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Speciality Chemicals08-Nov-2024
LONDON (ICIS)–“Cut the debt burden, don’t
decimate the economy”
This was the message in miniature from IMF
chief economist Pierre‑Olivier Gourinchas when
several reporters posed questions about the
then-upcoming UK budget at a press conference
on 24 October.
Reporters from both sides of the political
aisle raised questions over the potential
impact of the budget, which had been expected
to focus on aggressive cost-cutting after weeks
of the ruling Labour government fulminating
about Conservative debt.
Widening the scope of the question beyond the
UK, Gourinchas noted that high debt levels left
countries more exposed to fiscal shocks that
could precipitate the need to cut services
dramatically and quickly.
“When countries have elevated debt levels, when
interest rates are high, when growth is OK but
not great, there is a risk that things could
escalate or get out of control quickly,” he
said.
“Most countries have important needs when it
comes to spending, whether it’s about central
services, what we think about healthcare, or if
we think about public investment and climate
transition. So we need to protect also the type
of spending that can be good for growth,” he
added.
UK Chancellor Rachel Reeves seems to have kept
that balance in mind with a high-tax, high
borrowing, high spending budget, with increases
targeting businesses through higher
per-employee tax contributions, farmers through
tighter inheritance tax rules, and the wealthy
through more tax on private schools and private
planes.
The measures are expected to modestly goose
economic growth in the short term but less so
further ahead, according to the Office for
Budget Responsibility, which estimates that
national GDP will grow 2% next year. This slows
down after, back to the prevailing trend of
1.5% per year.
The budget represents one of the largest
increases in taxation ever seen in the country,
but the UK is far from alone in this. With
borrowing costs high over the last few years
and economies still paying the bill on pandemic
and energy crisis-era borrowing, taxation is
high across much of the developed world at
present.
Debt as a share of GDP is not expected to rise
through to the end of the decade on the back of
the budget, but nor is it expected to fall,
standing at just under 100%.
UK debt as a proportion of GDP
Higher spending is likely to drive higher
inflation in the short term, with levels now
expected to firm from 1.7% in September 2024 to
a quarterly peak of 2.7% in mid-2025, according
to the OBR.
The core UK sector trade body, the Chemical
Industries Association (CIA), cautiously
greeted the increase in investment spending,
something that has been sorely lacking in the
UK for decades.
“We are pleased to see increases in investment
after the UK has been in the bottom of the G7
for investment as a share of GDP for 24 of the
past 30 years,” said CIA head of economics
Michela Borra.
That persistent low ranking has endured despite
the decline for other western European
economies in the G7 club in the face of
weakening international competitiveness.
Whether the level of public industrial
investment is sufficiently substantial to drive
growth remains to be seen, however.
The budget earmarks £2 billion for the
automotive industry for zero-emission vehicles
and related supply chains, and £975 million for
aerospace research, to be eked out over five
years.
Life sciences spending is also set to get
a bump, with £520 million to go to the creation
of a Life Sciences Innovative Manufacturing
Fund “to build resilience for future health
emergencies”, the UK Treasury said.
Automotive, aerospace and life sciences are key
end markets for the upstream chemicals sector
and all additional growth investment is a
welcome surprise when the expectation in the
run-up was for no new funding or spending cuts.
That said, the electric vehicle market has
slowed to a cruise after years of steady
year-on-year growth, with still-developing
technologies and charging infrastructure
availability continuing to spook consumers.
Charging infrastructure remains a Catch-22
problem, with consumers put off by limited
availability and providers sceptical of demand
growth levels. Firms have moved to take the
first step but the level of investment in
electric vehicle charging networks remains
below what is needed.
Another significant milestone is the recognition of a
fuel-exempt mass balance approach for content
in chemical recycling, which could help to map
out the landscape for the sector as it matures.
Under fuel exempt mass balance accounting
rules, volumes used in fuel applications would
not be attributable as recycled material, but
material not ending up in fuels would be freely
attributable across the value chain.
Far larger than all the chemicals end market
funding outlined in the budget is the nearly
£22 billion for carbon capture and blue
hydrogen announced earlier in October.
With an aim to strengthen two of the country’s
regional industrial clusters, the funding is
expected to develop two carbon capture projects
in Merseyside and Teesside, as well as two
clean hydrogen production plants.
Chief among the benefits of the budget is the
hope that this will represent a stable
longer-term roadmap for business investment,
after a period of substantial changeability for
government priorities during the ministerial
and leadership churn of the last few years of
Conservative government.
