TheChek News Flow

Energy, tech and finance executives in discussion over how to fuel artificial intelligence

The rapid rise of artificial intelligence gives the world’s largest oil companies a major incentive to increase their investments in renewable energy, according to Sultan al-Jaber, the chief executive of Abu Dhabi’s national oil company.

“The size of this opportunity only became very apparent about 18 months ago when ChatGPT took off,” said Jaber in an interview with the Financial Times.

He spoke as the chief executives of oil groups Shell, BP and TotalEnergies met tech companies including Microsoft, financiers including Mark Carney, the chair of Brookfield Asset Management, and the heads of power suppliers RWE and EDF in Abu Dhabi to discuss how to meet the growing energy needs of AI and how the technology could be applied across the energy sector.

Both Shell and BP have pulled back from renewables in the past two years to refocus on their core oil and gas businesses. But Jaber said the huge growth of AI would prompt oil groups to look again at their renewables businesses. The big tech companies have pledged to use green energy for their AI data centres to meet their net zero targets.

“This specific topic was very much discussed,” he said. “We need a model that will integrate all forms of energy together. We will need more renewable energy and we need to advance battery storage technology to turn renewables from intermittent power to baseload. We need gas as a bridge and we will need, in some locations, nuclear power.” 

Jonathan Ross, chief executive of AI chip company Groq, said he had met the heads of BP and Shell and that renewable energy had been “a huge topic”.

“Because AI is going to require huge amounts of energy we need to get ahead of this,” he said, adding that he hoped to provide more computing power for energy companies going forward.

Adnoc, one of the world’s largest oil companies, is also planning to roll out the next iteration of generative AI, so-called AI agents designed to act autonomously, across all of its operations.

In a speech on Monday, Jaber said Adnoc’s technology arm, AIQ, had worked with Microsoft and the United Arab Emirates’ AI group G42 to develop software called EnergyAI. He said it would be the first time that a major energy company had integrated AI agents across its entire value chain.

“It is the first of its kind,” said Jaber. “It will analyse petabytes of data. It will proactively and autonomously identify operational improvements.”

Adnoc said its software could autonomously produce seismic analysis or detailed models of underground reservoirs to decide whether they could be suitable for trapping and storing carbon dioxide emissions.

Jaber said Adnoc had allocated $23bn to develop low-carbon technology using AI and that he was “very optimistic” the company could achieve its carbon reduction targets ahead of schedule because of the new technology.

Adnoc has said it wants to reduce its emissions per barrel by 25 per cent by 2030. It also has a target to be net zero by 2045 for scope-one emissions from sources the organisation owns or controls and for scope-two emissions that the company causes indirectly, but not for scope three, other emissions not covered in the categories.

“We reduced our emissions by 1mn tonnes between 2022 and 2023 and that was through the application of AI on top of the advanced digital infrastructure we have been investing in across our operations,” he said.

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Regulator brings in new measures after launching criminal insider dealing case against Segantii Capital Management

Hong Kong authorities are cracking down on how banks discuss block trades with hedge funds after a criminal case against Segantii Capital Management and its founder Simon Sadler threw a spotlight on the practice.

The Securities and Futures Commission, the territory’s financial watchdog, announced new guidelines on Thursday that cover so-called market sounding, a grey area in which banks discuss upcoming or potential block trades with hedge funds in order to gauge their interest in buying the stock.

Block trades are privately negotiated sales of a large chunk of a company’s shares, which can depress the price. If hedge funds or other investors bet against a company in the belief that a block trade is likely to happen, they stand to make money if the transaction materialises and pushes down the shares.

“The guidelines aim to address market integrity issues related to the abuse of confidential information entrusted by a client in the course of market sounding, resulting in an unfair playing field,” said Julia Leung, chief executive of the SFC. They are due to take effect next year.

The SFC’s move comes after it announced in May a criminal insider trading case against hedge fund Segantii, Sadler and former trader Daniel La Rocca. Segantii, once one of the dominant players in block trading in Asia, has said it plans to defend itself “vigorously”.

Block trades can be a lucrative corner of the market for banks and hedge funds but have attracted the attention of regulators, including in the US and UK.

The SFC’s guidance says that when a bank is sounding out a hedge fund about its interest in buying shares in a possible block trade, it can only give details that are so “broad, limited, vague and anonymised” that the fund cannot guess the identity of the issuer — unless the fund has agreed to treat it as confidential.

