Japan Oil Use Likely to Remain High through Summer

Japan – a resource constrained, island economy that has long been challenged by its lack of natural resources.  Japan is a major importer of food supplies, basic commodities, and especially energy resources including coal, oil and liquefied natural gas (LNG).

Following the Fukushima crisis, which essentially eliminated Japan’s nuclear power production abilities, Japan’s use of oil has dramatically increased.  According to data from J.P. Morgan Global Commodity Research, February saw Japan’s oil use (for power generation) spike by 520 kbd yoy; an amount roughly the equivalent to China’s projected 2012 oil demand growth (500 kbd).

Looking ahead to the summer months, Japan is making a concerted effort to prevent power shortages and blackouts.  Will oil consumption rise as a result? Many analysts agree that oil use in power is the single largest demand-side uncertainty during the summer peak demand period of July and August.

Even though selected nuclear reactors are scheduled to go back into operation come summer, it is unlikely that the additional power generation will make a dent in Japan’s summertime oil consumption levels.  It is estimated that only 6 of Japan’s 54 closed reactors will be opened by the summer.  Japanese utilities could still burn up to 800kbd of oil for power generation during July and August, despite the inclusion of these reactors.

Furthermore, the Fukushima crisis has altered the way Japan structures its power production, particularly as related to oil.  Prior to the accident, oil supplies were largely allocated for peak demand periods, when power plants had to ramp up to satisfy the highest levels of consumer electricity use.  Now, oil is often utilized for peak and mid-range use, resulting in a larger, more consistent demand profile.

Oil’s involvement in this earlier process stage has kept demand levels up.  Summer heat will result in heavy demand for air-conditioning, thus amplifying the daily demand peaks.  Oil will be relied upon to meet demand and avoid power outages.

Many uncertainties remain.  Weather patterns (such as major heat waves) could complicate matters or ease the burden.  Implementation (or lack thereof) of power conservation measures may also have an impact on usage.

As part of our macro investment strategy, we keep a close eye on energy resource consumption patterns around the globe and take note of changing trends.  Learn more about our sector focus by clicking here.

 

Chinese Water, Agriculture at Risk from Climate Change

The Chinese government’s “Second National Assessment Report on Climate Change” warns of significant risks to agriculture and water resources as a result of a changing climate.

Global warming may reduce crop yields, shrink rivers and increase the frequency of damaging droughts and floods, says the 700+ page report, recently released to the public.  Chinese prosperity and economic growth may be hindered as a result.

If global warming trends continue unmitigated, Chinese grain output could fall between 5% and 20% by 2050.  China is already the world’s largest consumer of grains and relies heavily on imports of key commodities.  Any decrease in domestic production would be deeply felt.

Lin Erda, one of the chief authors of the report, remarked:

“Generally, the observed impacts of climate change on agriculture have been both positive and negative, but mainly negative.  But steadily, as the temperatures continue to rise, the negative consequences will be increasingly serious.  For a certain length of time, people will be able to adapt, but costs of adaptation will rise, including for agriculture.”

However, Lin points out that improved crop choice and more efficient use of irrigation and fertilizer could help the situation, suggesting that agri-science and new technologies will be crucial for China going forward.

The impact of climate change on China’s water resources may be sizable.  Experts fear “severe imbalances in China’s water resources,” concentrated precipitation in the summer and autumn rainy seasons, and “increasingly frequent” floods and droughts.

“Without effective measures in response, by the latter part of the 21st century, climate change could still constitute a threat to our country’s food security.”

The report warns that 8 of mainland China’s provinces could face severe water shortages by 2050 (less than 500 cubic meters per resident), and 10 others could face lesser shortages.  The continual retreat of glaciers in Tibet which feed many important rivers is also cause for concern, as is rising sea levels that could impact coastal cities like Shanghai.

Through it all, Chinese carbon emissions continue to rise.  Rising by a predicted 10.4% a year, China’s emissions could grow to 9 or 9.5 billion tons by 2020.  Achieving the Chinese government’s stated goal of a 40-45% reduction in economic carbon intensity by 2020 (the level of carbon pollution for each unit of growth) will be an expensive endeavor. China’s efforts to reduce carbon emissions will likely require 10 trillion yuan (USD $1.6 trillion) of investment, with half designated for energy-saving technology and clean energy.

The report emphasizes the importance of prompt action, noting that “many cost-effective and mature technologies for energy saving and new and renewable energy have already been widely applied.  In the future, controlling greenhouse gas emissions will require more costly and less mature technologies.”

Read the full article here

 

Sinopec & Total to Invest $4.5 Billion in U.S. Natural Gas

Booming natural gas resources in the United States have attracted significant investment from major foreign energy players in Asia and Europe.

