Australia Sees Hydrogen Exports by 2030 in US$5b Plan

Source: EuroNews

Prime Minister Narendra Modi trumpeted India’s potential in technology, saying the country aims to increase its electronics sector to US$500 billion (RM2.17 trillion) by the end of the decade.

Modi touted the country’s advantages in areas such as semiconductors as he addressed a chip conference on the outskirts of capital New Delhi on last Wednesday. The country currently estimates its electronics market at about US$155 billion.

India is trying to woo more chipmakers into the country, much the same way subsidies have encouraged Apple Inc to assemble US$14 billion in iPhones in the South Asian nation. Modi’s administration has so far approved more than US$15 billion worth of semiconductor investments. These include a proposal by conglomerate Tata Group to build the country’s first major chip plant and US memory maker Micron Technology Inc’s envisioned US$2.75 billion assembly facility in Modi’s home state of Gujarat. Israel’s Tower Semiconductor Ltd is seeking to partner with billionaire Gautam Adani for a US$10 billion fabrication plant in western India.

“This is the right time to be in India,” Modi said. “In the India of the 21st century, the chips are never down.”

Semiconductors have grown into a crucial resource, especially as the geopolitical chasm between Beijing and Washington continues to widen and importers look to reduce their reliance on overseas producers in locations such as China and Taiwan. Several countries including the US, Germany, Japan and Singapore are investing aggressively to boost domestic chipmaking, ensuring supply of the components needed for technologies from AI to electric cars.

At the same event, chip industry executives from India and abroad outlined their growth plans in the country. NXP Semiconductors NV chief executive officer Kurt Sievers said the Dutch chipmaker will invest more than US$1 billion in India over the next few years to widen its research and development efforts in the region.

Source: Theedgemarkets

Pre-Market U.S. Stock Movers

Source: Barchart

Complex business case for synthetic fuel

Ørsted, the world's largest offshore wind developer, announced this month that it would no longer build an e-methanol plant to develop sustainable fuel for hard-to-abate industries like aviation and shipping.

Work on the Swedish plant began just a year ago and the plant was intended to produce about 55,000 tons of e-methanol per year from hydrogen and CO2. Mads Nipper, the CEO of the company, cited a weak business case as the primary cause for the project's discontinuation. Lower than anticipated demand for green methanol, high technology costs - even with subsidies – and high interest rates and construction costs all add to the complexity.

For us, the cancellation itself was not the biggest surprise, as we have shown before that hydrogen-based fuel is much more expensive than fossil fuel in every sector where it is used. In aviation and shipping, it could be up to 10 times more expensive (see graphs below).

Ørsted is widely considered the greenest energy company in the world. The fact that even this company is struggling to make the investment is the clearest possible sign of the complex business case for synthetic fuel. A month earlier, Shell decided to stop the construction of a plant for bio-diesel in Rotterdam. However, Shell’s CEO Wael Sawan has been very open about the company's goal to increase shareholder value and get rid of renewable energy projects which yield low returns.

Lessons learnt

So, what to make of this? The road to sustainable fuel is turning out to be a bumpier road than many had hoped. This is not just true on the production side, but on the demand side, too, as Boeing’s CEO David Calhoun made perfectly clear: “there is no cheap way of decarbonizing aviation”.

An important lesson for all involved in the transition to a net-zero economy is that the economic viability of the business case is frequently overlooked. This oversight occurs in many transition strategies, both at the sectoral and corporate levels. Typically, these plans portray the shift as a seamless and rapid progression towards the years 2040 or 2050. However, the actual journey is proving to be more tumultuous than anticipated.

Another lesson is that systemic change towards a greener future is a multistage process. 

The first phase is all about inventing an alternative fuel that can replace fossil fuel. The shipping and aviation sectors have passed this stage of developing and testing more sustainable fuel.

The second phase focuses on introducing these solutions to the market, acknowledging and rewarding the companies that succeed in doing so (praise the winners), while also addressing those that fall behind (name and shame the laggards). From our perspective, it's concerning that even leading companies such as Ørsted are struggling to lead this phase of the transformation.

Fortunately, there are companies like Maersk which are actively forming alliances to expand the use of methanol and ammonia as fuel. Additionally, the previous orders for dual-fuel vessels are now starting to be operational, which is crucial for this stage of the transition.

Routine correction or start of a trend?

Should the decisions by Ørsted and Shell indicate a broader trend of project cancellations, the implications could be significant. Such a trend might hinder the sector's progression to the third phase, which focuses on the expansion of greener fuel, bolstered by government policies.

Consequently, this could postpone the fourth and final stage, wherein sustainable fuel is established as the ‘new normal’ and replace the current fossil-based fuel supported by policies that ‘hospice the dying activities and companies’. Think of training programmes for workers who lose their jobs in the fossil economy so they can take on green jobs.

These setbacks in the viability of greentech’s business case are not confined to aviation and shipping alone. The Financial Times recently calculated that 40% of the biggest greentech investments under the much-praised US Inflation Reduction Act have been delayed or paused. And that involves projects for electrolysers, electric vehicles, renewables, sustainable fuel and semiconductors. All are important in a low-carbon economy.

The long-term effects of these recent announcements remain to be seen. Should this merely be a routine correction, aligning inflated expectations with reality—a process often ignored—we maintain an optimistic outlook. In fact, this recalibration could be beneficial if it redirects the attention of policymakers and executives from setting higher ambition levels to policies that support tangible action. More emphasis on and supporting policies for viable business cases could act as a welcome relief. However, the possibility that this indicates an emerging, troubling pattern, potentially heralding further adverse developments and setbacks, cannot be dismissed. This is not unprecedented; after all, the initial journey of solar panels and wind turbines was also fraught with challenges.

A business case perspective: hydrogen-based fuel in aviation is up to 10 times more expensive...

Indicative unsubsidised cost of kerosene and synthetic fuel in euro cents per seat per kilometer

Source: ING Research

...and this is also the case in shipping

Indicative unsubsidised cost of shipping fuel in euro per dead weight tonnage per 1.000 kilometers (euro/DWT/1.000km)

Source: ING Research

Stock markets are likely to trade sideways until US employment data show clear signs of either weakening or strengthening, according to Bank of America Corp strategists.

The team led by Michael Hartnett said there’s several market factors at play to support both bullish and bearish narratives. While the optimists say technology and semiconductor stocks — including this year’s leader Nvidia Corp — have bounced off key technical levels, the pessimists warn that “nothing good happens” when bond yields and banking stocks decline at the same time.

A clear direction for jobs would “resolve the autumn ambiguity,” Hartnett wrote in a note, after non-farm payrolls climbed by 142,000 in August, lower than economists’ expectations. “Until then, risk rotates rather than rips or retreats.”

US stocks have whipsawed since mid-July as weak employment figures raised worries of a recession. That has also left investors guessing about the extent of possible interest-rate cuts from the Federal Reserve in the coming months.

Traders are now pricing in more than 100 basis points of reductions by the end of 2024, beginning with a quarter-point cut next week, according to swaps data.

After remaining bearish on stocks as the S&P 500 rallied last year, Hartnett has stated his preference for bonds in 2024.

The next jobs print from the Labor Department is due on Oct 4. For now, Hartnett said he remained bullish on bonds and gold. For equity investors, he recommended a barbell of resources stocks and bond-sensitive sectors such as real estate investment trusts.

Source: The edge markets