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By John Kemp, senior market analyst

Welcome to Power Up. U.S. officials are keen to stress the price cap on Russia’s oil exports is still working, despite the recent rise in prices, which has already caused the Department of Energy to rescind its bid to buy 6 million barrels to refill the Strategic Petroleum Reserve. At the same time, the Biden administration is hosting Mongolia’s prime minister, part of the new great game for influence in Asia, while grappling with the politics of whether to allow ethanol in sustainable aviation fuel, a debate that pits food prices against decarbonisation and flying.  

Today’s top headlines:

• U.S. sees Russia oil price cap working despite recent price rises
• China approves new coal plants in drive for energy security
• U.S. administration split on ethanol role in sustainable jet fuel

The Capricorn Sun tanker is moored at Germany’s port of Rostock, Germany, August 5, 2022,. REUTERS/Andreas Rinke/File Photo

The U.S. remains confident the Group of Seven’s price cap on Russian oil is squeezing Moscow’s revenues and stabilizing energy markets despite a recent upturn in prices, Andrea Shalal reports.  

“Our approach has struck at the heart of the Kremlin’s most important cash cow. Before the war, oil revenues constituted about a third of the total Russian budget, but that number has fallen to just 25%,” Assistant Secretary for Economic Policy Eric Van Nostrand told a conference in London.  

Lower-income countries have benefited as they import discounted oil the G7 no longer takes and from generally lower global oil prices, he said. Russia’s investments into the shadow fleet used to transport oil, or into its own insurance companies to sell above the price cap, are draining funds available to support the war in Ukraine.  

A coal-burning power plant can be seen behind a factory in the city of Baotou, in China’s Inner Mongolia Autonomous Region, October 31, 2010. REUTERS/David Gray/File Photo

China has authorised construction of more than 50 gigawatts (GW) of new coal-fired power plants in the first half of 2023 even as the government promises to move to renewables in the long-term, David Stanway reports.  

Prolonged drought in southern China has sharply cut hydroelectric generation and forced the government to shift its focus from cutting emissions to ensuring there is enough power for homes and industry.  China’s top economic planning agency said in March it would “strengthen” coal’s supporting role in the energy mix. Mine production increased 9% to a record 4.5 billion tonnes in 2022 and has continued to rise in 2023.  

China built more than 1,000 GW of coal-fired capacity from 2000 to 2022, enough to power the entire European Union and accounting for 69% of total global additions. But the increase reflects a worldwide pattern. The International Energy Agency said last week that global coal consumption reached a record 8.3 billion tonnes in 2022, with strong growth in Asia offsetting declines elsewhere. 

Planes sit on the tarmac at Columbia Metro airport in West Columbia, South Carolina, U.S., January 8, 2022. REUTERS/Sam Wolfe/File Photo

The Biden administration is divided over whether to grant a request from the U.S. biofuel industry that would make it easier for sustainable aviation fuel made from corn-based ethanol to qualify for subsidies, report Jarrett Renshaw, Stephanie Kelly and Leah Douglas.  

Political divisions reflect a lobbying battle between two big stakeholders – Farm Belt backers who view sustainable aviation fuel (SAF) as crucial to ethanol’s growth, and environmental advocates who say clearing land to grow crops for fuel is counterproductive to solving global warming and risks pushing up food prices.  

Midwest ethanol producers have asked the administration to adopt a model that would enable ethanol-based SAF to qualify for tax credits while environmentalists want standards that would favor inputs like used cooking oil and animal fat. 

Sustainable aviation fuel production is currently miniscule but the administration plans to grow the market to 3 billion gallons a year by 2030 and 35 billion gallons by 2050, essentially meeting all aviation fuel demand.  

Mongolian Prime Minster Oyun-Erdene Luvsannamsrai at the Mongolian embassy in Washington, U.S., August 2, 2023. REUTERS/David Brunnstrom

Mongolia’s prime minister was in Washington for talks with the administration, including a meet and greet with Vice President Kamala Harris, a sign of the intensifying diplomatic competition for influence in this landlocked but strategically important country between Russia and China, report Simon Lewis and David Brunnstrom.  

Mongolia has extensive deposits of rare earths and copper, vital for high-tech applications including defense equipment as well as making electric vehicles. The country was dominated by Moscow during the Cold War and is now heavily reliant on China. But the prime minister called the U.S. an “important strategic third neighbour”.  

Tesla has already opened talks about possible investment and cooperation and the prime minister plans to visit Elon Musk and other tech industry leaders on a future visit to California.

“I fear that the new Cold War will be very different and (more) difficult from the first Cold War. We cannot bear a new Cold War situation.”

Mongolia’s Prime Minister L. Oyun-Erdene on a visit to Washington on August 2, 2023

The U.S. Department of Energy has pulled a solicitation to buy 6 million barrels of crude oil for the Strategic Petroleum Reserve, as prices are expected to keep rising after the recent output cut from Saudi Arabia, Timothy Gardner reports.  

U.S. oil producers had been lobbying for the government to support prices by refilling the reserve after it was drained by more than 180 million barrels in 2022 following Russia’s invasion of Ukraine.  

The Biden administration has said it wants to buy back oil when it costs $67 to $72 per barrel. But U.S. futures prices have been trading above this level since early July after Saudi Arabia extended its unilateral production cuts and there are forecasts they could rise even higher before the end of the year in the event of a soft landing for the U.S. economy.  

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