News of the Day:
Biden’s Not-So-Clean Energy Transition
Mark Mills, The Wall Street Journal, May 11, 2021
The International Energy Agency exposes the hidden environmental costs and infeasibility of going green.
The International Energy Agency, the world’s pre-eminent source of energy information for governments, has entered the political debate over whether the U.S. should spend trillions of dollars to accelerate the energy transition favored by the Biden administration. You know, the plan to use far more “clean energy” and far less hydrocarbons—the oil, natural gas and coal that today supply 84% of global energy needs. The IEA’s 287-page report released this month, “The Role of Critical Minerals in Clean Energy Transitions,” is devastating to those ambitions. A better title would have been: “Clean Energy Transitions: Not Soon, Not Easy and Not Clean.”
The IEA assembled a large body of data about a central, and until now largely ignored, aspect of the energy transition: It requires mining industries and infrastructure that don’t exist. Wind, solar and battery technologies are built from an array of “energy transition minerals,” or ETMs, that must be mined and processed. The IEA finds that with a global energy transition like the one President Biden envisions, demand for key minerals such as lithium, graphite, nickel, and rare-earth metals would explode, rising by 4,200%, 2,500%, 1,900% and 700%, respectively, by 2040.
The world doesn’t have the capacity to meet such demand. As the IEA observes, albeit in cautious bureaucratese, there are no plans to fund and build the necessary mines and refineries. The supply of ETMs is entirely aspirational. And if it were pursued at the quantities dictated by the goals of the energy transition, the world would face daunting environmental, economic, and social challenges, along with geopolitical risks.
The IEA stipulates up front one underlying fact that advocates of a transition never mention: Green-energy machines use far more critical minerals than conventional-energy machines do. “A typical electric car requires six times the mineral inputs of a conventional car, and an onshore wind plant requires nine times more mineral resources than a gas-fired power plant,” the report says. “Since 2010, the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as the share of renewables has risen.” That was merely to bring wind and solar to a 10% share of the world’s electricity.
As the IEA notes dryly, the transition is a “shift from a fuel-intensive to a material-intensive energy system.” That means a shift away from liquids and gases whose extraction and transport leave a very light footprint on the land and are transported easily, cheaply, and efficiently, and toward big-footprint mines, the energy-intensive transport of massive amounts of rocks and other solid materials, and subsequent chemical processing and refining.
Spooling up production can’t happen overnight. The IEA observes something every miner knows: “It has taken on average over 16 years to move mining projects from discovery to first production.” Start tomorrow and new ETM production will begin only after 2035. This is a considerable problem for the Biden administration’s plan to achieve 100% carbon-free electricity by 2035.
In what may become the understatement of the decade, the IEA concludes that such long lead times “raise questions about the ability of suppliers to ramp up output if demand were to pick up rapidly.” The conditional “if” is a discordant qualifier given the IEA itself has endorsed, and nearly all its member states have already pledged, a rapid transition. The clear consequence is that “deployment of clean energy technologies is set to supercharge demand for critical minerals.”
Credit the IEA for acknowledging that this will require a global mining boom that leaves in its wake all manner of environmental implications. “Mining and mineral processing require large volumes of water”—a serious issue when around half of global lithium and copper production takes place in areas of high-water stress—and “pose contamination risks through acid mine drainage, wastewater discharge and the disposal of tailings.”
The IEA falls backs on the usual admonition that mitigating these risks will require “strengthening international collaboration” for everything from pollution to labor practices. But the history here isn’t promising. IEA data show that expanded ETM mining will occur mainly in countries with “low governance scores” where “corruption and bribery pose major liability risks.”
The IEA may be the first major agency to flag the geopolitical risks of the energy transition, again with copious data. Today the oil-and-gas market is characterized by supply diversity. The top three producers, among them the U.S., account for less than half of world supply. The top three producers for three key ETMs, however, control more than 80% of global supply. Here we find China utterly dominant while the U.S. isn’t even a player.
