossil fuels and renewables, but since nuclear power is "already not a huge share of the market, it would make sense that its growth can continue regardless of how the other energy fuels fare," Hinze said.

The uranium price war is over. Kazakhstan flooded the market with supply between 2011 and 2016. That forced several smaller miners out of business. Even Cameco closed mines and supplied long-term contracts by buying spot on the open market. The introduction of the Sprott Uranium ETF helped to soak up available supply and was instrumental in setting up the conditions for the current recovery.

Oil rallied to a 10-month high as production cuts by leaders of the OPEC+ cartel strain global supplies, a setup that’s projected to create the tightest crude market in a decade in the months ahead.

Global benchmark Brent climbed above $91 a barrel, and West Texas Intermediate topped $89, both fresh highs for the year. The gains are already showing signs of filtering into fuel markets, with US gasoline prices at the highest seasonal levels in a decade and diesel — the global economy’s workhorse fuel — pushing past $1,000 a ton in Europe.

Oil markets may experience a shortfall of 3.3 million barrels a day in the fourth quarter, the most constrained market in more than a decade, according to a report Tuesday from the Organization of Petroleum Exporting Countries. The US Energy Information Administration will publish its monthly market report later Tuesday, with the International Energy Agency’s outlook due Wednesday.

Bull markets in commodities can occur for several reasons. Those that last for more than a year or two are the result of a jump in demand and an inability to sufficiently increase supply to cater to it.

At present, OPEC is intentionally restricting supply with the intention of supporting prices. It is working.  Non-OPEC supply is not increasing quickly despite high prices.

Lithium Americas shares rise more than 6%, one of the leading gains on the S&P/TSX Composite index, after research and media reports suggest that the company’s Thacker Pass project is located on a US lithium deposit that could be among the largest in the world.

Lithium reserves in the McDermitt Caldera, located along the Nevada-Oregon border, could contain between 20 and 40 million metric tons of the metal, according to findings from Lithium Americas volcanologists and geologists in an Aug. 31 research report.

Lithium Americas has been in discussions with the US government about sourcing federal funding to build its Thacker Pass mine. In service to the goal they are in the process of splitting up. The North American company will contain the Thacker Pass mine, while the existing production in Argentina will be renamed Lithium International. The US government is insisting on no foreign interest in the resource base before they are willing to supply funds. 

Orsted’s warnings are the most concrete example yet of the limits of the IRA, which was hailed as a key driver for America’s nascent offshore wind industry. While the law provides at least $370 billion in grants, tax credits and other incentives for climate and clean energy projects, that’s proving no match for rising inflation and borrowing costs. And by dangling higher incentives for companies sourcing US-made parts, it’s fueling demand before the domestic supply chain catches up, driving prices higher still.

“The irony here is that the Inflation Reduction Act probably has had some part in stoking inflation for some of the green goods that it intends to encourage,” said Kevin Book, managing director at ClearView Energy Partners LLC. The IRA is already spurring construction of new US factories to manufacture critical clean-energy gear, but that’s lagging behind renewable project development, exacerbating the issue in the short term. “It takes a long time to stand up a factory. It takes a long time to replace a foreign-sourced supply chain.”

This is a great example of how governments getting involved in the free market often introduce inefficiencies that drive up prices for everyone. Energy infrastructure is capital intensive. That’s an acceptable risk when companies have a clear vision of what works and have a captive demand pool of consumers.

The challenge for new energy companies is they come with an implied risk premium. The technology is unproven, longevity is questionable, and the competitiveness of supply is subject to political whim. That implies an interest rate sensitivity that is underappreciated by most investors.

Low stockpiles are driving an “incredibly strong” diesel structure, signaling market tightness, said Ben Luckock, co-head of oil trading at Trafigura Group.

It’s becoming more expensive to fund normal refining projects, Alex Grant, senior vice president for crude, products, and liquids at Equinor SA, said in an interview. Existing refineries will operate at the highest rates they can, with refining margins staying high, he said.

The refining system is “crying out” for fresh investment with oil demand still growing, especially in Asia, said Sri Paravaikkarasu, director of market analysis at Phillips 66. Refiners need to cater to it, while also accounting for the green energy transition, she added.

It is almost impossible to raise funding for new refineries. These are long-life assets that depend on secure order flow to justify the enormous capital expense of construction. Since investors are often precluded from investing in emerging infrastructure that cuts off a potential source of capital. The additional concern is oil demand has peaked in China so why take the risk of building additional supply capacity.

So China's largest oil company Sinopec is already seeing a drop in demand, from which it doesn't expect to recover. Previous predictions placed peak demand somewhere in 2025, but at a conference in Zhengzhou in August, Bloomberg reported that one Zhou Yan, from Sinopec’s retail sales division, said EVs were already displacing some 15 million tons of Chinese oil product sales in 2023, and that the company is forecasting that 2024 and subsequent years will see declining demand.

According to the International Energy Agency, Chinese demand accounted for more than 70% of global oil market growth in 2023, so while global oil product sales are at record highs of around 102.2 million barrels per day in 2023 (up around 2.2 million barrels per day over figures from 2022), and gasoline for passenger cars is only a percentage of total oil product demand, it'll be interesting to see how China's rapid EV uptake affects predictions for global peak oil demand.

The IEA released its forecast in June, estimating that peak global oil use for transport will arrive around 2026, but strong demand from the petrochemical and aviation sectors would continue to support overall market growth, albeit at slower rates, at least as far out as 2028.

Saudi Arabia and Russia remain eager to extend their supply cuts for good reason. They both need high prices to supplement their budgets. They also face the uncertain prospect of demand growth tapering to a standstill in some of their largest export markets, sooner than expected.

That also helps to explain why Saudi Arabia is exploring the sale of an additional $50 billion stake in Saudi Aramco. They would sell at a high price when demand is still strong rather than wait and risk battery technology makes a major leap forward at some point in the next decade.

The initial promise of peaking Indonesia’s power sector emissions by 2030 at no more than 290 million tons of carbon dioxide, about 20% below a baseline level for the year, looks out of the question. An alternate scenario laid out in the draft plan would raise the target maximum to 395 MT of CO2, to account for the construction of new captive plants to serve growing industrial power needs.

Officials have said they are aiming to have a revised—perhaps final—investment plan before COP28 begins in Dubai at the end of November, taking on public feedback. But to do that, they will need to come to agreement on at least three major, interrelated issues: the money, the emissions target and the mechanics of the coal phaseout, including changes to Indonesian laws and policies that hold back wider green progress.

And

But there may not yet be enough in either bucket. There is just $289 million in grants, with half earmarked for technical assistance—funding for experts, consultants and advisors to model and support the energy transition. Almost all of the rest is loans, at interest rates to be determined later.

Talk is cheap. This is not the first time we have seen photo ops for politicians, and headline- grabbing promises of large capital infusions, only for reality to intercede a couple of years later. There is no getting around the fact that coal is cheap, available, and easy. Every other alternative is either more expensive, intermittent, or imported.

Developing countries have no time for handwringing. They have large young populations demanding improved living standards now. Moreover, European, and North American consumers are in no mood to write cheques, when their own living standards are declining and public services are under pressure.

A deal would cement the stunning rise of the Australian lithium sector, where the share prices of newly founded and previously little-known companies have soared more than 10-fold amid surging demand for the metal. The race for lithium has mining heavyweights, battery manufacturers and automakers from Rio Tinto Plc to Tesla Inc. chasing deals with firms with even early stage or pre-production projects.

Liontown, based in Perth, owns one of the most promising early-stage lithium projects in Australia, the world’s top exporter of the metal. It has supply agreements with major automakers including Tesla and Ford Motor Co.

US-based Albemarle, which already owns stakes in lithium mines in Australia and has a processing plant there, offered to acquire all of Liontown’s equity at A$3 a share. That follows a bid of A$2.50 in March.

Mercedes Benz threw down the gauntlet today by announcing it is willing to compete on range with Tesla. It’s 450-mile quick charging model is expected to be on sale by early 2025. That story represents the promise of the lithium sector. Most automakers expect to release large numbers of new EV models over the next several years. That’s a demand driver for lithium.

The challenge for the lithium sector is there has been a significant mismatch between supply and demand over the last decade. The first wave of new vehicles surprised miners. The surge of new supply outstripped demand for EVs. Then the surge of demand during the pandemic surprised miners. Now, China’s slow recovery has resulted in demand undershooting expectations. The result has been incredible volatility in lithium prices.

Summers also reiterated his concern about the widening US fiscal deficit, and the need for Washington to wrestle with raising the government’s revenue over time. One reason why the economy has been so strong in the face of high interest rates has been a fiscal swing of “perhaps 3%” of gross domestic product this year compared with 2022, he said.

Shutdown Warning

“It would be helpful if we could get to more realistic views about the fact that we’re going to need more revenues,” he said. He also warned lawmakers against failing to enact annual appropriations bills that are needed to keep the federal government funded after the start of the new fiscal year on Oct. 1.

A shutdown caused by an impasse over spending bills “doesn’t save any money, and further serves to disillusion people with Washington,” he said.

The hiring and wage figures were encouraging today while inflation figures remained elevated in the Wednesday report. That gives the superficial impression that inflation will been overcome as hiring moderates. This is where the backward nature of economic figures and the forward looking nature of markets comes into conflict.

Russia has agreed with its OPEC+ partners on further cuts to its crude exports, Deputy Prime Minister Alexander Novak told President Vladimir Putin.

“We have agreed, but we’ll announce main parameters next week,” Novak said at a televised government meeting with Putin.  

Russia has pledged to curb its crude exports by 500,000 barrels a day in August, then taper the curbs to 300,000 barrels a day next month. On Wednesday, Novak said that Russia was discussing extending the September export reduction into October, according to media reports.

OPEC+ have announced production cuts close to the first of the month for each of the last three months and there does not appear to be an end in sight. Most OPEC+ members cannot afford prices to fall much below $75. That suggests they will continue to do what is necessary to ensure prices remain above that price point.

The source mentions that the launch is "imminent" and only a few weeks away which jibes with Elon Musk's "end of Q3" Cybertruck release date promise back in April. There are a few other signs that point towards a Cybertruck launch in September, too.

For one, Tesla has been filmed loading multiple units on trailers and shipping them out of Giga Texas just this past week alone, as the parking lot there seemingly gets new production batches every few days. They seem heading to the Fremont factory while some stop for crash tests on the way.

Moreover, Tesla has reportedly been filming what could turn out to be the first Cybertruck launch ad up in the glaciers of Iceland. Locals have taped the Cybertruck surrounded by camera equipment there, or doing laps on the glacier fronted by a black Land Rover with its tailgate open as if for capturing footage.

It is quite likely the Cybertruck units being loaded onto trailers are for crash tests. That suggests the final design is confirmed and Tesla is ready to begin ramping up production. There is clear potential the Cybertruck has cannibalized some demand for Tesla’s other models, as well as successfully attracting new adherents to the brand. If that assumption is correct, sales should surprise on the upside in the coming quarters.

Strike action in Australia’s LNG sector could begin as early as Sept. 2 if new talks between Woodside Energy Group Ltd. and union officials on pay and conditions fail to resolve disputes. Ballots are also taking place on potential walkouts by workers at Chevron Corp. facilities.

Any outages would threaten about 10% of global supply and a local export sector that generated an estimated A$92 billion ($59 billion) in earnings in the year to June 30.

European storage is 90% full. Australian strike action is not going to spark a repeat of the price-insensitive buying seen last year. Eventually LNG workers will be placated and gas will flow in plenty of time for the Northern hemisphere winter. 

I am a pre-subscriber, but I was a little underwhelmed by the portion of today's first item, from David Brown, that I have access to.

He doesn't say who the "real expert" that he quotes on the new energy system is.    A nuclear power station is a controlled version of a nuclear bomb, thus the enormous amount of energy available. I fully concede that today's power stations are completely safe in their operation. But of course, there is the question of safe disposal of the waste, which the extract doesn't address;  and also the security required for that waste, to prevent it getting into rogue hands.

It is irritating to have statistics such as coal being 4000×, gas 100× and hydro 30× more dangerous than nuclear, without any detail as to how these figures are calculated (although that detail would require a lot more space).

Just because someone writes in such a haughty fashion doesn't necessarily make him an expert.   Top scientists usually write with courtesy, and with a degree of humility, acknowledging that they could still be wrong, since the world of atoms and nuclei may still have some surprises up its sleeve for us.

I do concede, however, that, since I do not have access to the full discussion, some of these points may have been raised there.

Many thanks Eoin, for the commentary that I do have access to.   Your commentary on extracts often clarifies points which seemed obscure, and is always full of common sense!

Thank you for this question and if you are interested in a deeper discussion then I encourage you to subscribe. In short, the data about nuclear safety is well understood. However, the perception of safety is very different. For example, spending your life breathing in noxious fumes is much more likely to lead to health complications than living near a nuclear power plant.