“Capital intensive sectors such as chemicals
will welcome this Government’s commitment to
longer term policy stability – be it through
its industrial strategy; its corporation tax
roadmap or its full expensing regime to
encourage investment in plant and equipment,”
said CIA chief Steve Elliott.
Despite the stronger than expected focus on
capital investment, there is little direct
uplift for the chemicals sector, which remains
the UK’s third-largest industry in terms of GDP
contribution.
The only reference to the sector in the full
budget text is to the mass balance recognition
and, while greater focus and clarity on carbon,
hydrogen and renewable power remain vital for
the evolution of the sector, it remains
difficult to hold policymaker attention.
With the number of strategic reviews of
European chemicals footprints by large global
players continue to pile up, the lack of
impetus to shore up a sector that has been
mired in low and declining growth continues to
pose a threat to its future viability.
“It’s now all about delivery as the UK and
wider Europe has become increasingly
unattractive to global investors in
manufacturing,” said Elliott.
“Urgent action – and in many cases partnership
between industry and government – is required
if UK chemical businesses are to boost their
already significant contributions to the
macro-economy; strengthen their resilience in
supporting the nation’s critical infrastructure
and enable the country’s transition to a net
zero future,” he added.
Insight by Tom Brown.
Power07-Nov-2024
With growing occurence of negative prices
amid renewable penetration, more battery
storage capacity will be needed
Wide intra-day spreads to remain top
revenue option for BESS, but margins can
tighten as more capacity comes online
Cross-markets optimization, battery
degradation among key challenges for operators
LONDON (ICIS)–Batteries can help mitigate
negative wholesale power prices and wide
intraday spreads but there is currently not
enough capacity installed to eliminate them,
Pierre Lebon, director of analytics at
cQuant.io, told ICIS in an interview.
Nevertheless, as new battery energy storage
system (BESS) capacity comes online, it is
likely that the occurrence of negative power
prices will decrease, the expert noted.
ICIS Analytics showed increased
flexibility will be crucial in the long-run to
improving solar capture prices, though
expansion of battery and electrolyser capacity
will remain far below the level of renewable
expansion in the next few years.
The latest ICIS analytics models predict 63.3GW
battery storage capacity for EU countries by
2035.
The European resource adequacy assessment,
ENTSO-E’s annual assessment of the risks to EU
security of electricity supply for up to 10
years ahead, showed Germany would be a
leader in battery capacity growth across the
bloc, while outside EU, the UK has the highest
available capacity.
It is difficult to identify an optimal ratio of
renewable capacity to BESS, as many factors
must be taken into account and the supply
balance will ultimately depend on each
country’s generation mix and demand profile, as
well as variable weather conditions.
As of September, the number of hours with
negative prices in Germany more
than doubled to 373 compared to 166 in
2023. These could have been mitigated by
an adequate battery storage capacity, in turn
reining in some price spikes in times of lower
renewable supply.
DURATION
The vast majority of battery systems in Europe
are currently two- to four-hour batteries and
“that’s mostly for economic reasons,” Lebon
said.
“If you have a four-hour battery, if you divide
the power by two, you get an eight-hour
battery. So you can change the duration if you
change the capacity, it then becomes a matter
of financial optimization,” he explained.
There are currently new technologies such as
iron salt battery (ISB) – also known as iron
redox flow battery (IRFB) – which can
allow to build battery storage plants with a
duration of up to 12-24 hours, however Lebon
noted that, while the market is already looking
into these technologies, they are still in
early development.
This seems confirmed by calculations from ICIS
based on ERAA data, showing short (one hour)
and medium (four hour) duration batteries will
remain the preferred technology for the coming
years.
REVENUES OPTIONS
Operators don’t necessarily need to have a
negative power price to have a profitable
battery, since BESS make money on the spread
between the lowest price of the day or based on
the duration that they can capture, Lebon
explained.
“It [negative power prices] adds the extra
cherry on top of the cake, which is that you
get paid to actually charge the battery,” he
said.
In markets with a strong ‘duck-shaped’
intra-day curve, the battery operators “can see
a lot of value in intra-day trading” and less
so on the ancillary services markets, Lebon
added.
Ancillary services like frequency regulation,
voltage control, reserves and black start
capabilities are needed to maintain power grids
stability and guarantee an uninterrupted supply
of electricity.
