Today’s Key Takeaways: Exxon Mobil is leaving Russia and $4b in assets. How in the world did Europe leave itself so vulnerable to Vladimir Putin’s energy extortion? Potential for disruptions to Russian commodity supplies puts spotlight on titanium – used in aerospace, marine and auto industries. Comment period extended for Ambler Road easement application.
NEWS OF THE DAY:
Exxon to exit Russia, leaving $4 bln in assets
Sabrina Valle, Reuters, March 2, 2022
Exxon Mobil (XOM.N) on Tuesday said it would exit Russia oil and gas operations that it has valued at more than $4 billion and halt new investment as a result of Moscow’s invasion of Ukraine.
The decision will see Exxon pull out of managing large oil and gas production facilities on Sakhalin Island in Russia’s Far East, and puts the fate of a proposed multi-billion dollar liquefied natural gas (LNG) facility there in doubt.
“We deplore Russia’s military action that violates the territorial integrity of Ukraine and endangers its people,” the company said in a statement critical of the intensifying military attacks.
Its planned exit follows dozens of other Western companies ranging from Apple (AAPL.O) and Boeing (BA.N) to BP PLC , Shell and Norway’s Equinor ASA (EQNR.OL) that have halted business or announced plans to abandon their Russia operations.
Exxon, which is scheduled to meet with Wall Street analysts on Wednesday, did not provide a timetable for its exit, nor comment on potential asset write-downs. Its Russia assets were valued at $4.055 billion in its latest annual report, filed in February.
Earlier, Exxon began removing U.S. employees from Russia, two people familiar with the matter said. The number of staff being evacuated was unclear. The company sent a plane to Sakhalin Island to retrieve staff, one of the people said.
Exxon operates three large offshore oil and gas fields with operations based on Sakhalin Island on behalf of a consortium of Japanese, Indian and Russian companies that included Russia’s Rosneft (ROSN.MM). The group had been advancing plans to add a LNG export terminal at the site.
“Exxon’s Russian business is relatively small in the context of its wider enterprise, so it does not have the same significance as it has to BP or TotalEnergies, if it were to abandon its Russian assets,” said Anish Kapadia, a director at energy and mining researcher Pallissy Advisors.
The company, which has been developing its Russian oil and gas fields since 1995, had come under pressure to cut its ties with Russia over Moscow’s invasion of Ukraine. Russia calls its actions in Ukraine a “special operation”.
The Sakhalin facilities, which Exxon has operated since production began in 2005, represents one of the largest single direct investments in Russia, according to a project description on Exxon’s website. The operation recently has pumped about 220,000 barrels per day of oil.
India’s ONGC Videsh, which owns a 20% stake in the Sakhalin-1 project, said the partners will decide over the next few weeks on how to keep operating the project after exit, the Indian company told Reuters in an emailed statement.
Rosneft holds a 20% stake in the project.
The overseas investment arm of India’s top explorer Oil and Natural Gas Corp (ONGC.NS) also said it did not see “any immediate impact” on the operation of the project due to Exxon’s decision.
Japan’s Sakhalin Oil and Gas Development (SODECO), which owns a 30% stake in the Sakhalin-1 project, is trying to confirm details of Exxon’s announcement, a spokesperson said, adding that it will keep an eye on the Russia-Ukraine situation and decide what to do in the future.
State-backed oil producer Japan Petroleum Exploration Co (Japex) (1662.T), which owns 15.285% in SODECO, is also checking details of the Exxon’s announcement and will talk to its partners to decide a future plan, a Japex spokesperson said.
OIL:
$100+ oil is the new reality after Russia’s Ukraine invasion
Matt Phillips, Axios, March 3, 2022
Energy costs continue to spiral higher, with U.S. and European crude benchmarks both leaving the century mark in the dust.
By the numbers: West Texas Intermediate, the U.S. oil benchmark, rose to as high as $111.50 early Wednesday, according to FactSet data.
- Brent crude, the European reference point for oil, nearly climbed to $113 in early trading.
- This is the highest oil prices have been since August 2013.
What it matters: Surging crude oil costs underscore how sanctions aimed at Russia could also hurt the domestic economies of the Western nations that imposed them.
What’s happening: The war.
- Russia is the world’s third-largest producer of crude oil — the Russian benchmark grade is known as Urals — and its second-biggest exporter, sending nearly 8 million barrels per day onto the world market last year.
- A combination of sanctions and commercial decisions by shippers and insurers to steer clear has cut that contribution to global supplies sharply over the last week.
What they’re saying: “Proposed sanctions that would either blacklist Russian oil supplies or blacklist the financial tools to purchase Russian crude is already hitting Urals crude,” wrote analysts at energy consulting firm Rystad in a client note on Tuesday.
