Today’s Key Takeaways: Russia targets European economies by halting gas supplies. Exxon has three new discoveries in Guyana. John Kerry said yesterday that natural gas companies will be part of a clean energy transition, can help cut methane emissions. ESG minded investors invest heavily in coal stocks. Democrats downplay Manchin’s Build Back Better efforts.
NEWS OF THE DAY:
Russia halts gas supplies to Poland and Bulgaria
Marek Strzelecki, Tsvetelia Tsolova, Pavel Polityuk, Reuters, April 27, 2022
- Russia demands payment in roubles to shield it from sanctions
- EU denounces gas cut-off as ‘blackmail’
- Kyiv reports some Russian gains in villages in east
- Explosions hit Russian regions on border; Kyiv calls it ‘karma’
- Concern grows over unrest spilling to Moldova
Russia halted gas supplies to Bulgaria and Poland on Wednesday for rejecting its demand to pay in roubles, taking direct aim at European economies in its toughest retaliation so far against international sanctions over the war in Ukraine.
The step was denounced by European leaders as “blackmail” and comes as European countries have joined the United States in ramping up arms shipments to help Ukraine fend off a new Russian assault in the east.
Ukraine reported on Wednesday that Russian troops had made gains in several villages there. Russia reported a number of blasts on its side of the border, including a blaze at an arms depot, which Kyiv called “karma”.
Moscow says the gas cut-off is to enforce its demand for payment in roubles, needed to shield its economy from sanctions. Kremlin spokesperson Dmitry Peskov said Russia was a reliable energy supplier and denied it was engaging in blackmail.
Gazprom (GAZP.MM), the Russian gas export monopoly, said in a statement it had “completely suspended gas supplies to Bulgargaz and PGNiG (PGN.WA) due to absence of payments in roubles,” referring to the Polish and Bulgarian gas companies.
“Basic legal principles have been broken, violated,” Polish President Andrzej Duda said. “Appropriate legal steps will be taken and there will be appropriate compensation from Gazprom for violations of the provisions of the contract.”
Bulgarian Energy Minister Alexander Nikolov said: “It is clear that at the moment the natural gas is being used more as a political and economic weapon in the current war.”
Russian President Vladimir Putin demanded last month that buyers from “unfriendly” countries pay for gas in roubles or be cut off. The European Union says this violates contracts that called for payment in euros.
“The announcement by Gazprom that it is unilaterally stopping delivery of gas to customers in Europe is yet another attempt by Russia to use gas as an instrument of blackmail,” European Commission President Ursula von der Leyen said.
“This is unjustified and unacceptable.”
Poland and Bulgaria are both former Soviet-era satellites of Moscow that have since joined the EU and NATO. Poland has been one of the Kremlin’s most vocal opponents over the war. Bulgaria has long had warmer relations with Russia, but Prime Minister Kirill Petkov, an anti-corruption campaigner who took office last year, strongly denounced the invasion of Ukraine.
Petkov was due to travel on Wednesday to Kyiv, the latest European leader to meet President Volodymyr Zelenskiy.
Poland receives its Russian gas through the Yamal-Europe pipeline from Russia’s huge gas fields in the Arctic far north, which continues west to supply Germany and other European countries. Bulgaria is supplied through pipes over Turkey.
Supplies from Gazprom (GAZP.MM) cover about 50% of Poland’s consumption and about 90% of Bulgaria’s. Poland said it did not need to draw on reserves and its gas storage was 76% full. Bulgaria has said it is in talks to try to import liquefied natural gas through Turkey and Greece.
Other European countries, including Germany, the biggest buyer of Russian gas, did not report cuts. Peskov, the Kremlin spokesperson, declined to say how many countries had agreed to pay in roubles.
Russia’s energy exports had until now continued largely unhindered since the war began, by far the biggest loophole in sanctions that have otherwise cut off Moscow from much of its trade with the West.
Kyiv has long called on Europe to stop funding Moscow’s war effort by cutting off imports that bring Russia hundreds of millions of dollars a day.
Germany said this week it is hoping to stop importing Russian oil within days. But weaning Europe off cheap and abundant Russian natural gas, which heats its homes, fuels its factories, and generates its electricity, would be a far more disruptive prospect.
Andriy Yermak, chief of staff to Ukraine’s President Volodymyr Zelenskiy, said Russia was “beginning the gas blackmail of Europe”.
