Today’s Key Takeaways: Fitch Ratings report details how critical metals and mining is to green energy future. Crude oil exports reduce costs for Americans. Interior Gas Utility adds customers. Nippon Steel Company signs most expensive coal contract ever. More attacks on Big Oil from Biden’s climate allies.
NEWS OF THE DAY:
Two simple charts show why green energy is all about mining
Erik Els, Battery Mining Intelligence/Mining.Com, July 26, 2022
Lots of ink has been spilled on the green energy transition in these pages.
In 2019 MINING.COM called Greta Thunberg and Alexandria Ocasio-Cortez mining’s unlikely heroines saying that the “exponential expansion of global mining is the dirty little secret – and glaring blind spot – of Green New Deal evangelists and zero-carbon climate warriors.”
Fast forward three years and there’s still little or no acknowledgement from climate crisis actors for the need for rapidly growing metal and mineral extraction. The nescience of climateers when it comes to mining remains striking and helps explain the applause for Secretary General António Guterres at the opening of the COP26 summit for these words:
“It is time to say enough! […] enough of burning and drilling and mining our way deeper. We are digging our own graves.”
A recent report by Fitch Ratings assessing the risks of climate change to various sectors featured two graphs that vividly illustrates just how central metals and mining is to decarbonization.
The latest UN Forecast Policy Scenario anticipates a substantial increase in electricity generation from renewables – comprising hydro, wind and solar – across all regions.
Renewables are set to be the largest source of power globally by 2050, at 73% of the total compared to 25% in 2020. Wind and solar will increase their share of global renewables generation to 85% by 2050 from 34% in 2020.
Couple this with the metal intensity of renewable energy resources and it is clear that even if the installation of renewable energy capacity falls far short of expectations, the impact on metals and mining would be immense.
OIL:
Analysis: U.S. crude oil exports reduce costs for Americans
World Oil.Com, July 26, 2022
The American Petroleum Institute (API) and the American Exploration and Production Council (AXPC) today released new analysis demonstrating the significant and growing economic benefits of America’s abundant crude oil resources for both domestic use and global export. The study, conducted by ICF, analyzed the six-year period since a bipartisan Congressional majority lifted a ban on exporting U.S. crude oil in December 2015. The study found that enabling open markets increased oil and natural gas development in America, which, over the six-year period, reduced global oil prices by an average of $1.93 per barrel; added $161 billion to U.S. GDP; and increased jobs in the U.S. by nearly 50,000, on average.
“American energy leadership doesn’t just deliver significant benefits to Americans – fueling the U.S. economy and American jobs, delivering reliable energy, and helping put downward pressure on prices, but it also strengthens global security and supports our allies,” said API President and CEO Mike Sommers. “U.S. energy exports provides critical stability to the global market, supports our allies across the world who depend on American energy to meet their needs and strengthens American energy security here at home. If the U.S. is not exporting energy, it leaves the door open for unstable nations or those with less stringent environmental standards to fill the void and reap the benefits.”
“As this analysis shows, lifting the ban on crude exports in 2015 saved Americans money at the pump, supported thousands of good-paying American jobs, and reduced our country’s dependence on foreign oil. At a time when Americans are hurting from the price at the pump, it’s clear that increasing the global supply of crude oil is critical to lower energy prices here at home and greater energy security around the globe,” said AXPC CEO Anne Bradbury.
The new study analyzes the changes that have occurred in U.S. oil and natural gas markets since Congress enabled crude oil exports compared to a hypothetical scenario where the ban on U.S. oil exports remained in place. The study found that lifting the ban on U.S crude oil exports has over a six-year period:
- Increased U.S. Crude Oil Production by 1.8 billion barrels: Allowing U.S. domestic oil prices to converge with international benchmarks, spurred more drilling activity leading to higher crude oil production, as well as higher production of associated natural gas and NGLs that come from oil wells.
- Decreased U.S. Consumer Expenditures on Refined Products and Natural Gas by $92 billion: Higher U.S. oil production expanded global oil supply, reducing global crude oil and refined product prices. Because there is free trade in petroleum products, U.S. fuel consumers have benefited from these lower product prices.
- Increased U.S. GDP by $161 billion: The benefits of lower fuel costs for U.S. consumers and higher revenues for U.S. oil producers (due to higher output and higher domestic crude prices) outweighed margin losses for U.S. refiners, resulting in a net benefit to U.S. GDP.
- Improved the U.S. Trade Balance by $178 billion: Higher U.S. exports have improved the U.S. trade balance, reducing the U.S. trade deficit by a measurable amount.