China’s China Petroleum & Chemical Corp (Sinopec) and France’s energy giant Total SA recently announced new investments totaling $4.5 billion to take advantage of as of yet undeveloped shale rock formations in Alabama, Mississippi, Colorado, Ohio and the Michigan Basin.

In its first entrance into the U.S. natural gas industry, Sinopec will partner with Devon Energy Corporation in  a $2.2 billion joint venture to develop five fields.

Total cemented a $2.3 billion agreement with Chesapeake Energy Corporation to develop the Utica gas field in Ohio, which studies indicate is rich in liquids such as butane, propane and ethane as well as natural gas.

At under $3 per million BTUs, U.S. natural gas prices are at their lowest in over two years.  As a result, shale formations with high concentration of liquids, such as the Utica field, are attractive to investors because prices of extracted liquids are linked with crude oil, rather than natural gas.

Additional interest in U.S. natural gas has been seen from Norway’s Statoil ASA and India’s Reliance Industries Ltd., indicating that global energy conglomerates are seeking to add “unconventional” fossil fuel resources to their portfolios and are willing to spend big money to do so.

The explosive growth in North American natural gas resources is one of today’s key energy trends.  For more information, click here to read more of our posts on natural gas.

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China Increases Solar Power Development Target by 50%

China’s National Energy Administration announced ambitious new development targets for solar and wind energy.  By 2015, China aims for 15GW solar capacity and 100GW of wind capacity, according to data from the National Energy Administration.

China’s solar power target has increased 50% from its previous development plan.  Solar installations in China have notably increased after the government finalized grid feed-in-tariff programs in July, encouraging developers to put projects into operation before the end of the year.

The nuclear power crisis at Japan’s Fukushima Plant has spurred Chinese interest in solar.  Although the nation boasts the world’s top spot in photovoltaic production and exports, thus far its domestic installations have been lagging behind other nations, such as the United States and Germany.

If China is successful in its development agenda, the country will experience a remarkable increase in solar capacity – 15GW by 2015 up from just 1GW at the end of 2010 – which could ensure its place as one of the world’s major market forces.

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Strong Demand Lifts Agribusiness Sales

Deere & Co., the world’s largest farm machinery maker, expressed a strong outlook for the global agribusiness sector in 2012. Positive global farming conditions, combined with the collective rising incomes of farmers, has lifted agribusiness sales “in spite of an unsettled global economy,” the company stated in a press release.

Deere reported record results in 2011, surpassing many Wall Street expectations.  Fellow agricultural giants, including Agco Corp and CNH Global, have also reported positive results for the year.

Deere expects farmers’ incomes to remain stable in the year ahead, given the sizable (and still growing) global demand for agricultural commodities.  The rising value of farmland in the United States is further contributing to the positive outlook.  U.S. farmland rose to 30 year highs in the July-to-September period.  This increase in land value came even as crop prices fell from their peaks earlier in the year.

Deere says expanded crop production and  increased financing opportunities in China along with high agricultural commodity prices in India contributed to strong performance in the Asian market.

Access to secure food supplies is crucial for growing nations in Asia and the Middle East.  Because demand is rising so dramatically, nations must increase domestic crop production where possible, or else be forced to satisfy new demand with expensive food imports.

As we have previously reported, this trend is accelerating in the Middle East, which is set to see food import levels double over the next decade.

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Investment in Clean Energy May Double to $395bn by 2020

Bloomberg New Energy Finance predicts strong growth in solar and off-shore wind energy may propel annual investments in clean energy to double by 2020, reaching an estimated $395 billion a year. By 2030, that figure may rise to $460 billion annually.

Within 20 years, the percentage of total world power generation supplied by clean energy may rise to 15.7% up from 12.6% last year.  This growth will continue despite the gloomy economic environment.

“Big winners over the next 20 years will be the emerging renewable energy hubs in Latin America, Asia, the Middle East and Africa – by 2020 the markets outside of the European Union, U.S., Canada and China will account for 50% of the global annual investment in renewable energy capacity,” said Guy Turner, director of commodity research.

The world’s current major players – China, Europe, The United States and Canada – will continue their investments in the sector.  China was the world’s leader in new clean energy investment last year with $51.1 billion, by far the largest expenditure of any country.

In 2009, Asia and Oceania overtook the Americas in terms of regional clean energy spending, and by 2014, it is likely to leap over the Europe, the current leader.

The most rapid growth in spending rates will come from India, the Middle East and Africa, where rates will grow between 10% – 18% over the next decade.  Emerging energy technologies are rising significantly in the world’s emerging markets.  We believe this trend is integral to our clean energy investment strategy.

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Read more about Investing in Clean Energy

 

Water-stressed Jordan to Invest in European & Central Asian Wheat Cultivation

The pivotal intersection of rising food demands and dwindling water supplies is a key element of our investment strategy and is monitored closely by our research team.

Further to our discussions of 21st Century Food Wars, we want to share recent news from Jordan as the nation grapples with its serious energy-water-food conundrum.

