Editorial: The all-too-visible hand [NGW Magazine]

China’s announcement of its plan to cut carbon emissions to zero by 2060 caught the world by surprise, it is scarcely an exaggeration to say.

Most associate the fast-growing economy of the world’s factory with coal-fired power generation, metallurgy and concrete-based construction – some of the heaviest carbon-emitting processes around.

Bold declarations that have the potential to inflict economic self-harm are seldom wholly altruistic. There is often at least one eye on the political weather. And China has a lot of ground to cover in this regard as its illiberal regime violates some accepted norms.

China is taking a lot of heat for its expansionism in the Himalayas and its maltreatment of the Muslim Uighurs in the west of the country. It is also coming under pressure from London for its alleged violation of their bilateral treaty on Hong Kong after the end of British control.

And it is grabbing land in regions far beyond the United Nations-recognised maritime limits of its territory. For some years it has been pressuring Vietnam to call a halt on drilling for oil and gas within the latter’s recognised waters in the South China Sea, applying its own invention, the ‘nine-dash’ boundary line.

Relations with major LNG supplier and OECD member Australia are also deteriorating, although so far trade and national politics have been kept separate. Looking further into the future, Taiwan will be China’s ‘by 2050,’ the president-for-life Xi Jinping has said – giving China just ten years to clear up that island’s carbon emissions.

But with the US president preoccupied with his own health and the nation’s and the elections looming this November, China has been able to act more freely than before. A counterbalancing statement with no immediate consequences is an apt distraction and helps restore some shine.

And on the positive side, at 67 Xi is able to focus on how to bring the end about, undistracted by the politicking that bedevils other policy-makers. The same cannot be said for the European Union, for example, as it plans a multi-billion-euro Green Deal; or for the UK. In the midst of today’s economic weakness, prime minister Boris Johnson has promised that every citizen’s home – and those too are planned to soar in record numbers in the coming years – will be wind-powered by 2030. That shows little understanding of the technology, wealth and buy-in from the public that will be needed.

Xi on the other hand is now personally committed to a long-term goal and will probably find very few stubborn obstacles. And for practical reasons, too, China cannot afford to be left behind in this almost global shift to decarbonise. If it wants to profit from the technology that the shift implies, where better to test it out than at home? Carbon capture and storage, not to mention all the different ways of producing and using hydrogen, are still in their infancy, if even yet conceived of. Both of these carbon abatement technologies are positive for gas.

China is investing in renewables as well, and already exporting solar panels and so on to a hungry world that buys them despite the allegations of damaging local manufacturers. In Europe, emission reduction targets seem to trump other norms of commerce, including dumping: the steel industry has also been affected, while a border tax risks violating WTO rules. On present form, China can expect to find a ready market for is output there as it refines the processes.

China is well placed to substitute coal with gas, especially if it can secure cheap pipeline gas from western as well as eastern Russia, whose traditional gas market, Europe, is not only shrinking but also casting its net more widely. But there is also LNG, and China’s latest long-term deal with Qatar, if it was indexed at just over a tenth of the Brent crude price as reported, shows Qatar’s keenness to lock up volume.

It sends a pretty unambiguous signal to US Gulf coast operators mulling expansion or those yet to take final investment decisions. Their natural customers for long-term off-take deals will be re-examining the need for yet more third-party LNG in their portfolios.

Qatar’s LNG planned production surge in the early years of the century was predicated on a third split roughly equally between the US, Europe and Asia: now, thanks to US shale gas the pie-chart looks very different. Qatar’s next expansion surge later this decade will be aimed at Asia, although with some European capacity booked as a long-term hedge.

Notable in many of these gas market and technology developments is the dominance of non-OECD governments – or their commercial agents – on the contracting side. The international oil companies, particularly the European majors such as Shell, Total and BP are reducing their hydrocarbon output dramatically and investing relatively small amounts in renewables.

But they are also likely to be warier about investing in the growing number of business activities where the commercial logic can be distorted by governments with different agendas; or in regions where market economics play second fiddle to strategy.

Russia’s LNG is also driven by strategic imperatives: the Northern Sea Route gives it the chance to exploit markets and so exert soft power on either side of the world – very much as Qatar can, being situated between Europe and the LNG-hungry markets northeast Asia – and a trading position in Kamchatka.

And despite the undoubted large gas reserves under the seabed, any company contemplating upstream work in the eastern Mediterranean would be wise to first charter some naval back-up.