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11 July 2015

Press review 11-07-2015 - China in decline

This was a week of great volatility and uncertainty with Greece and China sending shock waves throughout the world. Commodities in general were beaten up heavily, with Brent trading at prices not seen in many months.

Greece started the week apparently on the verge of precipice, but events rapidly swerved late Thursday. Politically much has changed, but financially things remain pretty much where they were two weeks ago. There is still no comprehensive solution for Greece and the country remains condemned to economic recession.

If Greece fills up front pages in Europe, developments in China can be more important in the long run. The Chinese economy is clearly cooling down with two digit growth figures now definitely behind. In the process the co-habitation of the two economic systems is coming under strain. The media is largely focused on the stock market, but more relevant information is about, with more details pointing to a terminal peak in petroleum extraction.

The Diplomat
China Peak Oil: 2015 Is the Year
Gabe Collins, 07-07-2015

Intense focus on the North American shale boom, Saudi Arabia, and ISIS obscures an important emerging energy trend: China’s oil production is peaking. This has profound implications for the world oil market, because China is not just a massive importer of crude; it is also among the world’s five largest oil producers, trailing only the U.S., Russia, and Saudi Arabia, and virtually neck-in-neck with Canada.

China’s oil industry has delivered impressive oil and gas production growth over the past decade. Yet a range of data and historical analogies increasingly suggest that, at global oil prices between $50-to-$100 per barrel, China’s oil supply capability is plateauing and may peak as soon as this year. Lower or higher prices would accelerate or extend this timing.
Much has been written recently on the declining Coal consumption in China (and the accompanying decline in CO2 emissions). Little attention is devoted to the reasons behind this decline, but information is slowly emerging. The country has reached a saturation point in its steel usage, meaning that a large swath of its blast furnace fleet is now superfluous.
China’s Peak Steel Demand Threatens to Spark Trade Hostilities
Masumi Suga and Ichiro Suzuki, 08-07-2015

China’s demand for steel has peaked, if the Japanese experience of the 1970s is anything to go by. That could spur more trade conflicts as the nation ships its excess production overseas.

The current decline in Chinese steel output signals the growth period for the commodity has ended in a country where the pace of economic expansion is slowing. Risaburo Nezu, a senior research adviser at RIETI, a think-tank linked to Japan’s trade ministry, expects a prolonged slump, with an absence of growth in demand likely for the next 10 or 20 years.

“Once a country attains a certain stage of economic development, demand for steel stops growing,” Nezu said last week in an interview in Tokyo. “China is left with excess capacity that’s said to be 300 million tons to 400 million tons, equivalent to three to four times Japanese output. It won’t be easy to deal with this.”
Another key country under the spotlight in this review is Saudi Arabia. It is perhaps the epitome of unsustainability, with uncontrolled population growth, a shaky political system and an ageing petroleum resource.
Wall Street Journal
As Saudis Keep Pumping, Thirst for Domestic Oil Swells
Summer Said and Ahmed Al Omran, 02-07-2015

For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country’s crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom’s population has increased 17% since 2005, faster than most developed countries.

At this pace, the kingdom would have to start importing oil by 2030, Citigroup Inc. has predicted, a once unthinkable prospect for the linchpin of the world’s oil market. Khalid al-Falih, the current chairman and former chief executive of the kingdom’s state-owned oil company, Saudi Arabian Oil Co., known as Saudi Aramco, said in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030.

Other analysts are doubtful Saudi Arabia would need to import oil. But in a country where subsidized crude still powers most homes and businesses, and a gallon of gasoline costs less than a bottle of water, Saudi Arabia’s ravenous energy appetite is starting to strain the kingdom’s oil infrastructure and hamper its capability to throttle up exports. In order to tap into reserves, the kingdom will need to extract more heavy crude, which requires large investments to sustain.
But Saudi Arabia is also able to throw its weight around and chose strategic alliances with the most unlikely partners.
Wall Street Journal
Saudi Arabia to Invest up to $10 Billion in Russia
Andrey Ostroukh

Saudi Arabia has signed a commitment to invest up to $10 billion in Russia, the Russian Direct Investment Fund said Monday.

Russia’s latest pact with its closest oil-producing rival marks Moscow’s efforts to replace Western funding, which has been hit by sanctions, just a few days before a summit of five major emerging economies, known by the acronym of Brics, to be held in Russia’s town of Ufa.