This kind of statistic is akin to the fact you are more likely to be killed crossing the road than in a plane crash. The simple fact is we are less intimidated by the familiar. If we have the will to change, it will happen. The primary question is as a society do we want to talk about decarbonizing, or do we want to do something about it?

It was a memorable 3 days with you last week. It gave us time to discuss several things in depth, including our new industrial revolution. Thank you for capturing some of the key points in your recent writings. I gave a lengthy presentation on our new 3rd Industrial Revolution at David Fuller's Markets Now meeting in London, February 2015, and Forbes interviewed me a few weeks later. Here is an extract from the article:

"We clearly have the new communication system, the internet, and I suggest we can reasonably date the beginning of this industrial revolution to the mid 1990s when desktop PCs became linked for the first time by Tim Berners-Lee’s World Wide Web and Marc Andreesen’s Mosaic/ Netscape system. The internet is well ahead of the other two factors."

This was some years before Klaus Schwab and the World Economic Forum took up the theme. And yes, I do rank it as the 3rd, not 4th as Schwab does: the development of computer tech in the 1970s-1980s hardly constituted a revolution. It did not drive a massive increase in productivity because it lacked most of the key factors required for an industrial revolution.

Back then, we did not have the internet, the first of the 3 new factors required, and which more recently has given a massive change in communication and in distribution of information and goods. That became feasible from 1994 when Netscape appeared and especially from 2007 with the first iPhone followed by other smartphones.

However, the other two required breakthroughs are still missing today. Our new industrial revolution has stalled with just 1 of the 3 essential factors in place. Our financial system is completely unreformed and inefficient; and we have not rolled-out a viable new energy source.

In fact, in my opinion, the Western world has gone seriously off-track in the eight years since I first presented on this in 2015. You captured the issue very succinctly when wrote "The basic assumption is technological innovation allows us to do more with less". "The challenge in the energy and financial sectors is the solutions being proposed do less with more." The current direction of travel on renewable energy is worrying. In addition to the gross inefficiency, unreliability, and cost-ineffectiveness, of wind and solar power, we have the bizarre belief in shipping wood chips across the Atlantic to fuel 'green' energy in the UK. Apparently, returning to the energy source that pre-dated our 1st and 2nd revolutions constitutes progress!

I do not have much idea about the new financial system, but the new energy system is obvious and that is the topic of this note to you today, Eoin. From our discussions last week, I believe you are of the same view, and it would be good to pass this on to all subscribers of Fuller Treacy Money. I recommend this article. At last we are beginning to see writing by experts in the energy sector, real experts, with factual information. This article on nuclear power will (hopefully) be followed by many more.

Here are some key points from the article:

The only viable and scalable low-carbon power technology is nuclear. Today, more than 400 reactors generate about 10 per cent of world electricity. They are emissions free and reliable. Their only problem is that they are perceived to be dangerous and are violently opposed by some groups.

Dangerous, nuclear is not. Per unit of energy generated, nuclear power has proved to be much safer than any other major power generating technology. Coal, gas and hydropower are respectively 4000, 100 and 35 times more dangerous.

In the event of an accident where all power supply is lost, all modern reactors will shut down safely. Over the last 60 years the only nuclear powerplant accident with directly measurable health consequences has been at Chernobyl. The reactor there was operated in defiance of all safety principles and used obsolete technology without shielding: its failure has no relevance to a discussion of normal nuclear reactor safety.

Many different designs of small modular reactors which are built on a production line basis are proposed and several are now under construction. None of them can melt down and release radiation.

A rapid switch from expensive, impractical wind and solar power to reliable nuclear is the only way of meeting the net zero goal while keeping the lights on and society in general functioning.

Nuclear power needs to be recognised as a low emissions source of electricity that is superior to wind and solar power. Subsidies, mandates and other enormously expensive policies intended to promote wind and solar power must be abandoned and the money switched to expediting nuclear power.

Governments need to face the fact that wind and solar power can never deliver their net zero dreams of low cost, reliable, emissions free electricity. They have only two realistic options: switch to nuclear power, or abandon net zero.

The article is referring to current fission technology, and - as you mentioned recently - we may soon have even more powerful and efficient fusion energy to follow.

I am hoping that we are past peak nonsense about so-called 'green technologies' and that realism will begin to reassert itself. Eoin, it would be good if you can periodically update us on investment themes related to nuclear power. And let's return to the topic of what might constitute "doing more with less" in a much-needed new financial system.

Thanks and best wishes to Aisling and family. It truly was wonderful to host you last week.

Thank you for this generous email and it was very enlightening to spend several days discussing the outlook for the markets and the world. Thank also for your wonderful hospitality in hosting us at Cambridge and sharing your insights on the practical use of AI.

Energy is the most vital sector in the world and comes with vested interests we are only partially aware of. The trend of investment in renewable energy is still alive and well. Just yesterday Germany announced another investment package. The €58 billion will focus on retrofitting buildings to be more energy efficient as well as new construction, investment in new green energy projects (€12 billion) and additional money for building semiconductor factories. 

The biggest challenge for nuclear energy is large political parties have made their opposition to the technology a part of their manifesto and that has been the case for decades. To turn that around both sides of the political divide will need to agree on the solution.

I had the great pleasure of spending several days last week with David Brown talking about the drug discovery process, how artificial intelligence can be harnessed to speed it up, and how that all fits into the discussion around the evolution of a 3rd (some say 4th) industrial revolution. I discussed some of my updated thoughts on the subject in the Friday Big Picture audio/video. Here are some more; hopefully in a clearer format.

Before digging into the weeds, there is an important question to answer. Can you have a secular bull market without an industrial revolution? Of course the answer is yes. Industrial revolutions evolve over decades and can last a century. In that time there will be several long-term bull and bear market cycles through various asset classes.

For example, the evolution of China’s economy over the last 30 years was about the adoption of capitalistic economic policies and harnessing the labour of a billion people. That was a political decision to deploy lessons already learned elsewhere rather than new thinking. Secular bull markets in commodities develop because demand leaps higher before supply can adjust.

Colombian President Gustavo Petro said that an investigation into whether his son took money from organized crime must be allowed to follow its course, since “no one can be above the law.” 

A prosecutor said Thursday that Petro’s eldest son Nicolás put some of the tainted money to his father’s successful 2022 campaign and kept some of it for himself. 

Gustavo Petro, center, waves to supporters alongside his son Nicolas Petro Burgos, right, on election night in Bogota, Colombia, on May 29, 2022.

The scandal is likely to further weaken the leftist government’s ability to pass its radical health, pension and labor reforms, and may also hurt its performance in upcoming regional elections in October. 

“The Petro administration lost a lot of leverage with this,” said Sergio Guzman, the director of Colombia Risk Analysis, a Bogota-based consultancy. “It was going to have a difficult time to move things through in congress, but this makes it all the more difficult.”

Even so, people who think Petro is now finished are “jumping the gun”, Guzman said. 

Investors often welcome developments that hinder Petro’s welfare reforms, fearing these will blow out the fiscal deficit. The peso was 1.9% stronger at 10.40 a.m. in Bogota, the best performance in emerging markets. 

The point that immediately came to mind is seeing the above story. The first is how many leaders in the so-called developed world would be willing to allow their son to stand trial for corruption? My suspicion is it would be dealt with well before it ever became mainstream news.

Saudi Arabia extended its unilateral oil production cut by another month, and said it could be prolonged further or even deepened. 

The leader of the Organization of Petroleum Exporting Countries will continue the cutback of 1 million barrels a day — launched last month — into September, according to a statement on state Saudi Press Agency. That will hold output at about 9 million barrels a day, the lowest level in several years. Crude futures jumped. 

The measure — which comes on top of supply curbs Riyadh was already making with others in the OPEC+ producers group — is intended “to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets.” Its ally Russia also said it will extend its export curbs, but taper them slightly.

The global oil market has been finely balanced but that is now changing. The USA’s Strategic Reserve is largely empty. As suppliers reduce the availability of crude oil, the ability of alternative sources to boost production is limited. Meanwhile, global economic activity is not falling quick enough to reduce demand to keep the market balanced.

Solar plants and wind farms are crucial weapons in the battle against greenhouse gas emissions. So it’s a cruel irony that their effectiveness is often hobbled by damage from storms, floods, wildfires and other disasters amplified by global warming. That’s making them harder to insure. Property insurance premiums for US solar facilities have soared as much as 50% over the past year, threatening to slow their rollout and derail global efforts to cut carbon emissions.

Contradiction is a central theme in crowd psychology. It is the most obvious sign a mania is in play. The logic of hedging the risk of climate change with the climate dependent energy sources does not make sense to me. The fact that the media consensus calls for a greater weighting of solar and wind energy without making allowances for the risk that weather is variable and likely to become more so is evidence of a mania.

Oil rose to the highest since April as signs of economic strength in the US improved the outlook for demand, outweighing concerns about a price correction based on technical factors.

West Texas Intermediate settled above $80 a barrel as US economic growth exceeded expectations and speculation mounted that the Federal Reserve is nearing the end of its monetary tightening cycle. But crude is trading in overbought territory on its relative strength index for a third day, raising the threat of a pullback. 

“Crude extending the bullish rally, led by ‘risk back on’ sentiment in the equity markets, is keeping the buyers present in the crude space,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities. Yet “the market has gone up too far, too fast with speculative buying, and that is creating the overbought condition, so we should see some erratic corrections soon.”

Crude oil markets remain tightly balanced. Stronger GDP coupled with weaker PCE inflation data helped to boost the perception of demand dominance today. The downside is the higher oil prices go, the greater the likelihood inflation will be slow to moderate. It’s a good news/bad news story.

Heat this summer has already put millions of people around the world at risk. China is experiencing a scorching new heat wave less than two weeks after temperatures broke records in Beijing. Extreme temperatures in India last month have been linked to deaths in some of its poorest regions, while last week saw a dangerous heat dome cover Texas and northern Mexico.

The extreme weather may put more pressure on global leaders to curb greenhouse gas emissions generated from burning coal, oil and natural gas that trap heat in the atmosphere. The effects of climate change are being exacerbated by the arrival of the first El Niño in almost four years.

It’s likely the world will exceed 1.5C of warming “in the near term,” with efforts on climate action still insufficient, the United Nations’ Intergovernmental Panel on Climate Change said in March in a report summarizing five years of its own research. Global greenhouse gas emissions need to be cut to 60% below 2019 levels by 2035, according to the report, and climate-related risks are rising with every increment of warming.

The “dangerous” heat dome over Texas was a non-event for most people living in the region. Every home has an air conditioner. Singapore’s Lew Kwan Yew was well aware of the benefit gained from air conditioning given their hot humid climate. It was a major contributor to economic productivity. Additionally, air conditioning is a great moderator in the spread of malaria which is a growing concern as average temperatures rise in previously temperate zones. (Europe, USA).

“Petrobras has solid financial metrics, and took advantage of a market liquidity window,” Moody’s senior analyst Carolina Chimenti said in an interview. “So far there’s been no drastic change in its financial strategy.” 

While the yield on the firm’s latest bond is above its weighted average rate, there are several US-dollar transactions that were first priced at more expensive terms, according to data compiled by Bloomberg. For instance, the firm has over $710 million of 7.375% bonds due in 2027, which was first priced at par. The securities are quoted at about 104 cents on the dollar.

“With this resource we’ll improve the profile, paying debts that have a higher rate” said Leite, without disclosing the specific securities that could be included in a transaction which may happen later this year. 

The CFO expects investors to be more optimistic about Brazil in the short-term. Talks with bankers suggest the accounting scandal that toppled Brazilian retailer Americanas SA was restricted to the segment, Leite said. “They thought it would be a gunpowder fuse, but it was just a match.”

Petrobras cut its dividend shortly after Lula won the Brazilian election. That was a precautionary measure in response to populist accusation the company was looking after investors better than the interests of the country. The share quickly dropped in response to that decision and that ensured the dividend yield has dropped to a less politically objectionable 12.29% compared the Selic rate of 13.75%.

2. What will that entail?
It means building grids dense enough to absorb these renewable sources while still achieving the stable frequency that’s vital for the smooth functioning of electrical equipment and electronics. It will also require more high-voltage lines to carry surpluses from regions where the sun is shining and the wind blowing to meet demand elsewhere. Right now, the lack of long-distance transmission means a lot of recently installed renewable capacity is going to waste. BNEF estimates it will cost around $21.4 trillion to adapt grids to a net zero world and require 152 million kilometers of new cables — enough to stretch from Earth to the Sun if laid end to end. That implies a surge in consumption of copper — more than the mining industry can currently supply. But the biggest obstacle to grid development right now isn’t sourcing the materials or finding the money to pay for it all. 