Well buried in the report is a warning about the “high emissions intensities” of ETMs. Energy use per pound mined is even trending up. This is no arcane nuance. It’s the key hidden factor that determines whether, or to what extent, a clean-energy machine actually reduces carbon-dioxide emissions on net. The IEA data show that, depending on the location and nature of future mines, the emissions from obtaining ETMs could wipe out much or most of the emissions saved by driving electric cars.
Worse yet, radical increases in demand will raise commodity prices, which reverberate throughout the global economy. When it comes to batteries, the IEA notes this could “eat up” the anticipated reductions in manufacturing costs expected from the “learning effects” of increased production. It’s an outcome that runs counter to the narrative of inevitably cheaper green-energy machines over time.
If such a report had come from a pro-hydrocarbon organization, the group would be dismissed, if not canceled outright. Credit the IEA for boldly going where few policy makers have gone before. As President Obama might say, we can’t dig our way out of this problem.
OIL:
IEA Says Oil Glut Gone Even as Demand Forecast Cut on India
Grant Smith, S & P Platts Global, May 12, 2021
- 2021 global oil demand forecast drops by 270,000 barrels a day.
- OECD oil-stockpile surplus fell to ‘marginal’ level in March.
The International Energy Agency said the supply glut created by the global pandemic has cleared, even as demand suffers a blow from a resurgence of the virus in India.
Surplus oil inventories in developed nations are now just a small fraction of the levels seen when demand collapsed last year, with output cuts by OPEC and its allies draining the excess, the IEA said on Wednesday. Still, the agency sees a temporary setback for global consumption as infections rock India, before the recovery resumes later in the year.
“Bloated world oil inventories that built up during last year’s Covid-19 demand shock have returned to more normal levels,” the IEA said in its monthly report. “But India’s Covid crisis is a reminder that the outlook for oil demand is mired in uncertainty. Until the pandemic is brought under control, market volatility is likely to persist.”
Oil markets have extended their recovery this year as fuel consumption roars back in China and the U.S., buoying international crude prices to about $69 a barrel in London.
In March, oil inventories in developed nations stood just 36.9 million barrels above the average level from 2015 to 2019, down from a surplus of about 250 million barrels last summer, the IEA said. Compared with the average for 2016 to 2020, the excess is just 1.7 million barrels, less than the capacity of a single supertanker.
Demand is suffering a temporary setback, with forecasts for Indian consumption in the second quarter cut by 630,000 barrels a day as a brutal wave of infections spreads across the country. Estimates for global demand in 2021 were trimmed by 270,000 barrels a day, to 96.4 million a day. The Paris-based IEA advises most major economies.
“The outlook for demand remains fragile,” Toril Bosoni, head of the IEA’s oil markets and industry division, said in a Bloomberg television interview. Still, the agency is “expecting a very strong recovery in demand growth in the second half of the year.”
Global consumption is on track for a rebound of 5.4 million barrels a day, or 6%, this year after 2020’s unprecedented slump. The recovery will gather momentum in the second half, causing stockpiles to dwindle even further.
That will present the 23-nation OPEC+ alliance led by Saudi Arabia and Russia with a choice: restore some more of the production they’ve halted or continue to tighten global markets.
The Organization of Petroleum Exporting Countries and its partners are in the process of reviving about 2 million barrels of daily output in three monthly installments. When the increase is completed in July, the IEA’s data indicates that demand for the cartel’s crude will still be higher than its production.
OPEC’s 13 members pumped about 25 million barrels a day last month, while demand for their supply in the third quarter is projected at 28.1 million barrels, according to the IEA report.
“Under the current OPEC+ production scenario, supplies won’t rise fast enough to keep pace with the expected demand recovery,” the agency said. “The widening supply and demand gap paves the way for a further easing of OPEC+ supply cuts or even sharper stock draws.”
GAS:
EXCLUSIVE Qatar pivots to LNG-hungry China in strategy shift
Muyu XuChen Aizhu, May 12, 2021
Qatar is in talks to make Chinese firms partners in its liquefied natural gas expansion project, the world’s largest, in a shift from the Gulf state’s reliance on western majors for technology and global outreach, industry sources said.
Since the early 1990s, Qatar has depended on international companies, including ExxonMobil (XOM.N), Royal Dutch Shell (RDSa.L) and Total (TOTF.PA), to help it to build its LNG industry. In exchange, the Western majors received lucrative long-term supply contracts.