Since the Russian invasion force was driven back at the outskirts of Kyiv last month, Moscow has refocused its operation on eastern Ukraine, starting a new offensive from several directions to fully capture two provinces known as the Donbas.
Ukraine’s general staff acknowledged Russia had made gains in the east, capturing the town of Zavody and some outskirts of the town of Velyka Komyshuvakha on one front, and the Zarichne and Novoshtokivske settlements in Donetsk region.
Blasts were heard early on Wednesday in three Russian provinces bordering Ukraine, authorities said, and an ammunition depot in the Belgorod province caught fire. The regional governor said the blaze near Staraya Nelidovka village had been put out. read more
Russia this month accused Ukraine of attacking a fuel depot in Belgorod with helicopters and opening fire on several villages in the province. A fire also broke out this week at a fuel depot in nearby Bryansk.
Kyiv has not confirmed responsibility for such incidents but described them as payback. “Karma is a cruel thing,” Ukrainian presidential advisor Mikhaylo Podolyak wrote on social media.
An aide to the mayor of the ruined port city of Mariupol said Russian forces had renewed their attacks on the Azovstal steel plant, where fighters and some civilians are holed up. No agreements had been reached on trying to evacuate civilians from Mariupol on Wednesday.
Concern has increased in recent days over the prospect of the conflict widening to neighbouring Moldova, where pro-Russian separatists have blamed Ukraine for reported attacks this week in a region occupied since the 1990s by Russian troops. Kyiv denies this.
The separatists reported firing across the border from Ukraine near an arms depot on Wednesday. Moldova’s pro-Western government has blamed forces inside the separatist region for attacks aimed at provoking conflict.
The invasion of Ukraine has left thousands dead or injured, reduced towns and cities to rubble, and forced more than 5 million people to flee abroad.
Moscow it a “special operation” to disarm Ukraine and defeat fascists. Ukraine and the West say the fascist allegation is baseless and that the war is an unprovoked act of aggression.
OIL:
Exxon Does It Again – Three More Discoveries Offshore Guyana
Bojan Lepic, Rigzone, April 27, 2022
U.S. oil supermajor ExxonMobil has made three new discoveries offshore Guyana and increased its estimate of the recoverable resource for the Stabroek Block to nearly 11 billion oil-equivalent barrels.
Exxon said that the three discoveries – Barreleye-1, Patwa-1, and Lukanani-1 – were southeast of the Liza and Payara developments and bring the number of Exxon’s Guyana discoveries in 2022 to five.
The Barreleye-1 well encountered approximately 230 feet of hydrocarbon-bearing sandstone and was drilled in 3,840 feet. Drilling at Patwa-1 encountered 108 feet of hydrocarbon-bearing sandstone and was conducted in 6,315 feet of water. The Lukanani-1 well encountered 115 feet of hydrocarbon-bearing sandstone and was drilled at a water depth of 4,068 feet. Operations are still ongoing at Barreleye-1 and Lukanani-1.
“These discoveries and the updated resource estimate increase the confidence we have in our ambitious exploration strategy for the Stabroek Block and will help to inform our future development plans for the southeast part of the block,” said Liam Mallon, president of ExxonMobil Upstream Company.
“ExxonMobil remains committed to delivering value at an accelerated pace to the people of Guyana, our partners, and shareholders and reliably supplying affordable energy to meet increasing demand around the world,” Mallon added.
ExxonMobil currently has four sanctioned projects offshore Guyana. Liza Phase 1 is producing approximately 130,000 barrels per day using the Liza Destiny FPSO vessel.
Liza Phase 2, which started production in February, is steadily ramping up to its capacity of 220,000 barrels per day using the Liza Unity FPSO.
The third project, Payara, is expected to produce 220,000 barrels per day. Construction on its production vessel, the Prosperity FPSO, is running approximately five months ahead of schedule with start-up likely before year-end 2023.
The fourth project, Yellowtail, is expected to produce 250,000 barrels per day when the One Guyana FPSO comes online in 2025.
At least six FPSOs with a production capacity of more than 1 million gross barrels of oil per day are expected to be online on the Stabroek Block in 2027, with the potential for up to 10 FPSOs to develop gross discovered recoverable resources.