- Increased U.S. Employment by an average of 48,000 jobs: Lifting the crude export ban has increased U.S. employment, including direct jobs in the Upstream oil & gas sector, such as petroleum engineers and geologists, industrial machinery installation and maintenance, derrick operators, rotary drill operators, roustabouts, and service unit operators. The policy change has also created indirect and induced jobs.
GAS:
Gas utility continues to grow as officials look for new supply options beyond 2032
Amanda Bohman, Fairbanks Daily News Miner, July 26, 2022
The Interior Gas Utility continues to slowly add customers, with 21 new clients having turned on gas so far this year.
New government subsidies are becoming available to people willing to convert to cleaner-burning natural gas. The utility also is looking for new gas suppliers. The current supplier, Hilcorp, has said not to count on gas after 2032.
In a routine update of utility operations to the Fairbanks North Star Borough Assembly, utility officials said last week that a project to expand a liquefaction plant in the Matanuska-Susitna Borough, where Hilcorp’s gas from the Cook Inlet is currently processed en route to Fairbanks, is again on hold, as IGU officials reevaluate future prospects for gas.
“We can’t guarantee a supply of gas to the liquefaction plant, which is pretty significant,” Steve Haagenson, IGU board president, told the assembly.
The utility is likely to obtain future gas using a combination of sources, including gas from the North Slope and possibly imported liquified natural gas.
Elena Sudduth, customer service and marketing manager, said the IGU remains on track to install 600 new service lines this year.
“We believe that we will reach that goal,” she said.
A source of government funding to subsidize the cost of converting boilers to natural gas has run out, but two new sources of money are pending. Applications are being waitlisted, Sudduth said.
Natural gas is currently much cheaper than delivered home heating oil, she added.
The hunt for natural gas
In April, gas supplier Hilcorp notified utilities, including the IGU, that “they should not rely on Hilcorp for natural gas supply past their existing contracts,” according to Sudduth.
The IGU’s contract with Hilcorp expires in 2032.
“We are good for another 10 years, but after 10 years, we are not sure that we are going to be able to continue sourcing natural gas in the Cook Inlet,” Sudduth said. “We are working full steam ahead to determine what all of our options are.”
In May, the IGU joined a working group with other Alaska utilities “to assess future gas supply needs and energy security in Cook Inlet,” the announcement reads.
The working group includes Chugach Electric Association, Matanuska Electric Association, Homer Electric Association, Golden Valley Electric Association and ENSTAR Natural Gas Company. The Alaska Department of Natural Resources and the Alaska Energy Authority are also involved.
Sudduth said the IGU and ENSTAR are well positioned among the utilities, with contracts in place for another 10 years. Homer Electric’s gas contract with Hilcorp ends in a few years, she said.
The long-awaited expansion project of the liquefaction plant at Port MacKenzie remains uncertain. The IGU had sought permission for a bond sale to raise money to pay for the buildout, but questions over the long-term viability of Cook Inlet gas has dashed the project.
Options will be discussed by the IGU board of directors, with more information presented to the assembly in October, Sudduth said.
Gas company growth
As of July 18, the number of completed gas line installations this year was 158, Sudduth said. Of those, 21 have had their gas turned on.
About 500 applications have been approved for connection this year. Most are residential, and about a third are in North Pole.
The utility has three construction crews conducting the work and a third-party contractor helping, Sudduth said.
The IGU currently has nearly 2,000 customers. Full capacity is about 11,000 customers.
Last year, the IGU connected more than 300 new properties to the natural gas network, Sudduth said.
Programs aimed at helping people convert
The borough is providing subsidies for converting to natural gas through its air quality office using various pots of money.
“A lot of our customers need help,” Sudduth said.
The cost to convert heating equipment to burn natural gas can be several thousands dollars, depending on multiple factors.
One subsidy, $1 million that was provided by the Borough Assembly using federal coronavirus relief money, is all allocated, Sudduth said.
Two new sources of money from the state and federal governments are pending.
One subsidy of $3.2 million is coming from the U.S. Environmental Protection Agency’s Targeted Airspeed Grant program.
“The funds have to go through different departments at the state and local level,” the IGU quarterly update reads. “The [FNSB] Air Quality office expects to be able to approve applicants in October.”
The Borough is also anticipating a $1.25 million allocation from the State of Alaska’s capital budget to help people offset the cost of converting to gas.
In addition, at least three lenders, MAC Federal Credit Union, Northrim Bank and Mt. McKinley Bank, in Fairbanks are offering special financing, through home equity loans, to help people convert to gas, Sudduth said. Terms vary.