3. What’s the hold-up?  
Local communities often oppose new wind farms, solar arrays and power lines and projects can face years of consultations involving multiple stakeholders. State regulators impose detailed technical studies and other bureaucratic hurdles. There are almost 1,000 gigawatts of solar projects stuck in the interconnection queue across the US and Europe, close to four times the amount of new solar capacity installed around the world in 2022. If all the wind and solar projects stuck in limbo were completed and connected to the grid, they’d add up to more than the present electricity generation capacity of the US. 

I wonder if copper is going to follow the trajectory of lithium. That market has been characterised by a series of mismatches that have led to massive volatility in the lithium price. Cast your mind back to the period immediately before the credit crisis in 2007. Enthusiasm about the green future was riding higher than it is today. There was a lot of enthusiasm about wind, solar, nuclear and the first EVs were just reaching market.

Wagner mercenary group chief Yevgeny Prigozhin released an audio recording in which he discussed the past weekend’s events and said his group didn’t plan to overthrow the Russian government.

March toward Moscow showed serious security problems in the country, he said in a recording released on Telegram that didn’t specify from where he was speaking.

Prigozhin said he launched march because he wanted to preserve Wagner as a military group and not come under the command of the Defense Ministry.

Belarusian President Alexander Lukashenko helped find a negotiated solution to the weekend’s events, he confirms.

Belarusian President Alexander Lukashenko earlier brokered a deal in which Prigozhin ended the revolt in return for Putin letting him travel to Belarus and dropping criminal mutiny charges, the Kremlin earlier said.

Wars are full of surprises. Over the weekend, the spectacle of an armoured column, intermixing with civilian traffic, on the way to Moscow is something the whole world is pondering the implications of. At a minimum it raises questions about the control Putin has over his warlords and generals. It is also yet another example of how mercenary armies are loyal to themselves and eventually have to be put down. 

But though the nearshoring story remains plausible, the data so far do not quite justify the exuberant optimism that North America can pull Mexico into the developed world.

Recent government trade data confirm that the US is moving away from China. Last year Chinese exports accounted for only 17% of US imports, down from 22% during President Trump’s first year in office. In 2023 they have cratered, accounting for only 13% of what the US bought from abroad in the first four months of the year.

But Mexico is not taking over. Its 15% share of US imports this year is only 1.3 percentage points higher than it was in 2017. Indeed, other Asian exporters are taking a larger chunk.

Moreover, the nearshoring boom is hard to detect in the investment numbers. Foreign direct investment into Mexico has been stronger in the last ten years than in the prior decade, but the data show no recent upsurge. Indeed, new investment — excluding reinvested earnings — seems somewhat lower.

To date the bulk of inward investment to Mexico has been focused on utilities. That’s a bet on a growing population and increasing demand water, electricity and gas. That’s now, it does not speak to the future. The continued strength of the Peso suggests more than a few institutional investors are more than happy to bet on the nearshoring theme. 

Here are key takeaways from the Federal Reserve's interest-rate decision and statement on Wednesday:

Federal Open Market Committee unanimously holds benchmark rate in target range of 5%- 5.25%, as expected, in first pause since starting cycle of increases in early 2022, to “assess additional information and its implications for monetary policy”
New projections show policymakers favor a half-point of additional increases this year, which would push borrowing costs to about 5.6% -- higher than most economists and investors have been expecting
FOMC statement gives clear signal that policymakers will resume tightening by referring to the “extent of additional policy firming that may be appropriate”; prior statement, in May, gave more leeway on whether to hike
Forecasts for economic growth and core inflation rose for 2023, while unemployment projections fell
Fed says economy has expanded at modest pace with robust job gains and low unemployment; inflation remains “elevated”

At Jerome Powell’s press conference he said two important things. The first is they will do whatever is necessary to bring inflation back to 2% on the PCE. The second is that some “below trend growth and higher unemployment” will be required to achieve that goal. The best of all possible worlds is that can be achieved without causing a recession. Unfortunately, that is not a likely scenario given the history of such attempts. 

Oil extended losses as Goldman Sachs Group Inc. cut its price forecast again, adding to a drumbeat of concerns about the outlook for demand.

West Texas Intermediate slumped below $68 a barrel after Goldman — which has had one of the more bullish forecasts for crude — made its third downward price revision for the global benchmark in six months, trimming its estimate to $86 for the end of the year on rising supplies and waning demand.

“Beyond the fact that a vocal crude bull cut their crude forecast again, physical market indicators also are shaking confidence of bulls expecting the market to shift from a surplus to a deficit in the coming months,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “Time spreads, which are the holy grail for traders assessing supply and demand dynamics, continue to deteriorate, fueling a massive risk aversion and prompting shorts to maintain pressure on prices.”

Most commodity research focuses on supply because that is where the most volatility happens most of the time. Demand, by comparison, is more predictable and increases annually most of the time. It is when volatility creeps into demand projections that prices tend to swing around most because now two variables are present so outcomes are much more uncertain. 

itself, meaning patience is more than just a virtue here. Tesla built its proprietary network essentially as a loss leader to stoke demand for its EVs, and it could do that in part because of Musk’s rarified knack for persuading investors to cover his losses. The three charging companies mentioned above have a combined market cap of about $5 billion, cash on hand of $550 million and expected cash burn across this year and next of more than $600 million. Their life is complicated enough. And now this.

The path to turning a profit on public chargers is like any piece of industrial hardware: Get more people to use it so it doesn’t sit idle. The threshold for profitability with charging depends on many factors, though I’ve seen one useful estimate of 30%, or roughly seven hours of charging every day (see this). As it stands, EVgo, which is weighted more to fast-charging, said on its last earnings call that the top fifth of its charging stalls enjoyed utilization above 20%.

The argument for expanding EV charging networks is complicated. That already suggests the companies wishing to dominate the sector will need to have bigger margins. Most people who currently own EVs recharge the vehicle at home. That also means EVs are a niche product for homeowners who can afford the premium over internal combustion engine vehicles. To go mainstream, chargers need to be available in every parking spot in high traffic areas. That’s extraordinarily expensive and the sector probably only has room for one or two big plays. Tesla is one of those. 

RBC Capital Markets
While some will focus on Saudi Arabia not acting in concert with the rest of OPEC+, the fact that the kingdom is willing to shoulder the curbs alone adds to the credibility of the cut and signals real barrels coming off the market, analysts Helima Croft and Christopher Louney wrote in a note. Saudi Arabia has a track record of delivering on material cuts, they said.

ANZ Group Holdings Ltd
.“The move by Saudi Arabia is likely to come as a surprise, considering the most recent change to quotas had only been in effect for a month,” analysts Brian Martin and Daniel Hynes wrote in a note. “The oil market now looks like it will be even tighter in the second half of the year.”

UBS Group AG
“There has been some anticipation of a production cut, that is why the reaction this morning was a bit more muted,” Strategist Giovanni Staunovo said in a Bloomberg television interview. Still, “the market will react further when the cut is implemented in one month’s time, as soon as inventory dynamics show a drop or exports fall from Saudi Arabia.”

$80.90 is apparently the magic number for Saudi Arabia’s budget. With so many ambitious projects in the works and a large young population, the kingdom needs to ensure its finances are in order. If that means enduring some short-term pain to support prices, that appears to be a price they are willing to pay. 

China's Shenzhen Energy closed a buy tender on May 30 seeking an August-delivery cargo,and the tender was awarded in the low $9s/MMBtu,according to several sources.

Prior to this, China's Guanghui Energy was heard to have partially awarded a buy tender for certain cargoes delivering from July 2023 to January 2024,S&PGlobal Commodity Insights reported earlier.

The prices of pipeline gas in China, which reflect crude prices 9-12 months ago, have been rising this year, with the average net import price above $8.5/MMBtu in April, showed calculations based on customs data

This means that the price advantage of pipeline gas over spot LNG is fading, which is expected to stimulate buying interest from importers who do not have sufficient long-term contracts in hand, market sources said.

"Rising prices of domestic pipeline gas in China could provide some incentive for downstream industries to switch to LNG," a Chinese importer said, adding that the current LNG prices were quite competitive and second-tier buyers could be more likely to come out to buy spot cargoes.

I was not previously aware of the look back relationship between current Chinese pipeline gas prices and the crude oil price a year ago. That suggests pipeline gas prices will begin to fall over the coming month since crude oil rolled over in June of 2022. 

Conventional wisdom believed the industry had improved its drilling and completion of shale wells. The ability to stay in the zone, the choice, and the volume of proppant and fluid were all said to have resulted in sharply higher drilling productivity. Wall Street and the energy industry both promoted a consistent narrative. We felt there were several unanswered questions and undertook a study to consider what was driving surging well productivity. If the industry had radically improved drilling techniques, it would ultimately be bearish for the sector. A previous low-quality Tier 2 location could now be transformed, through enhanced drilling and completion techniques, into a top-quality Tier 1 well. As a result, the inventory of best wells would explode, and the shale basins would continue to thrive for years to come. Modeling well performance is hugely complex. Shale basins are highly nonlinear with high degrees of variable inter-dependence. As a result, traditional statistical techniques, such as the linear regressions used by most analysts, fall short. We turned to advanced methods, including machine learning and neural networks, and achieved surprising results. Instead of improved drilling techniques, we concluded that two-thirds of the improved productivity between 2013-2018 came from favoring the best drilling locations. In 2013, 22% of Midland wells were Tier 1. By 2018, Tier 1 represented 50% of all wells. Since a Tier 1 well is nearly twice as productive as a Tier 2 well, the migration from lower to higher quality areas drove a massive amount of the improved well productivity.

There is significant difficulty in assessing the production profile of shale fields because constant drilling is required to both grow and sustain production. If the shale drillers have been following the energy sector’s equivalent of “rich veining”, then it would be reasonable to expect they will be reluctant to invest in additional new supply until prices are higher enough to secure their margins. 

Develop and Deploy New Nuclear Technologies

The bill reduces regulatory costs for companies seeking to license advanced nuclear reactor technologies.
The bill creates a prize to incentivize the successful deployment of next-generation nuclear reactor technologies.
The bill requires the NRC to develop a pathway to enable the timely licensing of nuclear facilities at brownfield sites.

Preserve Existing Nuclear Energy

The bill modernizes outdated rules that restrict international investment.
The bill extends a long-established, indemnification policy necessary to enable the continued operation of today’s reactors and give certainty for capital investments in building new reactors.

Strengthen America’s Nuclear Fuel Cycle and Supply Chain Infrastructure

The bill directs the NRC to establish an initiative to enhance preparedness to qualify and license advanced nuclear fuels.
The bill identifies modern manufacturing techniques to build nuclear reactors better, faster, cheaper and smarter.

Authorize funds for Environmental Cleanup Programs

The bill authorizes funding to assist in cleaning up legacy abandoned mining sites on Tribal lands.

Improve Commission Efficiency

The bill provides flexibility for the NRC to budget and manage organizational support activities to ensure the NRC is prepared to address NRC staff issues associated with an aging workforce.
The bill provides the NRC Chair the tools to hire and retain highly-specialized staff and exceptionally well-qualified individuals to successfully and safely review and approve advanced nuclear reactor licenses.
The bill requires the NRC to periodically review and assess performance metrics and milestone schedules to ensure licensing can be completed on an efficient schedule.

The cost of building new nuclear facilities is the most common counter argument for expanding the sector. Two of the biggest cost centres are the regulatory morass that needs to be traversed to get a new project permitted and the fact that many reactors are unique designs. Adjusting regulations to take technological innovations into account and building reactors on assembly lines could greatly reduce the cost of construction. 

Mounting rate-hike expectations have pushed short-term yields up relative to longer-term ones, flattening the Treasury curve. The flattening continued Tuesday as yields declined, briefly pushing 30-year yields below the five-year for the first time since March.

The trend has temporary support from Wednesday’s month-end bond index rebalancing, which may create demand for the long-maturity Treasuries created during the month in quarterly auctions. 

Later this week, Friday’s release of US labor market data for May has the potential to alter expectations for Fed policy. Job creation exceeded economists’ median estimate in April and each of the previous 12 months. However Fed officials in their public comments have been divided on how to balance an anti-inflationary stance with the possibility that the central bank’s 10 rate increases totaling 5 percentage points in the past 14 months warrant a pause in June.

The deal announced over the weekend relies on capping spending and growing defense spending below the rate of inflation. The headline impact will be to grow the national debt less quickly. That is supporting Treasury prices today. 

Chinese company Longi Green Energy Technology Co. cut wafer prices by as much as 31% on Monday. Wafers are silicon squares that are wired up and pieced together to form solar panels. 

The reduction comes after solar silicon prices have plunged by almost half since early February. A slew of new factories have ramped up production, ending a shortage of the material that disrupted the industry’s supply chain last year. 

