The West zigs, China zags: The West is erecting tariff barriers to prevent Chinese renewable energy companies from dumping their products. What is China's reaction? To set its sights on the developing world. So far at least, this may be one of the few win-win areas in the East-West relationship.
In May, the Obama administration imposed 26 percent tariffs on Chinese-made steel towers that support wind turbines. Regulations and tariffs like these have made it challenging for Chinese wind companies to penetrate the U.S. or Europe, one result of which is that European manufacturers account for 89 percent of the installed wind capacity on the continent. That is good news for Western turbine-makers.
But it is only part of the story -- 63.5 percent of new wind capacity last year was installed outside North America and the European Union. And in these areas, Chinese manufacturers have the advantage. Chinese companies accounted for 30 percent of global wind turbine sales last year, and they hold four positions among the world's top ten turbine manufacturers (including Nos. two and three, Sinovel and Goldwind, respectively). Much of this success has come at home -- 44 percent of new capacity was in China itself last year. But Ming Yang Power Group is also partnering with India's Reliance Group to develop 2.5 gigawatts of wind energy in India. In Argentina, Chinese turbines and financing are building Latin America's largest wind-power project. And Hydro China has been assessing a wind farm project in Ethiopia. Lower costs account for China's success in frontier markets. Chinese-state financing helps Chinese companies to underbid Western rivals by 20 percent to 30 percent, report the Financial Times' Leslie Hook and Pilita Clark.
This bifurcated global market appears likely to grow, providing scope for both Western and Chinese companies to continue to compete side by side, according to Pike Research. Western companies still have the edge when it comes to integrating wind farms into electricity grid systems. Pike's Dexter Gauntlett told us: "With the switch to renewables, whole systems are going to change, and there will be a big market for Western tech and products."
Go the the Jump for the rest of the Wrap.
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We are suffering whiplash: For nearly four decades, OPEC -- the cartel formally known as the Organization of Petroleum Exporting Countries -- has been a major economic and geopolitical force in our collective lives, driving nations to war, otherwise self-respecting world leaders to genuflect, and economists to shudder. The last half-dozen years have been especially nerve-wracking as petroleum has seemed in short supply, oil and gasoline prices have soared to historically high levels, and China has gone on a global resource-buying binge. Russia's Vladimir Putin has strutted the global stage, bolstered by gas and oil profits, and Venezuela's Hugo Chávez has thumbed his nose at los Yanquis.
Yet now we are hearing a very different narrative. A growing number of key energy analysts say that technological advances and high oil prices are leading to a revolution in global oil. Rather than petroleum scarcity, we are seeing into a flood of new oil supplies from some pretty surprising places, led by the United States and Canada, these analysts say. Rather than worrying about cantankerous petrocrats, we will need to prepare for an age of scrambled geopolitics in which who was up may be down, and countries previously on no one's A-list may suddenly be central global players.
One primary takeaway: North America seems likely to become self-sufficient in oil. "This will be a huge potential productivity shock to the U.S. economy," says Adam Sieminski, director of the U.S. Energy Information Administration, a federal agency. "It could grow the economy, grow GDP, and strengthen the dollar."
OK, we get it -- we will need to relearn our basic geopolitics. But how so? Last week, the New America Foundation gathered six leading energy analysts to take a guess as to the winners and losers over the next few decades from the unfolding new age of fossil fuel abundance (video here). Here's what they told us:
The United States: Jobs increase, wages and productivity go up, the dollar strengthens, the current account deficit becomes negligible, and America has a new day as an economically dominant superpower. It is far and away the biggest winner of the new age, the analysts agreed. As far as Americans are concerned, what's not to like? Citigroup's Ed Morse waxed rhapsodic: "We will no longer be kowtowing to despotic rulers and feudal monarchs whose oil supply lines are crucial to other aspects of foreign policy. Those tradeoffs will be eliminated." Perhaps a bit Pollyanna-ish, but we get the general idea.
New petrostates: Aren't we forgetting those unsung nations that, depending how they manage the new age of plenty, can also very well end up with far more robust economies and as geopolitical players? The following 10 countries -- all of them burgeoning new petrostates -- make the winner's list because, even if they ultimately botch the moment and send most of the profit into private Swiss bank accounts, the coming energy boom gives them a much greater chance at big economic prosperity: Cyprus, Ethiopia, French Guiana, Israel, Kenya, Mozambique, Sierra Leone, Somalia, Tanzania, and Uganda.
Cooperation: Western suspicion of China has been fueled by its aggressive acquisition of natural resources around the world, especially oil and gas fields. But "in a world of plenty," said Ed Chow of the Center for Security and International Studies, "the zero-sum nature of the discussion could come out of the equation." Chow thinks we are already seeing the first stages of this more relaxed future in the U.S. attitude toward billions of dollars in recent Chinese investment in U.S. shale gas and oil fields. That is far different from 2005, when public and political opinion aborted China's attempt to buy Unocal almost before it reached a serious stage. Chow likes this new atmosphere. "It was never a very healthy phobia that we had to begin with," he said. Looking ahead, Chow wonders whether the United States might end up collaborating with China and India in patrolling the Persian Gulf.
