One thing to start: The US and Germany yesterday struck a deal to resolve their long running dispute over the Nord Stream 2 pipeline. It did not go down well in Ukraine.
Europe is where today’s newsletter kicks off, as the EU redoubles its push to slash emissions. Our first item is a guest column from Christian Zinglersen, director of the EU Agency for the Cooperation of Energy Regulators (ACER), who argues the integration of European energy markets will be critical to the bloc’s transition efforts.
And as earnings season cranks into gear, our second item lays out the key areas to watch as US oil and gas companies report: will surging crude profits ease green pressure, and can the shale patch’s newfound discipline hold?
Elsewhere, we chart the Olympic Games’ poor track record on sustainability and a new report suggests the climate commitments of many US energy companies are more bark than bite.
And we kick off a new Energy Source video series with a look at Joe Biden’s plans for an American net zero revolution.
As ever, thanks for reading.
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The unsung hero of Europe’s energy transition
This January, Europe’s energy grid split in two, risking power outages across the continent.
Six months later — just as Brussels lays out sweeping plans to clamp down on greenhouse gas emissions — an investigative report into that “power system separation” reveals a crucial lesson for the continent’s energy transition: as the bloc intensifies its efforts to go green, energy market integration will be key.
The January 8 electricity system separation in Europe was significant, having the potential to create serious damage, had it not been managed.
The facts about what happened during the incident reveal something fundamental about Europe’s energy market integration efforts: an ambitious energy transition trajectory, underpinned by the ‘Fit-for-55’ package, (policies adopted last week to slash emissions by at least 55 per cent by 2030), is likely to rely on further integration of energy markets across Europe, not less, making energy market integration the unsung hero of Europe’s transition efforts.
What happened on January 8?
Europe’s power grid split in two, with the trigger originating from a substation in Croatia. Subsequent contributing factors led to a cascade of tripped power lines from the Romania-Ukraine border down to the Adriatic Sea within 20 seconds.
To mitigate this, fast and co-ordinated activation of stabilising measures across countries meant the situation was automatically steadied and then further helped by manual measures to bring the grid back to the frequency necessary for system stability. In total, the split lasted approximately an hour.
Such events are rare in Europe, but if they occur EU rules require an investigation. The Expert Panel’s final report, just released, identifies the causes and consequences, and makes more than 20 recommendations for grid operators, showing where there is room for further improvement.
The value of ‘being in it together’
The January incident took place within a European energy market that has never been more interconnected and interdependent.
Energy interdependency brings benefits. Put simply, meeting different energy needs across the EU member states in a co-ordinated way maintains security of supply at a lower cost.
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here
This will likely prove even more prevalent going forward. As underlined by the ‘Fit-for-55’ package, Europe needs to scale up renewables and rely on electrification pathways to decarbonise significant parts of the economy. Hence, the importance of a vastly integrated power grid across Europe operated efficiently and securely.
Looking at the January incident from this perspective provides comfort. It shows that in times of emergency, our integrated energy system can actually help each country cope with sudden changes given the ability to draw on its neighbours’ stabilising measures. This enhances security of supply across Europe.
But, being heavily integrated also exposes one’s grid to risks further away. Hence, the need to back up such interdependence with vigilantly enforced rules and strong oversight.
Dispelling a few myths
Some commentators were quick to pin the blame for the January incident on renewables. The facts now show renewables played no role. Period.
This is not to suggest that as Europe’s power system draws more on intermittent wind and solar and less on large-scale thermal generation, we can sit back. No, we need to update our approaches, be it from sharing balancing resources across countries to the demand patterns of vehicles or buildings becoming more responsive to wider system needs.
Another myth is that self-sufficiency is attractive for countries to maintain secure supply. Here, the ‘Fit-for-55’ package illustrates the challenges ahead. For Europe’s energy transition to succeed, we will need to draw more on the respective energy endowments of member states, facilitated by free-flowing energy trade and backed by interconnections used to their fullest.
