Europe prepares for a harsh winter
Meanwhile, Europe’s energy quandary puts that of the US to shame. Germany has declared a gas emergency in response Russian supply cuts. Other European countries including Italy, Austria, and the Netherlands are facing a gas crunch, too. That’s forcing them to turn to coal – and sparking worries of backsliding on dirty fossil fuels. It’s also prompting European players to launch a new generation of non-Russian, gas supply deals. Germany this week signed its first ever binding long-term deals with US LNG supplier Venture Global. And Qatar, currently the world’s top LNG exporter, is suddenly on everyone’s A-list: Last week, it signed up Italian energy company Eni as its second international joint venture partner, after France’s TotalEnergies, to join its 30 billion dollar program to develop the giant North Field East gas project.
But European companies aren’t the only ones betting on Qatar: Reuters reported last week that CNPC and Sinopec, both State-owned Chinese companies, are in advanced talks to invest in the North Field East project and to secure long-term supply deals.
And China sits pretty on an energy bonanza
Speaking of China: While the West struggles to face down the energy squeeze imposed by Russia’s invasion of Ukraine – and US crude processing goes full throttle trying to keep pace – China is enjoying the exact opposite dynamic, and building up international leverage as a result. China and India are continuing to buy Russian crude, and at rock bottom prices. Amid this relative energy bonanza, China is letting roughly one-third of its oil refining capacity sit idle.
The result? In the immediate term, Beijing enjoys energy security, with it greater economic security, at a time of chaos in the West. Beijing is also exacerbating that chaos. In serving as a financier for Russia, China is enabling Moscow’s offensive in Ukraine, and therefore risks prolonging the West’s energy squeeze. And China is doing all of this without lubricating international markets with its own energy production. Looking forward, Beijing may be positioning itself to serve as the arbiter of the future international energy economy and to claim all the influence that might result.
Metal miners keep their purse strings tight
It seems that supply shortages will characterize the next generation energy transition, too. It’s not only US oil companies that are adhering to a strict regimen of capital discipline at a time of soaring prices. Metals companies are showing similar restraint. Though prices of key metals like nickel, iron ore, copper, and zinc have climbed, mining companies aren’t spending extra to dig up more ores. Like the oil firms, big miners are instead opting to for dividends and share buybacks amid investor pressure. This will exacerbate the projected global shortfall as the energy transition drives up demand for the metals.
There are also wildcards at play here, with ramifications for immediate supply: Gecamines and China Molybdenum are currently locked in a 7.6 billion USD dispute over overdue payments on the Tenke Fungurume mine, one of the largest copper and cobalt mines in the world. This could disrupt exports of essential battery materials – and the mine’s future operations.
The US economy has too few tools – and too much hope
Testifying before the Senate Banking Committee, the US Federal Reserve chair confirmed what many already knew: the Fed’s blunt instrument of interest rate adjustments won’t bring down food and gas prices – and rate hikes intended to tamp down inflation mean a recession is “certainly a possibility.” Put another way, the Fed has limited tools to fight inflation and none quite suited to today’s dynamic, yet the Fed has been tasked with tackling the problem all but single-handedly.
That’s not ideal. It’s even less so because economic reports have of late followed a worrying trend of falling short of expectations, suggesting that the challenges facing the US economic system might be worse than any are acknowledging. Last Friday’s report on industrial production showed factory output declining 0.1 percent in May, despite a forecast of 0.4 percent growth. Figures released the day before put housing starts down 14.4 percent in May vice an expected 0.2 percent decline. Then, of course, there were the overall inflation figures for May, with rates up 9.6 percent year-over-year, compared to an expected 8.2 percent.