Go to the Jump for the Losers in the new age.
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The AWOL environmental lobby: Over the last several months, this blog has posted a series of lengthy contemplations of a momentous and unnerving new trend -- the possibility of yet another in the century-and-a-half-long cycle of global oil and gas surpluses. According to a consensus of leading analysts, the world -- led by North America -- is on the cusp of a surprising flood of new oil. This week, six of these analytical voices appeared together to scrutinize whether this new age will actually materialize, and if it does, what geopolitical implications will result. We gathered at the New America Foundation for a two-hour, live TV debate.
A couple of interesting takeaways: The new golden age of fossil fuels indeed has an aspirational quality -- the stars must line up, such as oil prices, which must stay pretty well above $70 a barrel in order to sustain most of the new fields. (That may sound easy, given the scale of prices to which we have become accustomed the last couple of years. But one forecast of the new age is that so much oil floods the market that it forces down prices.)
A second aspect of the discussion was the conspicuously little discussion of global warming, which would be seriously exacerbated, as I wrote last month. One reason for this near-omission of global warming was the nature of the discussants -- these are oil market and geopolitical analysts, not climate experts. Yet that in itself is illuminating. I must be missing some folks, but I can think of no one in the climate field who has injected him- or herself into the contemplations of this new age (unless one includes movement activists such as writer Bill McKibben and NASA scientist James Hansen.). One has the sense of an entire sector of business, academia and civil society -- the green energy industry, climate scholars and environmental activists -- on the verge of being obliviously bulldozed by an unseen force. McKibben and Hansen will say "game over" for the planet should the age proceed. The thing is, it appears to be proceeding of its own accord.
As I have criticized the natural gas industry for a self-destructive failure to be fully transparent, I wonder about the green sector's absence from the careful dissection of this powerful trend with the aim of formulating best policies.
You can watch the video yourself:
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ExxonMobil is only a business, yet for a century and a half it has vexed, baffled, and unsettled us. Take Hannibal Lecter, Daniel Plainview, and Darth Vader, roll them into a single sinister character, and you start to grasp the feelings of generations of critics. "We need policy change on a global scale, and Exxon has been at the forefront of those blocking change," former Vice President Al Gore wrote a week ago on his blog.
But why? There are its outsized profits, of course -- $41.1 billion last year alone -- plus the remarkably enduring heartless persona of John D. Rockefeller, its founder in the old Standard Oil days. But Gilded Age ruthlessness and success in the contemporary capitalist West do not sufficiently explain the shadow that ExxonMobil seems still to cast on our collective imagination. After all, today's Apple is bigger than ExxonMobil, and the last of the robber barons have been dead for the better part of a century.
Enter a surprising and trenchant new decipherer of our confounded anxiety: Rex Tillerson, boss of the oil giant. Since becoming CEO six years ago, Tillerson has muddled the company's traditional image with a polished and deliberate nuance that seems to project caring. He has been "cautious, genial, accommodating and eager to soften [the company's] hard edges," Steve Coll, the author of Private Empire, a new book on ExxonMobil, told me.
But two weeks ago, the mild-mannered, pin-striped executive seemed to abruptly throw caution to the wind. In a speech before the elite Council on Foreign Relations (CFR) in New York, he suggested that Americans suck it up and adapt to global warming. "We have spent our entire existence adapting, OK? So we will adapt to this," Tillerson said in reply to a question from the audience. "Changes to weather patterns that move crop production areas around -- we'll adapt to that. It's an engineering problem, and it has engineering solutions." For starters, Tillerson said, ExxonMobil had set out to educate the "illiterate" public as to the facts, and move them away from the purveyors of "manufactured fear."
At once, we are back to the Exxon we once knew.
What got into the "cautious" Tillerson is a question between him, his board, and their shareholders. But conspiracy theories are unnecessary to explain the resulting nervousness of critics: As Coll's book describes, Tillerson's predecessor as CEO, Lee Raymond, declared war on efforts to restrain CO2 emissions, spending millions of dollars of company money starting in the late 1990s to fund writers and think tanks that cast doubt on climate science. The cash went both directly from ExxonMobil's public affairs unit, and was channeled through the American Petroleum Institute, the industry's lobbying arm in Washington, D.C., Coll writes, and it managed to help roil four decades of U.S. environmental politics.
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Afghanistan has set up a battle of global and regional bulls in the latest contest for its potential oil and gas riches. The country's Ministry of Mines has announced eight finalists to bid for an estimated 1 billion barrels of oil equivalent in northern Afghanistan. ExxonMobil has been pitted against companies from bitter regional rivals Pakistan and India -- Pakistan Petroleum and India's ONGC. Turkey's TPAO is also a powerful regional contestant. No finalists from China or Russia were on the list. But on Twitter, journalist Kabir Taneja suggested that Pakistan Petroleum has Chinese backing.