The split in January showed that the sharing of resources across countries significantly enhanced security of supply, rather than lowered it.
This is another, more political, lesson to draw then. Modern security of supply is something we ensure together — as opposed to leaving it for each to tackle. And precisely because of the extensive system of rules and oversight we have in Europe, not only can we enlist our integrated energy markets to decarbonise our economies, we can also use this model to keep the lights on at a lower cost as we transition.
Christian Zinglersen is director of the EU Agency for the Cooperation of Energy Regulators (ACER)
US earnings season: 3 things to watch
It’s earnings season again, and for American oil executives there is more cause for optimism than there has been in quite a while, especially compared with this time last year when many were still fighting for their companies’ survival.
Oil prices are hovering around $70 a barrel, and look to have stabilised after a sharp drop earlier this week. Oil demand is surging back from pandemic lows. Share prices have rallied on the year, though dropped more recently.
Baker Hughes and Halliburton, two of the largest oilfield services firms, were first out of the gate this week and set a strikingly buoyant tone.
Lorenzo Simonelli, Baker Hughes’ chief executive, expects industry activity to “gain momentum” through the year, saying he does not expect the emergence of the highly contagious Delta variant of the coronavirus to derail the recovery.
Here are three big questions we’ll be tracking for you:
1. Will a surge in crude profits ease mounting green pressure?
Executives, under huge pressure from shareholders, have largely resisted the urge to throw money at new drilling as oil prices have risen, setting themselves up for a bumper quarter.
Investors will want to see those profits turned into “cash in shareholders pockets”, either through dividends or share buybacks, analysts at the energy investment bank Tudor, Pickering & Holt wrote in a note this week. That is key to convincing investors that have abandoned the sector that a new shareholder-focused business model is taking root.
But a surge of crude profits will not wash away the sector’s green problems, another barrier to winning back the market. Oil companies will remain under pressure to do more to tackle methane pollution, reduce carbon emissions and find other ways to significantly improve their environmental performance, with an eye on a net-zero future.
2. Eyes turn to 2022: can shale’s restraint hold?
Nobody seems completely convinced yet by the sector’s newfound spending restraint, with many still worried growth-minded executives will open up the taps again next year if prices stay high.
Analysts at Credit Suisse, a bank, say investors will be keenly focused on gauging the sector’s “propensity to resume growth (and at what level) next year”.
Consensus is that companies will signal oil output growth in the mid-single digits — far below the 15 per cent to 20 per cent seen during the boom years — but will not yet lay out specific plans.
We’ll be watching to see if companies hold the line — or if any step out to test the market’s appetite for higher growth given a relatively rosy crude price and demand outlook.
3. More deals in the pipeline?
Dealmaking in the shale patch has been brisk, with $85bn in mergers and acquisitions having been done over the past year as the sector is reshaped by the pandemic and new demands from shareholders.
The transformation is not done yet.
“We expect consolidation and a heightened rate of asset level [mergers and acquisitions] to continue,” analysts at Morgan Stanley said in a note this week. The bank says it expects bigger public companies to turn their acquisitive attention to the smaller private producers, often private-equity backed or family-owned, that still hold large swaths of the shale patch.
Video: President Biden’s net zero revolution
Tomorrow marks the kick-off of the highly anticipated Tokyo Olympics. Environmental advocates are concerned about the event’s sustainability.
A recent report in Nature found that the Games’ sustainability has declined over recent decades, with no recent summer Olympics more sustainable than Barcelona in 1992.
The report looked into the ecological, social and economic sustainability of the past 16 games, including factors like event size, public approval, and financial exposure in their evaluation and assigned each games a score.
The deterioration in sustainability comes despite the International Olympic Committee’s efforts to reduce the event’s environmental impact. Tokyo 2020 medals are made from donated electronics, the podiums are recycled plastic, and 65 per cent of waste will be reused or recycled. The games have also pledged net-zero carbon emissions and launched a carbon offsetting programme.