It says that if a bank or hedge fund abuses so-called market-sounding information, it could be in breach of the regulator’s guidelines, even if what is discussed is not deemed to be price-sensitive or to constitute inside information. Banks should record market-sounding conversations and use authorised communication channels, it says.

Hedge funds will be required to make a “reasonable effort” to find out whether information from a bank counts as market sounding if the bank does not specify it, the guidance adds.

The SFC’s guidelines do not have the force of law, but the watchdog said failure to comply could lead them to consider whether a person should remain licensed or not.

Segantii is in the process of closing operations and returning investors’ cash in the wake of the court case, which relates to trades in retailer Esprit that took place in 2017.

Separately in January, Morgan Stanley agreed to pay $249mn to settle federal investigations into misconduct on block trades. The Securities and Exchange Commission found that Pawan Passi, the former head of the bank’s US equity syndicate, had shared non-public information about impending block trades with investors.

The SEC handed Passi a $250,000 civil penalty and barred him from working in the industry. He admitted to misconduct and agreed a deferred prosecution agreement.

Investors’ hopes for bold moves are wishful thinking, no matter who wins U.S. vote

With scant detail on how Beijing aims to stimulate its way out of its economic downturn, some investors have speculated that the U.S. presidential election might prompt the big “bazooka” markets have hoped for.

According to people involved in policy discussions, that is wishful thinking: A bazooka isn’t coming—at least not this year.

Hopes rose for bolder stimulus action when a key Chinese legislative session was postponed until this week. Some investors and analysts viewed it as a sign that Chinese leader Xi Jinping was waiting for U.S. election results to potentially adjust his stimulus plan—especially if Donald Trump, who has pledged sweeping tariffs on Chinese products, looked set to return to the White House.

The people involved in policy discussions say that scheduling issues involving some participants in the legislative meeting caused the delay.

While the U.S.’s approach to China in the next four years will likely affect the country’s economic trajectory, they say, the key planks of the stimulus package aimed for the remainder of this year have been set, with the plan awaiting only formal approval at the legislative meeting.

However, these people say, Beijing is discussing how the U.S. election’s potential impact will affect market sentiment in China. They say that authorities are planning on signaling after the legislative session that more steps to support growth are in the pipeline and that a package of incremental measures can be expanded depending on an assessment of risks to the Chinese economy.

For instance, these people say, if Trump wins the election and goes ahead with his promised tariff hikes, China could try to boost what Beijing describes as “effective demand” at home by increasing government spending in high-end manufacturing and other projects seen by the Xi leadership as crucial to the country’s competitiveness.

That could further antagonize the West, which has scrambled to counter Beijing’s broad expansion in manufacturing. China’s policy has flooded markets with low-cost electric vehicles and other Chinese products.

Some government advisers privately acknowledge that Beijing could have delivered a more detailed and coordinated message about what it aims to achieve with the new stimulus plan. More clarity could have led to less of a roller-coaster ride for markets, they say.

Since China’s leadership made a sudden pivot in late September toward more broadly supporting the economy, it has left investors guessing at the scale of the coming stimulus.

A series of underwhelming news conferences by various economic agencies didn’t help. One reason for the muddled messaging, the people involved in policy discussions say, is that senior officials are afraid of saying anything that could expose vulnerabilities in Xi’s economic agenda.

The vague details of Beijing’s promised support for municipalities, banks and developers left investors with little to hold on to, making it hard for Xi to resuscitate the country’s long-suffering stock market, one motivation for his economic pivot.

That doesn’t mean that the stimulus measures like interest-rate cuts rolled out since September haven’t had some effect. Notably, the housing market, which has been mired in an unprecedented downturn for more than three years, has improved, with both home sales in major cities and sales revenue by top developers rebounding over the past month. “The question is how sustainable the housing recovery can be,” wrote Larry Hu, China economist at Macquarie, in a new research report, citing still-low consumer confidence.

The neck-and-neck race between Vice President Kamala Harris and former President Trump is posing yet another test for Beijing to manage investor expectations.

Beijing is particularly wary of a Trump return, people close to the leadership’s thinking have said. If Harris is elected and her policies mirror Biden’s tough but more targeted and predictable approach on China, that would likely be the lesser of two evils in Chinese leaders’ views.

The declaration of a winner after the Nov. 5 election could take several days if not longer, another potential complication for Beijing as it aims to present more on its stimulus in the days following the conclusion of the legislative meeting on Nov. 8.

The aftermath of the election could also steal the thunder of Beijing’s stimulus announcement so that Xi doesn’t get the stock-market vote of confidence he seeks. For investors, uncertainty around the election outcome is also likely to muddle the picture of the potential effectiveness of the Chinese stimulus.