But the U.S. shale gas revolution and increased focus on renewable energy as pressure mounts to tackle climate change has curbed the West’s appetite for gas.
Three sources familiar with the matter told Reuters state energy giant Qatar Petroleum (QP) was in talks with Chinese state firms, including PetroChina and Sinopec, for equity stakes in Qatar’s $28.7 billion North Field expansion, the world’s biggest single LNG project.
Western majors ExxonMobil, Shell, ConocoPhillips (COP.N), Total, Chevron (CVX.N) and Eni (ENI.MI) have also been invited to bid for a share.
The sources spoke on condition of anonymity because the matter is private, although CNOOC Ltd’s (0883.HK) CFO Xie Weizhi said last month the firm was “very interested” in Qatar’s gas projects.
It was unclear how advanced the talks were. One of the sources said PetroChina was discussing a 5% stake.
BIGGEST MEETS FASTEST
The North Field expansion should allow Qatar to strengthen its position as the largest LNG exporter, with output of 110 million tonnes per annum (mtpa) by 2026, a 40% increase.
The second largest exporter Australia has been closing the gap with Qatar through new gas projects in recent years.
Refinitiv Eikon shiptracking data showed Australia exported 77.3 million tonnes in 2020 compared with Qatar’s 77.6 million tonnes.
Although not carbon free, natural gas is less polluting than coal and China is expected to use it to replace coal in winter heating, electricity generation and industry to curb its emissions.
As a result, China is expected by next year to overtake Japan as the world’s biggest LNG importer.
China has already agreed supply deals and invested in producers such as Russia and Mozambique and is keen to diversify from Australian LNG following a deterioration in bilateral ties. read more
For its part, Qatar has courted China, whose gas demand accounted for about 8.3% of the world’s total in 2020 and is expected to grow by 8.6% in 2021 to 354.2 billion cubic metres, data from CNPC’s research institute showed.
Saad al-Kaabi, Qatar’s energy minister and the head of QP, has met Zhang Jianhua, director of China’s National Energy Administration several times since 2018 to discuss cooperation.
Sinopec and Qatar signed two long-term deals, one last year and one earlier this year, following which Sinopec set up an office in Doha.
“China is the fastest growing market and is looking into long-term contracts to secure supply,” Carlos Torres Diaz from Rystad Energy consultancy said. “So, moving deals to China would make a lot of sense for Qatar.”
ABLE TO STAND ALONE?
The western energy companies’ expertise and investment helped to make Qatar the world’s richest country on a per capita basis and to build up a sovereign wealth fund holding more than $350 billion in assets.
Now the joint LNG projects are established, Qatar is in a position to move forward without them.
One person involved in the talks said QP’s Kaabi told energy majors in meetings over the last months that it no longer depended on them to fund new projects.
Qatar was not necessarily dispensing with them, but would be seeking terms more favourable to it, the person said.
Last month, it decided not to extend its joint-venture contract for the Qatargas 1 LNG plant, with ExxonMobil, Total and Japan’s Marubeni (8002.T) and Mitsui (8031.T) after the 25-year contract expires in 2022.
Sources from Total and ExxonMobil told Reuters on condition of anonymity the companies had expected to negotiate an extension.
Mitsui and Marubeni both said they respected QP’s decisions and Mitsui also said it was interested in participating in the expansion.
Exxon spokesman Todd Spitler told Reuters the company looked forward to “continuing success” in future projects with QP and the state of Qatar.
“ExxonMobil affiliates are working with Qatar Petroleum to identify international joint venture opportunities that further enhance the portfolio of both,” he said.
Of the foreign partners, Exxon has the highest exposure to the country with access to 15.4 million tonnes per annum of Qatari gas, followed by Shell at 2.4 mtpa and Total at 2.3 mtpa. For Exxon, Qatar represents over 60% of its LNG sales volumes.
Western energy analysts say Qatar still has a use for the big, listed Western players, although it has less need for their direct investment.
Of the other companies with interest in Qatar, Chevron, and Total had no comment and PetroChina and Sinopec did not respond to requests for comment. QP also did not comment.
