Today’s Key Takeaways: No one like Interior’s offshore drilling plan. Saudi Arabia doubles Russian oil imports while Biden asks them to increase supply. What’s keeping America from reaching its LNG potential? Copper crunch jeopardizing climate goals. States will sue if SEC climate rule implemented.
NEWS OF THE DAY:
Interior’s offshore drilling plan blasted by both sides on U.S. Senate committee
Jacob Fischler, Alaska Beacon, July 13, 2022
Committee members argued about department’s recent 5-year proposal for Gulf of Mexico and off Alaska’s coast
A growing debate over the federal government’s plans to either allow more oil and gas production to curb inflation or limit drilling to achieve climate goals spilled into a U.S. Senate spending panel’s hearing Wednesday.
With Interior Secretary Deb Haaland testifying, members of the Senate Interior-Environment Appropriations Subcommittee argued about the department’s recent five-year proposal for offshore oil and gas production in the Gulf of Mexico and in federal waters off Alaska’s coast that could allow up to 11 new drilling leases.
Chairman Jeff Merkley of Oregon said the plan — and the administration’s broader energy agenda — are not aggressive enough to fight climate change. Arguments that more oil and gas are needed to lower energy prices were not persuasive, the Democrat said.
Rather than increase the supply of fossil fuels, the country should focus on transitioning off of it, he said.
“We may hear something today about the high gas prices and the need for more drilling,” Merkley said. “It’s like a heroin addict saying that the solution to heroin addiction is more heroin.”
Merkley urged Haaland to choose the “no leasing” option in the proposed offshore leasing plan.
The oil and gas industry has doubted the legality of that option — especially after a federal judge invalidated President Joe Biden’s January 2021 executive order to pause new lease sales last year — but Merkley said Wednesday there was nothing in federal law to require lease sales.
Ranking Republican Lisa Murkowski of Alaska called the no-lease option “unacceptable” and called for annual lease sales in federal waters of Cook Inlet. The most the plan could accommodate would be one sale in five years.
Haaland, a former Democratic House member from New Mexico, said she could not say which option the department would choose.
The plan is two weeks into a three-month public comment period and Haaland said she could not “prejudge” where that process would lead.
Biden energy policy attacked
Members of both parties voiced displeasure with Biden’s energy development record.
Biden has been too slow to shift U.S. energy use from fossil fuels that release climate-changing carbon emissions, Merkley said.
The department’s analysis last year of oil and gas leasing programs did not consider climate change, and the administration has continued to ignore climate considerations in evaluating projects that need federal approval, he added.
“President Biden has publicly advocated for a paradigm shift on how we manage our public lands and waters for energy development,” he said. “But in practice what we’ve been seeing is an all-of-the-above approach, an approach that will not boldly address our climate challenge.”
Republicans on the panel, including Murkowski, took a different view.
“I truly, truly believe that our national security interests require that we increase our domestic supply of these resources including from our offshore areas,” she said.
“I’ve heard the reference before that that oil is an addiction. I recognize that we have a reliance on it,” she said.
But “there is no upside to heroin addiction,” she said. “Our reality as a country is that we have a resource that not only we need right now, but the world needs right now.”
Murkowski acknowledged that there would be a transition to other forms of energy, but said that for now, increasing oil supply was needed to bring down prices.
Murkowski urged approval of the Willow project to allow massive oil drilling in the North Slope of Alaska. The department’s Bureau of Land Management released a draft environmental impact statement moving the project forward last week.
On the offshore plan, Murkowski said even considering not holding new leases was nonsensical.
“I think it’s actually harmful to our economy and our national security,” she said. “The national interest demands the administration avoid a costly gap in leasing and that it conducts offshore sales.”
Other Republicans questioned Haaland about the plan and were more combative about the administration’s record.
U.S. oil and gas companies have slowed supply because of the administration’s messaging about transitioning away from oil and gas, Tennessee Republican Bill Hagerty said.
“American oil and gas companies are not investing right now because the environment has been terrible for them,” he said.
“You’ve created an environment here, you’ve sent every message since this administration took office … that the Biden administration will ensure that oil and gas investments do not pay off in America.”
Hagerty asked Haaland to commit to expand oil and gas production. Haaland declined to make that promise, saying that she was pursuing a “balanced” approach.
Democrats and environmentalists have generally rejected the idea that more drilling permits would lead to lower gas prices. The industry already has more than 9,000 unused drilling permits, Haaland said Wednesday. New leases are not productive for years once they are approved.
Hagerty said the department should send “a message to the marketplace” to expand production.
OIL:
Exclusive: Saudi Arabia doubles Q2 Russian fuel oil imports for power generation
Reuters, July 14, 2022
- This includes content produced in Russia, where the law restricts coverage of Russian military operations in Ukraine.
