Today’s Key Takeaways: IEA predicts record oil demand in 2023. Energy security rests on U.S. natural gas exports. Investment managers recommend NovaGold -highlights Donlin mine. World class carbon sequestration potential in Cook Inlet.
NEWS OF THE DAY:
Alaska’s Senate Resources committee will hold it’s first meeting today at 4pm. The committee co-chairs Senator Click Bishop – Fairbanks and Senator Cathy Giessel- Anchorage will be joined by Vice Chair Senator Bill Wielechowski-Anchorage and committee members Senator Scott Kawasaki -Fairbanks, Senator James Kaufman-Anchorage, Senator Forrest Dunbar-Anchorage and Senator Matt Claman-Anchorage.
The meeting will be a “Committee Discussion of Resource Topics” and will include an evaluation of the state’s Carbon Offset Opportunity, a look at the EPA’s Revised Definition of WOTUS, a review of JAMA’s life expectancy study, the Alaska Miners Association State Issues of Concern and various news and science articles. You can find the committee documents here.
You can watch the committee meeting live, here.
RECORD OIL DEMAND IN STORE: Global oil demand is on track for record highs this year, the International Energy Agency said in its Oil Market Report today, rising 1.9 million barrels per day to a record-high of 101.7 million bpd, thanks in large part to the reopening of China’s economy.
Major takeaways from the report:
The growth is closely tied to China’s economic reopening. Nearly half of expected growth in 2023 will come from China as it moves away from COVID-19 restrictions — straining global supplies and likely driving prices higher by the year’s end. That’s one answer to the question we posed in yesterday’s letter.
Further volatility is expected from Russia: Russia remains a major wild card in global markets, especially following last month’s implementation of the G7-backed oil price cap and the EU’s ban on Russian oil imports. Though its output held steady in December, the IEA said things could quickly change beginning Feb. 5, when the EU’s ban on Russian petroleum products will come into force.
Product markets, especially diesel, “are most at risk” as the second part of the EU sanctions take effect, threatening what the IEA described as a “well-supplied oil balance” amid recovering demand growth.
(Russia imposed a five-month ban on all countries abiding by the oil price cap beginning in February, and has suggested it would slash oil production by up to 700,000 bpd in response to the price cap and EU sanctions.)
From the Washington Examiner, Daily on Energy
U.S. LNG: Remapping Energy Security
Leslie Palti-Guzman & Joseph Majkut, Center for Strategic and International Studies, January 17, 2023
In 2022, energy flows and trade shifted dramatically. Europe, already deep into an energy crisis, fell deeper following Russia’s February invasion of Ukraine. Russia decreased its supply of natural gas to Europe, hoping economic pain would break European and transatlantic resolve to support Ukraine.
In response, Europe hastened its plans for energy efficiency, doubled down on renewable power, and turned to global markets for gas. Gas is critical for power and heating in European winter; to prepare, Europe rushed to fill storage via conservation measures and shifting to non-Russian gas supplies, mostly from the United States.
These events have been costly. The resulting gas shortage has been expensive for Europe and destructive in emerging markets. Further, implications for the climate are still unknown. New gas infrastructure creates climate challenges if done poorly and developing markets may lock in higher-emission energy alternatives for the long term if gas prices remain high.
Energy security in Europe—and globally—now rests on U.S. natural gas exports. Europe’s shift from Russian gas to other supplies has dramatically and permanently changed global gas trade and energy markets.
With storage full for this winter, policymakers must now prepare for years of energy restructuring. Cooperation between the United States and Europe is and will remain critical for European energy security, hastening the energy transition, and maintaining strong transatlantic trade.
Should You Consider Adding NovaGold Resources (NG) to Your Portfolio?