Gabon is pricing its natural capital to become Africa’s green superpower
John Kerry pressures China to reduce emissions
What will scorching weather mean for the Olympics? (Forbes)
How voting restrictions hurt the climate agenda (Politico)
Opinion: Joe Manchin is holding back the Democrat agenda on climate change. He also invests millions in fossil fuels. (The Guardian)
Energy companies have become increasingly vocal about their climate commitments. But in many cases, this is being undermined by their political activities.
A recent Ceres report found that 92 per cent of S&P 100 companies plan to set emission targets, and nearly all energy and utility companies on the index recognise climate change as a risk in their financial filings.
When it comes to political action, company intentions are less clear. While most of the S&P 100 energy and utility companies have made statements supporting the need for ambitious climate policies, nearly all have lobbied against them in Congress.
Indonesia’s B40 biodiesel plan faces new delay due to palm price
Indonesia’s plans to raise the mandatory bio-content in its palm oil-based biodiesel to 40per cent may face further delays, after the high price of the vegetable oil has made the programme too costly, a senior government official told Reuters.
Indonesia, the world’s largest palm oil producer and exporter, has a mandatory biodiesel programme with 30per cent palm oil content, known as B30, but intends to expand the use of the oil for energy to save on fuel imports.
Authorities had planned to increase the mix to 40per cent in July this year, but the timetable for the B40 programme is now unclear.
“We don’t have a timeline yet for B40, although from the technical side, we’re ready,” Dadan Kusdiana, a director general at the energy ministry, said in an interview. He said implementing B40 in 2022 will be “challenging”.
Indonesia funds its biodiesel programme with proceeds from palm export levies.
However, authorities have revised levy rules three times since last year as they sought to support the biodiesel programme after prices soared, but without hurting exports.
Malaysian palm oil futures hit a record of 4,560 ringgit (US$1,089.35) a tonne on Aug. 12 and have been trading around 4,300 ringgit recently, about 60per cent higher than a year earlier.
Dadan said 45 trillion rupiah to 46 trillion rupiah (US$3.1 billion-US$3.2 billion) is needed this year to fund the difference between using regular diesel and the palm-based fatty acid methyl ester (FAME) for B30.
If prices stayed constant, mixing 40per cent FAME would require around 60 trillion rupiah (US$4.16 billion), he said, while noting adopting B40 would likely boost palm oil prices by shrinking global supply, making the programme even more expensive.
“That is what we’re considering, how capable are we in terms of the levies. We have to provide bigger financing, but it doesn’t have to come from higher levies,” Dadan said, without elaborating on alternatives.
The Indonesian Palm Oil Association (GAPKI) had already said in January it expected B40 to be delayed beyond 2022.
On the technical side, Dadan said the water and monoglyceride contents in FAME must be reduced for B40 to work, requiring new investment by biodiesel producers.
Although biodiesel promises lower emissions, the use of palm oil as a feedstock raises concern about deforestation in the clearance of land to grow it. The European Union is planning to phase it out as fuel for transport.
(US$1 = 14,425.0000 rupiah)
(US$1 = 4.1860 ringgit). REUTERS
Indonesia central bank anticipating risk of rising inflation in 2022: Governor
Indonesia’s central bank expected inflation to be within its target range of 2 per cent to 4 per cent in 2021 and 2022, but warned of potential price pressures next year, Governor Perry Warjiyo said on Wednesday (Aug 25).
“We need to anticipate a risk of rising inflation in 2022, in line with a rise in domestic demand and increasing global commodity prices,” he told a coordinating meeting on inflation management.
Indonesia’s annual inflation rate has stayed below BI’s target range since June of 2020 as the coronavirus pandemic dampened domestic consumption.
July’s rate was 1.52 per cent. REUTERS
Dollar settles near 4-1/2 month highs as risk appetite cools
The dollar held near a 4-1/2 month high versus a basket of major currencies on Wednesday as simmering concerns about the global economy forced investors to seek safety in the greenback before the release of the Federal Reserve’s July meeting minutes.