ConocoPhillips said it was preparing a competitive bid for the North Field expansion and an Eni spokesman also said it was considering a bid.
“International partners, especially the majors, remain key to helping Qatargas secure LNG off-take and global market access,” Valery Chow from Wood Mackenzie consultancy said. “QP doesn’t need foreign balance sheet funding for new projects.”
Having made a final investment decision on the expansion, Qatar is effectively building the North Field expansion project alone.
Kaabi has said Qatar has the muscle to continue without help but would prefer to have partners to boost its global outreach and strengthen long-term deals.
It could also have political incentives to maintain ties as it considers a second phase of the expansion, which sources expect will be announced later this year and would increase its LNG capacity to 126 mtpa by 2027.
The value of Qatar’s U.S. links was underscored as Washington helped it to resolve a row with Saudi Arabia, which ended early this year. read more
But the ties could be maintained with U.S. companies taking a smaller share of Qatar’s LNG than in the past and through international connections.
The Western majors have over the last two years sold QP stakes in assets around the world, including exploration projects in Argentina, Brazil, and Mozambique.
But they have not handed Qatar the kind of long-term deals in fast-growing Asian markets that the Chinese energy firms can deliver, and Qatar regards as a priority, the sources said.
MINING:
Tesla Will Stop Accepting Bitcoin Over Environmental Impact of Mining
Lewin Day, The Drive, May 12, 2021
Tesla made news back in February by announcing it had invested $1.5 billion into Bitcoin and would soon been taking it as a form of payment, helping spur the cryptocurrency on to all-time highs north of $50,000 in the following weeks. CEO Elon Musk turned all that on its head today, stating that Tesla will no longer accept Bitcoin as payment nor purchase any further holdings over environmental concerns regarding the energy needed to mine the cryptocurrency.
In a Twitter post, Musk states “Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.” Musk goes on to address much of the criticism the company received when it first invested in the cryptocurrency, saying “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.”
Following the post was an almost-instantaneous drop in Bitcoin prices, down 14 percent over the last day at the time of writing and dipping below $50,000 for the first time since late April (it’s since leveled out right around $50,000). The statement has drawn suspicion of a deliberate move to influence the Bitcoin price—far from the first time the Tesla CEO has been accused of trying to move markets.
However, the statement does claim that Tesla will hang on to its Bitcoin holdings for now, explaining that “Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy.” The Tweet also doubles down on supporting the general idea of cryptocurrencies, saying “We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.”
Dogecoin conspiracies aside, Tesla’s stated concerns are valid, of course—Bitcoin’s environmental footprint is a significant one. The currency works by having millions of distributed computers racing to solve hash equations, with the fastest hashing operations securing the lion’s share of the Bitcoin in a process referred to as “mining”. The Cambridge Bitcoin Energy Consumption Index estimates the annual energy consumption of the Bitcoin network at 147.79 terawatt-hours at the time of writing. With the network mining a “block” of 6.25 new bitcoins roughly every ten minutes, this comes out to 2811.8 megawatt-hours of energy per block, or 449.9 megawatt-hours of energy used to mine each Bitcoin.
As a comparison, a Tesla Model S comes with a 100-kilowatt-hour battery. For the energy used to mine one Bitcoin, you could fully charge that Model S every day for 4,499 days—that’s 12 full years. In even simpler terms, the cryptocurrency now uses more electricity than the entire country of Argentina.
It’s not actually clear how many payments the company received in Bitcoin over the last few months. The Tesla website has already removed its Bitcoin support page, which outlined how customers could use the cryptocurrency for purchases. Over the years, though, many individuals have used the currency to purchase cars, from Priuses to, of course, Lamborghinis. Often, the transactions are looked at with some level of regret as the currency has continued on to ever greater peaks in following years.
The coming days are likely to be tumultuous on the cryptocurrency markets, as bulls and bears fight for every last digital token. Internet sleuths will likely be combing Bitcoin’s blockchain for evidence that Tesla is remaining true to its word, or whether it liquidated its holdings on the sly. The benefit of the cryptocurrency is that for as anonymous as it can be, every transaction occurs out in the open. Whether Tesla will be caught out in a gambit, or whether their statement is an earnest backing of environmental concerns, will surely be revealed in due time.