Longi President Li Zhenguo warned last week that aggressive expansion in the solar supply chain could lead to excess capacity that forces more than half the companies in the industry out of business in the next few years. 

China is the global heavyweight in solar panel manufacturing and not least because several provinces have the same ambition of dominating the sector. If they have decided to embark on a price war to drive the weakest domestic manufacturers out of business, that is near-term positive for consumers but is a significant challenge for global competitors who will not be spared from dumping of excess supply. 

There isn’t a single reason for EV charger failures. Some of the problems, particularly with older machines, can be chalked up to a new technology going through the usual learning curve of improvements, all while sitting outside, exposed to the weather. There have been cycles of needed upgrades, such as replacing modems to deal with 5G wireless internet service. The myriad networks, retail outlets and garage owners who own the machines don’t always stay on top of maintenance. And chargers must communicate with a rapidly expanding variety of cars. 

To that end, the precise scope of the problem isn’t known. EV drivers face a complex landscape of competing charging companies, each with its own stations and app, and there is no central repository of data on station performance. One widely cited 2022 study of fast-charging stations in the San Francisco Bay Area (excluding Tesla Inc.’s Superchargers), found that about 25% of the 657 plugs weren’t working. While J.D. Power doesn’t disclose reliability rankings, Gruber said the worst-performing charging company leaves drivers unable to plug in about 39% of the time. 

“With public charging, it’s a bit of the wild, wild West,” he said.

Tesla proved that reliable charging is possible. The all-electric automaker runs a global network of 45,000 Superchargers, which can add up to 200 miles of range in just 15 minutes. Tesla consistently gets the highest customer-satisfaction marks of any charging company in J.D. Power’s surveys, Gruber said. Its drivers report charger downtime of just 3%.

But Tesla has the advantage of keeping everything in-house. Until recently, Superchargers could only be used by Tesla cars, and didn’t need to work with the growing array of other EVs and batteries. Tesla also owns its Supercharger network, whereas many of the public chargers installed over the past decade are owned by whoever owns the parking lot where they’re located. Such property owners, Gruber said, don’t have as strong an incentive to maintain their machines.

The challenge with developing a profitable EV market is margins are thin and the market is highly competitive. That suggests not every business model is likely to be successful. Constructing a charging network is capital intensive and the pay back is uncertain until the total penetration of EVs is known.

During a press briefing in Malaysia, the Russian captain of the vessel described the situation saying that he had discovered a fire amidship early afternoon on Monday. The initial discovery of smoke was followed by one or more loud explosions which he said shook the vessel, broke the windows, and rendered most of the communications systems inoperable.

“The fire on the upper deck destroyed our aerial, none of the communication equipment was functioning,” the captain told NST TV in Malaysia. “I had to use the walkie talkie …I finally got in touch with our engineer via the walkie talkie but by then all our safety boats were destroyed.” 

The captain said the desperate crew had gone into the water in their life jackets and luckily two ships were in the immediate area to assist with the rescue. He said in the confusion with the crew going in all directions it had been impossible for him to get a head count. He said the fire was also being spread by windy conditions.

The tankers carrying Russia oil around the world can’t be insured. That means the only ships anyone is willing to send on those journeys are decrepit and old. Most are probably on the verge of being scrapped. It is only a matter of time before one of these vessels sinks, with a full cargo onboard. That will create an international incident where no one will take responsibility and there will be no insurance cover. 

Take not just Chile, with its revisions to fiscal policies for miners, but Peru, a country long considered crucial to the next wave of copper production, where the mining sector has been battered during lengthy social unrest. Rio in late March agreed to sell a controlling stake in its Peruvian mine La Granja to First Quantum.

“What the market never predicted was how difficult South America would become,” said Radclyffe. “The uncertainty out of both Chile and now ongoing in Peru, that’s just added an extra level of complexity that the market never expected, and that hasn’t really been resolved.”

The classic basis for a big bull market in commodities is supply inelasticity meets rising demand.

The promise of a big bull market in copper is heavy on the supply inelasticity argument. I think everyone understands, there is limited supply and sufficient increases to meet the expected demand from renewables is not feasible. 

“The market is an investor desert,” said Scott Shelton, an energy specialist at ICAP. “The fundamental information that generates predictable price action doesn’t exist.”

Adding to the bearish sentiment, vacancies at US employers fell to an almost two-year low in March, a fresh sign of a softening labor market. Activity in China’s export-tilted manufacturing sector missed estimates in April, a possible sign of a recession among customers in the US and Europe. And Iranian Oil Minister Javad Owji said the country has increased output to more than 3 million barrels a day, providing additional supplies to the market.

“It’s going to take some evidence in the physical market on the tightening we see in our balances before we see any more positive or committed trading activity,” Emily Ashford, an energy analyst at Standard Chartered Bank, said by phone. 

OPEC+ have been proactive in attempting to curtail supply to meet declining demand. There are big outstanding questions about how sustainable that policy is against a background of competing priorities inside the cartel and economic weakness among the biggest customers. Keeping supply and demand in balance is only going to become more difficult. 

Dear Eoin, Why do you think the Uranium Miners ETF you have been holding has been disappointing of late? Is it all about "risk-off" and withdrawal of liquidity from the market? What makes you continue to hold? What would make you sell? Thanks! Kind regards, 

Thank you for this question. I don’t see how the promise of electrifying the economy is possible without a nuclear renaissance. The fact the sector is not performing better suggests the critical mass of support for the industry is not yet mature enough. Significant resources are being ploughed into the small modular reactor sector but the lead times are long and there is not enough urgency to ignite investor interest in the short term. That’s why I believe it is underperforming at present. 

China’s Contemporary Amperex Technology Co. Ltd., known as CATL, unveiled its strongest battery to date Wednesday, saying that it could one day be used to power electric aircraft.  

The battery, which loads more power into a smaller package, has an energy density of 500 watt-hours per kilogram, CATL’s Chief Scientist Wu Kai said during a presentation at the Shanghai auto show. CATL’s most recent battery, called Qilin, has an energy density of 255 Wh/kg and can power an electric vehicle for 1,000 kilometers (620 miles) on one charge. 

The technology, which CATL calls a condensed state battery, is potentially a breakthrough that will help electrify sectors wed to fossil fuels because existing batteries are either too heavy or unsafe. Still, questions remain about the materials it will use, its cost and ultimate market impact.
 

CATL has a strong record of leading the way in both scale of manufacturing batteries and innovating on design. The Qilin battery sounded too good to be true when it was announced eighteen months ago but it is going into mass production this year. If China successfully puts a battery in the market with the promised characteristics of a solid state battery it would be a significant technological coup akin to the impact of the iPhone on legacy mobile phone manufacturers. 

Even with redoubled efforts to produce more clean energy at home, the United States and others will still depend on China for critical minerals and other clean energy components and technologies for years to come, creating vulnerabilities to Chinese-induced shocks. For instance, in recent months, China has suggested that it may restrict the export of solar energy technologies, materials, and know-how as a response to restrictions that Washington imposed last year on the export of high-end semiconductors and machinery to China. If Beijing were to follow through on this threat or curtail the export of critical minerals or advanced batteries to major economies (just as it cut off rare earth supplies to Japan in the early 2010s), large segments of the clean energy economy could suffer setbacks.

Traditional energy heavyweights are also recalibrating their positions in response to the changing geopolitical landscape in ways that increase energy security risks. Saudi Arabia, for instance, now sees its global stance differently than it did in the decades that followed the famous “oil for security” bargain struck by U.S. President Franklin Roosevelt and Saudi King Abdulaziz ibn Saud on Valentine’s Day in 1945. Riyadh is now far less concerned with accommodating Washington’s requests, overt or implied, to supply oil markets in ways consistent with U.S. interests. In the face of a perceived or real decrease in U.S. strategic commitment to the Middle East, Riyadh has concluded it must tend to other relationships—especially its links to China, the single largest customer for its oil. The kingdom’s acceptance of China as a guarantor of the recent Iranian-Saudi rapprochement bolsters Beijing’s role in the region and its global status. Relations with Moscow have also become particularly important to Saudi Arabia. Regardless of the invasion of Ukraine, the Saudi government believes that Russia remains an essential economic partner and collaborator in managing oil-market volatility. It will therefore be extremely reluctant to take positions that pit the Saudi leadership against Putin.

A war is underway in the energy markets. Suppliers are intent on sustaining high prices and eco-warriors fervently hope high prices will wean the world from its addiction. Consumers are caught in the middle and have little in the way of choice as they face increasing regulatory and infrastructure costs.  

European Union (EU) lawmakers have agreed on the world’s first binding quotas for using renewable hydrogen (H2) and derived fuels. The March 30, 2023 rules will create significant demand for renewable H2, mandating existing industrial hydrogen users replace at least 42% of their demand with renewable H2. They also mandate at least 1% of transport energy to be H2-based.

Member states should ensure 42% of existing industrial H2 demand is renewable by 2030, rising to 60% by 2035. The industry quota targets companies such as fertilizer and methanol producers, but excludes refineries, which are covered under the transport mandate. Member states will be legally required to adopt this agreement as national law and the European Court of Justice will determine penalties for states that fail to comply.

In transport, fuel suppliers need to replace 5.5% of final energy demand with H2 or advanced biofuels, with a minimum target of 1% for H2-based fuels by 2030. BNEF expects the hydrogen share to be closer to the minimum goal as meeting the combined target using H2 alone would require extensive use of the molecule in road transport. Advanced biofuels had already reached a 2.1% share in transport by 2021.

The EU remains committed to the zero carbon emissions quest and is pioneering the development of markets in alternative energy. High carbon emission prices are one half of the strategy and subsidies for wind, solar, biomass and hydrogen are the other half. 

The measures are part of the 27-nation region’s plan to cut emissions by at least 55% from 1990 levels by 2030 and reach net zero by 2050. 

The EU wants to be a global leader in the green shift, an increasingly challenging objective after US President Joe Biden’s landmark climate package and competition from China in low-carbon technologies and critical materials. At the same time, the bloc is grappling with an unprecedented energy crisis triggered by a cut in gas supply from Russia following the war in Ukraine.

“It is now more important than ever for the EU to get and stay on track to climate neutrality and resilience, providing a positive example to galvanize global action and to work with our partners worldwide to develop the solutions needed for all to transition to climate neutrality,” the commission said. 

The EU indicated an emissions cut of 75% to 80% would follow the average trajectory between 2030 and climate neutrality in 2050. Lowering pollution by more than 90% would signify “a very high ambition, close to reaching climate neutrality already in 2040,” the commission said. 

The commission signaled it is considering various options on the evolution of the EU Emissions Trading System, the bloc’s flagship carbon cap-and-trade program. They included an extension to cover new sectors, potential inclusion of all fossil-fuel uses and accounting for carbon capture technologies.

It also said removing carbon dioxide from the environment is indispensable and sought views on how to tackle emissions from agriculture, including putting a carbon price on greenhouse gases from the sector. 

The EU is an energy importer and its reliance on imports has been emphasised following Russia’s invasion of Ukraine. That has also removed the partial salve of being able to pay for energy in their own currency so the EU is now even more committed to curtailing imports to the greatest extent possible. 

E-fuels, made using renewable energy and carbon dioxide captured from the air, aren’t seen as a viable solution for the vast majority of cars, given their high cost and current lack of availability. Instead, the bulk of carmakers in the region are expected to remain focused on battery-powered vehicles.

“We see e-fuels as a useful addition to the existing fleet of combustion engines and for special applications such as emergency vehicles or limited series, the Porsche 911 for example,” Volkswagen said in a statement. Europe’s biggest carmaker said that it remained committed to the electrification
of its fleet.

The deal, announced on Saturday, was enough for Germany to drop its opposition to the proposal.  A push by the country’s pro-business FDP party, the junior member of Chancellor Olaf Scholz’s governing alliance, for the commission to come forward with more assurances on e-fuel cars had delayed a vote earlier this month.

 

2035 is little more than a decade from now and that is a short period of time to completely remake the industrial infrastructure of the European heartland. High performance sports cars are a niche business and e-fuels are unlikely to gain significant market share without a major breakthrough in production costs or a significant rise in energy prices more generally which would also improve competitiveness. 

any comments from US officials as-to when they start to replenish the US strategic oil reserve…….?

Thank you for this question which may be of interest to other subscribers. I’ve been contemplating the same question over the last week, but I framed it differently. Can the US government afford to refill the Strategic Reserve? 

Exposure to plummeting oil prices via the options market has forced some financial firms to dump crude futures, accelerating a selloff that has sent prices plunging to the lowest in over a year.  

Banks and other financial institutions typically take on futures positions to offset some of the price hedging they do for oil producers and other customers. But as oil prices collapse rapidly, the firms’ exposure rises, forcing them to exit their futures positions in a strategy known as delta hedging.