In a separate statement, the CEO of Exxon’s Stabroek partner Hess, John Hess, said: “These new discoveries further demonstrate the extraordinary resource density of the Stabroek Block and will underpin our queue of future development opportunities. We look forward to continuing to work with the Government of Guyana and our partners to realize the remarkable potential of this world-class resource for the benefit of all stakeholders.”
Guyana’s Stabroek Block is 6.6 million acres. ExxonMobil affiliate Esso Exploration and Production Guyana Limited is the operator and holds a 45 percent interest in the Block. Hess Guyana Exploration holds 30 percent interest while CNOOC Petroleum Guyana Limited holds the remaining 25 percent.
GAS:
‘We need gas.’ Kerry pivots after putting industry on notice
Carlos Anchondo, Energywire, April 26, 2022
The comments come after Kerry said last week the gas sector should have “no more than 10 years or so” to come up with a means to capture its emissions.
U.S. climate envoy John Kerry said yesterday that natural gas companies will be part of a clean energy transition and can help cut methane emissions, days after raising concerns about the fossil fuel.
“We need gas, which is automatically a reduction from the level of emissions of either coal or oil,” Kerry said at the start of a weeklong forum hosted by the Edison Electric Institute, which represents U.S. investor-owned electric utility companies.
Last week, Kerry told Bloomberg Television that no one should be making it easy for the gas industry to “be building out 30- or 40-year infrastructure, which you’re then stuck with” (Energywire, April 22). That drew pushback from the gas sector.
But yesterday the former secretary of State made a point of saying the nation’s gas is much cleaner than Russian gas. He stressed that the private sector, particularly gas companies, will be part of an energy transition.
Kerry also discussed the potential to curb flaring, which is the burning of gas at well sites, and venting, which is the direct release of gas into the atmosphere. That could help address issues related to producing gas before it is used to generate electricity at a power plant, for example.
“Just by stopping venting and flaring, you would absolutely replace the amount of gas that is being lost from Russia,” Kerry said. “It’s an incredible amount.”
Kerry said more than 100 countries have now signed onto the Global Methane Pledge, which the Biden administration and the European Union announced last year (Greenwire, Sept 16, 2021). Countries joining that pledge commit to a goal of “reducing global methane emissions by at least 30 percent from 2020 levels by 2030.”
On Capitol Hill, House Democrats have urged EPA to expand on the methane regulations the agency proposed in November, calling for more aggressive action to eliminate routine flaring (E&E News PM, Dec. 22, 2021).
Also yesterday, Kerry said power companies have the credibility to influence Congress because they’re large employers and keep “the engine of our economy moving.” His comments come as lawmakers remain at a stalemate over potential climate action, including sweeping plans proposed in President Joe Biden’s stalled “Build Back Better” legislative agenda.
Kerry suggested companies could play a role in potential policies going forward, whether tax credits for renewables or perhaps a price on carbon emissions.
“I think if you will speak to the brightness of the future of the other side of this,” Kerry said, “that would have a profound impact on our ability to get the production tax credit, the investment tax credit, to do the things we need to do, and who knows, maybe even ultimately there will be a conversation about pricing carbon, which would have a profound impact on our ability to leap forward.”
In his comments to Bloomberg Television last week, Kerry said the gas industry should have “no more than 10 years or so” to come up with a means to capture its emissions.
“And if you’re not capturing, then we have to deploy alternative sources of energy,” he said.
Mike Sommers, CEO of the American Petroleum Institute, took issue with Kerry’s comments last week on Twitter, while The Wall Street Journal‘s editorial board offered its own critique Friday.
“Mr. Kerry knows that technologies that capture [carbon dioxide] emissions are a long way from being scalable,” the Journal’s editorial writers said in the piece. “He also knows that no one will invest in building new pipelines if gas is time-limited to less than a decade.”
Kerry answered with a written response, saying, “Natural gas is central to a smart and achievable policy to cut greenhouse-gas emissions today. In the near term, that means pairing with renewables to clean up electricity. In the next decade, it also means abating emissions from gas itself.”
Frank Macchiarola, API’s senior vice president of policy, economics, and regulatory affairs, said in a statement yesterday that while the Biden administration “seems to recognize the role of natural gas for supporting global energy security, their inconsistent rhetoric contributes to a difficult investment environment and continues to send mixed signals regarding the long-term future of the industry.”
Industry groups have said more U.S. gas exports could help lower global emissions and aid U.S. energy security.
