News Round-Up, August 16, 2023
The Best in the Biz – August 10, 2023
Posted to Energy Centralin the Utility Management GroupEPA Plan Would Impose Drastic Cuts on Power Plant Emissions by 2040
Link to original article: https://energycentral.com/c/ee/epa-plan-would-impose-drastic-cuts-power-plant-emissions-2040
President Bill Clinton, Israel Prime Minister Ehud Barak, and Palestinian Authority Chairman Yasser Arafat walking through Camp David.Deepened lost in diplomacy...
Mr. Henry Kissinger, during his interview for the Portfolio Magazine at the French restaurant Jubilee in downtown Manhattan, New York, on July 27, 2018, warned of the urgent need to broaden global communication channels, particularly with China. He emphasized the potential for global order disruptions if this critical diplomatic work is still pending.
In this interview, in Mr. Kissinger's eyes, French President Emmanuel Macron stands out as a commendable world leader with a unique and expansive vision. Macron's ability to think beyond conventional boundaries has positioned him as a significant influencer on the global stage. Despite this, his attempts to engage with Russian President Vladimir Putin have thus far proven unsuccessful. Macron's efforts to establish a productive dialogue with Putin still need to catch up.
Turning to China, Mr. Kissinger acknowledges its professed desire for world peace. However, China's ambivalent position has hindered the establishment of clear pathways towards achieving this overarching goal. While the country may outwardly express aspirations for global harmony, its actions and stances have yet to align with those intentions consistently.
Another wild card is Turkey President Recep Tayyip Erdoğan, who holds an open telephone line with President Putin and Zelensky, has struggled to achieve tangible results in his diplomatic endeavors. Despite the promise of direct communication, President Erdoğan has faced challenges bridging gaps and achieving meaningful progress.
While seeking a resurgence in his political career, Brazil's President Luiz Inácio Lula da Silva viewed the ongoing conflicts as an opportunity. Unfortunately, Lula's efforts, similar to his other diplomatic attempts, have failed to yield the desired outcomes. This setback underscores the complexity of navigating international disputes and finding practical solutions. Lastly, Norway, known for its commitment to peace and goodwill, has played a pivotal role in facilitating numerous peace processes and honouring individuals with the Nobel Peace Prize. However, the country's focus on safeguarding its borders against Russian aggression has diverted attention and resources from actively contributing to broader global peacemaking efforts.
In summary, Mr Kissinger's perspective highlights world leaders' challenges in pursuing international cooperation and peace. While Macron's visionary approach is celebrated, his inability to engage successfully with Putin demonstrates the complexities of diplomatic relations.
The paradox of world leaders knowing and accepting Russia's impending invasion of Ukraine two years in advance is a striking revelation that challenges our understanding of international relations and diplomacy. It begs the question of why, despite this knowledge, no significant action was taken to prevent or deter such a devastating military incursion.
The image of President Bill Clinton, Israel Prime Minister Ehud Barak, and Palestinian Authority Chairman Yasser Arafat walking through Camp David is a powerful symbol of diplomacy and its potential to resolve conflicts. This image refers to a different time: the successful negotiation of the Camp David Accords between Israel and the Palestinians in 2000, facilitated by Clinton's dedication to finding a peaceful resolution.
Similarly, the outstanding diplomatic work of Clinton's Russian counterpart, Boris Yeltsin, deserves recognition. As the leader of Russia, Yeltsin played a crucial role in shaping the country's foreign policy and relations with other nations. His collaboration with Clinton on various issues showcased a commitment to finding common ground and resolving conflicts through dialogue.
The friendship between President Yeltsin and President Clinton was a diplomatic alliance and a genuine bond built on trust and mutual respect. Their relationship was characterized by lighthearted banter and a shared sense of humor. This camaraderie led Yeltsin to playfully describe Clinton as a disaster man. Such words provoked uncontrollable laughter from President Clinton. This clever comment highlighted the strong bond between the two leaders.During President Clinton's final visit to Russia on the 5th of June 2000, he met with newly appointed President Vladimir Putin. Following the meeting, Clinton had the opportunity to reunite with his dear friend, former President Yeltsin. At this reunion, Yeltsin admitted that he had mistakenly designated Putin as his successor. Their friendship is a reminder that laughter and genuine connections can bridge gaps between nations, even in international politics. It reminds us who needs to do the job.
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California’s planning a renewable energy project at a scale never before attempted in the world
The Newsom administration’s path to net-zero carbon emissions runs through one of the state’s poorer, most remote areas.