That’s driving some of the day’s selloff, UBS Group AG analyst Giovanni Staunovo said in a note. A massive number of WTI options contracts that were sold at $70 and $75 a barrel needed to be covered once oil futures crashed below those levels, market participants said. For Brent, more than 24,000 put options were open at $80 and $75 a barrel for May, both levels that were breached this week.    

“Financial institutions now need to avoid having a price risk on their balance sheets,” Staunovo said in his note. “So, they are selling crude futures to offset the risks, amplifying the rout.”       

The oil futures curve is still in backwardation but the gap between the 1st and 2nd month continuation charts is quite narrow and beginning to contract again. Generally, the turn in the spread between the 1st and 2nd months coincides with significant reversals in the oil price. Only three weeks ago the move into backwardation was supporting the view prices would resolve on the upside. That’s been negated by the breakdown yesterday. 

Crude has had a bumpy year so far as traders juggle concerns over a global economic slowdown and optimism around China’s long-awaited demand rebound. Inflation accelerated last month, raising the question as to whether the Federal Reserve would feel pressure to raise rates at its meeting next week despite ongoing financial turmoil. Meanwhile, crude supplies are expected to remain in surplus until demand takes off. The International Energy Agency releases its snapshot on the outlook for supply and demand on Wednesday.

Traders will be watching price action to see if the flat price is supported at recent lows.

“If buyers don’t show up soon and support oil at $70, we can see an air pocket lower to $62,” said Jc O’Hara, the chief technical strategist at Roth Mkm.

The energy sector was the best performer for two years in a row and many investors pinned their hopes for 2023 on that continuing. The temptation in analysing the oil market is to think demand is a constant because more often than not it is the less volatile metric and grows at a predictable rate year over year. The challenge comes when the global economy slows down because demand can fall and that quickly creates a supply glut.

you are showing charts and talking a lot about carbon emission certificates in the EU. (MO2 generic future on Bloomberg). is there any tradeable or investable instrument out there? tkx a lot!

Thank you for this question which may be of interest to other subscribers. Carbon emissions are a new asset class with strong political backing. The prices series is increasingly being used as a benchmark to support investment in fossil fuel alternatives. As long as that remains the case, governments will restrict supply when prices fall to ensure a viable market. 

“I’d love to really show you what I mean and unveil the next-gen car, but you’re going to have to trust me on that until a later date,” Franz von Holzhausen, Tesla’s design chief, said at the company’s headquarters in Austin, Texas. “We’ll always be delivering exciting, compelling and desirable vehicles, as we always have.”

Tesla shares fell as much as 8.6% as of 8:40 a.m. Thursday in New York, before the start of regular trading. Anticipation of the event contributed to a surge in the stock that added more than $300 billion of market value in two months.

Letdown
Musk, 51, confirmed Tesla will build a new plant in Monterrey, Mexico, in what he said was probably the most significant announcement of the day. The chief executive officer said Tesla will make its next-gen vehicle there, and that the company will hold a grand opening and groundbreaking at an
unspecified date.

When asked when the carmaker will show a prototype and if he could share details about the size, content and performance of the vehicle, Musk responded that Tesla also will hold a “proper sort of product event” at some point, but didn’t say when.

“We’re gonna go as fast as we can,” said Lars Moravy, Tesla’s vice president of vehicle engineering. “We expect that to be a huge-volume product.”
 

I watched most of the Tesla investor day presentation last night and was struck by how much the past tense was used. Everything was about the efficiencies that have already been implemented which is obviously already in the price. There was no Steve Jobs “just one more thing” moment. In fact the biggest takeaway for me was a statement Musk made about the future of battery chemistry. 

The surging demand comes as the company is poised to benefit from the Inflation Reduction Act, the landmark climate bill signed last year by President Joe Biden that subsidizes domestic manufacturing. Even before the bill passed, First Solar saw strong demand for its modules. It has since announced a new factory in Alabama and Chief Executive Officer Mark Widmar indicated on an earnings call that further expansion is possible.

The years-long backlog of orders caught the attention of analysts and investors. Goldman Sachs Group Inc. analyst Brian Lee boosted the price target on the stock to a Wall Street-high of $260 from $231 on Wednesday, noting the company is “booking well into the 2nd half of the decade at this point.”

The US is expected to significantly boost its reliance on solar power in its push to slash carbon emissions. First Solar, the country’s biggest panel maker, has focused on dominating that market.

Solar stocks tend to be very interest rate sensitive because most residential business plans involve no upfront costs. That generally means the installer has to carry the cost of the panels until cashflows catch up. The business model worked wonderfully during the low interest rate environment and has been challenging over the last year as rate ramped higher. 

“The US, the UK, South Korea, China, India and even Japan are contemplating using nuclear energy as an important means to decarbonize their economies, and we need to be on the same level playing field,” Pannier-Runacher said Monday.

The next battleground is a definition of “green hydrogen” in an EU directive known as RED3, which would set targets for using the fuel in industry and transport. France is pushing for nuclear to be considered a clean energy source, while countries such as Spain and Germany are focusing on hydrogen derived from renewables such as wind or solar.

The EU sees hydrogen as a key pillar of its efforts to slash emissions by 55% by 2030. The outcome of the negotiations could jeopardize a flagship project to pump the fuel from Barcelona to Marseille and then onto Berlin via a pipeline, known as BarMar or H2Med.

France’s Hydrogen Pipeline With Spain at Risk Over Green Rules For “green investments,” France has already reached a compromise with Germany to allow nuclear energy and natural gas to receive funding from environmental investors. While that added the two energy sources to the so-called EU taxonomy — a list of activities deemed in line with the bloc’s transition to climate neutrality — there are still concerns the move could divert investment away from renewables.

The French initiative was welcomed by a number of other EU nations. “We are happy that nuclear somehow came back to the discussion in the EU  — years ago it was kind of a forbidden topic,” said Anna Moskwa, Poland’s minister of climate and environment. “It is of our common interest to build stable sources, that is why Poland decided to develop nuclear.”

 

There is nothing quite like a war on the border to focus minds on the need for energy security. Nuclear reactors are reliable and each one lasts for decades. That does not mean they are free and there is certainly room to improve efficiencies in construction. However, many of the issues associated with budget overruns have to do with planning delays and custom part manufacturing. Both of these obstacles can be overcome by settling on a smaller design and building more of them. 

European gas prices rose amid expectations of higher demand from power producers, after a recent slump improved the profitability of the fuel compared to coal. Benchmark futures have been fluctuating near €50 over the last few days after plunging about 35% since the start of the year. Together with surging carbon prices, that could rein in an increased reliance on coal to produce electricity, but also prevent gas prices from falling further. 

Last year, coal-fired power generation in Europe increased by about 1.5 percentage points versus 2021, ending a steady decline in coal usage rates, according to Eurasia Group. That was mainly driven by a surge in gas prices after Russia cut supplies. 

Not all countries in Europe still use significant amounts of coal, but for those that do — such as Germany and the Netherlands — the switch to gas is becoming more likely, according to Fabian Ronningen, a senior analyst for power and renewables research at Norwegian consultant Rystad Energy AS. 

“The situation we have seen over the last few weeks has been the closest competition between coal and gas in a very long time,” he said. It remains to be seen whether increases in gas generation will outpace the rise in coal usage this month, he added, since infrastructure bottlenecks and fuel availability
can have an impact.
 

Natural gas coming back to a competitive position relative to coal suggests prices have fallen enough to be appetising for consumers. Natural gas is a vital commodity for the global economy so when it falls to levels that are competitive with a heavily polluting alternative demand will certainly return. 

US natural gas futures slumped to the lowest in 28 months as weather forecasts have shifted milder since last week, further eroding the prospect for heating demand this winter.

Gas for March delivery dropped 4% to $2.183 per mmbtu as of 8:51 a.m. in New York
Futures touched $2.168 earlier, the lowest since Sept. 2020

Weather across the eastern two-thirds is looking warmer next week when compared with Friday’s outlook, with above-usual temperatures expected for southern states: Maxar.
See WHUT for a map of latest 6-10 day weather forecast: NOAA

“The market appears ready to push natural gas steeply lower until storage surpluses stop ballooning and/or production responds more vigorously to lower prices,” analysts at EBW AnalyticsGroup said in a note to clients

Natural gas prices are accelerating lower and swiftly approaching the psychological $2 area for Henry Hub. The warm weather for this time of year is depressing prices in the short term. Nevertheless, natural gas is an essential commodity for the global economy and lower prices will ultimately encourage demand and suppress supply. 

The talk was split into two parts. The first was devoted to talking about the risks climate change represents and what a potential solution might look like. The second part criticised world leaders in turn. 

In December of 2021, two months before the first Russian tanks rolled into Ukraine, Jake Sullivan convened a meeting of a newly formed task force—men and women from the Joint Chiefs of Staff, the CIA, and the State and Treasury Departments—and asked for recommendations about how to respond to Putin’s impending invasion.

It would be the first of a series of top-secret meetings, in a secure room on a top floor of the Old Executive Office Building, adjacent to the White House, that was also the home of the President’s Foreign Intelligence Advisory Board (PFIAB). There was the usual back and forth chatter that eventually led to a crucial preliminary question: Would the recommendation forwarded by the group to the President be reversible—such as another layer of sanctions and currency restrictions—or irreversible—that is, kinetic actions, which could not be undone?

What became clear to participants, according to the source with direct knowledge of the process, is that Sullivan intended for the group to come up with a plan for the destruction of the two Nord Stream pipelines—and that he was delivering on the desires of the President.

Pardon the pun but these are bombastic claims. I do not contest that the idea to get rid of Russia’s direct route to export gas into Germany was discussed. I’m sure it has been a major topic of conversation for US planners over the last decade, as shale gas production ramped higher. However, that in no way supports the contention that the USA did in fact blow the pipelines up. 

There is no doubt that the editorial quality of the mainstream media has taken a beating over the last decade. That’s doubly true since many people now get their news from Twitter or TikTok. However, the fact this story was not in a newspaper that could exert full editorial control is a red flag to my mind.

Perhaps more importantly, if this claim were true, it would result in a major breakdown in the NATO alliance. Cutting off the import capabilities of a major ally is an act of war against Germany, not just Russia.

It is risible to think Germany would knowingly accept the cost of dealing with this condition. The country had to spend $83.3 billion on energy subsidies in 2022. To think any country would accept a threat to their sovereignty like that stretches credulity to breaking. 

I am a strong advocate for freedom of speech. However, that is married with the freedom to question and particularly so when there is no supporting evidence in the reactions of interested counterparties.

Several customers on our different markets, who used alternative fuels in the meantime, are already returning to natural gas,” Margus Kaasik, chief executive officer of Eesti Gaas, said in a statement. 
While demand in the Baltics is small compared with major consumers such as Germany or France, the increased buying activity may be a sign that the uptick in demand is here to stay. 

Europe has been lucky with mild weather this winter, which means that gas stockpiles are 68% full, compared with an average of 48% for this time of year. Utilities are now shifting their focus to restocking for the summer season. 

Eesti Gaas also secured three slots at the Klaipeda LNG terminal in Lithuania, with one cargo delivered in January by Equinor ASA, and two more to follow in March. 

The company is now preparing a tender for the seven slots it has booked at Inkoo. The floating terminal arrived at the end of last year and by mid-January, the facility was ready to receive shipments. 

The relatively mild winter weather has been a blessing for Europe. It is not a guarantee it will be repeated and regardless, stockpiles will need to be refilled for next winter during the low demand summer months. That’s true for much of Europe since they no longer buy from Russia. 

Getting to net zero could require almost $10 trillion of metals between now and 2050, according to BNEF, with annual demand peaking at close to $450 billion in the mid-2030s. While steel and aluminum are expected to see the most demand growth in terms of absolute volume, copper is set to be the most valuable opportunity, with an estimated $3.4 trillion of the red metal needed to avert climate disaster.

In total, a whopping 5.2 billion metric tons of metals will be necessary to underpin a net-zero transition, with nearly four times as much metal due to be consumed in 2050 versus today.

 

I continue to be amazed at how the word trillion is bandied about when it comes to spending plans for renewable energy. In 2020 total global copper consumption was 23.6 million tonnes and is probably around 25 million this year. 

Shell Plc, BP Plc and TotalEnergies SE have spent the last few years trying to convince investors about the merits of net-zero carbon and investment into renewables. But in 2022 they switched to showering them with tens of billions of dollars earned from pumping oil and gas, just like their US peers. 

The change of course was triggered by Russia’s invasion of Ukraine, which shifted governments’ focus back to energy security and created a huge gap in Europe’s oil and gas supplies that the majors are well placed to fill. 

“Oil production will be back above 2019 levels,” said BP Chief Executive Officer Bernard Looney, a change in tone from 2020 when he suggested that peak demand may already have been reached. “Demand for this product is strong.”