“Last week Sec. Kerry put the natural gas industry ‘on notice’ and today he is calling for what we all know to be true, increase domestic natural gas production to reduce emissions from foreign coal,” Leslie Beyer, CEO of the Energy Workforce & Technology Council, said in a statement.
In March, the Biden administration pledged to send more U.S. liquefied natural gas to Europe as the region moves to curb its reliance on Russian energy (Energywire, March 25).
The White House did not respond to a request for comment on Kerry’s remarks yesterday.
The Department of State directed E&E News to remarks shared last week, which said, “It will take a full suite of investments in clean energy innovation and deployment to meet the world’s energy needs while transitioning entirely off unabated fossil fuel use.”
MINING:
ESG-minded investors pile into coal stock, sparking 1,000% rally
Natasha White, Anthony Sguazzin, Mining.Com, April 26, 2022
Anglo American Plc’s spinoff, Thungela Resources Ltd., has emerged as the world’s best-performing major coal stock. It’s also one of the most profitable bets by a group of fund managers who’ve promised to reduce their financed greenhouse gas emissions.
Since its June listing, the South African company is up roughly 1,000% amid a rebound in demand for the dirtiest fossil fuel. Thungela Chief Executive Officer July Ndlovu has said he’s planning to develop new coal resources, noting the company is now free of an owner that had questioned further investment in mining.
Coal’s stunning ascent is the product of a post-pandemic energy crisis that’s being turbocharged by Russia’s war on Ukraine. And with coal companies in Europe under pressure to shut down, those operating in emerging markets, like Johannesburg-based Thungela, are posting outsized returns. The $2 billion company’s stock-price gains are multiples of the roughly 260% increase in coal futures over the past year.
For the asset managers who purchased Thungela shares after its spinoff, the investment has been lucrative. It also raises questions about their stated commitment to accelerate the financial sector’s transition to net-zero emissions.
Abrdn Plc and Vanguard Group Inc. are among Thungela’s biggest holders. Both got in from the start, though Abrdn confirmed it has since “topped up” its position to 4.7%. Vanguard holds an equivalent stake.
In an emailed response to questions, Abrdn’s Peter Silver, an investment analyst, said Thungela currently plans to replace declining production at one mine and improve productivity at another. He also said Abrdn recently held a meeting with the mining company’s management, at which “other uses” of its capital were discussed, without elaborating.
Other asset managers holding Thungela stakes declined to comment, including Vanguard and Schroders Plc, which owns 1.5% of the company. Blackrock Inc., which holds 1.8%, referred to existing policies on its website. The three firms, as well as Abrdn, are signatories to the Glasgow Financial Alliance for Net Zero, meaning they’ve committed to support the goal of net-zero emissions by mid-century or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius. A sizable proportion of the Thungela shares held by BlackRock and Vanguard are in passively managed index-tracking funds, data compiled by Bloomberg show.
For the world to avoid catastrophic levels of warming, the United Nations Intergovernmental Panel on Climate Change has urged a halt to investment in and a rapid phase-out of coal mining. And the International Energy Agency has said there should be no new coal mines or mine extensions from 2021.
“Before we see an exit from coal in the real world, there has to be an exit from coal in the finance industry,” Heffa Schuecking, director of German nonprofit Urgewald, said in an interview. If institutions making net-zero pledges “aren’t even able to exclude coal developers, then I’d come to the conclusion” that such pledges are “useless,” she said.
Thungela told Bloomberg that it plans to seek board approval for two projects to replace those that are either slated to close down or where production is declining. In its annual report, released last week, it lists another mine extension project and a potential new mine.
Anglo sold its last shares in the mining company in March for about $115 million. “How Thungela chooses to allocate its capital is between Thungela and its shareholders,” Anglo said in a response to questions.
GFANZ members have the option of complying with one of five different coal positions. For example, an asset manager can show a general commitment to “phase out investments,” according to its website. Or it can commit to “immediately ceasing financial or other support” to companies building new coal infrastructure or investing in expansion. (Michael Bloomberg, owner, and founder of Bloomberg News parent Bloomberg LP, is co-chair of GFANZ).
The alliance, which is now a year old, has been urged by nonprofits to tighten its guidelines for members. “We have seen very few indications that the major members of GFANZ are serious about withdrawing financial services from the fossil-fuel industry,” a group of more than 100 nonprofits wrote in a recent letter. “Members’ actions on coal are shockingly inadequate.”