POLITICO USA by WES VENTEICHER, August 15, 2023Energy & Utilities Roundup: Market Talk by WSJ
The latest Market Talks covering Energy and Utilities. Published exclusively on Dow Jones Newswires at 4:20 ET.
In Georgia and federal indictments, two vastly different approaches
Fani Willis’s sprawling case allows prosecutors to target Trump’s broad scheme. But legal experts and critics say both the scope and specificity could be a problem.
TWP by Amy Gardner, Holly Bailey, Amber Phillips and Shayna Jacobs, updated August 15, 2023 Why This Company’s Financial Crisis Threatens China’s Economy
Country Garden was China’s biggest real estate developer. Now it is staring down default, facing billions of dollars in losses and $200 billion in unpaid bills.
NYT by Alexandra Stevenson, Reporting from Hong Kong, August 15, 2023Latest news from Latinamerica
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Vital Natural Gas Is Being Stashed in Caverns Beneath War-Torn Ukraine
Commodity merchants are pumping natural gas into Ukrainian reservoirs, hoping the war doesn’t disrupt potential profits
WSJ by Joe Wallace, updated Aug. 16, 2023 The AES Corporation is committed to accelerating the future of energy transitions by delivering greener and more innovative solutions. AES firmly believes that energy infrastructure plays a crucial role in ensuring the sustainability of our sector. Recently, the AES President and CEO, Andrés Gluski, had the privilege of moderating a captivating discussion titled "Harnessing Diplomacy for the Energy Transition and Universal Access" at the @EEI_Intl panel. This engaging conversation highlights the importance of collaboration and innovative approaches in driving the energy transition forward.
Pulp Mill at sunset in Humboldt Bay, California. | Gary Crabbe / Enlightened Images / Alamy Stock Photo / Edited by Germán & Co.California’s planning a renewable energy project at a scale never before attempted in the world
The Newsom administration’s path to net-zero carbon emissions runs through one of the state’s poorer, most remote areas.
POLITICO USA by WES VENTEICHER, August 15, 2023EUREKA, Calif. — A 300-foot tall smokestack from a defunct paper mill looms over the port in Humboldt Bay, a relic of the timber industry that once defined the northwestern corner of California along with the struggling salmon fishing industry and sputtering marijuana trade.
But a gust of optimism has arrived in Humboldt County over plans to develop offshore wind at a depth and scale never before attempted in the world – sparking hope and anxiety in a region that has lived through repeated boom-and-bust cycles and ended up with one of the lower per-capita incomes in the state.
“This is a generational project,” said Jeff Hunerlach, secretary-treasurer of a council of construction unions for Humboldt and neighboring Del Norte County. “I could work 20 years on this project and my kid could work 20 years on this project.”
The floating offshore wind turbines proposed would barely be visible according to a rendering from the Bureau of Ocean Energy Management. | Bureau of Ocean Energy Management
The offshore wind proposal, driven by the Biden and Newsom administration efforts to dramatically increase renewable energy, would erect dozens of turbines three times the size of that smokestack with blades as long as a football field in an area of the Pacific Ocean nearly 10 times the size of Manhattan.
The turbines, which would be about 20 miles from shore in water up to 2,500 feet deep, are a key part of the state’s plan to generate enough offshore wind energy to power more than 20 million homes.
Getting the turbines to remote Humboldt County and then assembling them would be a significant undertaking – one that would create the need for heavy investment in an area that has seen little for many years.
“It’s a lot of good-paying jobs if we do it right,” said U.S. Rep. Jared Huffman (D-San Rafael), whose district includes the bay. “This can be part of lifting up the regional economy in a way that is better than anything to come along in decades.”
Rob Holmlund, executive director of the Humboldt Bay Harbor, Recreation and Conservation District, likens the endeavor to the moon landing.
A 2023 rendering prepared for the Humboldt Bay Harbor District. | Moffatt & Nichol
“We’re talking about completely transitioning our entire energy system,” Holmlund said. “It’s an ambitious goal for the betterment of humanity.”
But the project faces a host of major challenges. They include not just the obvious economic and bureaucratic hurdles but also a widespread distrust of outsiders in a region where indiscriminate logging engendered deep resentment and where an illegal marijuana industry created a counterculture haven in the fog-shrouded mountains.
