Daily Update August 2, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Can the Oil and Gas Sector Lead on Climate?

Many companies in the oil and gas sector have historically taken a combative approach to discussions of climate change and the impact of carbon. But this rhetoric has changed in the past decade. Now, an oil or gas sector executive is far more likely to discuss the need for energy security or talk about the continuing inevitability of oil and gas in a move to a low-carbon future. While that shift has begun to impact the ways in which oil and gas companies are perceived, Tisha Schuller, founding CEO of Adamantine Energy, believes that there is more work to be done. Schuller recently joined S&P Global Commodity Insights “”“ to talk about how the industry can pivot to a more proactive and constructive mindset when engaging with a public that has grown wary of oil and gas.

“The world’s expectations of energy companies have changed,” Schuller said. “Right now, any discussion of energy is dominated by a very politically polarized discussion on climate. And the opportunity the oil and gas industry has is to jump right into the middle of that fray, but as civic leaders, not as defenders of the past or as defenders of the status quo.”

Many companies are already changing their dialogue with the public on energy concerns. One issue that is holding up engagement and investment with oil and gas is the lack of standardized industry emissions reporting standards. A patchwork of standards makes it difficult for individual investors, institutional investors, or environmental, social and governance-focused funds to rate the relative strength of individual oil and gas companies in tackling emissions. Sustainability is also playing an increased role in credit risk. This can make it more expensive for energy companies to borrow money for operations or infrastructure investment due to uncertainties brought on by the energy transition.

Another area of reputational and business exposure for oil and gas companies is the increase in shareholder resolutions related to climate and emissions goals during a proxy season. The increase in litigation over climate claims could also impact the bottom line for oil and gas companies. Schuller believes that confrontation is not only avoidable, but undesirable.

“The most fantastic thing that our citizenry can have is an engaged oil and gas industry leading into the energy future,” Schuller said. “There’s no other industry with the resources plus billions of dollars to invest in [research and development], the brightest minds in the world — literally the rocket scientists of the sub-surface. These are the people we want solving climate change.”

Schuller identified several areas where oil and gas companies can connect with the public more effectively, with the first being science-based discussions around the realities of existing energy infrastructure. Schuller also said the industry needs to engage seriously with the idea of environmental justice and with disadvantaged communities on issues such as pipeline construction to arrive at shared solutions. But ultimately, the requirement for the sector is to build the trust of the public, while evolving the industry’s approach to climate and emissions.

Today is Wednesday, August 2, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

US Weekly Economic Commentary: Headed For A Soft Landing?

Key releases last weak teased the prospect of continued strong growth, tight labor markets and easing inflation. Can the elusive soft landing be achieved? Several indicators came in as good or better than expected and leaned toward supporting strong growth ahead. Second-quarter GDP growth came in above S&P Global Market Intelligence’s and consensus expectations, with a mix more favorable to stronger growth in the third quarter than we had been expecting. The profile of the monthly data on personal consumption expenditures (PCE) through June suggested even more momentum heading into the third quarter.

—Read the article from S&P Global Market Intelligence

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Capital Markets

EU Banks Resist Tough Assumptions In Latest Stress Tests

EU banks generally performed well in the European Banking Authority's (EBA) and the European Central Bank's (ECB) latest stress tests. In S&P Global Ratings' view, the results underline EU banks' overall resilience to a severe deterioration in asset quality and market shocks. At first sight, the results do not seem to challenge its view of the creditworthiness of any of the rated banks in the sample, and it does not expect any rating changes. Yet, the results reveal divergences in banks' risk profiles and capital resilience under the stress scenario.

—Read the report from S&P Global Ratings

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Global Trade

APAC Merchandise Exports Remain Weak In First Half Of 2023

APAC merchandise exports have declined significantly in the first half of 2023, due to weak demand in the US and Western Europe and sluggish economic recovery in mainland China. Latest evidence from S&P Global Purchasing Managers surveys for June also signaled that new export orders have remained weak across many APAC economies in mid-2023, indicating continuing headwinds in the second half of 2023 for APAC merchandise exports. However, the gradual recovery of international tourism in the APAC region is resulting in improving service sector exports for economies such as Thailand, Malaysia and Singapore, helping to mitigate the negative impact of weak goods exports.

—Read the article from S&P Global Market Intelligence

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Sustainability

Listen: How One Of Largest US Insurers Approaches Diversity

In the sustainability world, diversity in leadership has gotten increasing attention in recent years — including from many stakeholders in the insurance industry. This episode of the ESG Insider podcast continues the series on Women in Leadership in an interview with Eloiza Domingo. Eloiza is Vice President of Human Resources and Chief Inclusive Diversity & Equity Officer at Allstate, one of the largest US property and casualty insurers. She talks to the podcast about her path to leadership, Allstate’s approach to diversity, equity and inclusion, and what many companies get wrong when it comes to DEI.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1

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Energy & Commodities

Afentra CEO Eyes 'Conveyor Belt Of Deals' As Majors Retreat From Mature African Basins

Afentra, the West Africa-focused independent, is looking to sign a "conveyor belt of deals" in multiple countries to ensure a "responsible" African energy transition, CEO Paul McDade told S&P Global Commodity Insights after penning a complex multi-party agreement to establish a foothold in Angola. McDade, who previously ran Tullow Oil, led a takeover of Sterling Energy in 2021 and rebranded it Afentra — short for Africa Energy Transition — to support the exit strategies of majors like ExxonMobil and TotalEnergies and guide African countries through the transition.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Mainland Chinese Consumers Crossing The Chasm To Mainstream EV Adoption

With Battery Electric Vehicles (BEV) and Plug-In Hybrid Electric Vehicles (PHEV) now entering the market in the mid-$20,000 range, disruptor brands are going all-in on New Energy Vehicles (NEV). S&P Global Mobility forecasts significant market growth of electrified-vehicle sales in mainland China by 2030, with two-thirds of them being pure battery-electric. And NEV exports are sharply on the rise. Whereas government policy and subsidies have been the driving force in the development of the market for electrified vehicles in mainland China, organic consumer demand is beginning to play a role as well. And while outright purchase subsidies are disappearing, tax incentives and providing free or subsidized license plates to BEV owners in some cities will also continue to support market growth.

—Read the article from S&P Global Mobility

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