The majority of the $10 billion from Saudi Arabia’s sovereign-wealth fund, Public Investment Fund, will be spent on Russia’s agricultural projects, as well as on medicine, logistics, and the country’s retail and real estate sectors, RDIF chief Kirill Dmitriev told The Wall Street Journal.
While attracting investment from Saudi, Russia maintains support for Syria and Iran, secular enemies of the former. Iran, in its turn is still embroiled in negotiations with the UN's selected powers over its Nuclear programme. Midweek the press was reporting the lack of progress as sign of an imminent end to negotiations, but each side gave itself more time to reach an eventual agreement.
As deadline looms, Kerry says U.S. in no rush to get Iran deal
Louis Charbonneau and Parisa Hafezi, 09-07-2015

The United States and other major powers are not in a rush to reach a nuclear deal with Iran, U.S. Secretary of State John Kerry said on Thursday, suggesting an accord was unlikely hours ahead of a deadline set by the U.S. Congress for a quick review.

In another sign an agreement was not at hand, a senior Iranian official accused the United States and others nations of shifting their positions and backtracking on an April 2 interim agreement that was meant to lay the ground for a final deal.
The article below wraps up the expected expansion of the Nuclear fleet around the world. Such news are hardly seen in the western press, where Nuclear seems to have become some sort of taboo.
Nuclear Is Not Dead, Uranium Supply Deficit Could Be On The Horizon
John Manfreda, 09-07-2015

In the nuclear power industry, one country is considered the main catalyst for growth, and that is China. With 26 reactors in operation, China is now transitioning into the second phase of its nuclear power program. According to the world nuclear association, 24 reactors are under construction in China, with some of these being high temperature, gas cooled reactor plants. In fact, China has an ambitious goal of doubling its nuclear generation capacity by 2020.

It’s not just China that has ambitious plans to increase its nuclear capacity; Russia is also increasing its nuclear fuel use as well. Russia has eight reactors under construction at present, with one of them being a large fast neutron reactor. These plants are expected to increase Russia’s nuclear capacity by 50 percent this decade.

And there’s more. India has six reactors under construction. Finland is constructing its fifth large nuclear reactor with the first estimated to come on line by 2017. South Korea is now planning to restart four nuclear reactors by 2018, and the U.S. has five nuclear reactors under construction with plans to build five more after that.

[...] Despite claims to the contrary, nuclear power is not dead. In fact it is still growing around the world. But rising demand will also put a strain on the supply of uranium, and many analysts are forecasting a uranium deficit sometime this decade. Paladin Energy, a uranium producing company, is expecting a deficit in 2016. Paladin claims that uranium prices will need to almost triple in order for new supplies to become economic. Other analysts believe that we will see a supply deficit by 2019-2020. This is why China is actively looking to purchase uranium mining companies, while they are still cheap.
In Europe there are interesting developments regarding Nuclear, but pretty much in the opposite sense to the rest of the world. So far Energy policy has been left at the criterion of each member state, but that could be about to change.
Associated Free Press
Green Austria on warpath against nuclear power in Europe
Nina Lamparski, 07-07-2015

Austria's announcement Monday that it would challenge state aid for a new nuclear plant in Britain marks the latest step in the country's solo campaign to roll back atomic energy in Europe.

[...] Austria filed its complaint at the European Court of Justice after Britain proposed 17 billion pounds (24 billion euros, $26.5 billion) in state funds to help build two reactors, projected to cost 24.5 billion pounds.

Rupprechter is contesting a determination by the European Union's executive Commission last October, which found that the deal was compatible with EU state aid rules.
Reuters reports on a pilot test with grid-connected chemical batteries in France. Unsurprisingly, results are negative, reinforcing the view that some fundamental development must come about before these technologies mature to market readiness.
French renewables power grid pilot shows limits of batteries in Europe
Geert De Clercq, 05-07-2015

A major pilot project by Europe's largest power network operator to integrate power from rooftop solar panels into the grid has shown that battery storage of renewable energy is not yet economically viable in Europe.

The conclusion is a sobering one for proponents of sun and wind energy because as more of it comes on tap, better storage will be needed to keep the power produced when it is sunny and windy so it can be used at other times.
News bits of note on a sideline resource. The last two years of under-priced gold have translated into a spectacular re-allocation of this metal from the West to the East. Gold is far from being a crucial metal in modern society, but its physical properties lend it a monetary function that should not be ignored.
The Barrel
London loses golden touch as China’s build-up of bullion continues apace
Ben Kilbey, 07-07-2015

[...] Since 2013 when Western investors started to liquidate Exchange Traded Fund holdings of gold, and the dollar price in turn started its descent from historic highs, China has been stocking up gold.

Now, exact data of gold imports is sketchy at best, as the mainland doesn’t officially report figures, so analysts use fancy calculations from Hong Kong and Switzerland to get to a rough number.

ANZ, for instance, said recently that as much as 75% of the world’s gold reserves have now been shipped from London vaults to the Middle East and China.
Another weekend where it seems a lot is about to change next week. This time I'll avast from predictions.

Stay cool.

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