Other finalists are Dubai-based Dragon Oil, Kuwait Energy, Petra Energia of Brazil and Thailand's PTT. Bids are to be submitted in October, and a winner chosen by the beginning of next year. An initial tender for Afghan oil last year generated criticism after it was won by the China National Petroleum Corp., because China has been the victor of other resource contests in the country. CNPC's apparent decision to sit out the latest tender could be a tactical decision with a long-term view of future Afghan tenders.
ExxonMobil confirms that it has filed to bid on a group of Afghanistan oilfields containing an estimated 1 billion barrels of oil and gas, an instant validation of one of the riskiest resource plays on the planet. If the company's application proceeds, it could set up a battle of colossals, since the state-owned China National Petroleum Corp. and India's ONGC have also filed to bid, I have been told.
The tender deadline was yesterday to file an expression of interest. Company spokesman Alan Jeffers told me that the filing is among Exxon's global search for new hydrocarbon opportunities. The filings are to be made official after a government meeting Wednesday at which applications will be vetted.
The Exxon filing is surprising because until now the Afghan natural resource play, while rich, has been perceived as highly speculative, a place for the most daring wildcatters, in addition to regional state-owned companies such as CNPC, which won the first Afghan oil tender last year. The reason is both security -- no one knows whether a 30- 40-year project would endure since Afghanistan has been at almost constant war for more than three decades -- and the lack of infrastructure. Namely, how do you get the oil and gas to the market? Majors of the scale of Exxon rarely pursue such ventures, preferring for wildcatters to prove them out, then seek to buy in with their deep pockets.
The world according to Rex Tillerson: What are we to make of the CEO of ExxonMobil, who in a speech lasting just over an hour managed to tarnish journalists covering his industry as "lazy," the public as "illiterate," and critics as "manufacturers of fear"? As for worries about global warming, Exxon's Rex Tillerson suggested they relax about rising seas and disappearing agriculture -- "we will adapt," he said.
Cynics might say, ‘What should one expect from ExxonMobil'? But if so, they would not have been listening to Tillerson since he became CEO six years ago, a period in which he has been much more measured: In flat, evenly delivered and nuanced language, the 60-year-old native Texan has softened Exxon's sharpest and most-criticized edges, most conspicuously repudiating its funding of a clutch of scholars whose tracts -- challenging conventional climate science -- have been seized upon by global warming critics as evidence of a hoax. So was his speech Wednesday before the Council on Foreign Relations in New York simply a bad hair day? Or are we essentially watching a reversion to the days of Exxon's abrasive former CEO, Lee Raymond? Here, watch the video yourself:
The last time we witnessed such a philosophical lurch by Exxon was in January 2009, when Barack Obama was about to take the oath of office, and the sense of Washington politics was the inevitability of a federal cap on carbon emissions. Explaining explicitly that he sensed this political shift, Tillerson appeared at the Wilson Center in Washington, and announced that Exxon now accepted climate science. As an ameliorative, Tillerson proposed that emissions of heat-trapping gases be discouraged through the use of a carbon tax. It was after this speech that Exxon stopped funding hoax die-hards.
Exxon did not respond to two emails seeking to plumb its latest thinking. But with this week's talk, which I describe at EnergyWire, Tillerson seems to comes full circle. Look for the company to pour its lobbying might into campaigns that twin climate adaptation with head-long development of American oil and gas resources.
Go to the Jump for the rest of Rex Tillerson, and more of the Wrap.
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The four squabbling fiefdoms in China's shale-led political transition
By Sophie Lu
The writer is a consultant with Regester Larkin Energy
For those tracking China's factional politics in this year of momentous transition, a telling indicator will be a coming brawl over its apparently gargantuan shale gas resources. In the arena of political power, where China's shale goes, so shall China.
Shale gas -- locked into barely porous rock deep within the Earth, and released through a method called hydraulic fracturing, or fracking for short -- has fundamentally disrupted the global energy balance, and changed geopolitics: American shale gas has undermined Moscow's political influence in Europe by reducing the dominance of Russian natural gas, and reverberations in the Middle East and elsewhere are likely in coming years.
The shakeup appears especially likely to strike China, which has the world's largest estimated reserves of shale gas. In August, the government will hold its second auction of shale reserves, and already we can make out the shape of a titanic struggle for them.
The shale brawl mirrors China's larger political currents. In the Fall, China will undergo a once-in-a-decade transition of power in which seven out of nine members of the country's top decision-making body, the Standing Committee, will be replaced. The struggle for who ends up on top pits two competing factions -- the reformists against the statists. Who are they, and what makes them tick? And how will their destiny be reflected on China's shale gas patch?
First, take a look at these two charts. The first juxtaposes the recent trajectory of U.S. shale gas production with China's own plans -- Beijing, as you see, hopes by 2020 to reach what the U.S. was producing four years ago.
This second chart details China's year-by-year plans.
Go to the Jump for the rest of China's shale brawl.
Charts by Sophie Lu
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.