Many economists have urged China’s leadership to shift its focus away from factories and toward getting more money into the pockets of Chinese consumers. Such a strategic change in economic policy, the people say, isn’t in the cards, at least for the foreseeable future.

Any measures that China takes in reaction to the election outcome are likely to be fairly limited. Ting Lu, chief China economist at Nomura, predicts that Beijing’s overall fiscal support for the economy, measured by government borrowing, will amount to between 2% and 3% of the country’s gross domestic product over the next several years. In the event of a Trump win, it could be closer to 3%, according to Lu, while after a Harris win it might be closer to 2%.

Beijing likes to tout its ability to mind its own business, and an increasingly inward-looking policy has made China more isolated from the U.S.-led West. But the market speculation involving potential U.S. impact on Beijing’s decision-making underscores that the Chinese market is just as much a captive of American swings as the rest of the world.

At the same time, China is also in danger of falling victim to its own warnings about external risks, especially those posed by the U.S.

Bert Hofman, a professor at the National University of Singapore’s East Asian Institute and former World Bank China head, says Beijing sent a positive signal to the market with its recent policy reorientation to support the economy. But he says that Beijing’s longstanding rhetoric about external risks could diminish the impact of domestic policy to boost demand.

“U.S. policies vis-à-vis China play a disproportionate role in the official discourse on the Chinese economy, while the real challenge is domestic demand.” Hofman says. “Because China has made the U.S. a disproportionate challenge.”

National Energy System Operator says businesses and households need to play a greater role

UK businesses and households will need to be far more flexible about when they use electricity for the country to decarbonise the power system by 2030, according to official advice set to be published on Tuesday. 

Some of Britain’s ageing nuclear power stations will also need to be kept open longer than planned, under the modelling of one of the Labour government’s flagship climate targets.

The advice from the National Energy System Operator says businesses and households need to play a far greater role than currently in balancing the electricity system, according to people familiar with the matter.

This could involve factories ramping up output during windy periods when wind farms were at higher capacity, or households unplugging electric cars when renewables output is low.

NESO is already trying to encourage this sort of consumer behaviour by paying households to defer usage when needed. The state-owned company said last month it would offer the payment scheme all year-round.

Electricity supply and demand needs to be balanced second-by-second, a more complicated task when more supply is coming from intermittent renewables.

NESO’s modelling of the 2030 target includes a scenario where “demand-flexibility” rises from just under 3GW currently to about 11-12GW, according to the people familiar with the matter.

The report says meeting the target will also need French-state utility EDF to extend the life of some of its ageing UK nuclear power sites to meet demand alongside the Hinkley Point C nuclear plant, due to open in 2030.

Torness and Heysham 2 are considered in industry the most likely to be able to make it to 2030 and slightly beyond, with a decision by EDF due at the end of this year. The stations are currently due to close in March 2028. 

The NESO advice, due to be published on Tuesday, marks the most concrete appraisal of whether and how the government will be able to meet its manifesto pledge of a clean power system by 2030.

Ed Miliband, the energy secretary, argued that meeting the pledge would help bring energy bills down by moving the UK away from fossil fuels in favour of “homegrown clean energy”.

Shortly after taking office in July, he asked NESO for its advice on how to reach the 2030 target, which is five years’ faster than the 2035 clean power target promised by the former Conservative government.

The earlier target has been considered unworkable by many in industry given the huge amount of new wind turbines, solar farms, cables and pylons required within a short space of time.

The NESO report finds that target is possible but challenging to meet, according to the people familiar with matter. NESO said it would publish its advice on Tuesday.

The Department for Energy Security and Net Zero did not immediately respond to a request for comment.

NESO also forecast that less offshore wind would need to be built than Labour set out in its manifesto ahead of the July 4 UK general election.

The report estimates that about 43-50GW of offshore wind capacity will be needed by 2030, up from about 15GW now but less than the 55GW of conventional, fixed bottom offshore wind Labour envisaged.

The Office for Budget Responsibility forecast on Wednesday that environmental levies on electricity bills would rise by more than a fifth by 2030, to help pay for policies including more offshore wind turbines and keeping gas-fired turbines on standby to step in when needed.

Tehran has warned diplomats that it is planning to use more powerful warheads and other weapons

Amid U.S. warnings against a counterattack on Israel, Iran is sending a defiant diplomatic message: It is planning a complex response involving even more powerful warheads and other weapons, said Iranian and Arab officials briefed on the plans.

