Today’s Key Takeaways: Though the release from the SPR may be good in the short term, replenishing the SPR may happen at higher oil prices. Russian LNG is trading at a 10% discount – China hopes to buy it. Electric cars aren’t as clean as people hope they are. No shortage of candidates, or big-name Alaskans, in the race to fill Don Young’s seat.
NEWS OF THE DAY:
From the Washington Examiner, Daily on Energy:
MANCHIN CHALLENGES SEC CLIMATE RULE: Sen. Joe Manchin is challenging the decision by the SEC’s Democratic majority to propose rules requiring climate-related risk disclosures.
Manchin wrote Chairman Gary Gensler today saying he worries the proposal would burden companies and that it sends “a signal of opposition to the all-of-the-above energy policy that is critical to our country right now.”
He said he was most concerned about “what appears to be the targeting of our nation’s fossil fuel companies.”
Manchin’s stance adds to his record of opposition to Biden administration efforts to overhaul financial regulations to take account of climate change. Manchin opposed the nomination of Sarah Bloom Raskin, Biden’s nominee for vice chair of supervision at the Fed, because of her positions on climate change and regulatory policy
How Biden’s Huge Strategic Oil Release Could Backfire
Irina Slav, OilPrice.Com, April 3, 2022
- President Biden’s huge SPR release announcement has pushed WTI prices back below $100.
- SPR release may calm crude prices only in the short term.
- U.S. SPR may need to be replenished at higher oil prices.
This week, the Biden administration revealed that it will release as much as 180 million barrels of crude oil in a bid to calm oil prices, which have remained above $100 per barrel for an extended period of time. The International Energy Agency, meanwhile, is coordinating a smaller but international reserve release of some 60 million barrels and has called an emergency meeting to discuss how exactly to go about it.
It remains unclear whether part of the 180 SPR release in the United States will be a completely separate endeavor or if some of these barrels will be part of the IEA release. Earlier this year, the U.S. had agreed to release 30 million barrels as part of the IEA push. What is clear is that the success of these releases in calming down oil prices is quite unlikely.
The United States last year announced the release of 50 million barrels in an effort to bring down prices at the pump, which were eroding Americans’ purchasing power and weighing on the President’s approval ratings.
This pressured prices for a few days before they rebounded, driven by continued discipline among U.S. producers, equal discipline in OPEC+, and a relentless increase in demand for the commodity.
Then Russia invaded Ukraine, and the U.S. banned imports of Russian crude and fuels. It also sanctioned the country’s financial system heavily, making paying for Russian crude and fuels too much of a headache for the dollar-based international industry. Prices soared again before retreating some but remain firmly in three-digit territory.
As of mid-March, the Department of Energy said, some 30 million barrels of crude from the strategic petroleum reserve had been sold or leased. That’s more than half of the 50 million barrels announced in November, and it appears to have had zero effect on price movements.
But the new reserve release is a lot bigger, so it should make a difference, shouldn’t it? It amounts to some 1 million bpd over several months, per reports about White House plans in this respect. Unfortunately, but importantly, oil’s fundamentals have not changed much since November.
U.S. shale oil producers, the companies that a few years ago prompted talk among analysts that OPEC was becoming increasingly irrelevant, have rearranged their priorities. They no longer strive for growth at all costs. Now they strive for happy shareholders.
This has given more opportunities to smaller independent drillers with no shareholders to keep happy. Yet these have also run into challenges, mainly in the form of insufficient funding because the energy transition has had banks worrying about their reputations and their own shareholders.
Pandemic-related supply disruptions have also affected the U.S. oil industry’s ability to expand output. Frac sand, cement, and equipment are among the things that have been reported to be in short supply in the shale patch. Now, there’s a shortage of steel tubing, too.
Meanwhile, OPEC is doing business as usual, sticking to its commitment to add some 400,000 bpd to oil markets every month until its combined output recovers to pre-pandemic levels. Just this week, the cartel approved another monthly addition of 432,000 bpd to its combined output despite increasingly desperate calls from the U.S. and the IEA for more barrels.