- With buyers taking fewer barrels of Russian oil, those purchasers are driving prices higher elsewhere.
Yes, but: That’s a geopolitical victory, depriving Russia of revenue it desperately needs to keep its economy functioning. Still, it comes at a cost.
- With rich nations still grappling with post-pandemic inflation, surging oil costs — a key determinant of gasoline prices — will only make the prices pinching voters that much more irritating.
- If the daily drama of the war in Ukraine starts to fade from public view, and inflation persists, the political costs of inflation could test the unity that the West has shown in its stance toward Russia
What we’re watching: How effective Western leaders are at convincing their populations to bear the pain associated with taking action against Russia — or at mitigating it.
- On Tuesday, the U.S. and other members of the International Energy Agency said they would release 60 million barrels of oil reserves.
- U.K. Prime Minister Boris Johnson this week warned of Britain’s vulnerability to an energy shock.
- And last night at his State of the Union address, President Biden noted that the U.S. would release 30 million of its strategic reserves as part of the IEA effort and would “do more if necessary, unified with our allies.”
Go deeper: No relief in sight at the pump as gas prices surge
GAS:
A Lesson in Energy Masochism
The Editorial Board, The Wall Street Journal, March 2, 2022
Here’s how Europe made itself vulnerable to Putin’s gas blackmail.
European governments are scrambling to shore up their natural gas supply if Russia cuts off exports. But one question worth raising: How in the world did Europe leave itself so vulnerable to Vladimir Putin’s energy extortion?
The nearby chart shows how Russian gas exports have increased in tandem with declining European production. A mere 15 years ago, countries in the European Union produced more gas than Russia exported. Yet European production has plunged by more than half over the last decade. Mr. Putin has happily filled the supply gap.
Natural Gas Production, Russia vs. Europe, 1990-2020Source: IEA Natural Gas Information
In 2020 Russia exported nearly three times more gas than Europe produced. What’s amazing is that Europe increased its reliance on Russian gas even after Gazprom repeatedly suspended pipeline exports to Ukraine. Germany’s response: Build the Nord Stream 2 pipeline to make itself less dependent on gas flowing through Ukraine.
Poland and Lithuania were smarter and built terminals to import liquefied natural gas (LNG). But Europe had another option: fracking. European gas production has naturally fallen as older fields get tapped out. But producers could use hydraulic fracturing and horizontal drilling to exploit shale and squeeze more gas out of the ground, as they have in the U.S.
Europe had an estimated 966 trillion cubic feet of technically recoverable wet natural gas resources as of 2013, about enough to supply the EU for some 60 years. Much of this is located in Eastern Europe, including Ukraine, Poland, Romania and Bulgaria. But France, U.K., the Netherlands and Germany are also sitting on shale deposits.
A decade ago, multinational energy companies including Chevron, Exxon Mobil, Shell and TotalEnergies were exploring Europe’s unconventional gas deposits with ambitions to repeat the U.S. shale boom. Then protests against fracking erupted across the continent, and one by one European governments surrendered to Russian energy dominance.
Former NATO secretary general Anders Fogh Rasmussen blamed Russia for fueling the fracking opposition. “Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called nongovernmental organizations—environmental organizations working against shale gas—to maintain dependence on imported Russian gas,” he noted in 2014.
Meantime, multinationals diversified by hopping into bed with Russia. BP acquired a 19.75% stake in Rosneft in 2013. The transaction “gives us a wonderful opportunity to forge a new partnership with a great Russian oil company,” BP’s then CEO Bob Dudley declared.
Shell and Exxon Mobil developed joint ventures with Gazprom and Rosneft. Exxon Mobil described its partnership with Rosneft in eastern Russia as “one of the largest single international direct investments in Russia and an excellent example of how advanced technologies are being applied to meet the challenges of the world’s growing energy demand.”
The point isn’t to shame Western energy companies for accepting Russia’s invitation to develop its energy resources, which Mr. Putin has now weaponized against Europe. BP and Shell will suffer hefty losses as they try to exit these investments amid pressure from their home governments. The point is to highlight Europe’s energy masochism.
Even as Gazprom slowed deliveries to Europe last fall, a British regulator nixed Shell’s plans to develop an enormous gas field in the North Sea. Reuters reported in January that the regulator has revived discussions with Shell as power prices climb. So maybe the cold, hard reality that Europe can’t run its economy on wind and solar is starting to set in.
Europe offers another reminder to the U.S. that blocking fossil-fuel development here won’t keep carbon “in the ground.” It merely hands a strategic weapon to dictators that they will turn around and use against us.