It remains to be seen whether the Iranian threats are real or just tough talk. Israel’s punishing airstrike against Iran on Oct. 26 shredded the country’s strategic air defenses, leaving it badly exposed and sharply raising the risks to Iran if it follows through.

How the Israeli response plays out will depend on the size, nature and effectiveness of Tehran’s threatened strike. So far, Israel has refrained from hitting Iran’s oil and nuclear facilities, essential to its economy and its security, but that calculus could change, Israeli officials have said.

Iran has told Arab diplomats that its conventional army would be involved because it had lost four soldiers and a civilian in Israel’s attack, the Iranian and Arab officials said. Involving its regular army doesn’t mean its troops would be deployed but that the paramilitary Islamic Revolutionary Guard Corps that normally deals with Israeli security matters wouldn’t act alone in this case.

An Egyptian official said Iran warned privately of a “strong and complex” response.

“Our military lost people, so they need to respond,” said an Iranian official. He said Iran could use Iraqi territory for part of the operation and would likely target Israeli military facilities “but much more aggressively than last time.”

Iran isn’t planning to limit its response to missiles and drones, as two previous attacks did, and any missiles used would have more powerful warheads, the Iranian and Arab officials said. Iran said it mostly fired four different types of medium-range ballistic missiles in its last attack on Israel on Oct. 1—Emad and Ghadr missiles and two of Iran’s newest and most advanced, Kheibar Shekan and Fattah.

Another factor in Iran’s response is the U.S. election, the Iranian official said. Iran doesn’t want to influence the U.S. election with its attack, the official said, adding the response would come after Tuesday’s voting but before a new president is inaugurated in January. Iran prefers Kamala Harris over Donald Trump, according to U.S. intelligence agencies.

Officials from Egypt, Bahrain and Oman said Iranian diplomats gave those broad outlines of the response after warnings from the U.S., both public and private, against engaging in a tit-for-tat with Israel.

Linda Thomas-Greenfield, the U.S. ambassador to the United Nations, said last week there would be “severe consequences” if Iran attacked Israel or the U.S.

“We believe this should be the end of the direct exchange of fire between Israel and Iran,” she said.

Following Israel’s attack, Iranian officials initially told other countries in the region that it didn’t intend to respond. Within days, the tone shifted.

On Friday, a top Iranian general threatened “an unimaginable response,” and the country’s supreme leader, Ayatollah Ali Khamenei, weighed in Saturday to warn of a “tooth-breaking response.”

Western officials say they believe Iranian decision makers are debating how and whether Iran should respond, including whether an attack should come directly or from proxies outside Iran to offer a layer of deniability. Israeli officials also believe Iran is seriously considering a response and have warned they are willing to mount a far more aggressive attack in return.

Last week, Israeli Prime Minister Benjamin Netanyahu said the Israeli military had struck Iran’s “soft underbelly” and dismissed “haughty words” from Tehran’s leaders. “Today, Israel has greater freedom of action than ever before,” Netanyahu said. “We can go anywhere that we need to in Iran.”

The U.S. worked to limit Israel’s Oct. 26 attack to military targets, leaving Iran’s nuclear and oil facilities alone. The Arab officials said they were worried Israel wouldn’t be restrained this time, and Netanyahu reiterated last week that preventing Iran from obtaining nuclear weapons remains Israel’s “supreme objective.” Iran denies it is working to build a nuclear weapon.

Israel signaled it could hit these types of targets in its Oct. 26 attack. It struck a facility Iran had in the past used for nuclear weapons work. Satellite imagery showed Israel also hit a very low value target at Iran’s Abadan refinery, experts said.

On Sunday, Iranian President Masoud Pezeshkian said his country can’t let Israel’s attack go unanswered. However, in a sign that Iran is still debating how to retaliate, he said “the type and intensity of our response” could change if there were a cease-fire in Gaza and Lebanon.

The U.S. said its military wasn’t involved in Israel’s most recent attack on Iran, but any retaliation would likely involve American forces helping defend Israel. U.S. Defense Secretary Lloyd Austin has ordered several B-52 Stratofortress bomber aircraft, tanker aircraft and Navy destroyers to the Middle East, the Pentagon said Friday.

The additional military assets will arrive as the USS Abraham Lincoln carrier strike group is expected to leave the region. The U.S. will be without a carrier and its accompanying ships in the region for the first time since shortly after Hamas attacked Israel in October 2023.