The region is still recovering from mistakes of the past. International wind developers are pitching their projects just as many residents celebrate the removal of Klamath River dams the Yurok Tribe and the fishing industry fought for decades. The structures destroyed rich salmon habitat to export hydropower even as many native people lived without electricity.
“It has to be done right,” said Yurok Vice Chairman Frankie Myers. “Because we have to avoid being in the same position we are now 50 years from now. I’ve spent most of my life fighting the dams. I do not want to leave my children a fight to remove offshore wind.”
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The developers — German-based RWE Energy and Danish-backed Vineyard Offshore — secured federal leases in December for a combined $332 million that include decommissioning requirements and set aside a portion of the money for community benefits.
The companies are opening offices in the area, holding meetings and sponsoring local events.
“As a company we believe there are great opportunities ahead, because this can create jobs and other opportunities,” said Lars Pedersen, Vineyard Offshore’s CEO. “But we have to do that being respectful of those who live there and have been living there a long time.”
The Newsom administration’s path to zeroing out the state’s carbon emissions by 2045 runs right through the bay. It’s the only developed port from San Francisco to Coos Bay, Oregon, able to accommodate assembly of the massive turbines. The area could ultimately supply the turbines for both California — which would need around 1,700 to reach its goal — and the rest of the West Coast. Additional leases are expected in Washington, Oregon and offshore from the Northern California counties of Mendocino and Del Norte.
President Joe Biden wants the nation to reach net-zero emissions by 2050. Offshore wind is central to both administrations’ plans due to its ability to displace the burning of fossil fuels, particularly in the evening when solar power drops off.
Reaching those goals will require the state and nation to advance offshore wind and accompanying transmission projects at speeds that governments haven’t achieved in generations.
“All of it has to work together in what is a really complex and almost overwhelming set of challenges,” said Huffman.
The Harbor District is partnering with Crowley Wind Services, a division of the international logistics company, to develop a 180-acre terminal on property occupied by a former pulp mill.
The land — which now hosts two seaweed farms, an oyster hatchery and temporary storage for freshly caught hagfish — would be transformed into an industrial terminal with up to 650,000 square feet of building space, lights mounted 150 feet in the air and giant cranes that crawl through the water on tank treads.
The district is in early permitting stages under the California Environmental Quality Act, which can be a lengthy process even as Gov. Gavin Newsom and the Legislature recently took steps to limit the duration of legal challenges filed under the law.
Gov. Gavin Newsom is planning on offshore wind powering roughly 25 million homes by 2045. | Bruce Gilbert/AP Images for Bloomberg Philanthropies
At the same time, the project developers are initiating a federal permitting process that’s expected to take six years. They’re assessing impacts to the economy, tribes and lands.
The projects would affect fishermen the most, impacting the Dover sole, thornyhead, and sablefish fisheries offshore and harvests of Dungeness crab, baitfish and shellfish within the bay. The extent of the threat, along with the effects on birds and whales, is still being assessed.
The companies are addressing technical challenges of operating the floating turbines and transmitting energy to shore from floating platforms connected by cable to the ocean floor 2,500 feet below. While fixed-bottom turbines are common in Europe and are arriving on the East Coast, the floating variety have never been used in such deep water.
Transmission projects of the scale needed to carry 25 gigawatts of wind energy 270 miles from Humboldt to San Francisco have in the past taken more than a decade, and an overland line would need to run through environmentally sensitive areas as well as populated communities that may not welcome them. An undersea cable is being considered, but deep underwater canyons and other features make that option logistically daunting.
On land, leaders such as Yurok Tribal Court Judge Abby Abinanti worry how the expected influx of construction and manufacturing labor, some likely to occupy temporary “mancamps,” will affect vulnerable people such as native women who already go missing and are killed at higher rates than other groups.
“Our concern is that these camps end up elevating those kinds of statistics unless preventative efforts are made,” said Abinanti.
She also wants to make sure women have the same access as men to the new jobs through training.
And then there’s the cost. The price tag to develop 25 gigawatts of offshore wind energy by 2045 is about $100 billion — not including some major outlays such as transmission upgrades, according to a National Renewable Energy Laboratory estimate.
Costs have ballooned even beyond expectations in New York and New Jersey, prompting developers to seek more money from those states and their electricity customers. Wind developers have canceled some of their plans in Massachusetts and Rhode Island.
If they come, the turbines will barely be visible from shore in daylight once they’re towed out to the deep sea. At night, red lights affixed to their tops will line the horizon — a new symbol for an industry that will once again redefine life on the northern coast.