Lebon noted that while battery operators
typically consider the potential revenue from
both intraday power markets and ancillary
services, the stability of the revenue
structures associated with the ancillary
markets is often questioned. This is because
transmission system operators (TSOs) and
regulators tend to frequently change the rules
and conditions of these markets.
While cross-markets optimization – operating
both on intraday and ancillary markets to
maximize revenue sources – is possible,
technical constraints or the legal paperwork
needed to access ancillary markets can lead
some operators to prioritize only one of these
depending on the company’s structure and
resources, the expert noted.
INVESTING NOW?
Penetration of batteries into European markets
can reduce intra-day spreads, tightening
margins for battery operators.
Experts have
previously told ICIS that early investors
could benefit more from current wide power
prices spreads than waiting for cheaper
technologies.
“The longer it takes for that technology to
come in, the more likely it is that this
technology will come [online] at a time where
the spreads are crushed [by more battery
storage capacity being installed],” Lebon
added.
BATTERY DEGRADATION
The degradation of current lithium-ion
utility-scale battery systems depends on
several factors, including technology, number
of cycles and temperatures.
ICIS understands the typical yearly degradation
can range between 2-5% and plants lifespan
between 10-20 years, as reported in the
lifetime warranty provided by some producers. A
study
by the US National Renewable Energy Laboratory
indicated 15 years as the median lifespan based
on several published values.
Degradation is a key challenge in the
optimization of battery assets, Lebon noted,
adding that operators need to ensure their
cycles strategy is compatible with
manufacturers’ instructions and warranty.
Gas07-Nov-2024
LONDON (ICIS)–Germany’s controversial gas
storage fee may be rolled forward into January
2025 as plans to scrap it may not be approved
following the fall of the coalition government.
The German government announced earlier in June
the charge levied on gas exported from the
country would be scrapped from January 1, 2025.
But the fee abolishment has not been formally
approved by the German parliament yet, and
traders now fear that following the collapse of
the government on 7 November, and plans for
snap elections, proposals to scrap the fee
would drop off the agenda before the end of the
year.
The fee was introduced in 2022 and has been
increased every six months, raising discontent
from regional countries pinning their hopes on
imports from or via Germany.
It was raised from €1.86/MWh to €2.5/MWh from 1
July 2024.
The German Federal Ministry for Economic
Affairs and Climate Action did not immediately
reply to ICIS’s questions related to proposals
to scrap the fee.
It is unclear whether the proposals were part
of a wider Ukraine assistance package, which
was expected to be adopted in the upcoming
weeks.
“This is already having an impact on a decision
involving gas flows,” Doug Wood, gas committee
chair at Energy Traders Europe, told ICIS on 7
November.
“We hope this can be resolved before the end of
the year.”
Wood said that if the proposal to scrap the fee
is included in the Ukraine assistance package
it may have greater chances to be approved
before the end of the year.
The fee was strongly opposed by companies and
regulators in central and eastern Europe,
because since its introduction, the cost to
import gas from or via Germany had risen
significantly,
Markus Krug, deputy head of gas department at
the Austrian regulator E-Control, told ICIS the
watchdog was “very much concerned in which
direction the situation is going. ”
He said E-Control may have to take a decision
to approach the European Commission and the
Agency for the Cooperation of Energy Regulators
once again and raise their concerns about the
impact of the fee on gas flows in central and
eastern Europe.
Global News + ICIS Chemical Business (ICB)
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Ethanol07-Nov-2024
HOUSTON (ICIS)–Oil and gas production, the
main source of the feedstock and energy used by
the petrochemical industry, should benefit from
policies proposed by President-Elect Donald
Trump, while hydrogen and renewable fuels could
lose some of the support they receive from the
federal government.
Trump expressed enthusiastic and consistent
support for oil and gas production during his
campaign.
He pledged to remove what he called the
electric vehicle (EV) mandate of his
predecessor, President Joe Biden.
Trump may attempt to eliminate green energy
subsidies in Biden’s Inflation Reduction Act
(IRA)
BRIGHTER SENTIMENT ON
ENERGYRegardless of who holds
the presidency, US oil and gas production has
grown because much of it has taken place
on the private lands of the Permian basin.
Private land is free from federal restrictions
and moratoria on leases.
That said, the federal government could
indirectly restrict energy production, and
statements from the president could sour the
sentiment in the industry.