POLITICS:
Colonial pipeline hack: Key takeaways from Biden’s first energy crisis
Ben Geman, Axios, May 13, 2021
Restoration of the Colonial Pipeline, the huge East Coast gasoline artery, is the beginning of the end of a crisis that prompted a White House logistical and political scramble.
Catch up fast: Late Wednesday afternoon Colonial began restart of the 5,500-mile line that shut down nearly a week ago after a ransomware attack.
- But it will take days before deliveries return to normal on the largest U.S. refined fuels pipeline that transports over 100 million gallons daily.
The big picture: Here are a few takeaways from the attack that snarled the East Coast fuel system, in part due to a rush on gas stations.
1. The White House quickly sensed security and political peril.
- Axios’ Alayna Treene reports that top officials — including counselor Steve Ricchetti and National Security Council chief of staff Yohannes Abraham — visited Camp David last weekend to brief President Biden.
- Politically, Alayna and Axios’ Jonathan Swan report the White House is worried about political fallout amid images of lines outside gas stations before Memorial Day.
- The White House has been looking to show that it’s on top of the situation, with Energy Secretary Jennifer Granholm and other Cabinet officials joining public briefings.
2. It’s a stark reminder of the cyber risks to energy.
- As we recently wrote about here, it was a stunning real-world example of how many types of infrastructure remain vulnerable to hackers.
- The Atlantic Council’s Cynthia Quarterman, a top Transportation Department official in the Obama era, said it “exposes the soft underbelly of the nation’s critical energy infrastructure.”
- Quarterman, in comments on the council’s site, notes that if a company like Colonial can be breached, smaller companies are even more vulnerable to attack.
3. New policy is already flowing from the pipeline shutdown.
- On Capitol Hill, lawmakers are calling for new measures. Top House Energy and Commerce Committee lawmakers floated bipartisan bills yesterday. The pending infrastructure talks could also emerge as a vehicle.
- Separately, the White House yesterday issued a wide-ranging executive order to bolster cyber defenses. It was in the works long before the Colonial hack, but officials cited the pipeline in touting the need for it.
- CNBC has more.
4. The scale of the pipeline disruption was immense.
- You’ve probably read by now that Colonial supplies up to 45% of the East Coast’s fuel. But this International Energy Agency primer gives a sense of scale.
- It notes that the 17-state region the pipeline helps to serve, on its own, “is the largest net importer of refined products in the world, ahead of all of Africa and the Southern Asia Pacific (Australia, Indonesia, Singapore and New Zealand combined).”
Here’s where things stand with the Colonial Pipeline:
- The shutdown and run-on fuel has pushed the nationwide average gasoline price to its highest level since the fall of 2014. Per AAA, the average today is $3.03 per gallon for regular.
- The resumption of service begun late yesterday won’t immediately end the problems (fuel moves slowly). Data crowdsourced from the GasBuddy app shows significant numbers of gas stations in eastern states remain without fuel.
- The latest Biden administration effort came last night when officials announced a “targeted” waiver of the Jones Act to enable fuel movement among U.S. ports by a non-U.S. flagged vessel. The company that received the waiver was not named.
What they’re saying: “Colonial Pipeline reports this morning that the restart of the pipeline went well overnight. This should mean things will return to normal by the end of the weekend,” Granholm tweeted this morning.
Go deeper: Colonial Pipeline hack exposes ransomware “pandemic”
CLIMATE CHANGE:
Fed privately presses big banks on risks from climate change
Pete Schroeder, Reuters, May 13, 2021
The U.S. Federal Reserve has asked lenders to start providing information on the measures they are taking to mitigate climate change-related risks to their balance sheets, according to four people with knowledge of the matter.
The previously unreported supervisory discussions highlight how U.S. watchdogs are moving to execute President Joe Biden’s agenda to incorporate climate risk into the financial regulatory system, with potentially major ramifications for Wall Street.
While European regulators are this year rolling-out climate-change “stress tests” for lenders, the Fed lags its peers. read more