Photo by Germán & Co.Energy & Utilities Roundup: Market Talk by WSJ
The latest Market Talks covering Energy and Utilities. Published exclusively on Dow Jones Newswires at 4:20 ET.
1646 ET – The American Petroleum Institute reports US commercial inventories of crude oil fell by 6.2 million barrels last week, while gasoline supplies rose by 700,000 barrels, a source citing the data says. The results were released ahead of official EIA inventory data due tomorrow morning. Average forecasts in a WSJ survey indicate the EIA report will show crude stockpiles fell by 1.7M barrels from the previous week and that gasoline decreased by 1.2M barrels. In late trading, WTI oil prices that were lower before the data were released reduced those declines slightly afterward, down 1.7% at $81.11 a barrel. (dan.molinski@wsj.com)
1457 ET – Natural gas prices in the US drop 4.9% to finish at $2.659/mmBtu as the market gets swept up by a broader sell-off in other energy commodities such as crude oil and gasoline. The past week has seen price movements in the US natural gas market being significantly influenced by markets outside its realm, with European gas markets moving US natural gas futures last week, and WTI oil prices seeming to be impacting natural gas markets in today’s session. This is partly because rising US LNG exports have made the domestic gas market more global. Also, an increase in associated gas production in the US from oil-producing shale regions is linking the two markets, oil and gas, closer together. (dan.molinski@wsj.com)
1448 ET – US crude futures fall for a second straight day, ending the session 1.8% lower at $80.99 a barrel as investors continue to fret over weak US and global demand. Crude-oil production cuts throughout the summer by the Saudi and Russian-led OPEC-plus group are keeping supplies relatively tight, but the mere fact that producers have to keep reducing output to avoid oversupplies is sending a bearish signal to investors regarding the world’s economic health. Data today showing Chinese retail sales and industrial production grew less than expected in July reflected that economic weakness, and with the US manufacturing sector still in recession, WTI oil seems to be struggling to stay above $80. (dan.molinski@wsj.com)
1436 ET – While US exports of liquefied natural gas to places like Europe and Asia have skyrocketed over the past decade, the US is still also exporting massive amounts of natural gas the old-fashioned way—by pipeline. And last month pipelined gas flows to Mexico hit a new all-time high. The EIA, citing Wood Mackenzie data, says in a report that US natural gas pipeline exports to Mexico averaged 6.8 billion cubic feet per day in June, topping a previous record set in June 2021. Mexico is far and away the top recipient of US natural gas, receiving more than one-third of all US natural gas or LNG volumes in 2022, and nearly four times as much as top US LNG recipient France. (dan.molinski@wsj.com)
1119 ET – Class-action lawsuits against Hawaiian Electric Industries are raising the risk around the company’s credit. S&P Global Ratings downgrades the company to BB- following the filing of class-action lawsuits against Hawaiian Electric on behalf of residents who have had their homes destroyed by wildfires. S&P says the total cost to rebuild will be an estimated $5.5 billion, far greater than the company’s book equity of $2.2 billion. S&P also says the wildfires have destroyed a portion of the company’s customer base, which will damage profitability. Shares fall 8.6% to $19.61. (ben.glickman@wsj.com; @benglickman)
0900 ET – Refining cracks, a term for measuring refiners’ profits, are doing better in the second half of 2023 than the first half, and that’s adding some upward momentum to oil prices by firming up demand, says Energy Intelligence. “Refining cracks-diesel in particular-are improving,” it says in a note. “The first half of the year featured a steady decline in diesel and distillate prices/cracks as macro concerns took hold. In Asia, diesel cracks drifted to near zero. Since June, along with the improved macro sentiment as well as a pickup in demand, a gradual rebound has taken shape although margin levels are still well below where they were 6-12 months ago.” (dan.molinski@wsj.com)
0846 ET – Cosan has a lot of cash to make acquisitions after the Brazilian energy and sugar conglomerate’s recent debt issuance, said XP Investimentos analysts André Vidal and Helena Klum in a research note. Cosan said Monday evening that its net revenue declined 19% in 2Q from a year earlier, while it swung to a net profit in the period from a net loss a year earlier. Cosan’s debt level rose slightly, but the current level is still controlled and its cost of debt is low, giving it the firepower it needs to add to its portfolio, the analysts said. (jeffrey.lewis@wsj.com)
