NEWS OF THE DAY:
The Great Power Crunch
Stephen Stapczynski, Bloomberg, October 12, 2021
The global energy crisis that’s triggering blackouts in China and shuttering gas providers in the U.K. has actually been in the making for years. Suppliers of natural gas and coal didn’t invest in new projects in the middle of the 2010s, either due to unattractive prices or pressure from climate conscious investors, resulting in today’s slowdown in output growth. Frigid temperatures last winter depleted gas inventories from China to Germany, while the post-pandemic economic rebound boosted the need for power generation.
Fuel supplies have been steadily tightening over the last year amid limited natural gas exports via Russian pipelines, production issues at Peru’s LNG production facility and safety problems at Chinese coal mines. Even American shale drillers are reluctant to boost production out of concern that it would crimp their profitability and put off investors. And to top it all off, South America is grappling with one of the worst droughts in a century, curbing hydro-electric generation and increasing the need for fossil fuels.
Now, the energy shortage and record-high prices are forcing factories in Europe to curb operations, and the Chinese government is ordering its state-owned companies to secure supply at all costs. As colder winter weather descends on the northern hemisphere, the situation is more likely to get worse than better. Buckle up.
Oil Prices and Bad Policy
The Editorial Board, The Wall Street Journal, October 11, 2021
“The way to reduce gas prices is by increasing oil supply. That means not sending policy signals that the Administration’s goal is to put the industry out of business.”
Oil prices are rising, and the White House is worried about higher gasoline prices for consumers. Let’s hope the Biden Administration doesn’t compound the damage from its assault on fossil fuels by banning U.S. oil exports.
Average gasoline prices nationwide have risen 40 cents a gallon in the last six months and $1 since December. The White House blames OPEC for not increasing supply more as demand has rebounded amid the pandemic recovery, but that’s a too-easy scapegoat.
Crude oil prices have doubled since November to $83 per barrel, and petro-states want to maintain higher prices to fund their governments. But U.S. producers have also been slower to revive output as the Administration is threatening the oil and gas industry with a panoply of taxes and regulation. Producers aren’t going to drill more wells today, even at today’s higher prices, if they don’t think they will produce future profits.
The Federal Reserve is also a culprit as it has led central banks in stirring inflation that has lifted asset prices, especially nearly all commodities. Price increases this broad-based signal more than supply shortages. Oil is traded in dollars and its price rises amid a general inflation. Oil prices surged in the mid-2000s, and the classic case was the energy crisis that followed the U.S. abandoning Bretton Woods and the dollar’s fixed peg to gold.
The Administration is looking for any policy lever in a storm, but those it has mooted would do little or be counterproductive. News reports say Energy Secretary Jennifer Granholm is considering tapping the Strategic Petroleum Reserve and hasn’t ruled out banning U.S. exports. The Energy Department later walked back her comments, but anything is possible as President Biden’s poll numbers fall.
Congress established the Strategic Petroleum Reserve in 1975 after the oil price shock to mitigate supply disruptions in emergencies. A 2015 budget agreement required small periodic releases over the following decade to generate revenue.
But the reserve exists for actual emergencies—say, a hurricane that shuts down production in Gulf Coast states for months. Oil prices often exceeded $80 a barrel in the last decade and aren’t an emergency. Tapping reserves might temporarily suppress crude prices but would also discourage U.S. production.
The same goes for banning oil exports. Congress lifted the 1975 export ban on crude oil in 2015 as part of a bipartisan budget agreement that also extended renewable-energy tax subsidies. Oil exports have since increased six-fold to roughly three million barrels a day.
A Government Accountability Office report last fall found that lifting the ban increased the incentive for production by letting domestic drillers charge higher prices. But gasoline prices didn’t rise because domestic refiners compete globally. Many U.S. refiners process historically cheaper heavier crudes and would have to invest in upgrades to process light oil from the Bakken or Permian shales.
Banning exports might lower domestic oil prices somewhat but wouldn’t reduce how much Americans pay at the pump. Refiners would merely make larger profits. Some share of the crude that the U.S. is now exporting would stop being produced while some would be transported domestically to refiners at increased cost.
Pipeline capacity in some areas of the U.S. is limited, so domestically produced crude has to be transported by rail or tanker. But under the Jones Act, only American-built, -crewed, -flagged and -owned tankers can transport products between U.S. ports. Such ships are in short supply and high demand and charge more.
The GAO report noted that the repeal of the export ban resulted in “decreasing demand for U.S. tankers to move domestic oil.” So, re-imposing the ban could increase demand for these ships and create headaches for other businesses trying to transport goods.
But a ban would advance the Administration’s goal of discouraging oil and gas development. Presidents from both parties over four decades have moved to allow increased oil-product and gas exports. Joe Biden would be the first President since the 1970s to move in the opposite direction. Irony alert: China is the biggest importer of U.S. crude.
The way to reduce gas prices is by increasing oil supply. That means not sending policy signals that the Administration’s goal is to put the industry out of business.