MINING:
Japan Signs Its Most Expensive Coal Supply Deal Ever
Tsvetana Paraskova, OilPrice.Com, July 27, 2022
Japan’s Nippon Steel Corporation has signed an agreement with mining and trading giant Glencore for thermal coal supply at $375 per ton in what is likely one of the highest prices a Japanese firm has paid for the commodity ever, sources familiar with the deal told Bloomberg on Wednesday.
As coal prices are soaring amid a global energy crunch and bans on Russia’s coal exports in the West, customers around the world are paying record-high prices for coal and are using more coal as they switch from expensive gas, where the market is even tighter.
The price in the Nippon Steel-Glencore agreement for coal supply until March 2023 is three times higher than the price of similar supply deals signed last year, one of Bloomberg’s sources says.
Japan, a major importer of energy commodities, is looking to secure supply amid soaring coal and gas prices and utilities switching to coal from gas where possible to conserve gas. Japan is on the brink of an energy crisis as it is forced to tackle a combination of a weak local currency, the fallout from the Ukraine war, and summer heatwaves.
At the beginning of the summer, the Japanese government called on households and companies to conserve as much electricity as possible this summer, seeking to prevent blackouts as spare power reserve capacity is expected to drop to critically low levels. The nationwide energy-conservation effort will be implemented from July 1 to September 30, amid concerns that Japan’s power system may not handle demand in peak summer.
Companies and countries importing energy commodities face surging coal prices as Europe restarts mothballed coal-fired power plants to conserve gas with the high uncertainty over Russian gas supply. The global coal benchmark, Australia Newcastle Coal futures, hit $414 on ICE Futures Europe early on Wednesday, while coal futures for 2023 in Europe soared to a record high on Tuesday after Russia said it would slash gas supply to Europe again.
POLITICS:
First look: Biden’s climate allies ramp up Big Oil attacks ahead of earnings
Hans Nichols, Axios, July 25, 2022
The green group Climate Power plans to seize on this week’s earnings reports from major oil and gas companies to blame them for high gas prices.
Why it matters: The $3 million ad campaign, encompassing broadcast TV, digital and billboards, is another indication that President Biden’s allies know gas prices will be a key factor in the midterm elections.
Details: “This is why you’re paying $5 at the pump,” says the narrator of an ad titled “Guess What.” “Oil company CEOs see an opportunity to charge more.”
- The TV and digital ads will initially appear in media markets in Nevada, Arizona, Virginia and Colorado where Democratic incumbents — in both the House and Senate — need to hold on to independent voters.
- The group will also rent billboards near gas stations in places like Phoenix, Las Vegas, Philadelphia, Milwaukee and Orange County, California. Inflation is hitting battleground states like Arizona and Nevada harder.
Driving the news: Companies like Exxon Mobil and Valero Energy will be releasing their second-quarter earnings reports this week. Exxon has estimated its quarterly profit could set a record at around $18 billion.
Between the lines: While energy analysts and economists can patiently explain the “rockets & feathers” phenomenon — where crude oil prices rise like a rocket, while gas prices fall like a feather — Democrats remain outraged that the two prices don’t move in more synchronized ways.
The big picture: The Biden administration and the oil companies have been engaged in chippy back-and-forth on who is to blame for high gas prices, which climbed above $5 per gallon in June but have since dropped to around $4.36, according to AAA.
- “We’re going to make sure everybody knows Exxon’s profits,” Biden said in June. “Exxon made more money than God this year.”
- In addition to publicly accusing them of profiteering, Biden has directed his energy secretary to meet with them on ways to lower gas prices.
The other side: The oil and gas industry has bristled at the White House’s rhetoric and repeatedly called on Biden to pursue more domestic oil and gas exploration, including with its own ads.
- “We urge the president to prioritize unlocking U.S. energy resources — that are the envy of the world — instead of increasing reliance on foreign sources,” Mike Sommers, the president of the American Petroleum Institute, wrote in June.
- The oil lobby also says the White House fundamentally misunderstands how prices at the pump are determined.
The intrigue: When the Interior Department announced its five-year plan for offshore drilling this month, Biden officials were open to new leases in the Gulf of Mexico and parts of Alaska, but ruled out drilling on the East and West coasts.
- Some climate groups cried foul and criticized the plan.
Go deeper: In February, Climate Power and other environmental groups launched a $3 million campaign ahead of Biden’s State of the Union address to try to revive the green energy provisions in Biden’s Build Back Better agenda.
- The prospects for any climate spending are lower now, however, after Sen. Joe Manchin (D-W.Va.) said he wanted to wait to gauge how hot inflation is running before committing to the $300 billion he has previously supported. But there’s a sliver of hope within the White House that Manchin can still be convinced.
- In June, climate groups announced a plan to spend some $100 million to mobilize voters on climate issues, CNN reported.