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🏭 Unrealistic Energy Transitions

Earlier this month, OPEC surprised markets by flipping its stance on production cuts weeks after suggesting it would maintain its trajectory through the end of the year. 

At roughly 3.6 million barrels per day, the IEA and other Western officials have criticized the new OPEC+ cuts as “dangerous” for unstable economies. 

While calling foul, the IEA has maintained its antagonistic perspective on investing in new fossil fuels. 

OPEC+ says treating fossil fuels as the enemy will do more harm than short-term fluctuations in production. 

In many ways, they’re right. 

The IEA’s stance against fossil fuels has filtered through to Western policy-making. Nowhere is this more evident than with the recent announcements unfolding out of G7 climate and energy meetings. 

The G7 and EU members are pushing an energy transition to new technologies without accounting for their hierarchy of energy needs. That hierarchy requires a mix of reliability, affordability, and efficiency. 

In Germany, officials are pushing for a wind-solar renewable energy stack to supply at least 80% of the country’s needs. The country’s final three nuclear facilities shut operations permanently in the last two weeks. Simultaneously, the G7 called for no new investments in fossil fuels like LNG and coal. 

Modern renewable technologies cannot supply reliable energy when the sun isn’t out, or the wind isn’t blowing. 

It begs the question, how will Germany or other anti-fossil fuel countries get reliable, affordable, and efficient energy when transitioning to renewables, as the G7 policy suggests?

Ultimately, they forgo efficiency. 

LNG supplies aren’t developed enough to keep up with global demand, should it pick up like last year. As a result, Germany’s existing plants are firing what’s abundant: domestic supplies of lignite coal. 

The EU, US, and many G7 coalition members are leading the conversation on climate initiatives, often pointing fingers at the rest of the world for fossil fuel use. But developing nations won’t adopt policies that prevent constituents from predictably receiving energy. 

OPEC+ and some G7 ministers are acknowledging the discrepancy. 

Instead of abandoning fossil fuels altogether, efficient transition stacks should be developed until no- and low-carbon technologies become feasible globally. 

💹 Argentina Pays With Yuan

This week, Argentina announced it would begin paying for Chinese imports with yuan instead of dollars. 

April transactions with yuan are expected to reach $1 billion, and Argentina aims to maintain the pace with roughly $790 million in imports per month thereafter. 

Argentinian officials say the measure will reduce the current outflow from its dwindling dollar reserves. 

At the same time, the decision is a peripheral signal about the dollar’s trajectory as a global currency. 

Energy imports and exports are undergoing a similar transition. The aftermath of sanctions against Russia has restructured global energy markets counter to the dollar’s favor. 

Asia has stepped in to fill the gap left by Europe’s departure from Russian dependence, and buyers are questioning the dollar’s role in those transactions.

The dollar still dominates, but importers are increasingly adopting currencies like the Chinese yuan to circumvent barriers. 

Sanctions were intended to cap Russia’s petroleum revenue. Instead, they created subsidies for Asian economic growth via a ~$20/barrel discount while constraining the dollar’s influence.  

Quick Shots:

⛽ EPA Grants Summertime E15

Last week, we reported the EPA’s decision to delay a formal policy on year-round sales of ethanol-15 gasoline blends in midwestern states until 2024. 

Governors of several midwestern states quickly submitted requests for waivers to enable summertime sales of E15 for 2023, and on Friday, they got their wish. 

The EPA announced a temporary exemption for 15% ethanol fuel blends between June 1st and September 15th. The agency estimates the waiver will knock off roughly 25 cents for every gallon at the pump.

🔥 Norway to Nationalize Gas Pipelines

Norway’s oil and energy ministry announced plans to nationalize the majority of its gas pipeline network when many licenses expire in 2028. 

The ministry says they want to own central parts of the country’s gas transport system but did not provide reasons for doing so. 

Norway has stepped in to replace Russia as Europe’s largest gas supplier with a network of over 5,500 miles of pipelines. 

☀️ US House Targets Solar Tariff Waivers

On Friday, the US House of Representatives voted to repeal the White House’s suspension of tariffs on solar panels from Malaysia, Cambodia, Thailand, and Vietnam. 

President Biden has warned that he will veto the legislation if it passes through the Senate. 

Biden waived tariffs on the panel imports last year, and the House aims to reinstate the policy to boost domestic solar production. The four Southeast Asian countries produce panels for Chinese companies, accounting for roughly 80% of US solar products. 

✈️ EU Votes To Enforce Sustainable Aviation Fuels

This week, the European Parliament and EU member states negotiated a new deal to set binding targets for European airlines to adopt sustainable aviation fuels (SAFs). 

If EU countries and Parliament finalize the deal, EU airports must hit SAF targets on an escalating basis. By 2025, 2% of all fuel at these airports must be SAF, and the figure climbs to 6% in 2030, 20% in 2035, and 70% in 2050.