MINING:
EXPLAINER – The importance of Russian titanium to global industry
Pratima Desai, Reuters, March 1, 2022
The potential for disruptions to Russian commodity supplies has thrown a spotlight on the metal used in the aerospace, marine and auto industries.
The United States and Europe have imposed financial sanctions on Russian banks, individuals and other entities after Russia invaded Ukraine.
There are as yet no sanctions on Russian commodity exporters such as VSMPO-Avisma, which supplies titanium to plane makers Boeing and Airbus.
But a decision by Western allies to block “selected” Russian banks from the SWIFT payments system could disrupt supplies of commodities that Russia exports, as could suspension of container shipping to and from Russia.
Where is titanium produced?
Titanium minerals are used to make titanium sponge, which is turned into metal for industrial applications.
China is the world’s top producer of titanium sponge, accounting for 57% of global output at 210,000 tonnes last year, according to U.S. Geological Survey (USGS).
USGS data shows Japan comes next with nearly 17%, followed by Russia with nearly 13% of the market. Kazakhstan produced 16,000 tonnes and Ukraine 3,700 tonnes.
Russia has low titanium mineral reserves.
“In 2021 Ukraine was the leading source of titanium mineral concentrates imports into Russia,” USGS said. “Other leading sources included Vietnam, Mozambique and Kazakhstan.”
USGS estimates that Ukraine produced 525,000 tonnes of titanium mineral concentrates last year.
Who imports titanium?
Consultancy CRU says that China was the largest importer of titanium sponge last year with more than 16,000 tonnes, up from 6,000 tonnes in 2020.
The second-largest importer was the United States with about 16,000 tonnes last year, down from 19,000 in 2020.
Japan is the largest exporter of titanium sponge to China and the United States, shipping 8,000 tonnes and 14,000 tonnes respectively last year.
“The recovery of industries such as construction and aerospace last year led to a jump in demand for titanium products post-pandemic,” CRU analysts said.
Tight supplies can be seen in prices of titanium sponge which are up nearly 9% since the end of December at about $9 per kg.
What is titanium used for?
Titanium is used in the aerospace industry to make landing gear, blades and turbine discs, in the marine industry titanium sheet is used to make ships and submarines and in the auto sector it is used in components for internal combustion engines.
In chemical processing, titanium offers protection from fatigue and cracking, in vaping titanium wire is used to enhance safety and control temperature and in sport its uses include golf club heads.
Titanium is also used for joint replacements and dental implants because it has a similar density to human bones.
What’s in a name?
The name Titanium is derived from the Titans of Greek mythology, with the metal accounting for about 0.6% of the earth’s mass.
It is a hard, strong, lightweight metal with extraordinary resistance to corrosion. Titanium is as strong as steel, yet 45% lighter.
POLITICS:
DNR Extends Comment Period On Ambler Road Easement Application
Anthony Moore, KSRM, March 1, 2022
The Alaska Department of Natural Resources’ Division of Mining, Land and Water has extended the public comment period on an easement application from the Alaska Industrial Development and Export Authority to build a 211-mile road to Ambler. The new deadline for public comment is 5:00 p.m. on Friday, April 1st. The proposed road would be a private industrial access road intended to facilitate mine development and the transport of ore as part of the Amber Access Project (AAP). AIDEA is seeking a 450-foot-wide exclusive easement over approximately 125 miles of state-owned lands. Once construction of the road is complete, the final width of the easement would be 250 feet, consistent with federal rights-of-way.
The road would begin at milepost 161 of the Dalton Highway and would extend west 211 miles to the Ambler Mining District. It would cross lands owned and/or managed by federal, state, municipal and private entities. Construction is proposed to begin in 2025.
Though Federal agencies had already issued rights-of-way for the road on federally managed lands, last week the Biden administration announced that it will seek to supplement the Environmental Impact Statement (EIS) for the project. The Department of Justice, on behalf of the Interior Department, filed the documents on Feb. 22 in an on-going federal court case asking an Alaska District Court judge to allow the agency to revisit the analysis associated with the EIS because DOI expressed concern that the subsistence needs of Alaska Native tribes were not fully considered. The Interior Department also said it intends to suspend the already issued Federal rights-of-way for the road during the review.
DNR states that the road wouldn’t be open to the public and access would be controlled by a permitting system administered by AIDEA. The road would initially be constructed as a one-lane road with seasonal access in the fall and winter but not during the spring and early summer when portions of the road are soft and susceptible to damage from traffic.
Additional details, including a summary of the application, maps of the road alignment, application materials, the draft Site Specific Land Use Plan, and links to the federal documents are available here. The division is also seeking comments on the draft Site Specific Land Use Plan. The public can comment here or by sending comments to 3700 Airport Way, Fairbanks, AK 99709 on or before 5:00 p.m. on April 1.