Oil Majors Rethink Their Renewable Energy Ambitions

1. Oil Majors Downscale Their Renewable Ambition

- One of the key trends in oil major strategies this year has been the notable divestment of renewable projects, at times even reversing climate commitments amidst shaky non-fossil energy economics.     

- UK major BP which previously had committed to a 20-fold growth in renewable power buildout to 50GW, spun out its offshore wind projects into a JV with Japan’s JERA whilst Shell stopped new investments into wind. 

- The return of Donald Trump to the Oval Office in January will most probably mark another milestone in oil majors downgrading their renewable targets, particularly as Trump vowed to pull the US out of the 2015 Paris Agreement.     

- Oil companies maintained their focus on shareholder returns this year and their higher borrowing in 2024-2025 dictates that they cut low-margin liabilities to the benefit of high-yield oil and gas projects. 

2. Outpacing China, India Will Become Oil Bulls’ Favourite Country

- India has overtaken China in terms of its oil demand growth rate, a trend that is expected to deepen in 2025 as the South Asian country accelerates its refinery expansion plans and benefits from a much higher economic growth rate.   

- India’s 2025 demand growth rate of 3.2% will be notably higher than China’s assumed 1.7% with almost no downside foreseeable, further boosted by the addition of the 300,000 b/d Barmer refinery in Rajasthan.

- Towards the end of this decade, India is poised to add some 1 million b/d of oil demand, becoming single-handedly the largest incremental addition to global consumption, equivalent to some 25% of future demand growth.

- India has boosted its refining profitability with purchases of Russian oil, the largest source of its downstream needs with a relatively stable 40% market share in 2024, buying medium sour Urals some $5-6 per barrel below Middle Eastern peer grades.   

3. Lack of Term Discounts Foreshadows Improvements in Lithium Markets

- Lithium producers are tacitly anticipating a modest recovery in 2025 after posting another year-over-year decline this year, as prices have consolidated around ¥72,000 per metric tonne ($9,860/mt) and the rapid supply increases of 2023-2024 have eased.   

- 2025 term deals for refined lithium are reportedly being discussed at between 0 and 2% off an index of spot prices, meaning prices next year will be discounted much less than they were this year, with most term deals fixed at 5-10% discounts.

- Relatively rangebound prices have forced many higher-cost lithium producers to curb production, whilst demand from the EV segment remains healthy, boosting the metal’s overall consumption to 1.46 million tonnes LCE next year, a 26% jump compared to 2024.

- Until just a few years ago, lithium supply contracts were signed at fixed prices, but the massive swings in 2022-2024 forced buyers to rethink their strategies and opt for more flexible purchasing.   

4. Could the Nissan-Honda Merger Save Japan’s Carmakers?

- Japan has taken the ambitious step of merging two of its leading carmakers Honda and Nissan, in a move supported by the government in Tokyo, as the country’s second- and third-largest car producers seek to compete with Chinese peers.   

- With market rumors indicating that their smaller rival Mitsubishi might also join the holding company, Japan’s very own version of Stellantis could have a combined market value of $50 billion.

- Nissan developed the world’s first electric car, the Nissan Leaf in 2010, but since then has become a mid-tier competitor in the EV landscape, particularly affected by the lack of attractive hybrid options in its lineup.   

- Japan might have pre-empted Nissan falling into foreign hands after Foxconn was reported to be interested in the carmaker, which now would need to cut its production capacity, particularly in China. 

5. China Launches Polysilicon Futures Trading

- China launched the world’s first-ever polysilicon trading futures, marking a milestone for renewable markets as solar cell producers and buyers now have the means to hedge their pricing exposure.

- The first days of trading on the Guangzhou Futures Exchange (GFE) saw huge volatility in prices as the most-active June contract saw an intra-day rally to ¥44,000 per metric tonne ($6,030/mt), some 5% above benchmark pricing.

- Polysilicon, a key material to produce solar modules, saw price fluctuations of 227%, 63% and 280% in 2021, 2022 and 2023, respectively, as lack of global supply swiftly gave way to a huge Chinese overcapacity.     

- GFE set the daily price limits of the new polysilicon contract at 7% (margin limit is 9%), which was immediately tested by the market as the launch coincided with Tongwei and Xinjiang Daqo announcing unspecified output cuts. 

6. Higher Gas Prices to Sap US Gas Power Burn Growth

- Rising US natural gas supply has been a great boon for the expansion of the country’s gas power burn, with incremental demand from data centers and coal-to-gas switching expected to maintain that momentum into the years ahead, too.

- S&P Commodity Insight predicts, however, that higher Henry Hub prices will result in the April-October summer gas burn trending some 2 BCf/day lower in 2025 than this year when it averaged 39.5 BCf/day.

- Only two calendar months in 2025 are currently trading below $3.50 per mmBtu in the Henry Hub futures curve, buoying gas-to-coal replacement with coal generation potentially seeing a bumper 30% rebound next year despite retirements.

- Power grid constraints and capacity limits of older single-cycle turbines will cap the upside in natural gas-powered generation; however, most analysts expect another gas surge by the late 2020s.  

7. Iron Ore Collapses As Winter Restocking Fails to Impress

- Iron ore futures have dipped below the psychological barrier of $100 per metric tonne, its lowest in more than five weeks, amidst continued Chinese underperformance and increasing ore supply from Brazil and Australia.

- Whilst news has been relatively scarce in late December, China publishing data on industrial profits that extended their decline for the fourth consecutive month and fell by 7.3% in November soured the sentiment.

- Iron ore has been one of the worst-performing commodities this year, falling by 30% as the prospect of Chinese economic recovery kept on getting pushed back further down the road, with property investment still in a 10% year-over-year decline after a disastrous 2023.    

- The weakness in iron ore is somewhat counterintuitive as steel mills in northeast China should have started their winter stockpiling, but due to poor profits, Chinese mills have kept their inventories at an absolute minimum, enough for 7-10 days of operations.