The Jordanian Ministry of Agriculture announced it has begun negotiations with leaders in several European and Central Asian nations – all rich in water resources – regarding future investments in their local wheat cultivation efforts.  The Ministry aims to acquire land parcels to be developed for wheat production through Jordanian investors.

This initiative comes as the Ministry recognizes the “insufficiency of local wheat production and the unsuitability of the Kingdom’s environment for growing the stable crop.”

As Abdul Hadi Falahat, President of the Jordan Agriculture Engineers Association (JAEA) told The Jordan Times, “The severe lack of water resources and the shrinking of agricultural lands due to the expansion of urbanization and infrastructure development activities are the major reasons that make Jordan unable to become self-sufficient in wheat production.”

JAEA is encouraging the government to take measures to increase domestic production by encouraging wheat cultivation in the water-rich Jordan Valley and Disi region.  By doing so, Falahat believes Jordan can work towards increasing its stores of the food staple, although it is highly unlikely Jordan will ever achieve self-sufficiency.  The Department of Statistics (DoS) reports that only 5% of Jordan’s wheat is produced domestically – enough to meet Jordanian wheat demand for only 17 days out of the year – with the rest imported from other countries, primarily the United States. Jordan is also a major importer of American red meat, with domestic production falling from 35% in 2009 to 20% in 2010.

Jordan’s production of other key food items; such as olives, olive oil, milk and eggs; has increased considerably.  Production levels of these dietary staples have risen over 100% in many instances.

No country in the Middle East region is immune to the problematic trends of increasing food demand and decreasing water resources.  As the region’s population and industrial activity expands, hard decisions will have to be made that will influence the government policies and investment trends in the region.

We are keeping close tabs on regional developments and will continue to update our investors, partners and friends on emerging news stories.

Read more about developments in the Middle East

Read more about 21st Century Food Wars

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South Korea's LG to Invest 8 Trillion Won in "Green New Business"

South Korea-based LG, the second largest business conglomerate in the country, announced new plans to invest 8 trillion won (US $6.8bn) into the promising “green new business” sector. By 2015, LG’s investments will aim to generate 10 trillion won in revenues and create 10,000 new jobs.

Key focal points for LG include the electric vehicle battery sector (which will receive a 2 trillion won investment by 2013), the photovoltaic, LED and water treatment sectors (to receive 1 trillion won investment by 2014) and the polysilicon business (set to receive 490 billion won in new investment by 2014.)

Additionally, 400 billion won by 2015 has been allocated toward the construction of new solar cell wafer manufacturing facilities.

South Korea has clearly identified the new energy mega trend as a major profit center for the future. Through a combination of substantial private sector investments and government stimulus programs, South Korea is positioning itself to benefit as the world transitions to a low-carbon energy economy.

Read the original article here

Learn more about developments in the global clean energy industry

 

European Union to Build Stockpile of Rare Earth Elements

The European Union has announced it will build a stockpile of rare earth elements to boost domestic supply and safe-guard against Chinese dominance.  Rare earths are necessary components in a wide array of clean energy and high-tech devices, and China largely controls global supply, supplying 97% of the world’s demand.

As China’s domestic clean energy production and demand has grown, it has imposed export quotas with an eye towards preserving its rare earth resources for its own future use.  These limitations have had a significant negative impact on clean energy and technology manufacturers in the West, sending governments into a frenzied search for new mining sources.

The EU plans to store rare earth elements in the form of a mixed carbonate.  So far, EU proposals call for an annual procurement of 3,000 tons.

Strategic initiatives to secure rare earth supplies have also taken hold in the United States and Britain.  Because the rare earth element supply chain cuts across the manufacturing, defense and science and technology sectors of the global economy, the United States Department of Defense considers the supply of rare earth elements to be a natural security issue.  More information can be found in this key briefing, available here:  “Rare Earth Metals and U.S. National Security.” The British government has likewise implemented a “strategic metals plan” to guard against future supply shocks stemming from China’s export policies.

Read more here…

 

China Accelerates Iron Ore Initiatives in Africa

China leads the world in the consumption of iron ore, a key element of the steel-making process.  Demand is increasing as industrialization expands and new domestic infrastructure construction projects get underway.

Last year, China imported 618 million tons of iron ore, largely from only four countries – Australia, Brazil, India and South Africa. In order to break its dependence on the world’s “Big Three” global miners (BHP Billiton, Rio Tinto and Vale), China is accelerating investment into new mining projects in West Africa.  In total, estimates say nearly 250 million tons of iron ore could be produced every year over the medium to long term.

Chinese iron ore imports in 2011 are predicted to rise 8% from last year’s total.  Prices for iron ore with 62% iron content have risen by one-third over the past year, and doubled over the past two.  Acquiring new supplies is crucial for large ore importers like China.

Read more here…