During his term, US President Joe Biden
antagonized the industry by
accusing it of price gouging, halting new
permits for LNG permits and
revoking the permit for the Keystone
XL oil pipeline on his first day in office.
By contrast, Trump has pledged
to remove federal impediments to the
industry, such as permits, taxes, leases and
restrictions on drilling.
WHY ENERGY POLICY
MATTERSPrices for plastics and
chemicals tend to rise and fall with those for
oil. For US producers, feedstock costs for
ethylene tend to rise and fall with those for
natural gas.
Also, most of the feedstock used by chemical
producers comes from oil and gas production.
Policies that encourage energy production
should lower costs for chemical plants.
RETREAT FROM RENEWABLES,
EVsTrump has pledged to reverse
many of the sustainability policies made by
Biden.
Just as Trump
did in his first term, he
would withdraw from the Paris Agreement.
For electric vehicles (EVs), Trump said he
would “cancel
the electric vehicle mandate and cut costly
and burdensome regulations”. He said he would
end the following policies:
The Environmental Protection Agency’s (EPA)
recent tailpipe rule, which gradually
restricts emissions of carbon dioxide (CO2)
from light vehicles.
The Department of Transportation’s (DoT)
Corporate Average Fuel Economy
(CAFE) program, which mandates
fuel-efficiency standards. These became
stricter in 2024.
The EPA was expected
to decide if California can adopt its
Advanced Clean Car II (ACC II) program, which
would phase out the sale of combustion-based
vehicles by 2035. If the EPA grants
California’s request, that would trigger
similar programs in several other states.
Given Trump’s opposition to government
restrictions on combustion-based automobiles,
the EPA would likely reject California’s
proposal under his presidency or attempt to
reverse it if approved before Biden leaves
office.
According to the Tax Foundation, Trump would
try to eliminate
the green energy subsidies in the Inflation
Reduction Act (IRA).
These included tax credits for renewable
diesel, sustainable aviation fuel (SAF), blue
hydrogen, green hydrogen and carbon capture and
storage.
In regards to the UN plastic treaty, it is
unclear if the US would ratify it, regardless
of Trump’s position. The treaty could include a
cap on plastic production, and such a provision
would sink the treaty’s chances of passing the
US Senate.
For renewable plastics, much of the support
from the government involves research and
development (R&D), so it did little to
foster industrial scale production.
WHY EVs AND RENEWABLES
MATTERPolicies that promote the
adoption of EVs would increase demand for
materials used to build the vehicles and their
batteries. Companies are developing polymers
that can meet the heat and electrical
challenges of EVs while reducing their weight.
Heat management fluids made from base oils
could help control the temperature of EV
batteries and other components.
If such EV policies reduce demand for
combustion-based vehicles, then that could
threaten margins for refineries. These produce
benzene, toluene and xylenes (BTX) in catalytic
reformers and propylene in fluid catalytic
crackers (FCCs).
Lower demand for combustion-based vehicles
would also reduce the need for lubricating oil
for engines, which would decrease demand for
some groups of base oils.
Polices that promote renewable power could help
companies meet internal sustainability goals
and increase demand for epoxy resins used in
wind turbines and materials used in solar
panels, such as ethylene vinyl acetate (EVA)
and polyvinyl butyral (PVB).
Insight article by Al
Greenwood
Thumbnail shows the White House. Image by
Lucky-photographer.
Ethylene07-Nov-2024
SAO PAULO (ICIS)–Brazil’s central bank
monetary policy committee (Copom) voted
unanimously late on Wednesday to hike the main
interest rate benchmark, the Selic, by 50 basis
points to 11.25%, to fend off rising inflation
and a depreciating Brazilian real.
Central bank urges government to put fiscal
house in order
H1 October inflation data reveals that
upward trend continues
Despite high borrowing costs, car sales at
decade-high in October
The 50 basis point increase is a double-down on
the first 25
basis point increase in September which put
an end to the monetary policy easing which
started in August 2023 after a post-inflation
crisis.
Copom did not mention the market fallout which
followed US Republican candidate Donald
Trump’s victory in the presidential election,
as global investors are wary about radical
changes in US trade policy via higher import
tariffs, among others.
Instead, Copom focused on the healthy domestic
economy and strong labor market which has put
upward pressure on prices.
After a small fall in August, the annual rate
of inflation ticked higher in September – an
upward trend that started May – to stand
at 4.4%. Indicators for H1 October showed
inflation ticking up further to 4.5%.