Sterling and the commodity-exposed Australian and Canadian dollars all hovered near recent lows against the dollar as the broad market mood remained cautious. The dollar index held steady around 93.09, just below an early April high of 93.20 hit last week.
“The FX market is trading exactly as one would expect when growth worries are the dominant theme,” said Marios Hadjikyriacos, a senior investment analyst at XM.
Even the New Zealand dollar, which briefly rose after the central bank set out a hawkish outlook for interest rates, swooned as a mild wave of risk aversion swept through markets.
The Kiwi was down 0.5per cent at US$0.6888 in London trading having risen earlier to US$0.6952 after the Reserve Bank of New Zealand said it would keep rates at 0.25per cent, after the country was put into a snap COVID-19 lockdown.
A monthly fund manager survey by investment bank BoFA Securities showed that investors flipped to a net overweight on the dollar for the first time in nearly a year.
That shift in positioning was evident in more high-frequency weekly data as well with hedge funds ramping up their net long bets on the greenback to the most since March 2020.
While the dollar failed to draw any sustained strength from Fed Chair’s Jerome Powell’s comments and mixed U.S. data, markets shifted focus towards the annual Jackson Hole symposium next week where some expect the Fed to signal a change in direction with regards to its asset purchase plans.
U.S. retail sales fell 1.1per cent in July, more than economists expected but industrial production numbers showed that output at U.S. factories surged in July. and
Elsewhere, the Canadian dollar hovered near a one-month low. [CAD/]
In cryptocurrencies, bitcoin traded at US$45,244, not far from Saturday’s three-month high of US$48,190. Ether stood at US$3,042. REUTERS
Tencent Music posts over 15per cent rise in quarterly revenue
China’s Tencent Music Entertainment Group posted a 15.5per cent rise in quarterly revenue on Monday, as its advertising business rebounded and more people subscribed to its music streaming platform.
Total revenue of the Tencent Holdings Ltd-controlled company rose to 8.01 billion yuan (US$1.24 billion) in the second quarter. Analysts were expecting revenue of 8.13 billion yuan, according to IBES data from Refinitiv.
(US$1 = 6.4742 Chinese yuan renminbi). REUTERS
Credit Suisse brings in former UBS executive to head risk committee
Credit Suisse has drafted a former Chief Operating Officer of UBS and heads the Risk Committee of the Board of Directors. The new chair, Antonio Orta Osorio, has been strengthening the bank’s defenses following a series of scandals.
Axel Lehmann, who left UBS in January, will join Credit Suisse’s board of directors on October 1. Juan Columbus, who played a risk role at Lloyds Banking Group and Alter Osorio’s Santander, will also join Credit Suisse’s board of directors.
Credit Suisse’s reputation for risk management has been hit this year by two crises surrounding professional finance firm Greensill Capital and the family office Arquegos. In two incidents, Credit Suisse liquidated a $ 10 billion investment fund, losing $ 5.5 billion in the worst transaction loss in 165 years of history.
NS Damn report Regarding the loss of Arquegos announced last month, it describes the “fundamental failure of management and control” and “lazy attitude toward risk” at Credit Suisse’s investment bank.
Alter Osorio, who escaped Lloyds from the financial crisis, Join Credit Suisse Board of Directors In April, he said the bank’s plight was the worst he had ever seen in his career. He also promised an urgent review of risk management, strategy and culture. The final details of the review are scheduled by the end of the year.
On Friday morning, Alter Osorio said the proposed appointment of Lehman and Columbus to the board would help strengthen Credit Suisse’s risk management.
“With both deep experience in risk management and business leadership and a career of nearly 30 years in financial services, they are in shaping the strategic restructuring of banks and strengthening the culture of risk management and personal responsibility and accountability. Will make an immeasurable contribution. “He said.