- Kingdom burns Russian fuel to free up crude for exports
- Biden travels to ask Riyadh for more oil
- Russia raises supply to Asia, Africa amid Western sanctions
MOSCOW/LONDON/DUBAI, July 11 (Reuters) – Saudi Arabia, the world’s largest oil exporter, more than doubled the amount of Russian fuel oil it imported in the second quarter to feed power stations to meet summer cooling demand and free up the kingdom’s own crude for export, data showed and traders said.
Russia has been selling fuel at discounted prices after international sanctions over its invasion of Ukraine left it with fewer buyers. Moscow calls the war in Ukraine a “special military operation”.
The increased sales of fuel oil, used in power generation, to Saudi Arabia show the challenge that U.S. President Joe Biden faces as his administration seeks to isolate Russia and cut its energy export revenues.
While many countries have banned or discouraged purchases from Russia, China, India, and several African and Middle Eastern nations have increased imports.
Biden is due to visit Saudi Arabia later this week, when he is expected to seek an increase in oil supply to global markets from the kingdom to help lower oil prices that have aggravated inflation worldwide.
There is little spare capacity for Saudi and others to increase production in the short term. Saudi Arabia has also maintained its cooperation with Russia in the alliance of global producers known as OPEC+. The two are the de facto leaders of respectively OPEC and non-OPEC producers in that group.
Data obtained by Reuters through Refinitiv Eikon ship tracking showed Saudi Arabia imported 647,000 tonnes (48,000 barrels per day) of fuel oil from Russia via Russian and Estonian ports in April-June this year. That was up from 320,000 tonnes in the same period a year ago.
GAS:
What Is Keeping America From Realizing Its LNG Potential?
Tsevatana Paraskova, OilPrice.Com, July 13, 2022
- U.S. liquefied natural gas has become an increasingly important part of the global energy mix since Russia invaded Ukraine.
- In June, the European Union imported more LNG from the United States than it did natural gas from Russia.
- If the U.S. wants its LNG exports to continue to grow, it will need more pipelines in order to get the gas to export terminals.
The United States is shipping record volumes of liquefied natural gas (LNG) to Europe to help EU allies in their efforts to fill gas storage ahead of the winter amid growing uncertainty about Russian gas supply.
For the first time ever, the European Union imported in June more LNG from the United States than gas via pipeline from Russia, as Moscow slashed supply to Europe in the middle of last month.
Going forward, demand for U.S. LNG is set to remain robust as Europe races to reduce its dependence on Russian pipeline gas.
In the U.S., LNG export capacity is growing as new trains at Sabine Pass and Calcasieu Pass came online this year. But in order to continue growing, the LNG industry will need more domestic midstream infrastructure – pipelines – to carry natural gas from production centers to LNG export terminals on the U.S. Gulf Coast and demand centers on the Eastern Seaboard.
The Marcellus-Utica basin, the largest U.S. gas-producing region, and the second biggest gas-producing shale region, the Permian, could soon run into pipeline constraints that could undermine America’s ability to raise its LNG exports, energy analyst David Blackmon writes in Forbes.
The Federal Regulatory Energy Commission (FERC) hasn’t raced to approve pipeline projects, while the mixed messages from the Biden Administration continue to add uncertainties for upstream and midstream operators.
There’s also opposition from communities to pipelines crossing their land or passing close to their homes.
Such is the case with the Matterhorn Express Pipeline, designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles from Waha, Texas, to the Katy area near Houston, Texas. The pipeline developers WhiteWater, EnLink Midstream, Devon Energy, and MPLX LP reached a final investment decision in May to move forward with the construction of the pipeline, expected to be in service in the third quarter of 2024, pending the receipt of customary regulatory and other approvals.
But landowners in Williamson County, where the pipeline is planned to cross, are worried about the impact of the pipeline on their properties, although the county hosts at least a dozen pipelines already. Some Williamson County residents have asked the pipeline developers to reroute some parts of the project.
“Williamson County lies in the most direct path from Midland to Freeport,” County Commissioner Russ Boles told Austin American-Statesman.
The industry, for its part, calls for streamlined approval of pipeline projects that would help bring more gas to U.S. demand centers and LNG export facilities.
There are currently 11 major natural gas projects pending approval before the FERC, more than half of which have their final environmental documents, the Interstate Natural Gas Association of America (INGAA) said at the end of March 2022, days after the U.S. and the EU announced a deal for more U.S. LNG exports to the EU as the latter seeks to replace Russian supplies.
“FERC’s approval is the imperative next step for these important projects. Without the additional capacity, which totals more than 12,141 MMcf/day pending currently, some of the added gas supply policymakers are calling on developers to produce will not reach American consumers or LNG terminals along U.S. coasts for export,” INGAA said.