0843 ET – The resignation of Centrais Eletricas Brasileiras’s CEO, Wilson Ferreira Junior, will probably be negative at first for the share price of the Brazilian power company known as Eletrobras, but his replacement is also experienced and capable so his departure should only have a short-term impact, said Citi Research analyst Antonio Junqueira in a research note. Eletrobras said Ivan Monteiro, a former CEO of Petrobras, will replace Ferreira at the top of the electric utility. Monteiro has a top-notch resume and is a solid executive, Junqueira says.(jeffrey.lewis@wsj.com)
2245 ET – Ratch Group may benefit from higher-than-expected electricity output at its new wind farms in Australia, Thanachart Securities analyst Nuttapop Prasitsuksant says in a research report. The brokerage lifts its earnings estimates for the independent power producer by 2% for 2024 and 10% for 2025, to reflect the higher-than-anticipated capacity factor of the company’s newly acquired 212-megawatt wind project in Australia. The stock’s valuation has also become more justified at 9 times price-to-earnings with a 5% dividend yield in 2024 following the share price’s sharp year-to-date decline, the analyst says. The brokerage raises the stock’s rating to hold from sell and increases target price to THB36.00 from THB33.00. Shares last quoted at THB35.50. (ronnie.harui@wsj.com)
2229 ET – CSE Global’s 2H earnings outlook appears brighter, driven by its record-high order book of S$522 million in 1H, UOB Kay Hian analysts say in a research report. The technologies company’s 2023 earnings could more than quadruple from a low base of S$5 million in 2022, and it should be able to deliver its contracts faster and enjoy a recovery in margins as supply-chain disruptions ease, the analysts say. CSE Global highlighted that its diversification strategy to invest in and acquire communications businesses has contributed to a better financial performance, the analysts add. They raise the stock’s target price to S$0.61 from S$0.60 with an unchanged buy rating. Shares are unchanged at S$0.465. (ronnie.harui@wsj.com)
2137 ET – YTL Power International is likely to report stronger fiscal 4Q earnings after it raised power tariffs for its Singapore and U.K. subsidiaries, says Kenanga IB analyst Teh Kian Yeong in a note. YTL’s 4Q earnings may rise 10%-20% on quarter to MYR585 million-MYR590 million driven by a 43% hike in Singapore’s electricity retail prices and about a 9% tariff hike for U.K.’s sewerage utility company Wessex Water from April. Teh raises YTL’s FY 2023 and FY 2024’s profit estimates by 26% and 34%, respectively, to factor in higher earnings contributions from its Singapore and U.K. subsidiaries. Kenanga raises the stock’s target price to MYR1.85 from MYR1.48 and maintains an outperform rating. Shares are 0.6% lower at MYR1.56.(yingxian.wong@wsj.com)
1712 ET – Toronto stocks finish with losses, as the benchmark S&P/TSX Composite Index falls 117 points, or 0.6%, to 20290. The blue-chip S&P/TSX 60 Index also slips 0.6% to 1215. Gains in the healthcare sector were offset by broad declines elsewhere, particularly in telecommunications and base metals. Among the largest movers of the day was Boralex, with shares climbing more than 6% after the renewable energy producer reported stronger-than-expected 2Q earnings. (will.feuer@wsj.com; @WillFOIA)
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Image by Germán & CoIn Georgia and federal indictments, two vastly different approaches
Fani Willis’s sprawling case allows prosecutors to target Trump’s broad scheme. But legal experts and critics say both the scope and specificity could be a problem.
TWP by Amy Gardner, Holly Bailey, Amber Phillips and Shayna Jacobs, updated August 15, 2023 Fulton County District Attorney Fani Willis speaks during a news conference regarding the grand jury indictment of former president Donald Trump and 18 co-conspirators at the Fulton County government building on Monday in Atlanta. (Joshua Lott/The Washington Post)
ATLANTA — Charges against former president Donald Trump and a raft of others in Fulton County, Ga., over their alleged efforts to overturn his 2020 defeat finally landed Monday, the result of a sprawling investigation that stretched over 2½ years and led to a complex racketeering case featuring 41 criminal counts against 19 defendants in a massive 98-page indictment.
Contrast that with a federal indictment filed against Trump on Aug. 1 in Washington that also accuses him of illegally attempting to subvert and overthrow the election. In that case, Justice Department prosecutors sought charges against Trump alone. They appeared to be aiming for speed and simplicity, producing a 45-page indictment featuring four charges after an investigation of the former president that began well after the Fulton probe.