Authorities rush to find ways to fill government coffers depleted by property sector slump

Chinese authorities are demanding wealthy individuals and companies double-check their taxes for unpaid liabilities in a move that threatens to further dent investor confidence in the world’s second-largest economy.

Tax officials in recent months have asked wealthy individuals and companies to carry out “self-inspections” of their tax payments and cough up any deficiencies, as local governments hunt for revenue to refill coffers depleted by a property slump.

The tax drive comes as Beijing prepares to announce the details of a large fiscal stimulus this week that is expected to focus on restoring the finances of local governments, many of which are struggling to pay suppliers and employees.

Economists are pinning their hopes on the package, the next phase in a stimulus push that started in September, to help revive household and investor confidence after two years of deflationary pressures driven by the property crisis. Beijing launched the push as economic growth in the third quarter fell short of the official target for this year of 5 per cent.

The tax demands have stirred unease and even “fear” among the country’s wealthy in cities such as Beijing, Shanghai and Shenzhen, a China-based tax partner said.

“Some of them simply didn’t really know what to declare when they were asked to conduct self-inspections,” the partner said. “Many also didn’t realise before . . . [that] their overseas personal gains would be subjected to taxes in China.”

Companies that find nothing wrong during their self-inspections have been told to send in stamped attestations and “retain their evidence for inspection”, according to a notice in one city seen by the Financial Times.

Authorities have also asked individuals to start paying back-taxes, including from their personal overseas investment gains, people familiar with the matter said, in some cases citing a little-used legal provision from 2019.

A lawyer said his wealthy Chinese clients were able to engage in negotiations with tax officials, suggesting there was some “wriggle room” on their potential tax liabilities.

The drive by central and local governments to raise revenue, which also includes a large increase in fines and penalties on the private sector, follows a three-year property slowdown that has hit local authorities’ finances and undermined household and investor confidence.

Government land sales revenue — one of its major revenue sources — dropped almost 25 per cent during the first nine months of this year over the same period the previous year. Nationwide tax revenue fell 5.3 per cent in the same period. China’s total fiscal revenue between January and September this year fell 2.2 per cent compared with the same period last year to about Rmb16.3tn ($2.3tn), official data showed.

“Local governments obviously don’t have money,” said one executive of a medium-sized manufacturing company in Suzhou, one of China’s industrial heartlands near Shanghai. He added that they were frequently hitting companies in his area with heavy fines.

“China’s fiscal deficits have reached a tipping point,” said Gary Ng, a senior economist at Natixis. “There is more urgency to find alternative revenue sources . . . and taxing the wealthy and some companies creates a less direct economic impact on most residents.”

China’s push for “stringent revenue collection” was “pragmatic and necessitated by the prevailing economic winds”, said Kher Sheng Lee, Asia-Pacific co-head of the Alternative Investment Management Association, a hedge fund industry body. “On the flip side, it risks unsettling [business and] investor confidence if the crackdown widens.”

In recent months, there has been a spate of announcements from listed companies about their tax bills.

In October, Hisun Pharmaceutical said it discovered it owed Rmb18mn in taxes and late fees during a “self-inspection”. Beijing-based Allgens Medical in September paid Rmb8mn after its local tax bureau notified it of “tax risk concerns” from prior years to self-inspect. Guizhou Gas’s self-inspection resulted in payment of an extra Rmb20mn in tax.

On top of ordering the self-inspections, local governments have imposed fines on businesses as they try to compensate for the fall in land sales revenue.

Seven out of 16 provinces showed sharp growth in revenue from fines and confiscations last year, with western Chongqing and the capital, Beijing, reporting increases of 22.4 per cent and 21.9 per cent, respectively, according to Chinese media outlet Yicai. Many local governments have stopped publishing fine revenues due to the “abnormal” growth in recent months, local media reported.

“This type of thing — local authorities levying extra fines and taxes on companies — is happening every day and it’s hurting morale,” said an economics professor in Beijing who wished to remain anonymous.

China has a state-level central tax bureau, but local tax officials typically deal with the taxes of individuals and locally registered companies in their respective regions. China’s state tax administration did not respond to a request for comment.

The administration in June said it had not organised any nationwide tax inspections and that it had sent routine notices to some companies to ensure they were properly applying tax policies.

But Beijing has recently implemented new upgrades to its tax surveillance system and is able to better share data across different government departments, financial institutions and tax authorities in a step up of tighter scrutiny and enforcement.

Natixis’s Ng said the tax collection push targeting the rich and private companies “may not be enough”, adding that officials were likely to “eventually consider taxes related to properties [and] broaden the tax base”.