The American Petroleum Institute (API) has a ten-point plan to restore U.S. energy leadership. This plan includes a recommendation that the FERC “should cease efforts to overstep its permitting authority under the Natural Gas Act and should adhere to traditional considerations of public needs as well as focus on direct impacts arising from the construction and operation of natural gas projects.”
U.S. LNG exports are set to decline in the second half of 2022 because of the outage at Freeport LNG, the EIA said in its latest Short-Term Energy Outlook (STEO) on Tuesday. U.S. LNG exports are forecast to average 10.5 Bcf/d in the second half of 2022, which is 14% less than the forecast in the June 2022 STEO.
The EIA expects LNG exports will grow in 2023, averaging 12.7 Bcf/d on an annual basis, or 17% higher than in 2022.
The U.S. will need pipelines and a federal policy supporting such projects in order to continue growing LNG exports and delivering gas to the domestic demand centers.
MINING:
The copper crunch that’s jeopardizing climate goals
Ben Geman, Axios, July 14, 2022
The race to deeply slash global carbon emissions will be hobbled without a surge in copper supply, but the ramp-up necessary faces big hurdles, a new report finds.
Why it matters: Copper is a crucial input for clean energy technologies including electric cars, batteries, renewable power, and the transmission and grid infrastructure needed alongside it.
Driving the news: “Unless massive new supply comes online in a timely way, the goal of Net-Zero Emissions by 2050 will be short-circuited and remain out of reach,” S&P Global concludes.
The big picture: The report estimates increases needed for clean energy growth and continued demand for traditional uses, such as buildings.
- Copper demand is slated to grow from about 25 million metric tons today to twice that amount by 2035, and substitution opportunities are very limited.
- A gap between demand and supply starts to open in the middle of this decade and grows to roughly 10 million tons by 2035 under current mining and recycling trends.
- “This would mean a 20% shortfall from the supply level required for the Net-Zero Emissions by 2050 target,” S&P finds. A smaller gap still emerges under a “high ambition” scenario that models rosier assumptions about recycling and mining advances.
What they’re saying: S&P vice chairman Dan Yergin, who led the project, chatted with me about copper’s role in what he calls the transition from “Big Oil to big shovels” needed to confront climate change.
- “Although … people write a lot about lithium, a lot about cobalt, copper is really essential because it’s the metal of electrification and essential to the energy transition. And I think people have underestimated that,” he said.
- “This study is a wake-up call,” said Yergin. He notes that while a number of governments and international organizations have expressed alarm, the study provides a granular look at the problem.
- “It’s one thing to express alarm, and another thing to say, well, how much do you need to do? And so we’re not saying you’re not going to get to the 2050 goals, but it’s more challenging than people think and you have to focus on it now.”
What’s next: The report steers clear of specific policy recommendations, but one finding is that resource development and processing need to be easier.
- “Regulatory and fiscal regimes need to be stable and predictable to encourage investment and facilitate construction of new mines, processing facilities, and recycling plants,” it notes.
- Given the typical decade-plus timeline for new mines, S&P finds that increasing utilization, capacity and lifespan of existing sites will be key in meeting nearer-term demand growth.
Of note: Mining companies supported the research, but S&P says the report is independent and told Reuters they did not see it prior to release.
POLITICS:
From the Washington Examiner, Daily on Energy:
STATES PROMISE LEGAL ACTION IF SEC CLIMATE RULE MOVES FORWARD: Republican attorneys general told the SEC they’re ready “ready to act” just like they did in the West Virginia v. EPA case if the commission moves forward with its climate-related disclosure rule as proposed.
The 24 AGs, led by Patrick Morrisey of West Virginia and Mark Brnovich of Arizona, submitted supplemental comments to the commission yesterday saying the Supreme Court’s decision in the EPA case changes things.
“The Court confirmed that Congress—not a federal administrative agency—has the power to decide major issues of the day,” they commented, slamming SEC’s proposed rule as “paternalistic.”
“If this sort of regulatory overreach does not constitute a sweeping policy judgment on a major question, then we struggle to see what would,” they also said.
Republicans have said the simple introduction of the proposed rule, which would require corporations to disclose their emissions footprints, is already sending negative signals to the market at a time when more investment in oil and gas are needed to grow production and reduce prices.
Democrats and environmental groups, however, have their sights set on fossil energy companies and want SEC to be even more aggressive than it proposed to be, especially on Scope 3 emissions disclosures.
House Oversight Chairwoman Carolyn Maloney and Environment Subcommittee Ro Khanna, who have accused energy companies of misleading the public and lying about the role fossil fuels play in climate change, said the wiggle room SEC afforded on Scope 3 emissions in its proposed rule could let emissions go unreported.
“This is a particular problem in the fossil fuel industry, where Scope 3 emissions make up the vast majority of the industry’s overall emissions, yet some companies exclude these emissions from their climate pledges,” the two Democrats wrote in comments to the SEC.