Middle East conflict risks contagion

Howdy,

We enter the second full week of outright conflict in the Middle East as hostilities between the U.S., Israel, and Iran metastasize across the region. While the duration of the war remains perhaps the key unknown, its impact on energy markets and markets at large is already coming into starker relief. All that and more below:

ONE STORY IN A SENTENCE AND A CHART

• A new paper published in Geophysical Research Letters reports that the pace of global warming has nearly doubled since 2015. Link. Link.

NEWS, DATA, AND HEADLINES

• Crude oil prices posted their biggest weekly gain in futures trading history, with WTI surging 35.63% to close at $90.90 per barrel last week, while Brent jumped ~28% to $92.69 per barrel. Nor is the action done and dusted; WTI opened at ~$110 as of this writing last night, adding another 20% over the weekend, during which futures trading is closed. Whether those levels hold as we head into the week, near-term inflation is assured; expect elevated gasoline prices both domestically and globally, and higher electricity prices abroad, as LNG exports from Qatar and elsewhere in the region are affected as well. The longer oil prices remain elevated, the more likely it becomes that the overall impact flips from inflationary to deflationary, as higher prices for everything that isn’t purely digital risk driving demand destruction. Link. Link.

• Israel targeted Iran's oil facilities for the first time over the weekend, with strikes hitting a civilian oil storage facility in Tehran, bathing the city in toxic pollution. Iran retaliated by striking a desalination plant in Bahrain with drones. Water desalination plants also came under attack in Iran, where the U.S. stands accused of targeting a plant on Qeshm Island, possibly disrupting water supply for 30 villages. U.S. Central Command denied the charges. These attacks on energy and water infrastructure mark a significant escalation in the conflict, as many Gulf nations depend on desalination to sustain tens of millions of people. Link. Link. Link.

• Amidst all the above, Kuwait Petroleum and others declared force majeure—i.e., contractual provision freeing parties from liability when extraordinary, unforeseeable events (such as wars)—on oil sales owing to attacks on regional energy infrastructure and disrupted shipping routes. The more that regional energy companies follow suit, the more imperiled global oil, gas, and chemical supply chains will be for weeks if not months. Link.

• As noted above, Qatar halted LNG production and export operations due to military attacks on QatarEnergy's operating facilities, including the Ras Laffan plant, which accounts for roughly 20% of global LNG supplies. All traffic through the Strait of Hormuz has effectively ceased (as of this writing) due to insurers withdrawing and reports of ships being attacked. Qatar is the second largest exporter of LNG globally, behind only the U.S. European gas prices were up about 40% in trading on Tuesday when Qatar first announced the halt. Restarting gas liquefaction can take weeks. Link.

• Amazon said drone strikes tied to the Middle East conflict damaged two AWS data centers in the UAE and disrupted a facility in Bahrain, knocking services offline and causing widespread outages. Link.

Elsewhere in energy

• China's BYD unveiled its Blade Battery 2.0 system, capable of charging an EV from 10% to 70% in about five minutes when paired with the company's new 1.5-MW Flash Charging stations. Link.

• The Nuclear Regulatory Commission granted a construction permit for TerraPower's flagship project to convert an old coal plant in Kemmerer, Wyoming, into a next-generation nuclear station. This is the first commercial-scale, fourth-generation reactor to receive regulatory approval in the U.S. this century. TerraPower's design uses liquid sodium metal as a coolant instead of water. Link.

• Facing surging electricity demand and threats to energy imports from China and now the war in the Middle East as well, Taiwan announced proposals to restart at least two of its three shuttered nuclear stations, nearly a year after its last reactor shut down. The government report also said Taiwan may consider building SMRs or, even more speculatively, fusion plants. Link.

• China is making progress on the world's largest commercial compressed air energy storage project. The $520 million Huai'an Salt Cavern CAES demonstration plant is now fully operational and includes two 300-MW units, the first of which came online in December, with the second following in recent weeks. Link.

• The Trump administration's first Alaskan oil and gas lease sale ended without a single bidder for more than a million acres of federal waters in the Cook Inlet, echoing a failed 2022 auction that also drew minimal interest. Link.

• Geothermal startup Quaise Energy is developing a 50-MW "superhot" geothermal plant in central Oregon using novel rock-melting technology and is in the process of raising a $100 million Series B round. The company has already signed a PPA for the initial 50 MW and is working on deals for an additional 200 MW. Link.

• Ocean Winds signed a lease agreement for a 1.5-GW floating offshore wind project in the UK, which would be by far the largest floating wind farm ever built. Two-thirds of global offshore wind potential is in waters too deep for traditional platforms. Link.

Policy

• The EU proposed setting a quota for publicly funded projects to source 25% of their steel from low-carbon sources as part of its Industrial Acceleration Act. Hydrogen Europe warned that the rules don't account for limited direct subsidies for key technologies or similar quotas in other industries, like housing or automotive construction. Link.

• China set a cautious new five-year climate target, pledging to cut carbon emissions per unit of GDP by 17% by decade's end, compared to a previous 18% target through 2025 that was narrowly missed. The goal has frustrated some analysts’ and policymakers’ hopes for tighter policy ahead of President Xi's 2030 peak emissions deadline. Link.

Hydrogen

• Spanish refiner Moeve is moving forward with a scaled-back version of its 2-GW Andalusian Green Hydrogen Valley project, which features a total project value pegged at $1.2 billion. Link.

• The 220-MW ACES Delta green hydrogen project in Utah, the largest in the U.S., is ready to launch with all 40 electrolyzers installed and fully operational. The milestone comes as the sector faces headwinds, including the 45V tax credit slated for phase-out next year and Trump pulling funding for regional hydrogen hubs. Link.

Other fundraising and financing activity

• Amazon, Google, JPMorganChase, Salesforce, and others unveiled a $100 million initiative to reduce emissions of superpollutants, i.e., methane, black carbon, and other refrigerant gases, through 2030. To date, superpollutants are responsible for roughly half of all global warming. Link.

• Galvanize closed a $370 million real estate-focused clean tech fund to invest in renewable energy and efficiency projects in commercial buildings, capitalizing on rising electricity costs. Link.

• Oxa, a UK-based self-driving software startup, raised $103 million in Series D funding from Nvidia's venture capital arm and the UK's National Wealth Fund. Link.

• Rift, based in Eindhoven, the Netherlands, which develops circular iron fuel technology to decarbonize industrial heat, raised €83.1 million (~$96.7 million) in Series B funding led by PGGM. The company also secured €30.7 million in grant funding from the EU Innovation Fund. Link.

Take care,

— Nick