Shell has said it will pause the growth in spending at its renewables unit while expanding gas output. BP slowed the planned decline in its fossil fuel production and scaled back its target for emissions reductions. TotalEnergies is opening new liquefied natural gas import terminals in Europe so it can keep growing a business that expanded by 15% in 2022.

If the majors are slowing down investing in renewables, despite significant subsidies, that’s really not good news for the solar, wind and hydrogen sectors. Meanwhile, if the majors increase exploration and production budgets is should be very positive for drillers. 

The European Union’s import ban on Russia crude has led to much longer voyages for shipments, with journeys now taking an average of 31 days from Baltic ports to India, compared with just seven days from the same terminals to Rotterdam and about half that to Poland. That’s putting more pressure on the dwindling fleet of ships whose owners are willing to haul Russian cargoes. A similar pattern is expected to emerge in Russia’s refined products trade.

The country is increasingly reliant on its own tankers and a so-called “ shadow fleet” of usually older ships owned by small, often unknown companies that have sprung up in recent months. European-owned vessels can still carry Russian crude, as long as it is sold at a price below a $60-a-barrel cap, introduced at the same time as the import ban. The level of that cap is due to be reviewed in March. 

There has also been a resurgence in ship-to-ship transfers of cargoes in the Mediterranean, with loads either being combined onto larger vessels or shifted from ice-class tankers to others in order to free up those ships needed for operations in the Baltic in the winter months.

Tankers hauling Russian crude are becoming more cagey about their final destinations. Vessels carrying more than 41 million barrels of Russian crude, the equivalent of 1.45 million barrels a day of exports, left port showing no clear final destination in the four weeks to Feb. 3.

The prospect of buying oil at a discount will ensure there is ample demand for Russian exports of crude. The rewards are more than ample to compensate for the risks. Transfers between ships off the Malaysian coast have been ongoing for more than a year and that is unlikely to change while there is such a wide arbitrage. 

Shell Plc isn’t planning to use its growing cash pile to pursue big acquisitions, aiming instead to deliver greater value for shareholders. 

That was the message delivered by new Chief Executive Officer Wael Sawan and Chief Financial Officer Sinead Gorman at a meeting with analysts on Friday morning, following their announcement the day before of record profits of nearly $40 billion in 2022 and the lowest level of indebtedness since 2015.

The company’s management is trying to boost Shell’s value, which has lagged American peers that stuck more closely to their fossil-fuel core instead of diversifying into cleaner energy.

Shell’s shrinking debt could give investors “some nervousness around the potential for large-scale M&A,” Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note on Friday about the meeting earlier in the day. “Wael clearly stated this was not on the agenda, with focus more on performance of the asset base and driving higher returns.”

Shell said at the meeting that big acquisitions of around $10 billion are unlikely in low-carbon energy because there aren’t good opportunities, according to analysts at Barclays Plc led by Lydia Rainforth. 

There could be smaller-scale investments in that area, particularly in hydrogen. Last year Shell spent $2 billion to buy Danish company Nature Energy Biogas A/S and reached final investment decision on Europe’s largest green hydrogen production site.

Berkshire purchased a chunk of Occidental Petroleum in December 2022 for $10 billion. That reflected a conscious decision to boost exposure to the conventional energy sector. Meanwhile, energy majors have been shy about increasing exposure and have instead become much more conservative. The majority of their spending has been either been in onshore domestic US production. They have also been open to high probability overseas exposure with close access to major markets like Exxon’s Brunei/Malaysia production. 

For years, energy experts modeling the impact of 2050 net zero targets on oil demand had the advantage that the deadline, and the incremental steps to getting there, were a long way off. If time proved their scenarios wrong, they’d be long forgotten anyway. 

But now, those first intermediate waymarks are around the corner, and they look increasingly farfetched.

Earlier this week, BP Plc published its annual Energy Outlook, presenting three scenarios — not forecasts — for how oil demand may evolve. The Net Zero path, broadly in line with the goals of the Paris Agreement, is difficult to reconcile with current trends.

In such a narrative, BP’s model shows global oil consumption collapsing to 21 million barrels a day by midcentury, down from about 98 million today.

Ignore 2050 and focus instead on the intervening milestones, starting with 2025. In just two years’ time, BP’s Net Zero scenario sees oil demand 4 million barrels a day lower than it is now. That would mean removing the equivalent of Germany’s entire consumption in 2024 and repeating that feat again the following year. 

Every oil forecast I’ve seen shows demand rising in 2023, and the few 2024 projections already published — including one from the US government — see growth continuing.

Looking further ahead, BP’s Net Zero readout suggests demand would need to plunge a further 9 million barrels a day from 2026 to 2030, falling to 85 million a day by the end of the decade. That equates to eliminating the consumption of France each year and, on the final year, striking out Italy as well.

Then the really difficult period starts. The scenario sees the world using just 70 million barrels a day in 2035, requiring the annual removal of 3 million a day. That equals the demand of Japan, currently the world’s fourth-largest consumer.

Net zero models look increasingly at odds with short-term trends. It’s possible oil demand can sink by 2050, but is it going to plummet in a matter of months and keep falling precipitously every year for the next decade? No.

Politicians talk a good game on containing carbon emissions, but have no real solution for how to avoid massive cuts to living standards in achieving them. Environmentalists have been inveighing against the evils of coal for decades but global consumption continues to hit new highs. Is there any reason to expect oil to be any different? That suggests demand will migrate to less well off countries where the reality of survival trumps environmental concerns.

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

And

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

A decade ago it was obvious China was moving up the value chain in manufacturing. It might have not have reached heights of 3nm chip production but planes and automobile parity is now a reality. That’s as much of challenge for Airbus and Boeing as it is for Toyota, Hyundai, Volkswagen and GM. 

First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

This perspective gels very well with the reality on the ground I observed in Saudi Arabia on my last two visits. The simple reality is China is the country’s biggest customer and the USA the country’s greatest geopolitical ally. There is no way to play favourites the greatest risk for any country is to be taken for granted because that greatly enhances the scope for one’s interests to be trampled. 

DNB Asset Management materially increased investments in EV maker Tesla (ticker: TSLA) and Plug Power (PLUG), a hydrogen fuel-cell technology company, while slashing its stake in General Motors (GM) in the fourth quarter. The unit of Norway's largest financial-services firm, DNB, disclosed the stock trades, among others, in a form it filed with the Securities and Exchange Commission.

Norway’s commitment to renewables is a very vocal and not least because it is such a large exporter of oil and gas. Nevertheless, one cannot argue with the timeliness of these purchases. Tesla lost 75% of its value in little more than a year. That’s a sufficiently large drop to encourage some value oriented interest. 

I posted the first part of this update on Wednesday and saved the second part of today. The number one theme in emerging markets is governance. That’s where Saudi Arabia is clearly attempting to make an impression.

In speaking with the junior minister for investment, the decision to give opportunities to young people is very intentional. They know the only way to achieve the progress they need is through harnessing the productive capacity and thirst for invention of the young.

It’s incredibly refreshing to meet so many tenacious young people with ambitious dreams for the future. The fact they have a route to achieve their goals is even better.

The Aframax Sealeo is on its way to the US after receiving Venezuelan crude in a ship transfer off Aruba, according to ship-tracking data compiled by Bloomberg. 

Sealeo received Hamaca crude oil from tanker Caribbean Voyager in a ship-to-ship transfer ~Monday

Caribbean Voyager loaded ~500k bbl Hamaca ~Jan. 6 at the Venezuelan government-controlled port of Jose

Sealeo signals Pascagoula, Mississippi, as destination; Pascagoula is the site of the Chevron Pascagoula refinery, a facility designed to process heavy sulfurous oil like the types produced by Venezuela

Cargo is first to sail to US after the country eased sanctions against Venezuela in November

Last time US received Venezuelan crude was in May 2019 when Motiva Port Arthur refinery in Texas took ~350k bbl of Diluted Crude Oil: AHOY data compiled by Bloomberg

Other Chevron tankers sailing to/from Venezuela:

Kerala, which loaded 250k-300k bbl Boscan crude for Chevron, is currently anchored off Lake Maracaibo awaiting orders

UACC Eagle, which is bringing ~620.4k bbl of US heavy naphtha to Venezuela, is currently moored at the port of Jose to discharge.

The less remarked upon result of the shale oil revolution is it is predominately Texas light sweet. Most of the refining capacity on the Gulf coast is set up to handle heavy crude; mostly from Canada and Venezuela.

The Urals grade, by far the country’s top export stream, was $37.80 a barrel at the Baltic Sea port of Primorsk on Friday, according to data provided by Argus Media. That was less than half where Brent futures settled on the same day.

The ballooning discount follows the European ban on almost all seaborne crude imports from Russia that imposed from Dec. 5. Simultaneously, the European Union joined with the G-7 industrialized nations in imposing a cap on the price of Russian supply. Anyone wishing access to Western services — in particular industry standard insurance, but also an array of other things — could only do so if they paid $60 of less.

The western price cap is “illegal” and will affect stability of the global energy supply, requiring “significant cooperative effort by responsible countries to remedy,” the ministry said, reiterating earlier statements by President Vladimir Putin and top Russian energy officials.

Russia is prepared to cut its crude production by 500,000-700,000 barrels a day in response to the threshold, Deputy Prime Minister Alexander Novak said last month. 

The energy markets remain in a state of flux. Europe wants cheaper energy but the USA is now an exporter with a government willing to buy at around $70. Meanwhile the perennial issue of sustaining sufficiently high prices to balance bloated budgets among OPEC members has not gone away. Russia has a challenge in reducing supply because many of its wells are in permafrost. Once shut down, these wells cannot easily be turned back on.

Crude’s dwindling levels of open interest have left it open to sharp swings in recent months, and a failed attempt to break above its 50-day moving average this week has done little to improve the technical picture. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year. 

The impact of a pre-Christmas freeze that hobbled refinery capacity in some parts of the US should also become clearer in inventory data this week, with the industry-funded American Petroleum Institute’s figures due later. In the short-term, that has lowered crude processing capacity in North America and is also weighing on prices. 

“We’ve seen these big freeze-offs in the US and that has meant that the crude balance has actually weakened,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview, referring to US refinery closures due to cold weather. “There’s a few more weeks of softness I would think.”

The weakness in the oil sector has little to do with Chinese demand questions. Instead, the illiquidity of the futures market is an increasingly troubling issue because it increases volatility. Open interest in front-month Brent Crude contracts is back at 2015 levels and trending lower.

A link to the full report is posted in the Subscriber's Area. 

The topic of geopolitics and the world order is endlessly surprising because it does not submit readily to a formulaic approach. In fact, it is just when one thinks the future is most visible, that events transpire to muddy the outlook.

Junk-bond investors had almost no way to avoid losses this year, and shunning dirty energy only made the pain deeper. The best return -- one of very few gains -- was in coal, highlighting challenges for investors who need to perform but also want to be sustainable.

Junk’s 11% loss this year -- the worst since the global financial crisis -- was led by communications and consumer non-cyclical bonds, down 15% and 13%, respectively. Energy performed best in the US high-yield index, down about 5% overall.

Coal -- albeit a very small chunk of the corporate bond market -- is up 3.2%, while oil and gas services debt gained 1.7%. That compares with a global credit market that’s down double digits in most market segments this year, with particularly steep losses for longer-dated debt.

Credit markets are forecast to see a broad-based rebound next year and with many sectors trading cheap to history, junk energy probably won’t be the best again in 2023. But so long as oil prices stay supported by conflict and reopening, it should at least be a buttress for bond portfolios likely to take another beating from inflation next year.

The energy sector has been the best performer in S&P500 for two consecutive years. The fact it is also leading performance in the junk bond market is a testament to the strength of commodity prices in a geopolitically tense environment.

China’s pivot away from Covid Zero is poised to boost natural gas demand in the world’s biggest importer, potentially curbing supply to Europe and other Asian nations.

China National Offshore Oil Corp. is now looking to secure more shipments of the super-chilled fuel for next year. The return to the market of one of the nation’s largest liquefied natural gas buyers follows a period of subdued demand, due to virus curbs suppressing economic activity, and may herald a rebound in imports. 

Beijing’s move to reopen its economy and live with Covid-19 has seen most internal restrictions being dismantled over the last few weeks. Provided that’s not rolled back as cases surge, that will increase the challenge for Europe next year as it prepares for the winter of 2023/24 with little or no natural gas from Russia. 

Chinese gas imports are likely to be 7% higher in 2023 than this year, according to Wang Zhen, president of Cnooc’s Energy Economics Institute.

The forecast belies still-weak industrial demand. Many factories will send workers home earlier-than-usual for the Lunar New Year holidays, while local production and Russian pipeline flows are rising.

There are already signs China will need to increase LNG purchases to prepare for next year, however. Inventories at northern ports are depleting faster than normal amid cold weather and have dropped to the mid-to-low level, according to ENN Energy’s research group, while domestic LNG prices are trending higher.