OPEC has been demonstrating increasingly bluntly that its interests and the interests of some of its biggest clients may not be in alignment right now. It has refused to openly condemn Russia for its actions in Ukraine and has not joined the Western sanction push.
On the contrary, OPEC is gladly doing business with Russia. And Saudi Arabia and the UAE, the two OPEC members that actually have the capacity to boost production beyond their quotas, have deemed it unwise to undermine their partnership with Russia by acquiescing to the West’s request for more oil.
In this environment, releasing whatever number of barrels from strategic reserves could only provide a very short relief at the pump. Then, it may make matters even worse. As one oil market commentator on Twitter said about the SPR release news, the White House will be selling these barrels at $100 and then may have to buy them at $150.
Indeed, one thing that tends to get overlooked during turbulent times is that the strategic petroleum reserve of any country needs to be replenished. It’s not called strategic for laughs. And a 180-million-barrel reserve release will be quite a draw on the U.S. SPR, which currently stands at over 580 million barrels. If oil’s fundamentals remain the same, prices will not be lower when the time to replenish the SPR comes.
This seems the most likely development. The EU, the UK, and the United States have stated sanctions against Russia will not be lifted even if Moscow strikes a peace deal with the Ukraine government. This means Russian oil will continue to be hard to come by for those dealing in dollars or euros.
According to the IEA, the shortfall could be 3 million barrels daily, to be felt this quarter. OPEC+ is not straying from its course. In some good news, at least, U.S. oil production rose last week for the first time in more than two months, by a modest 100,000 bpd.
China Gas Buyers Seek Cheap Russian Fuel Shunned by the World
Stephen Stapcynzski, Bloomberg, April 4, 2022
- Importers in discussions to buy Russian LNG at deep discount
- Companies use cautious approach to avoid overseas backlash
China’s top liquefied natural gas importers are cautiously looking to purchase additional Russian shipments that have been shunned by the market in a bid to take advantage of cheap prices.
State-owned companies including Sinopec and PetroChina are in discussions with suppliers to buy spot cargoes from Russia at a deep discount, according to people with knowledge of the matter. Some importers are considering using Russian firms to participate in LNG purchase tenders on their behalf to hide their procurement plans from overseas governments, the people said.
Most LNG importers around the world won’t buy Russian cargoes out of fear of future sanctions or damage to reputation, as the war in Ukraine drags on and the European Union ratchets up pressure against Moscow. Chinese firms are emerging as some of the only companies willing to take on that risk.
PetroChina declined to comment. Sinopec didn’t immediately respond to a request for comment during a holiday.
This mimics a similar move by China’s oil refiners, which are also discreetly purchasing cheap Russian crude that the rest of the world doesn’t want. Several LNG shipments were already purchased by Chinese importers in the last few weeks, traders said.
Russian LNG is trading at more than a 10% discount to normal North Asia shipments in the spot market, according to traders. Spot prices for the super-chilled fuel surged to a record last month due to the war in Ukraine, which is tightening supplies just as global consumption rebounds.
To be sure, China isn’t in dire need of LNG as milder weather and Covid-19 lockdown fears have curbed spot demand. Still, Russian gas at a deep discount can help top up storage tanks before prices rise again this summer.
Carmakers dream of clean, green, mean electric machines – MINING.COM
Nick Carey, Barbara Lewis, Reuters, April 4, 2022
An electric car is a clean car, right? If only it were so simple.
From motor magnets with toxic histories to batteries made using copious fossil-fuel power, many challenges face carmakers seeking to purge dirtier materials from their supply chains to satisfy regulators and investors.
These obstacles represent opportunities for a growing group of companies in the electric vehicle (EV) ecosystem that bet they can capitalize on that demand.