Lehman was Chief Operating Officer of UBS and President of Private and Corporate Banks. His career at UBS and earlier in the Zurich Insurance Group included several risk management roles.
Columbus was Lloyd’s Chief Risk Officer and Chief Operating Officer from 2011 to 2020. Previously, he was Executive Director and Chief Risk Officer of Santander’s UK operations. He has been a member of ING’s Audit and Risk Committee since 2020.
Andreas Gottschling resigned from his role as Chairman of Credit Suisse’s Risk Committee in April after several major shareholders have shown that they will do so. Vote against his reelection..
Richard Meddings, TSB Bank’s executive chair, has been the Interim Chairman of the Credit Suisse Risk Committee since April. He will continue to lead the bank’s audit committee.
Last month, Credit Suisse Hired David Wildermas, Former Deputy Risk Officer and Chief Risk Officer of Goldman Sachs. Wildams will move from New York to Zurich to take up his new position by February 2022.
Credit Suisse brings in former UBS executive to head risk committee Source link Credit Suisse brings in former UBS executive to head risk committee. FT
Global shares mixed as caution sets in on coronavirus worry
Global shares were mixed Thursday as caution set in among investors after banks and industrial companies helped lift stocks mostly higher on Wall Street.
France’s CAC 40 inched up less than 0.1% to 6,860.88 in early trading, while Germany’s DAX was virtually unchanged at 15,826.76. Britain’s FTSE 100 slipped 0.2% to 7,205.48. U.S. shares were set to be mixed, with Dow futures up nearly 0.1% at 35,398. S&P 500 futures inched down less than 0.1% to 4,439.25.
Japan’s benchmark Nikkei 225 edged down 0.2% to finish at 28,015.02. South Korea’s Kospi slipped 0.4% to 3,208.38 after seesawing earlier in the day. Australia’s S&P/ASX 200 ended up less than 0.1% at 7,588.20. Hong Kong’s Hang Seng declined 0.5% to 26,517.82, while the Shanghai Composite fell 0.2% to 3,524.74.
Worries continued in the region about the recent regulatory crackdown in China. Analysts said the next target appeared to be the online insurance industry.
“This comes amid increasing COVID-19 risks, with further tightening of restrictions in several cities potentially impacting the services sector near-term,” said Yeap Jun Rong, market strategist at IG in Singapore.
COVID-19 infection cases are also surging in Japan, where a state of emergency has been in place, even as the nation hosted the Tokyo Olympics and plans to do the same for the Paralympics, which open later this month. New cases are reaching record highs in Tokyo and several other regions. Medical officials say hospital facilities are getting stretched thin.
“On the COVID-19 front, worries over growing restrictions are becoming a cause of concern. Growth expectations in the region will likely take a hit in the coming weeks. The recent resurgence of the virus will probably slow the economic recovery,” said Anderson Alves, a trader at ActivTrades.
After a stumbling start to the week, stocks have been moving higher on the back of strong earnings and better-than-expected economic data. Investors’ concerns about inflation and uncertainty about the U.S. Federal Reserve’s future plans to ease up on its support for low interest rates have been hanging over the market.
While the headline figures may seem bad, most of the rise in consumer prices has been tied to very specific goods that are not expected to impact the long-term health of the economy, like used cars, building materials and hotel rooms. These items came into short supply during the pandemic, and the increased economic activity has made prices for them rise faster than usual.
The Federal Reserve has repeatedly said it believes any increase in inflation would be temporary and largely a result of supply disruptions that happened because of the pandemic. Investors will get another inflation snapshot Thursday, when the Labor Department issues its July wholesale price data.
In energy trading, benchmark U.S. crude fell 4 cents to $69.21 a barrel. Brent crude, the international standard, edged up 1 cent to $71.45 a barrel.
In currency trading, the U.S. dollar slipped to 110.40 yen from 110.41 yen. The euro cost $1.1740, up from $1.1738. AP
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