Unlike the Georgia indictment, which alleges multiple instances of making false statements, witness tampering and impersonating a public officer — among dozens of other counts — the federal indictment avoids potentially complicated accusations that some advocates pushed for, such as seditious conspiracy or insurrection.
Legal experts said the difference in strategy comes with some advantages: District Attorney Fani Willis’s sprawling case will allow Fulton County prosecutors to tell the jury a story of a broad conspiracy to reverse election results in multiple states and build a forceful narrative of Trump’s actions in concert with numerous aides, lawyers and local officials. But experts warned that the logistics of putting Trump on trial along with 18 other people — each of whom may file a flurry of pretrial motions — in a racketeering indictment so complex and multilayered could carry unique difficulties.
Trump and his allies have attacked both Willis, a Democrat, and special counsel Jack Smith of the Justice Department for investigating alleged election interference, accusing them of conducting political witch hunts and attempting to interfere with the former president’s 2024 bid for the White House.
But even some of Trump’s critics have questioned the apparent breadth of Willis’s investigation and the challenge she faces in persuading a jury to criminalize statements about election fraud — including portraying a few seemingly innocuous tweets as furthering the conspiracy — that many view as protected speech under the First Amendment. She will also have to convince a jury that Trump and others knew what they were saying was false, and that they are not protected by the fact that in many instances they were following the advice of their lawyers.
Trump is indicted in Georgia on charges of racketeering. What it means, what happens next.
Willis’s ambitious decision to use Georgia’s expansive RICO statute — a law historically employed to prosecute mobsters — to charge Trump with leading a vast criminal enterprise to steal the 2020 election could allow her to target many more of those involved in the alleged conspiracy beyond Trump, potentially transforming the way political wrongdoing is punished.
Alternatively, her gambit to try all 19 defendants together could be seen by jurors as a massive instance of prosecutorial overreach. And despite Willis’s statement late Monday that she’d like to see a trial date within six months, the sprawling nature of the case could push the start beyond the 2024 election and take years — and many appeals — to resolve.
“This is eye-popping,” said John Malcolm, a former federal prosecutor based in Atlanta who is now a constitutional scholar at the conservative Heritage Foundation, speaking of the contrast between the federal and state indictments. “What about the right — when you believe allegations to be true, or you have some evidence to support the allegations — to seek redress? And all of a sudden they’re perpetrating a conspiracy? I think that’s astonishingly dangerous.”
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Country Garden’s offices in Foshan, China. Experts fear the company’s troubles could spill over into the financial markets.Credit...Agence France-PresseWhy This Company’s Financial Crisis Threatens China’s Economy
Country Garden was China’s biggest real estate developer. Now it is staring down default, facing billions of dollars in losses and $200 billion in unpaid bills.
NYT by Alexandra Stevenson, Reporting from Hong Kong, August 15, 2023Country Garden, a Chinese real estate giant, has lost billions of dollars and racked up $200 billion in unpaid bills. It’s on the hook to deliver, by one estimate, nearly one million apartments across hundreds of cities in China.
The privately owned developer, founded by a farmer three decades ago, is inching closer to default.
In China’s housing market, there are plenty of deadbeat developers no longer paying their bills. The possible collapse of Country Garden is one to pay attention to.
The company has tried to project confidence. “One shall pick himself up from where he has fallen,” Mo Bin, Country Garden’s president, said last week, pledging to “spare no effort.”
But the problem is much bigger than one company, and the timing could hardly be worse. A default by Country Garden would be the latest in a string of collapses in a housing market that has been hurting for years. Emerging from paralyzing lockdowns during the pandemic, China’s leaders badly need the country’s economic engine to pick up. Instead, growth is sputtering as housing prices fall, people spend less and consumer and business confidence wanes.
Now, experts fear that Country Garden’s troubles will spill over into the broader financial markets, thwarting any possible recovery of the real estate industry and spreading the damage through the economy.
How did Country Garden run into trouble?
A year ago, Country Garden was a model corporate citizen in an expanding universe of delinquent real estate companies that borrowed recklessly and then stopped paying their bills.
Country Garden, founded by Yang Guoqiang in 1992, was a beneficiary of the world’s biggest real estate boom. Its success turned Mr. Yang into a billionaire and became a testament to the country’s remarkable growth. Chinese people, having few other reliable options to build wealth, invested their incomes and savings in real estate. Like other big private developers, Country Garden kept borrowing and often borrowed more to pay back its loans, operating on the assumption that as long as it continued to expand, it could keep repaying its debt.