Thungela’s biggest shareholder, South Africa’s Public Investment Corp., has been increasing its stake in recent days. The fund manager, which oversees $152 billion of mainly government worker pensions, raised its holding to 12.6% on April 19 from 8% on April 7, according to a statement issued by the coal company to the stock exchange in Johannesburg. The PIC, which didn’t respond to a request for comment, said on its website that it integrates “environmental, social and governance principles as the fundamental principles of its investment process.”
Smaller fund managers also have invested in Thungela, while at the same time touting their commitment to environmental, social and governance principles.
Fairtree Capital Ltd., which owns 3.1% of the coal producer, notes on its website that its reforestation support measures are helping protect South Africa’s only endemic parrot. Fairtree declined to comment when asked about its coal investment.
Coronation Fund Managers Ltd., which oversees $40 billion in assets, has built a 3% stake in Thungela. In August last year, Neville Chester, a portfolio manager at Coronation, wrote in a note to clients “that a 100% thermal coal operation is unlikely to find a home in many portfolios, which means that capital markets are, for all intents and purposes, closed’’ to Thungela.
In a response to queries this month he said the allocation reflects a bet that coal gains will continue.
“The merits of the investment case for Thungela” are “determined by our long-term view of thermal coal prices,” he said.
POLITICS:
Dems offer reality check on Manchin, Build Back Better
Jordain Carney, The Hill, April 27, 2022
Sen. Joe Manchin (D-W.Va.) is sketching out his vision for what a scaled-down budget bill could look like as his party eyes a second run at moving a major policy bill through a reconciliation process that would negate a GOP filibuster.
This time, however, Democrats are playing down the chances for an imminent deal.
Manchin in December nixed the roughly $2 trillion House-passed Build Back Better package, sending the party into a legislative depression.
The party now faces significant hurdles to renew the tax-and-spending plan at the heart of their agenda as they feel growing pressure to provide deliverables to their own voters.
Sen. Dick Durbin (Ill.), the No. 2 Senate Democrat, said that there were “varying levels of optimism” within the caucus about reviving reconciliation, the budget process that cuts off a GOP filibuster and would allow Democrats to pass a measure with votes just from their members.
“I am the most skeptical,” Durbin said. “I want to see the results. I want to put two of my colleagues in the room with a blank sheet of paper and ask them, ‘What will you agree to?’ There seems to be some problems with that.”
Sen. Ben Cardin (D-Md.) indicated that Democrats were largely delegating talks with Manchin about reconciliation to Senate Majority Leader Charles Schumer (D-N.Y.).
“You’re not going to hear much about it until a decision is made,” Cardin said. “There’s been no reports to us, and we don’t expect any reports.”
Democrats and the White House have acknowledged that there are conversations going on, but they are also being careful to draw hard red lines or hype their talks after they set deadlines, and missed them, repeatedly last year.
“We always are hopeful. That’s all I’m saying,” said Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee.
Manchin on Tuesday met with Schumer about how to combat inflation.
After the meeting, the West Virginia senator said he thought the focus of any reconciliation bill should be lowering inflation and deficit reduction.
Manchin indicated that the way to do that included making changes to the tax code.
He outlined part of what he could support on tax changes as part of a reconciliation bill, including increasing the corporate rate to 25 percent, putting capital gains at 28 percent, getting rid of “loopholes” and “making sure everyone pays their fair share.”
Manchin also wants half of any revenue to go toward deficit reduction, saying that it’s the “only way you’re going to fight inflation.”
“Just a fair, competitive tax code,” Manchin added about what he wants to see in a reconciliation bill.
Both Manchin and Schumer tamped down any expectation that they were deep in the sort of formal negotiations that could cement a quick agreement that would allow the party to finally move what was meant to be the center of its legislative agenda.
“There’s nothing formal. There’s no false hopes here. There’s nothing, as far as Build Back Better, there’s no talk about any of that. Just saying how do we get a handle on inflation,” Manchin said.
Schumer also stressed that the talks with Manchin were “preliminary.”
“Our meetings were both preliminary and good, and we’re going to continue to keep talking. If you want to get rid of inflation, the only way to do it is to undo a lot of the Trump tax cuts and raise rates,” Schumer said.