They include Advanced Electric Machines (AEM) in northern England, which is working with Volkswagen luxury brand Bentley and others in the auto industry to develop recyclable electric motors free of rare earth metals, which are often produced using polluting chemicals.
“Our customers need ways to ditch internal combustion engines that are cost-effective and sustainable without putting tons of this nasty rare earth stuff into their cars,” CEO James Widmer said.
The increasing scrutiny of supply chains comes as the European Union, which announced draft laws last year to enforce net-zero emissions targets, considers charging for excess carbon on imports, as well as legislation requiring ethical sourcing and a recycling plan for EV batteries.
Globally, the prospect looms of national carbon taxes that could cost lagging automakers dearly, while investors and financiers increasingly favor companies with strong environmental, social and governance (ESG) credentials.
“The focus on ESG has become more intense,” said Moshiel Biton, CEO of Israeli battery technology company Addionics, which makes three-dimensional electrodes that Biton says are more efficient, making cleaner but less energy-dense battery chemistries commercially viable.
“But it’s nothing compared to what’s coming.”
Yet it remains to be seen how many of the companies looking to tap the market for cleaning up electric cars will succeed in a rapidly evolving EV technology arena; what’s cutting edge today could be obsolete tomorrow.
Given fierce competition, any projects not advanced enough at the right time will risk missing their chance, according to MacMurray Whale, environmental sustainability strategist at Cormark Securities in Toronto.
“You won’t be able to attract the investor interest because there’s a lot of them and they’re all trying to argue they’re the best,” he said.
‘Road map to net zero’
The demand is real, though, from carmakers who face a daunting task to navigate the challenges of making everything from steel to aluminum using cleaner processes, to finding less environmentally damaging battery chemistries.
“We only source new business with suppliers with a road map to net zero,” said Andy Palmer, an electric vehicle pioneer who is CEO of Switch Mobility, a British-based EV maker owned by Indian commercial vehicle maker Ashok Leyland.
Switch buys credits to offset the carbon used to make metal components and factors in that cost when assessing new parts, he added.
Squeezing carbon out of the supply chain is a “vital part” of BMW’s carbon-reduction strategy, sustainability vice president Thomas Becker said.
The German carmaker has negotiated with all its battery suppliers and many of its steel and aluminum suppliers that their materials are made using renewable energy, Becker told a conference in London in March.
The problem with EVs is they are so carbon intensive to make, they have to drive thousands of miles before they do less harm to the environment than a gas-guzzling saloon.
BMW has measured the CO2 footprint throughout its supply chain. If it took no action, its footprint per vehicle would be 18 tonnes of CO2 in 2030, versus 12 tonnes per vehicle in 2019, according to the carmaker. But its carbon reduction plans should cut that number to nine tonnes by 2030, it says.
The need for greener EVs has sent some carmakers back to the drawing board.
Pennsylvania-based engineering company Ansys, which develops modelling software for various industries, has seen surging demand from carmakers seeking to simulate cars and components with greener or lighter materials, such as aluminum instead of steel, said Pepi Maksimovic, director of application engineering.
“There’s an intensification of the effort to address these issues in terms of … bringing better cleaner, greener, meaner technology to the market faster, earlier,” she added.
‘Carbon tax is coming’
Previous corporate sustainability efforts have often been derided as vague and as “greenwashing.”
Costa Caldis, chief operating officer of supply chain tracing company SAFE, said carmakers were moving in the right direction, but not fast enough.
“Stakeholders are demanding supply chain visibility and not just statements.”
Douglas Johnson-Poensgen, CEO of Circulor, which maps supply chains for the likes of BMW and Volvo, said financing from investors was increasingly tied to ESG targets.
“Everybody recognizes they need to know where they’re sourcing things from and what they’re inheriting from their supply chain.”
Makram Azar, CEO of London-based investment group Full Circle Capital, said companies in the auto sector that “tick all the right ESG boxes” should find raising capital easier.
“Big asset managers who have allocated huge sums of money to invest in ESG compliant companies have found there aren’t enough of them,” said Azar.