But the bills grew so big that the authorities began to fear the debt would threaten the broader financial system. China’s top leader, Xi Jinping, ordered that homes should be for living, not for speculation. In 2020, the government cracked down, limiting the ability of real estate companies to raise money and prompting a series of defaults.
Even as other developers stopped paying their bills, Country Garden continued to make good on its obligations. It began to rely more heavily on the revenue from selling apartments before they were finished and using that money to help finance its operations.
A slump in home buying this year has placed the company in a crisis, facing what it described as the “biggest difficulties since its establishment.”
How big is the problem?
Markets, investors and home buyers are fearing the worst. In early August, Country Garden skipped two interest payments on loans. If it does not pay up by early September or get the creditors to give it more time after that 30-day grace period, it will default. Investors are not likely to lend it more money if that happens. The company’s share price has fallen below $1 in Hong Kong.
Country Garden’s losses are mounting. It has said it expects to report a loss of as much as $7.6 billion in the first six months of the year.
Even if people were still buying Country Garden’s apartments, they would not be able to buy enough of them to make up the financial shortfall, experts said. Besides, who wants to buy an apartment from a company that might not be around to finish building it?
All of this has led to worries that Country Garden will end up like China Evergrande, a real estate behemoth that collapsed in 2021 and set off panic in global markets.
“The Country Garden default could be as influential as Evergrande simply because it is so huge,” said Rosealea Yao, a real estate analyst at Gavekal, a China focused research firm.
And it could be even worse. A handful of big developers have already defaulted. The market is more on edge than it was when Evergrande failed. Policymakers, while recently vowing to support the housing market, have not done enough to bolster confidence.
“Things may get worse before the government reacts,” Ms. Yao said.
Can the government save Country Garden?
Maybe. Chinese policymakers have pulled all the stops before. And after years of tightening the screws, China’s top leadership has signaled a pivot in its approach, pledging to adjust its policy and take steps like lowering interest rates to make it easier to buy apartments.
But the measures so far have not been big enough to reverse the housing slump. Policymakers are unlikely to go back to the days when companies could amass huge piles of debt for speculative projects.
The housing market is also no longer growing like it did during the real estate boom that urbanized much of China in the 1990s and early 2000s.
China’s leaders have made it clear that the country cannot depend so heavily on real estate for economic growth. Gone are the days of real estate bubbles fueled by banks and investors throwing money at developers. More likely, some experts said, is that policymakers will do their best to make sure buyers get the apartments they paid for.
Many big questions remain unanswered. What, for example, happens to the Chinese economy if developers like Country Garden never pay back suppliers like painters and construction workers?
By one estimate from Gavekal Research, unpaid bills from private Chinese developers total $390 billion.
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When the crisis becomes permanent//www.ips-journal.euLatest news from Latinamerica
Workers at the Bilche-Volytsko Uherske facility, one of Ukraine’s gas-storage sites. ALONA NIKOLAIEVYCH/ZUMA PRESSVital Natural Gas Is Being Stashed in Caverns Beneath War-Torn Ukraine
Commodity merchants are pumping natural gas into Ukrainian reservoirs, hoping the war doesn’t disrupt potential profits
WSJ by Joe Wallace, updated Aug. 16, 2023 A daredevil trade is in vogue among commodity merchants: Stashing natural gas in caverns beneath the surface of war-torn Ukraine.
The wager could reap hundreds of millions of dollars collectively for traders such as Trafigura Group, Vitol and Gunvor Group, people familiar with the matter said. Others looking to cash in include oil-and-gas giants such as Shell and utilities such as Switzerland’s Axpo.
Traders are getting paid to stockpile power-generation and heating fuel for Europe ahead of the second winter since Russia pitched the continent into an energy crisis. So much gas has flooded in from the rest of the world to replace Russian fuel that prices have fallen more than 80% over the past year. That will make the trade a lucrative one, if all goes well.
The danger isn’t that the gas itself goes up in smoke. It is housed nearly a mile underground in depleted gas reservoirs and aquifers, mostly away from the front line in the west of Ukraine. But traders’ winnings could evaporate if shells strike pipelines or compressor stations and trap the gas in the country.
Another risk is that “the government says ‘I have to confiscate the gas’” if Ukraine’s energy situation worsens, said Martin Pich, trading director at MND, a Czech energy company. “You are looking at the potential profit, versus the losses that you could face in these scenarios.”