The Chinese economy is going to experience significant issues as COVID cases ramp higher. The sheer volume of ill people will mean lower productivity over the first quarter. However, peak infections will likely be reached within 10 weeks. After that, there is clear scope for the fiscal measures already introduced to support the property market will become evident.

“My biggest concern is the slowdown they’re seeing in China,” Matt Maley, chief market strategist at Miller Tabak + Co. said, adding that “as long as Elon Musk is spending a lot of time with Twitter, it’s going to keep a lid on the stock.”

Bloomberg News reported Friday that Tesla plans to suspend output in stages at its Shanghai electric car factory from the end of the month until as long as early January, amid production line upgrades and slowing consumer demand. 

Meanwhile, Twitter is more than a distraction. Musk’s bankers are considering replacing some of the high-interest debt he layered on Twitter with new margin loans backed by Tesla, people with knowledge of the matter told Bloomberg.   

I saw in another article that SpaceX is valued at approximately $140 billion. The purchase of Twitter has stretched both Elon Musk’s time and finances. If his creditors impose a margin loan there is clear scope he will be denuded of his Tesla holdings if Twitter does not turn around quickly. That may result in a rush to IPO SpaceX to raise cash.

China’s Contemporary Amperex Technology, the world’s biggest maker of electric-car batteries, signs a global partnership agreement with Honda Motor, according to an exchange filing to Shenzhen Stock Exchange.

China has worked hard to capture the market for EV batteries and that is now paying dividends. Traditional car companies all now want to be EV companies but are years behind in building their own factories and supply chains. That is most especially true for batteries. China has a dominant position in mining and processing the respective raw materials. The implication is clear, there is no way for car companies to achieve their EV goals without outsourcing at least part of the process to Chinese companies.

The Biden administration is seeking to stop sales from the Strategic Petroleum Reserve mandated by Congress so it can refill the emergency reserve, a move that could impact the release of 147 million barrels of crude oil.

The Energy Department is seeking to cancel or delay sales mandated by Congress in fiscal years 2024 through 2027 so that it can move forward with a White House plan to refill the oil reserve when crude prices reach around $70 a barrel, an agency official told a Senate committee Thursday. Congress has mandated the sale of 147 million barrels of oil to pay for unrelated legislative initiatives during that time frame, including 35 million barrels in fiscal 2024, according to data compiled by research firm ClearView Energy Partners. 

“It doesn’t make sense for us to be releasing oil while we’re trying to refill the SPR,” Doug MacIntyre, the department’s Deputy Director for the Office of Petroleum Reserves, said in testimony before the Energy and Natural Resources Committee. “We can’t fill and release from the same site at the same time.”

It would be easy to conclude the US government had never heard the maxim “buy low, sell high” when they decided to put the floor for purchases at $70. Of course, if we instead think of the USA as a major energy producer, with an administration that is attempting to force a migration away from dependence on oil, higher prices for longer make sense.

Since returning from the Chart seminar in London I have spoken to several people who work in the Israeli high-tech industry, They all tell me that about 10% of their colleagues have lost their jobs recently. Today you referred to your MIIN index. How can we invest in these countries?

Thank you for this additional insight. The market for big ideas ballooned with the delivery of free money. Suddenly, no idea was too grand, or time to delivery/commercialization too long. That trend was looking tired in 2019, as the Federal Reserve’s quantitative tightening was siphoning liquidity from the global economy.

“Russian LNG has to continue to flow,” said Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy. “We need that on the global LNG balance: it is already tight enough as it is. I think most European countries are indeed happy to turn a blind eye on this.”

Among European nations, only the UK and Baltic states have stopped buying Russian LNG. By contrast, Russian oil has been widely shunned by buyers across the region, and an EU ban is set to come into force on Dec. 5.
 
A complete embargo on Russian gas has never been seriously considered, given the scarcity of global supply and the potential for an even tighter market next year. Yet the EU has made efforts to find alternative supplies. In March, the bloc pledged to replace almost two-thirds of its gas imports from Russia this year, with most of the new volumes coming in the form of global LNG.

Russian gas now makes up less than 10% of the region’s supply of the fuel, down from more than a third last year, but the share of LNG in Russia’s deliveries is close to half.

 

There is a great deal of discussion about the prospect of a price cap on Russian oil and gas exports. This is the alternative to a full embargo on Russia imports which are slated to go into effect next week. Since Europe still relies on Russia for 10% of its gas, the “price cap” is a virtual necessity to keep economic activity moving even if it is impossible to enforce effectively. That suggests a deal will be reached in coming days.

Global bond yields will likely fall slightly in 2023 as the balance between demand and supply will improve by $1 trillion, strategists at J.P. Morgan said in a note.

There will be a $700 billion contraction in global bond demand next year compared to 2022, while bond supply will likely drop by $1.6 trillion, J.P. Morgan strategists, led by Nikolaos Panigirtzoglou, estimated in the note issued on Thursday.

"Based on the historical relationship between annual changes in excess supply and the Global Aggregate bond index yield, a $1 trillion improvement in the demand/supply balance would imply downward pressure on Global Aggregate yields of around 40 basis points," the Wall Street bank said.

J.P. Morgan said that while major central banks trimming their balance sheets in 2022 was the single largest contributor to deterioration in bond demand, sell-offs by commercial banks and retail investors were also much higher than estimates.

There is a strong likelihood inflationary pressures will fall next year. There are three major reasons for believing that.

Equinor ASA, Norway’s biggest energy company, said a European Union proposal to cap natural gas prices is unlikely to dampen exports of the fuel to the region.

“The intention behind the proposed mechanism is to avoid episodes of excessively high gas prices and not to implement a permanent intervention in market mechanisms,” Equinor spokesperson Magnus Frantzen Eidsvold said in an email Wednesday. “Our immediate assessment is that this will not have substantial consequences for our exports.”

Norway is Europe’s biggest supplier of natural gas, after Russian flows were slashed following the invasion of Ukraine. Norwegian Oil and Energy Minister Terje Aasland said in October that the country expects to sell about 8% more gas this year than it did in 2021, much of it to continental Europe.

After months discussing how to prevent gas from skyrocketing again, the European Commission on Tuesday proposed an emergency brake on prices. However, the cap is only triggered when benchmark Dutch futures exceed €275 per megawatt-hour for two weeks and the gap between TTF and liquefied natural gas prices is greater than €58 for 10 trading days.

Dutch futures are currently trading at €130 which is a fraction of the peak values over €300 in August. The big question going forward is whether the price cap will be enforceable in the event of a fresh energy crisis. Additionally, the reliable suppliers like Norway would also be penalized through no fault of their own.

Saudi Arabia denied a report that it is discussing an oil-production increase for the OPEC+ meeting next month, and said it stands ready to make further cuts if needed. 

Crude futures pared earlier losses, trading 1.8% lower at $86.04 a barrel as of 5:18 p.m. in London. 

“The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023,” Saudi Energy Minister Prince Abdulaziz bin Salman said in a statement via the Saudi Press Agency. “If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”

Oil futures earlier dropped as much as 6.1%, dipping below $85 a barrel for the first time since September, after the Wall Street Journal reported that the kingdom and other members of the group were considering raising output by as much as 500,000 barrels a day. 

That would have been a major reversal after the Organization of Petroleum Exporting Countries and its allies decided in October to cut production by 2 million barrels a day. US President Joe Biden has slammed the move, saying it endangers the global economy and aids fellow OPEC+ member Russia in its war in Ukraine.

After an initial rally following the cuts agreement, crude prices have declined as the economic outlook deteriorates and China continues to grapple with Covid-19 outbreaks. OPEC twice reduced its forecasts for global oil demand, and Prince Abdulaziz has said the group will remain cautious due to “uncertainties” about the health of the global economy. 

Saudi Arabia has already cut oil exports sharply this month to deliver on the OPEC+ agreement, according to data from energy analytics firm Kpler Ltd. The cartel’s next meeting is scheduled for Dec. 4.

The oil market is very finely balanced so it is unlikely there will be a unanimous agreement to cut or increase supply. The global economy is slowing and China will be grappling with the coronavirus for at least the next 18 months. At the same time, European sanctions on Russian oil are due to go into effect in the next coupe of weeks and that is likely to be a significant source of volatility.

The disruption to oil flows caused by Moscow’s missile attack on Ukraine underscored the need for Europe to find alternative sources of energy. But the LNG that the continent is seeking as a long-term replacement for Russian natural gas won’t come cheap.

There’s already a shortage of vessels to deliver liquefied natural gas due to a surge in demand, and a cold snap would increase global competition for tankers. Traders are paying at least 50% more to secure the ships, meaning higher costs for importing nations. Some of the newest, energy-efficient vessels are reportedly fetching up to $200,000 a day - almost double current rates.

A record 40 LNG tankers are now at sea, waiting for European prices to increase once winter sets in, according to shipowner Flex LNG Ltd. There are already bottlenecks at some ports, mainly in the UK and the Netherlands. That’s due to a limited number of facilities to handle the influx and storage tanks that remain near full with mild weather muting demand.

This congestion has caused ships to be tied up in floating storage, removing tankers from the spot market, Flex LNG Chief Executive Officer Oystein Kalleklev said.

Germany is one step closer to providing some relief for the continent. On Tuesday officials said work was complete on the first jetty for a floating terminal near Wilhelmshaven on the North Sea. Firms including energy giant Uniper SE are now doing additional construction, with the idea of having the terminal operational this winter.

Still, supply could be tight during the coming months, just when Europe needs it most. The continent has relied on the US for much of its imports, and the return of Freeport LNG facility in Texas - following an explosion in June - was set to provide some relief. Now, it looks like the facility will remain offline as repairs continue and it awaits regulatory approvals to restart.

An extended outage at an LNG complex in Malaysia could further tighten the market, increasing spot cargo demand from North Asia. Spot LNG prices in the region surged Wednesday on higher freight costs.

Replacing reliable pipelines supplies with ship borne cargoes is far from ideal but it is a necessity for most of Europe. Even if the war in Ukraine ended tomorrow, politicians have learned their lesson, overreliance on a single suppler is ill advised. That ensures LNG will be a well-supported market in Europe regardless of any other events over the next decade.

Traders who have for long been seeking clear signals of a pivot away from the staunch Covid Zero policy cheered the slew of changes announced on Friday, which included a cut in the amount of time travelers and close contacts must spend in quarantine, and a pullback on testing. The decisions by the National Health Commission followed a meeting by the nation’s top leaders on Thursday, where a more targeted approach was encouraged to tackle outbreaks.

“This is a huge positive for the market,” said Wang Yugang, a fund manager at Beijing Axe Asset Management Co. “Of course how much efficacy these measures have for the economy we will need to observe.”

In a display of broad market optimism, every stock on the 50-member Hang Sang China gauge was up on Friday. On the mainland, the CSI 300 Index ended 2.8% higher.

The Chinese government is wrestling with the opposing challenges of rising cases and the slowdown in the economy. The reality is quarantines cannot stop the spread, only slow it down, when COVID is endemic everywhere else. At some stage China will have to grasp the nettle and tolerate higher numbers of infections for longer. How willing they will be to tolerate millions of cases a day remains an open question. Of course the answer, supplied by India’s experience, would be to simply stop counting.

JPMorgan Chase & Co. and Citigroup Inc. are maintaining some ties with Russian companies for strategic reasons on directives behind the scenes from the U.S. State Department and Treasury Department, Bloomberg reported on Monday. The country's biggest banks are caught between Congress, which is pushing for strict sanctions against Russia for its invasion of Ukraine, and the Biden administration, which has urged banks to continue doing business with strategic Russian companies, Bloomberg reported, citing people familiar with the situation. Nnedinma Ifudu Nweke, a lawyer at Akin Gump Strauss Hauer & Feld LLP who specializes in economic sanctions, told Bloomberg that some pockets of business are still allowed with Russia, particularly in the humanitarian space as well as facets of the financial system that would pose a systemic risk. A spokesperson from the Treasury Department told Bloomberg that it has issued guidelines to banks to assure that humanitarian aid, energy and agriculture activities continue.

This would be a news grabber on its own but when it comes in tandem with the story that the USA asked Ukraine to at least act like they are open to negotiations with Russia it is potentially even more significant. 

Zambia, too, has ambitious expansion plans. The region could add nearly 1 million tons of annual copper production over the next decade, according to Adam Khan, copper supply analyst at CRU Group, and others are more optimistic still.

“Copper is the new oil,” Zambian Finance Minister Situmbeko Musokotwane said in an interview. “This is a very good opportunity for us.”

There’s no doubt that the region’s copper will be needed. To meet the global target of net-zero by 2050, the world may need to double supplies of what S&P Global calls “the metal of electrification.” “The green-energy transition is the biggest purchase order in history for the commodities industry,” said Benedikt Sobotka, chief executive officer of miner Eurasian Resources Group.