The Banco Central do Brasil’s (BCB) own
inflation expectations reflect this trend, with
inflation expected to end this year at 4.6%
before falling to 4.0% in 2025. The BCB’s
mandate is to keep inflation at around 3%.
“The scenario remains marked by resilient
economic activity, labor market pressures,
positive output gap, an increase in the
inflation projections, and deanchored
expectations, which requires a more
contractionary monetary policy,” said Copom.
“[Copom] judges that this decision [increase in
the Selic] is consistent with the strategy for
inflation convergence to a level around its
target throughout the relevant horizon for
monetary policy. Without compromising its
fundamental objective of ensuring price
stability, this decision also implies smoothing
economic fluctuations and fostering full
employment.”
Petrochemical-intensive industrial companies
have repeatedly said high interest rates have
harmed sales as consumers think twice before
purchasing durable goods on credit due to high
borrowing costs.
One vocal opponent to high rates is automotive
trade group Anfavea, although its own
figures this week showed sales riding at a
high not seen since 2014, regardless of high
borrowing costs.
The automotive industry is a major global
consumer of petrochemicals, which make up more
than one-third of the raw material costs of an
average vehicle, driving demand for chemicals
such polypropylene (PP), nylon, polystyrene
(PS), styrene butadiene rubber (SBR),
polyurethane (PU), methyl methacrylate (MMA)
and polymethyl methacrylate (PMMA), among
others.
Meanwhile, Brazilian president Lula’s cabinet
is looking to strengthen the country’s
industrial sectors to fulfil his Workers Party
(PT) electoral promise to create more and
better paid industrial jobs. As a result, Lula
and several of his officials have
repeatedly and publicly criticized the BCB for
its interest rates policy.
Meanwhile, central bank governor Roberto Campos
Neto, appointed by the previous center-right
Jair Bolsonaro administration, will end his
term in December, when Lula appointed Gabriel
Galipolo will succeed him. It is a move that
has put some investors on alert due to his
closeness to Lula, as he may prioritize the
cabinet’s demands instead of the bank’s
inflation target, its main mandate.
But as global markets increasingly look at
Brazil, Galipolo has fallen in line and also
voted to increase rates in the last two Copom
meetings.
CABINET URGED TO END
DEFICITThe Brazilian cabinet,
presided over by Luiz Inacio Lula da Silva, was
expected to run a fiscal deficit this year in
an attempt to expand public services without
increasing taxes.
Investors and analysts have been piling
pressure on the government by punishing the
Brazilian real (R), which has depreciated
sharply in the past few months against the US
dollar, making dollar-denominated imports into
Brazil more expensive and ultimately filtering
down in the form of higher inflation.
At the start of 2024, the real was trading at
$1:4.85. But the exchange rate stood at $1:5.69
on Wednesday, a depreciation of nearly 15%.
On Wednesday, Copom joined the chorus of voices
asking for stricter fiscal policy, arguing that
to stop the real losing ground it is necessary
a “credible fiscal policy committed to debt
sustainability, with the presentation and
execution of structural measures” in the public
accounts.
The Brazilian cabinet is reportedly working
against the clock this week on those measures,
and Finance Minister Fernando Haddad even
cancelled an official trip to Europe this week
to focus on this.
“The perception of agents [in the market] about
the fiscal scenario has significantly impacted
asset prices and expectations, especially the
risk premium and the exchange rate. [A credible
fiscal policy] will contribute to the anchoring
of inflation expectations and to the reduction
in the risk premia of financial assets,
therefore impacting monetary policy.”
Analysts at Capital Economics on Wednesday also
highlighted the diplomatic but very clear
request from the central bank to the government
– without stricter fiscal policies aiming to
reduce the deficit, investors will continue
making the central bank’s work on inflation
harder as they bet against Brazilian assets,
including its currency.
“[The hike] has more to do with the domestic
macro backdrop and shoring up monetary policy
credibility than a response to the market
fallout following Trump’s victory … [Copom’s]
Concerns will have only been amplified by
recent data and developments, with the
accompanying statement reiterating that
‘economic activity and labor market continues
to exhibit strength’,” the analysts said.
“Alongside all of this, Copom members are
probably also feeling compelled to tighten
policy in order to shore up their credibility
amid investor concerns about politicization of
monetary policy. This strikes at an important
point – the central bank is responding to
Brazil-specific factors rather than the
financial market fallout from Trump’s victory,
especially given that the real is up by around
1% against the dollar today [6 November].”