Gas flows picked up speed in recent weeks into the Ukrainian caverns, by far the biggest storage sites in Europe. The gas comes from all over the world: some shipped as liquefied natural gas from the U.S. and Nigeria and into Europe’s pipeline network. Other batches arrive directly from massive fields in Norway and the U.K. There is even a remaining trickle of gas from Russia, some of it U-turning in Slovakia and heading back across the border into Ukraine.
Flows accelerated after a series of meetings between European traders and officials from state-owned Ukrainian energy companies. The Gas Transmission System Operator of Ukraine gave a presentation in Vienna in mid-June showing that its pipeline network had spare capacity because of the drop in Russian gas since the invasion, said people briefed on the meeting.
As a result, the state company could redirect gas if any blockages occur, enabling traders to get it out of the country, said Chief Executive Dmytro Lyppa. “We are ready for any scenario,” he said.
Volumes flowing into storage are lower than before the war, reflecting the difficulty traders encountered in insuring fuel in a war zone or persuading banks to lend against it. The European Union has failed, so far, in an attempt to create a state-backed guarantee program. Ukrainian officials say foreign traders might store 3.5 billion cubic meters by winter, out of an available 10 billion.
That could prove to be a handy buffer, adding almost 4% to the EU’s storage capacity. Europe remains vulnerable, having swapped dependence on Russia’s Gazprom for reliance on the liquefied-natural gas market. Underlining that vulnerability, gas prices rocketed twice this month on the mere threat of a strike at gas plants in Australia.
Stowing fuel in Ukraine is a variation on a classic commodities trade. The play gained fame on Wall Street when Salomon Brothers made a bonanza by stashing crude on tankers on the eve of the First Gulf War in the early 1990s. It requires a big balance sheet, logistical intelligence and, in this instance, an appetite for risk.
It works like this: The EU’s gas stores are so close to brimming over that traders can buy fuel on the cheap now and sell at higher prices in the forward market, for delivery this winter or later.
Recently, they could earn more than 10 euros per megawatt-hour, said Marco Saalfrank, head of merchant trading at Axpo. That is after taking into account storage and transit fees, as well as interest rates and credit charges.
Shell signed a deal to explore shale gas in Ukraine in 2013. PHOTO: KRISZTIAN BOCSI/BLOOMBERG NEWS
Across 3.5 billion cubic meters, that adds up to more than 340 million euros, or $370 million, in potential profit. The actual figure will differ. Some traders are locking in sales for next summer instead of winter, or not selling forward at all, which amounts to a bet that prices will rise.
The companies involved mostly had extensive dealings in Ukraine before the war. Shell signed a deal to explore shale gas in the country in 2013.
London-based Vitol, the world’s biggest independent oil trader, struck a deal to develop oil-and-gas fields in Ukraine in 2012, while Swiss trader Trafigura had an office in Kyiv. The two traders—fierce competitors—are hunting for new ways to make money after earning billions of dollars in recent years from the upheaval caused by war and the pandemic.
Ukrtransgaz, the storage operator, has checked caverns for bugs, ordered extra patrols of perimeter fences and stocked up on spare parts, said Roman Maliutin, acting director general. The company treats all of the stores as if they were one giant cavern, guaranteeing traders access to fuel even if the site they originally injected it into is damaged.
“The probability that all our underground storages will be taken out of the production, will be destroyed, is very low,” Maliutin said.
The more gas in the depleted gas sites, the higher the pressure, easing the withdrawal of fuel to send back to Europe or burn in Ukraine this winter. Ukrtransgaz, a Naftogaz subsidiary, also gets much-needed cash from storage fees, though it has set them at low levels to encourage the influx. Ukraine also exempts the gas from customs duties for three years.
Inflows of gas from Poland, Hungary, Slovakia and Moldova mark a reversal of Ukraine’s historic role as a thoroughfare for Russian gas to Europe. The caverns are a legacy of that trade route. Gazprom drew them down to top up exports to Europe in winter, allowing cities in eastern Ukraine to burn newly arrived Russian fuel from a clutch of arterial pipelines in the coldest months of the year.
“Traders are coming to Ukraine without additional insurance, actually bearing this risk as commercial risk, which is a great signal,” said Oleksiy Chernyshov, chief executive of state-owned Naftogaz. He added that Kyiv wouldn’t consider confiscating the fuel.
The caverns, he said, are “the safest place in Ukraine right now.”