To be sure, logistics are not the only impediment. Corruption is rife, and disputes with governments are common. One of the largest copper and cobalt mines, Tenke Fungurume, hasn’t been allowed to export any material since July because of a dispute between its owner CMOC Group and Congolese state mining company Gecamines.

The COP27 Conference opened in Egypt today and the number of articles highlighting the plight of climate affected populations both domestically and internationally has increased significantly over the last week. The above article focuses on the supply issues of transporting resources to the coast and the additional challenge posed by the plans to increase supply before infrastructure has been built. Meanwhile Glencore was fined £281 million for bribing officials in Africa. Never mind that it is impossible to do business in the region without local partners.

doubled to $9.45 billion, because it was making big investments in North Sea fields. 

The fact that Shell wasn’t liable for the levy, which was designed to allow companies to reduce their payments if they invest in new production, nevertheless threatens to amplify the controversy about record oil-company earnings at a time when most people are struggling with soaring energy bills. 

There are growing calls for British Prime Minister Rishi Sunak, who imposed the windfall tax in May when he was Chancellor of the Exchequer, to hit the sector with additional levies as he tries to fill a £35 billion hole in the country’s finances. Even Shell’s boss acknowledged the possibility of further government intervention. 

“They will be looking at companies like us, who benefit of course from the volatility and the prices that we see, to fund the programs that they are rolling out,” Chief Executive Officer Ben van Beurden said on a call with reporters Thursday morning. “We have to accept it and we have to embrace that.”

One of the first measures Rishi Sunak took when he became prime minister was to reimpose the ban on fracking. That’s putting more focus on boosting oil and gas supply from the North Sea. Shell expects to spend £23-27 billion on capital expenditure this year which is at least 20% more than last year and on par with years like 2018 and 2019.

“We’re delivering on our commitments and affirming our full-year guidance despite a challenging environment because demand continues to be strong for GM products and we are actively managing the headwinds we face,” GM Chief Executive Officer Mary Barra said in a letter to shareholders.

Shares of the carmaker rose 2% to $36.45 as of 9:35 a.m. in New York. The stock is down about 38% this year. 

GM reported adjusted profit of $2.25 a share on Tuesday, surpassing analysts’ projection for $1.89 a share. It also maintained guidance for full-year adjusted earnings before interest and taxes of $13 billion to $15 billion, or $6.50 to $7.50 a share. 

“GM yet again affirmed the strong and until now mostly disbelieved full-year total company EBIT outlook it has maintained since introduction in February,” J.P. Morgan analyst Ryan Brinkman said in a research note. “GM is now well on the path to achieving its full year goals, despite the tougher consumer and cost backdrop.”

Auto manufacturers talk a good game of expanding EV production with stated expectations of massive increases in the number of electric vehicles manufactured. However, they continue to sell SUVs and pickup trucks. Companies like GM and Ford don’t sell large numbers of sedans so the commitment to selling EVs is moot.

Insufficient pipeline capacity has actually been a long-term problem that has dogged Permian Basin gas producers for years. The choke points worsen when pipeline operators must perform repairs and preventative maintenance work that forces temporary reduction in pressure or halts to shipping. 

Permian pipeline constraints “have never been relieved,” making the region more susceptible to sudden gluts and price volatility, said Campbell Faulkner, chief data analyst at OTC Global Holdings LP.

The world is not running out of natural gas. What we are dealing with at present is a supply bottleneck. These kinds of problem can be solved. It would be a lot worse if there was a genuine shortage of global natural gas supply. However, to bring prices back to acceptable levels significant investment in pipeline, LNG import and export facilities, and shipping will be required.

Inside Lula’s campaign, the result in Brazil’s most populous state — the birthplace of his political career, and containing about 25% of the entire electorate — was compared to a plane crash, where a confluence of small factors leads to catastrophe. At his team’s first post-election meeting, the talk was of frustration and failure. 

Edinho Silva, the former president’s campaign coordinator, may have had an inkling of what was to come, saying in an interview on the eve of polling that Sao Paulo had become a center of hard-core support for Bolsonaro’s brand of right-wing identity politics. 

“We have a percentage of Brazilian society that, unfortunately, is racist, homophobic, sexist, xenophobic, and doesn’t accept the social ascent of the lower classes,” he said. “And a significant part of Brazil that thinks in this way lives in Sao Paulo.”

Here is a novel idea. Perhaps Brazilian voters are not prepared to install a man who squandered the bounty from the last commodity boom on vanity projects. As if that were not enough, he  led an administration that was the most corrupt in the country’s history, and that is saying something. Lula was jailed for corruption and was only allowed to run because he was offered a politically motivated dispensation.

Our latest assessment, taking on board the change in borrowing costs since Hunt’s announcement and the policies in the statement, is that a further £13 billion will still need to be found to just get debt falling relative to GDP. It would take more like £36 billion of consolidation to put it on the same trajectory as we projected before the mini-budget was published in September.

Debt Still On Explosive Path
Finding a package of spending cuts that are politically viable and deliverable will be extremely challenging -- much of the low-hanging fruit has already been picked. Hunt faces an uphill struggle to win the faith of markets as he formulates a budget, to be delivered on Oct. 31.

Hunt also said that the universal household energy price cap will be replaced from April 2023 with more targeted measures. It’s not clear what those measures will be but removing the government cap altogether and reverting to Ofgem’s methodology from April would imply a 75% rise in energy bills for households. Inflation would jump to 11.6% in April, against 6.4% under the cap.

The combination of austerity and less support for households next year means the risks to our forecast for a 0.4% drop in GDP in 2023 have shifted to the downside. 

Jeremy Hunt introduced a reset over the weekend which puts the UK government’s finances back to where they were two weeks ago. As a result the Pound is back to where it was on September 20th. Deficits are wide but the assumption is the universal energy price cap is assumed to be temporary. The reality is price controls are difficult to remove once installed and are always expensive to maintain.

The U.S. Energy Secretary in August urged domestic oil refiners to refrain from further increasing exports of fuels like gasoline and diesel, adding the Biden administration may need to consider taking action if the plants do not build inventories.

The EIA warned this week that most U.S. households will pay more to heat their homes this winter. President Joe Biden said on Thursday that U.S. gasoline prices remain too high and he will speak next week about lowering the cost. 

I’ve seen a lot of commentary predicting an oil price spike is imminent, that the winter is going to result in a chronic shortage of every form of distillate and there is nothing being done to solve the issue. Meanwhile, the number of drilling rigs in service continues to trend higher and the economic activity is likely to moderate everywhere in response to higher rates. Energy is mostly about supply but at economic turning points it is about demand.

Russia’s President Vladimir Putin said any energy infrastructure in the world is at risk after the explosions on the Nord Stream gas pipelines.

The attacks were an act of terror that set “the most dangerous precedent,” the Russian president told a Moscow energy forum on Wednesday. “It shows that any critically important object of transport, energy or utilities infrastructure is under threat” irrespective of where it is located or by whom it is managed, he said.

Putin blamed the sabotage on the US, Ukraine and Poland, calling them “beneficiaries” of the blasts that caused major gas leaks in the Baltic Sea. The US and its allies have rejected those allegations and suggest Russia may have been behind the underwater blasts.

The attacks on two strings of Nord Stream and one string of Nord Stream 2 at the end of September have raised concerns over the future of Europe’s gas supplies. Other critical infrastructure in the region has also suffered damage in recent weeks. 

Earlier this month, an act of sabotage halted train services across northern Germany and the government has said it can’t rule out foreign involvement. A pipeline that carries Russian oil through Poland was found to be leaking on Tuesday. Investigations continue, and Poland’s top official in charge of strategic energy infrastructure said he assumed it was an accident.

This is a none too subtle threat to expect escalation of attacks on energy infrastructure for as long as the EU is supporting Ukraine’s resistance efforts. The sabotage of Germany’s rail network with specialized interruptions conducted simultaneously at locations 200km apart is a display of Russia’s extraterritorial ability to sow disruption.

We’re living through an extraordinary time in American history, and really in all human history. Once you take that big-picture historical perspective, once you look at the whole forest rather than the individual trees, the real story of our times starts to make more sense. We happen to have arrived at a juncture between two very different historical eras and that makes everything on the ground very confusing, and very traumatic.

One way to understand this is that for the last 40 years America and the world have been operating within a series of interconnected systems that add up to one mega-system. Our energy system was rooted in carbon, and our transportation system was based on the internal combustion engine. Our culture was dominated by the huge Baby Boom generation and our politics tended to be more conservative. Our economics was all about unleashing the private sector and maximizing shareholder capitalism. Work was done in physical places and production was primarily industrial. Our uber-challenge was terrorism, and our geopolitical focus was the Middle East, which made sense because we needed to keep the carbon energy flowing to keep the whole flywheel of this mega-system spinning.

That whole mega-system, and all the subsystems, arguably are now breaking down and often causing more problems than they are solving. This world that older people spent their entire careers and lives mastering is coming to an end. This world that younger people were taught is “just the way things are” increasingly does not make sense. This world that politicians proudly had policies for, and that the media confidently analyzed and explained, is soon going to be over.

Every one of those systems arguably is being superseded by new systems much better suited for the 21st century. Our uber-challenge is now climate change and so our energy system must shift to clean power and our transportation system to electric. Our culture now is dominated by the huge Millennial generation and our politics are becoming more progressive. Our economics is raising the role of the public sector and capitalism being pushed to include all stakeholders. Work is now taking place much more virtually, and production is on the cusp of becoming biological. And our geopolitics is recentering on Asia, and in particular on the new superpower, China.

There are two important cycles investors need to be aware of. First you have the technology cycle. Time marches to a different beat inside universities and labs all over the world. The market may go up and down but smart people, beavering away on their pet idea, will eventually lead to technological innovations that take everyone by surprise.

The possible disruption comes at a time when Japan and many other countries in Europe are scrambling to ensure gas supply for the peak winter demand season as they face the threat of an energy cut-off from Russia amid the war in Ukraine.

The force majeure was due to a leak on the Sabah-Sarawak Gas Pipeline on Sept. 21, the Mitsubishi spokesperson said, adding it was assessing the impact from the action.

"We have already strongly requested that Malaysia LNG take all possible measures to examine and respond to the impact," he said.

"We will closely monitor the situation and provide full support to Malaysia LNG in order to minimize the impact on the Japanese market," he said, adding there would be limited impact on its earnings.

The spokesperson declined to give details such as the dates of declarations and volume of the supply that may be affected or how long the supply disruption could last.

We are in a tight supply environment so every pipeline or processing facility interruption makes global headlines. Nevertheless, there is still potential that the explosion at the Freeport terminal in Texas, the Nordstream pipeline explosion and the Petronas leak are related events. Regardless of whether these events are the result of malicious intent, the argument for any measure that supports energy independence is more convincing than ever.

Liquefied natural gas will be in short supply in the coming years as production lags behind surging demand from Europe, according to the world’s top producers of the fuel.

Global LNG demand is unlikely to peak for another 20 to 30 years, Qatar Energy Minister Saad Al-Kaabi said at the Energy Intelligence forum in London. Meanwhile, supply will remain “structurally short” until there’s significant new production capacity, which will be 2026 at earliest, Meg O’Neill, chief executive officer of Australia’s Woodside Energy Group Ltd., said at the event.

Their comments add to a growing chorus warning that Europe’s worst energy crisis in decades is unlikely to end soon. While the continent looks set to cope this winter, it’s next winter when the supply shortage will really bite as Europe tries to replenish its stockpiles without Russian imports.

“Next winter is going to be the problem,” Al-Kaabi said. “It doesn’t look like it’s getting better.”

The opinion that Europe will cope this season is implied in prevailing prices of natural gas. It is not reflected in media coverage which continues to paint a dire picture of what this winter will feel like for many consumers.

Dear Eoin, In the 1960s and 1970s subscribers to the David Fuller Chart Service received a booklet containing hundreds of charts each week or each month. I used to come into the office at 6a.m. and complete the point and figure charts each day. Thanks to this work, I gained a reputation among my colleagues for being the first one to spot changes in the long-term trends of both overall markets, sectors and individual shares. As of this morning, I am getting up one hour earlier and I will start by looking at all the daily charts of the Autonomies in the Chart Library. Let's hope that this will produce the same result. This morning's work show very small blue upward marks in almost every chart. These are tiny upward movements in the year-long major decline in all these share prices. This "summer's swallow" has not yet started chirping. Regards,

Thank you for this account. David was still having chartbooks printed in 2003, when we began working together. By that stage they were a very niche product that had become obsolete with the development of charting software. Nevertheless, the practice of looking at lots of charts is as useful today as it has ever been.

In following your program of activity, I would suggest taking one day to look at point and figure charts. They will give you clear confirmation of a change of trend.