More carbon levies could help to change that.
Full Circle has invested in Britishvolt, a British startup that’s building an EV battery plant that will run only using renewable energy.
Peter Rolton, Britishvolt’s executive chairman, said national governments would need alternatives to fuel taxes that raise vast sums, and taxing carbon would help to squeeze it out of supply chains.
“Carbon taxation is an inevitable part of a 2050 net-zero vision,” he added. “You can see that one coming.”
Mining in Madagascar
AEM, based in Washington, a city with roots in northeast England’s industrial history, has developed a recyclable motor for EVs using electrical steel and aluminum instead of copper and magnets, thus removing rare earth metals. CEO Widmer said AEM’s motors would be cheaper than conventional ones and in carmakers’ tests have been up to 15% more efficient.
As well as the environmental considerations, many carmakers and suppliers want to reduce reliance on China, which controls 90% of global rare earths metals supply.
China’s dominance extends to graphite, crucial for anodes for EV batteries, which is typically produced using electricity from coal.
Canadian-listed mine developer NextSource plans to start commercial production of graphite in Madagascar from 2023 to capitalise on demand from companies looking to diversify supplies.
Executive vice president Brent Nykoliation said contracts with carmakers should be lucrative and long as they seek to lock in supplies tailor-made to their requirements.
“The conversation has changed dramatically in the last 12 months,” Nykoliation said, referring to carmakers’ engagement with mineral production.
51 candidates running for Alaska House seat
Reid Wilson, The Hill, April 4, 2022
Voters in Alaska will choose from dozens of candidates running to replace the late Rep. Don Young (R) in a special election in June that is as unique and wild as the state itself, as election officials experiment with a new ranked-choice voting system never before used in electing a member of Congress.
The candidates include some prominent names, with former Gov. Sarah Palin, the GOP’s 2008 nominee for vice president, at the top of the list. Palin entered the race late Friday with just minutes to spare before the filing deadline and later won an important endorsement from former President Trump.
She will vie with Nick Begich III (R), the grandson and namesake of the last person to hold the seat before Young. The late Rep. Nick Begich, a Democrat, disappeared while campaigning when his plane crashed 50 years ago, before Young himself won a special election to fill the vacancy.
Former Senate Majority Leader John Coghill (R), state Sen. Josh Revak (R), former Interior Department official Tara Sweeney (R) and Anchorage Assemblyman Chris Constant (D) are also running. So is Al Gross, an independent who ran for a U.S. Senate seat in 2020.
Alaska’s political scene is small enough that many of the candidates have histories with each other. Revak and Sweeney were both co-chairs of Young’s reelection campaign. Palin will face Andrew Halcro, an independent who took almost 10 percent of the vote when he ran against her for governor in 2006.
The race has drawn its share of unusual contenders as well. Santa Claus, a member of the City Council in tiny North Pole who legally changed his name from Thomas O’Connor in 2005, filed to run. So did Emil Notti, a Democrat who lost the special election that sent Young to Congress 49 years ago.
One candidate, Jesse Sumner, told the Alaska Dispatch News he had filed as an April Fool’s joke; he said he would withdraw his name from the ballot by the noon deadline on Monday. But Sumner’s family still has a candidate in the race: Sumner’s brother Max, who owns a homebuilding company, also filed to run.
The election will be the first contest for a U.S. House seat run under Alaska’s new hybrid ranked choice voting system. The top four candidates in the June 11 all-party primary will advance to the general election, to be held Aug. 16.
In that August election, held on the same day as the state’s regular primary election, voters will rank their choices. If no candidate receives an outright majority, votes cast for the last-place finisher will be redistributed, a process that continues until someone claims more than half the vote.
Alaska is not the first state to send a member to Congress using ranked-choice voting. The system was first used in Maine, where Rep. Jared Golden (D) ousted then-Rep. Bruce Poliquin (R) in 2018 after two rounds of redistribution.