India Ratchets Up Its Renewable Energy Installations

1. BHP-Anglo Merger Could Create World’s Largest Copper Miner

- The global mining sector might see a whirlwind of M&A activity over the upcoming weeks should the world’s largest miner BHP Group succeed in taking over Anglo American, its UK-based peer.

- Potentially creating the world’s largest copper mining company, BHP’s power move is conditional upon AngloAmerican first splitting off its South African platinum and iron ore units.

- AngloAmerican shareholders, with the company currently boasting a $34 billion market capitalization, rejected BHP’s first bid, claiming it significantly undervalued the miner despite the offer seeing a premium of 31% to Anglo’s current share price.

- BHP produced 1.2 million tons of copper last year, whilst the output of AngloAmerican stood at 826,000 tons, suggesting that the two combined would account for roughly 10% of global copper production.

2. Simultaneous Fracking Alleviates US Drillers’ Pain of Weakening Well Quality

- According to Enverus, the average amount of oil recovered per foot drilled in the Permian Basin declined by 15% between 2020 and 2023, bringing it back to levels last seen in the mid-2010s.

- With fewer sweet spots to be drilled and worsening underground pressure, shale oil producers have been increasingly relying on technology advances in US shale patches such as longer lateral wells and simul-fracing.

- Simultaneous fracking allows for the simultaneous drilling of several wells and even though well costs end up being 5-10% cheaper, the higher upfront cost is making it difficult for smaller upstream firms.

- Mid-sized shale drillers like Pioneer Natural Resources were the first to embrace simul-fracing and by now oil majors ExxonMobil and Chevron have started to replicate the technology with the latter completing a triple-frac pilot recently.

3. India Kickstarts Its Renewable Build-out Frenzy

- India has ratcheted up renewable energy installations in recent months, surging to 7.1 GW in March, more than doubling the previous all-time high set in March 2022, just before the general elections of 2024.

- Renewables growth was mostly driven by solar installations, up 23% year-over-year with Adani Green spearheading the drive with mega solar parks in the state of Gujarat, accounting for 90% of all non-fossil growth last month.

- India added 18.5 GW of renewables capacity for the fiscal year ending 31 March 2024, however in order to reach its own 500 GW non-fossil-fuel capacity target by 2032 Indian power generators should add 30 GW every year.

- Historically, India has relied on Chinese solar panel imports however the government has been incentivizing domestic production capacities and slapping customs duties on imports, lifting the country’s solar panel production capacity to 68 GW, almost tripling in two years.

4. French Grid Issues Push Europe’s Power Prices Higher

- Power grid limitations in the eastern regions of France have triggered a rally in European electricity prices as countries like Belgium, Germany, and Italy relied on cheap French nuclear power to balance their own generation.

- So far in April, German day-ahead electricity prices have been on average €40 per MWh more expensive than in France, with Italy bracing for a potential impact into the summer when air conditioning demand ramps up power consumption.

- Even though France’s grid restrictions should ease into May, the European Union’s grid problems are set to be the next renewable transition challenge as Brussels estimates some €584 billion is required in grid investments in the 2020s alone.

- Europe is still not out of the woods with its electricity woes as TTF gas futures for the winter season of 2024/25 hold a premium to all other months, in anticipation of Ukraine halting transit deliveries of Russian gas.

5. US Expands Iran Sanctions, Potentially Targeting Chinese Banks

- US President Joe Biden signed a foreign aid package that includes sanctions on Iran’s oil industry into law this week, shortly after the Senate passed the bill by a vote of 79-18.  

- The scope of sanctions on Iran was broadened to include any port, vessel, or refinery that knowingly processes or ships Iranian crude, expanding secondary sanctions on Chinese buyers.

- With China buying more than 90% of Iran’s crude exports, it remains to be seen whether the White House will sanction Chinese banks involved in those transactions, although the impact on trade should be minimal given all these deals are done in Chinese yuan anyway.

- According to Kpler data, Iran has been exporting more than 1.5 million b/d in February-March 2024, some 150,000 b/d higher than last year’s average, whilst the country’s crude oil production remains robust at 3.2 million b/d. 

6. Chinese Carbon Prices Wake Up From Their Lull

- China’s renewable breakthrough might come from the increasingly tightening carbon market, with the country’s carbon price surpassing the mark of ¥100 per metric tonne of CO₂ ($14/mt) for the first time on record.

- Chinese carbon prices started to rally on the back of new rules that would curb the number of free emissions allowances and limit the number of allowances that power-generating companies can carry over into the following year.

- The local carbon market is expecting Beijing to formalize the inclusion of the aluminum and cement industries into the carbon emission trading mechanism by 2030, covering 70% of China’s emissions.

- China’s carbon price is still only one-fifth of European ETS, however it should at least double over the next 2-3 years, due to the EU carbon border mechanism and the simultaneously tightening allowances.

7. Brushing Aside China Concerns, Copper Soars Above $10,000/Mt

- Benchmark three-month LME copper prices have surged past the $10,000 per metric tonne threshold in intraday trading on Friday, marking the first such occasion since April 2022.

- The strength in copper seems to be coming mostly from longer-term considerations of shrinking supply as the near term is preoccupied with the slowing down of Chinese copper refining.

- Running counter to surging futures, the Yangshan copper premium that’s paid on top of exchange prices in China has slumped to almost zero whilst domestic supplies are at their widest discount to futures prices in two years, indicating oversupply.

- BlackRock added to the bullish sentiment in the markets, saying that copper prices need to reach $12,000 per metric tonne, i.e. rise a further 20% from current levels, to incentivize large-scale investment into new mines.