Oil & Energy

Date Issued – 1st April 2024

Courtesy of?Steve Alain Lawrence, Chief Investment Officer

Janis Urste, Chief Market Strategist

Indonesia Targets Fourfold Increase in Nickel Production

Indonesia plans to quadruple its battery-grade nickel production to 1 million tons by 2030 and increase stainless steel nickel output by 15% from 1.9 million tons annually, despite falling nickel prices and global oversupply. The move, aimed at supporting the electric vehicle (EV) sector, puts pressure on international competitors, leading to mine closures, particularly in Australia. Indonesian expansion, backed by Chinese investments, threatens to render traditional nickel producers uncompetitive, raising concerns about the potential for industry consolidation or the need for government subsidies to sustain operations outside Indonesia.

Pipeline Break Cuts South Sudan's Oil Flow

South Sudan, heavily reliant on oil for 90% of its state revenues, is facing a severe fiscal crunch due to a halt in oil exports. This interruption stems from a pipeline rupture in neighboring Sudan, the sole passage for South Sudan's crude sales. The disruption, caused by military activities and compounded by a force majeure declared by Sudan earlier this month, prevents numerous South Sudanese oilfields from dispatching oil northward, causing a significant drop in revenue.

This financial strain has led to South Sudan's inability to disburse state worker salaries for several months. The conflict in Sudan, which began in April last year between the Rapid Support Forces and the Sudanese army, further complicates the situation. Despite South Sudan's independence in 2011, which granted it substantial oil production capacity, the necessity of exporting via Sudan has left it vulnerable to such disruptions.

Japan Court Backs Operation of Older Nuclear Reactors

A Japanese district court has dismissed petitions from local residents, permitting the continued operation of five aging nuclear reactors in Fukui Prefecture, managed by Kansai Electric Power Co. These reactors, operational since the mid-1970s to mid-1980s, faced opposition due to concerns over safety measures. The decision aligns with Japan's broader strategy to reintegrate nuclear power into its energy mix, especially after the Fukushima disaster in 2011 led to nationwide shutdowns for safety evaluations.

In recent years, Japan has gradually restarted its nuclear facilities to enhance energy security and mitigate the impact of high fossil fuel costs. In late 2022, amidst rising energy import bills, the government endorsed a shift back to nuclear energy, including plans to develop new reactors and extend the lifespan of existing ones beyond the 60-year limit, aiming to decrease reliance on imported energy, which constitutes about 90% of its needs.

UAE Explores Nuclear Energy Investments in Europe

The United Arab Emirates (UAE) is actively pursuing investments in the nuclear power sector across Europe, engaging with several countries, including the UK, to explore possibilities for collaboration. The UAE's state-owned Emirates Nuclear Energy Company (ENEC) seeks to diversify the nation's investments by acquiring minority stakes in European nuclear projects, aiming to support the transition away from fossil fuels without taking on management or operational responsibilities.

This initiative aligns with the UAE's broader strategy for economic diversification and Europe's goals for expanding nuclear energy in pursuit of net-zero emissions. Despite its ambition, the UAE's investments in sensitive sectors have faced regulatory scrutiny in the UK, underscoring the complex dynamics of international energy investments.

Chinese Solar Quality Concerns

Amid intense domestic competition and a market glut leading to plummeting prices, some Chinese solar component manufacturers are reportedly compromising on quality to reduce costs, warned Zhong Baoshen, chairman of Longi Green Energy Technology, the world's premier solar module producer. This shift towards cost-saving comes as China dominates the global solar manufacturing industry, holding up to a 95% share in certain supply chains.

Despite these challenges, the U.S. and EU aim to support and protect their own solar industries from the influx of cheaper, and sometimes lower-quality, Chinese imports. Efforts to foster domestic solar manufacturing face the dual need to maintain open trade for achieving renewable energy goals while ensuring industry competitiveness, underscored by discussions in both the EU and the U.S. for more robust government support and policy enforcement.

Russia’s Oil Production Cuts

Russia is set to adjust its oil strategy by cutting production rather than exports in Q2 2024, as part of an OPEC+ agreement to equally share the burden of output reductions. Deputy Prime Minister Alexander Novak highlighted this move as a step towards fair participation among OPEC+ countries. Starting in April, Russia will phase in these cuts, culminating in a 471,000 barrels per day reduction solely from production by June.

This change is in response to diminished refining capacity due to maintenance and impacts from Ukrainian drone attacks, necessitating a shift in production to balance the limited storage capacity and maintain the integrity of Russia's contribution to global oil supply adjustments.

Ukrainian Energy Targets

Russia's overnight military strike against Ukraine targeted energy facilities with precision weapons and drones, hitting critical infrastructure across multiple regions. The Russian Defense Ministry confirmed the operation's success, stating all intended targets were struck, including thermal power stations operated by Ukraine's largest power provider, DTEK.

Despite Ukraine intercepting a significant number of the attacks, the strikes led to emergency power shutdowns and further strained the nation's energy sector. This assault is part of an ongoing conflict marked by reciprocal attacks on energy infrastructure, contributing to rising global oil prices, with Brent crude reaching $87 per barrel following the incident.

UN Sanctions Monitoring on North Korea

Russia's veto at the UN Security Council has halted the extension of a mandate for monitoring North Korea's sanctions compliance, amid suspicions of arms dealings between Russia and North Korea. With Russia's veto, China's abstention, and the rest in favor, the decision marks a significant divergence in global diplomacy, raising concerns over an alleged oil-for-weapons exchange that supports Russia's military efforts in Ukraine. Satellite imagery has suggested increased oil shipments from Russia to North Korea, intensifying scrutiny over their bilateral relations and defiance of UN sanctions.

[Disclaimer: This article provides financial insights & developments for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.]

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