Capital Economics said Copom’s intention to
raise rates further if necessary is likely to
become a reality in coming months, expecting
the Selic to rise further by 75bps more to
reach 12% in early 2025.
“That said, the risks are skewed to the upside,
particularly if the government fails to soothe
investors’ concerns about the fiscal position.”
they concluded.
Focus article by Jonathan
Lopez
Speciality Chemicals07-Nov-2024
LONDON (ICIS)–The Bank of England (BoE) on
Thursday cut its key interest rate for the
second time this year, instituting a 25 basis
point fall as inflation continues below target.
The bank cut its core interest rate to 4.75% in
the wake of a steeper-than-expected decline in
inflation in September, from 2.2% to 1.7%.
Eurozone inflation also declined that month,
dropping to 1.7%, but is expected to have
increased last month, bouncing back to 2%
according to preliminary Eurostat data, driven
by higher food and services pricing and weaker
energy cost declines.
Both the BoE and the European Central Bank have
inflation targets of levels close to but not
exceeding 2%.
The BoE move also follows the announcement of
the UK’s autumn budget, which pledged higher
borrowing, taxes and spending to generate funds
for areas such as the country’s health service.
The UK Office for Budget Responsibility (OBR)
projects that the budget will drive inflation
higher in the short term, to a quarterly peak
of 2.7% in mid-2025.
Acrylic acid07-Nov-2024
SINGAPORE (ICIS)–China’s oxo-alcohols market
will face a supply glut in the face of
intensive new plant start-ups and tepid
downstream demand.
Net import volumes may plunge in the short term
because of overseas plant turnarounds and
rising domestic supply, whether this can
sustain depends on overseas plant operations
and import arbitrage opportunities.
In this latest podcast, ICIS editors Claire Gao
and Jady Ma share the latest developments and
expectations for what lies ahead.
New oxo-alcohols capacities hit 1.3 million
tonnes/year in July-Oct 2024
Oxo-alcohols supply to rise steadily in
short term on few maintenance outages
Oxo-alcohols net imports to decline on
overseas plant turnarounds, rising domestic
output
07-Nov-2024
Biden’s permit pause likely cut short by US election result
Trump’s victory may lead to quicker Department of Energy
permits
Expected FID on Port Arthur expansion moves ahead of Cameron
HOUSTON(ICIS)–Just hours after the US re-elected former US
President Donald Trump on 5 November, US LNG export plant
developer Sempra Infrastructure updated expectations around
the timing of its next federal LNG permit.
The second phase of Sempra’s Texas project Port Arthur LNG
should receive authorization to export to countries outside
the US Free Trade Agreement (FTA) from the Department of
Energy (DOE) in the first half of 2025, Sempra executives
said 6 November.
“LNG is a very, very important tool of American foreign
policy,” said Jeffrey Martin, CEO of Sempra Infrastructure’s
parent company, during its third-quarter earnings call.
“I think we have growing confidence in getting the permits we
need for Port Arthur, phase two in the first half of next
year.”
No US LNG export projects have received a non-FTA permit from
the DOE since 2023.
In January, current President Joe Biden’s administration
paused issuance of the permits.
While campaigning, Trump said that if elected, he would
immediately lift the pause on federal LNG permitting.
France’s Technip Energies previewed the electoral result
during its third-quarter earnings call on 31 October with CEO
Arnaud Pieton’s statement that a Trump victory could faster
lift the moratorium on DOE permits than if opponent Kamala
Harris had won.
COMMERCIAL TALKS
Of the two expansion projects under development – the 13mtpa
second phase of Port Arthur LNG, and a fourth production
train at Cameron LNG that would add 6.75mtpa – CFO Karen
Sedgwick said the company expects to make an FID on Port
Arthur’s phase two first.
“The timing of an FID decision on the Cameron expansion is
uncertain at this point,” Sedgwick said. “We continue to work
with our partners on the optimal timing for expansion.”
Previously, the Cameron expansion FID was delayed in
November 2022 and November
2023 .
Port Arthur’s 13mtpa second phase requires the non-FTA permit
to reach a final investment decision, in addition to lining
up more long-term customers and securing financing.
The expansion project has been
under consideration since at least November 2022.
Saudi Arabia’s state-backed Aramco agreed in June to purchase
5mtpa from Port Arthur’s second phase over 20 years, and that
it would consider taking a 25% stake in the project.