Soumya Eswaran, Yahoo! Finance, January 18, 2023
Old West Management, an investment management company, released its 2022 fourth-quarter investor letter. A copy of the same can be downloaded here. 2022 was one of the most difficult years for investors. However, the fund performed better than the market. Even though its long-only separate accounts delivered negative returns for the year, they beat their respective benchmarks, and the fund’s three Limited Partnerships performed relatively well. The Old West Income Fund increased by 12.4% for the year. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Old West Management highlighted stocks like NovaGold Resources Inc. (NYSE:NG) in the Q4 2022 investor letter. Headquartered in Vancouver, Canada, NovaGold Resources Inc. (NYSE:NG) develops and explores for gold mineral properties. On January 17, 2023, NovaGold Resources Inc. (NYSE:NG) stock closed at $6.47 per share. One-month return of NovaGold Resources Inc. (NYSE:NG) was 5.20%, and its shares lost 10.39% of their value over the last 52 weeks. NovaGold Resources Inc. (NYSE:NG) has a market capitalization of $2.157 billion.
Old West Management made the following comment about NovaGold Resources Inc. (NYSE:NG) in its Q4 2022 investor letter:
“The previous two mining companies are industry leaders with solid production. The next two companies have no production or revenue but are sitting on huge deposits. We were initially attracted to NovaGold Resources Inc. (NYSE:NG) because of the track record of success of company chairman and largest shareholder Thomas Kaplan. Kaplan has become a billionaire investing in silver and platinum mines in Bolivia and South Africa. Besides his investing in mining, he owns the world’s largest collection of Rembrandt’s works.
Novagold is co-owner of the Donlin mine in Alaska, along with Barrick Gold. The Donlin mine is on track to be one of the world’s largest gold mines with 39 million ounces of measured and indicated reserves with an average grade of 2.24 grams of gold per ton. A major hurdle is Donlin is located in a remote area of Alaska, and the estimated cost to bring the mine to production is $7.4 billion. That is a huge expense but at today’s gold price the mine has gross revenue potential of $72 billion. Obviously the higher the gold price goes the easier the decision to begin construction. The U.S. government is supportive of the project as are the local Alaska Native stakeholders. Novagold has $120 million of long-term debt offset by $142 million of cash. The market cap is $2.2 billion, and the company is burning $11 million of cash per year. It is widely expected that Barrick, who is always looking to buy high quality assets, will purchase Novagold’s 50% interest in the world class Donlin mine.”
Alaska looks to tap carbon markets
Stuart Penson, Carbon Economist, January 17, 2023
US state’s governor proposes legislation to support expansion of CCS and generation of tradeable offsets
Alaskan governor Mike Dunleavy has proposed a package of laws designed to support the state’s entry into global carbon markets.
The Carbon Management Bill would authorise the state’s Department of Natural Resources (DNR) to promote and develop CCS and biological sequestration as well as the generation of globally traded carbon offsets.
“Shortly, we will introduce our Carbon Management Bill package to launch the state into the emerging carbon market,” says Dunleavy.
“Managing this resource is clearly in Alaska’s best interest. It is in alignment with our constitutional mandate to develop all resources. This opportunity does not exclude or negatively impact current industries in Alaska, such as logging. Monetising carbon has a very real potential of bringing revenue to the state of Alaska to the tune of millions, if not billions, of dollars.”
For geological sequestration, the package would establish statutory authority, rules, and processes for leasing state subsurface lands for CCUS activities. In addition, it would create operating rules, regulatory oversight authority and liability provisions for CCUS projects in Alaska, whether located on state or other lands.
For biological sequestration, the bill would establish the authority for the DNR to develop and market carbon offsets and would authorise the department to lease state land for purposes that include carbon offset projects.
Since 2019, carbon offsets generated in Alaska have earned $370mn, and Alaska’s Indigenous-owned corporations are among the most prominent forestry participants in government agency the California Air Resources Board’s regulated offset and credit market, according to Dunleavy.
“We are proposing a flexible framework broad enough to cover the growing possibilities and opportunities with carbon management,” says DNR commissioner John Boyle. “This burnishes the state’s ESG credentials—and shows the market that we are open for business.”
The Cook Inlet basin in Southcentral Alaska has been identified by scientists as having world-class carbon sequestration potential, according to state-owned Alaska Gasline Development Corporation (AGDC), which is assessing the potential to develop a blue ammonia production with CCS in that region. AGDC is working on the project with Japan’s Mitsubishi and Toyo Engineering, as well as oil and gas company Hilcorp Alaska.