In August, Sempra Infrastructure CEO Justin Bird said the
company hoped to have additional heads of agreements to
discuss on Sempra’s Q3 call.
“As noted in our Q2 call, we saw an increased interest in
Port Arthur 2, and I’m happy to say that interest has further
increased since the call and momentum continues to build,”
Bird said.
“Commercial discussions for offtake and project equity are
ongoing, and I think we’re seeing better terms.”
CONSTRUCTION UPDATES
Construction at Sempra’s Energia Costa Azul LNG export
project faced delays due to local workforce shortages in
Sonora, Mexico, executives said in August. In the latest
call, Sempra stuck with its most recent
estimate that ECA would start commissioning in spring
2026.
Sempra hired engineering company TechnipFMC in 2020 to handle
engineering, procurement and construction for ECA with a
lump-sum contract. Technip Energies split off from TechnipFMC
in 2021.
Rival EPC contractor Bechtel leads construction on Port
Arthur LNG’s first phase – also 13mtpa – which remains on
budget and on schedule, executives said 6 November.
Crude Oil07-Nov-2024
SINGAPORE (ICIS)–Donald Trump’s return to the
White House could intensify trade frictions
with China, fostering decoupling of the world’s
two biggest economies, with Chinese exporters
looking at making advance shipments to the US
before new tariffs are imposed.
Hefty US tariffs to drag down China
exports, GDP growth
China may accelerate relocation of
manufacturers
Heavy flow of Chinese exports to US likely
in H1 2025
In his election campaign, Trump has vowed to
take four major actions against China upon
winning, namely, revoke China’s Permanent
Normal Trade Relations (PNTR) or most favoured
nation status; impose tariffs of 60% or more on
all Chinese goods; stop importing Chinese
necessities within the four years of his second
term as US president; and crack down on Chinese
goods imported through third countries.
In Trump’s first term as US government head in
2016-2020, Washington had launched five rounds
of tariffs on around $550 billion worth of
Chinese imports, raising the average duties on
Chinese goods by more than fivefold to 15.4%
from 2.7%.
Based on calculations by investment bank China
International Capital Corp (CICC), those
tariffs had reduced China’s exports to the US
by around 5.5% and dragged down China’s overall
GDP by one percentage point.
If a 60% tariff is imposed on Chinese goods in
Trump’s second term, China’s overall export
growth would be shaved by 2.1-2.6 percentage
points and its GDP growth by 0.2-0.3 percentage
points, CICC said in a research note.
Most Chinese exporters, especially those which
rely heavily on the US market, will face the
fallout in terms of significant drop in export
volumes and profits, CICC said.
“Only those in high value-added and very
competitive sectors can sustain that high
tariff. This will accelerate the trend of
Chinese companies moving manufacturing sites to
third countries like Vietnam and Mexico to
finally get into US markets,” it added.
China has been actively expanding trade
relations with partner countries in its
belt-and-road project within Asia as well as
Africa, as buffer against growing US import
curbs on its goods.
In 2023, ASEAN replaced the US as China’s
biggest export destination.
“That demonstrated resilience and
competitiveness of Chinese products in global
markets,” said Li Xunlei, chief economist at
Hong Kong-based brokerage China Zhongtai
International.
China, however, is currently faces huge
challenges, including slowing domestic demand,
high debt, a property slump, and decoupling
from western countries, he said.
“One major headache now is that currency
depreciation is difficult to implement this
time, because [a] weakening yuan could trigger
capital outflow,” Li said.
In 2018-2019, China was able to offset the US
tariffs by allowing the Chinese yuan (CNY) to
depreciate by around 10%.
This time, mitigating the ill-effects of a 60%
US tariff would need the yuan to fall by 18%
against the US dollar, which meant exchange
rate of CNY8.5 to $1.0, which was not seen
since the 1997 Asian financial crisis, Li
pointed out.
Some Chinese exporters have been looking to
pre-ship goods to the US ahead of the potential
imposition of new tariffs.
A Guangdong-based shipping broker has received
increasing inquiries for Q1 2025 container
spaces from China to North America, because
traders are trying to move cargoes as early as
possible to avoid the tariff issue.
These could mean a strong flow of Chinese
exports – including consumer electronics,
plastics, home appliances, among others – to
the US in the first two quarters of next year.
Insight article by Fanny Zhang
($1 = CNY7.16)
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