Energy crunch: Qatar says LNG production ‘maxed out’
Aljazeera, October 11, 2021
Qatar, the world’s largest seller of liquefied natural gas (LNG), told consumers it was powerless to cool energy prices as steelmakers in the United Kingdom said they could be forced to halt output in the face of soaring costs.
The global rebound in economic activity after the easing of coronavirus lockdowns has laid bare a shortage of natural gas stocks and other fuel supplies, squeezing consumer budgets, and causing blackouts in some countries.
To keep factories open and homes heated, industry executives and governments are having to pay much more for energy and revert to coal and oil, the most polluting fossil fuels.
As some generators switched to burning oil, crude futures jumped to multi-year highs on Monday, with analysts predicting that prices will stay strong.
LNG prices, which sank to record lows at the height of pandemic lockdowns, have surged this year to record highs, but Qatar said it has no supplies available to calm the market.
“We are maxed out, as far as we have given all our customers their due quantities,” said Qatar Minister of Energy Saad al-Kaabi. “I am unhappy about gas prices being high.”
Across the globe, the high prices are pressuring governments and industry, which has warned of the risk of job losses and costs being passed on to customers and consumers.
The government was listening to industry concerns and discussing whether further action was needed, Prime Minister Boris Johnson’s spokesman said on Monday.
In Spain, steelmaker Sidenor said it had already suspended production at a plant near Bilbao in the north of the country after increased energy costs had driven up overall production costs by 25 percent.
In China, the world’s second-largest economy and top exporter, the government has sought to boost coal supplies, but the largest provincial economy in China’s northeast rust belt on Monday said it was grappling with worsening power shortages.
The shortfalls sent Chinese energy and petrochemicals futures to multi-year and record highs on Monday.
Demand from data processing added to the strain.
The Dutch Data Center Association has asked political leaders to cap electricity prices, provide corporate tax breaks or introduce subsidies in support of businesses investing in cleaner energy.
More than oil across Arctic Slope region
Shane Lasley, North of 60 Mining News, October 11, 2021
ASRC seeks partners to explore more solid mineral potential Alaska Native Claims
Vast petroleum reserves underlying what is now the Arctic Slope Regional Corp. (ASRC) region, and the need to build a pipeline to deliver this oil to an ice-free port 800 miles to the south and then to global markets that lie beyond, raised the urgency to settle aboriginal land claims in Alaska. This need for a resolution before a pipeline corridor that would bisect the state prompted lawmakers in Washington, D.C. to enact the Alaska Native Claims Settlement Act, a revolutionary aboriginal land claims settlement commonly known as ANCSA.
Signed into law by U.S. President Richard Nixon in 1971, ANCSA involved a unique plan to organize Alaska Natives into 12 regional corporations, with each of these corporations having its own geographical regions based largely on heritage and shared interests.
The ASRC region covers roughly 95,000 square miles of Alaska’s entire North Slope, a vast expanse nearly the size of Oregon that extends from the Brooks Range north to the Arctic Ocean and from the Yukon border west to Point Hope – a vast and treeless arctic area settled by the Iñupiat ancestors of the approximately 13,000 current ASRC shareholders more than 10,000 years ago.
The hard work, perseverance, strength, and ingenuity passed from these earliest adventurers that trekked into this new but foreboding region laid a foundation for the Arctic Slope Iñupiat to build ASRC into the largest Alaska-owned company.
“Iñupiaq know hard work at a cultural level. In our faces, you can see the strength, determination and inventiveness that flows from the very roots of our Iñupiaq culture,” the ANCSA corporation wrote.
While the rich oil reserves lying under the Arctic Slope region, particularly under the roughly 5 million acres of lands selected for ownership by ASRC, is the primary resource that helped fuel the Iñupiat-owned corporation’s success, the region also covers areas highly prospective for zinc, lead, silver, molybdenum, tungsten, and coal.
While ANCSA is inexorably tied to the rich oil and gas discovered under the ASRC region, this did not translate to instant financial success for the corporation.
Being a fledgling corporation vying for some of the richest petroleum real estate on Earth created early challenges, not only from multinational oil companies wanting to claim their own slice of the vast oil reserves but also from large swaths of the Arctic Slope being placed off-limits due to national interests.
For example, ASRC was prevented from selecting lands in the National Petroleum Reserve in Alaska (NPR-A), the nation’s largest single block of public land, or the Arctic National Wildlife Refuge (ANWR), another large block of public land at the east end of the North Slope.
Established by President Warren Harding in 1923, the roughly 37,000-square-mile NPR-A was set aside as an emergency oil supply for the U.S. Navy. This West Virginia-sized track of land was transferred to the Bureau of Land Management in 1976.
On the other hand, ANWR was designated as a wilderness protection area in 1960, a designation that was formalized as a wilderness reserve with the passage of the Alaska National Interest Lands Conservation Act (ANILCA) in 1980.
These federal set-asides took nearly half of the region off the table for land selections and ASRC had limited information about available lands in the other areas.
Despite these early challenges, by 1976 ASRC had selected much of its lands and received its initial 3-million-acre conveyance, making it the first Alaskan Native regional corporation to gain title to lands under ANCSA.
While gaining land ownership on the North Slope and subsequently signing oil and gas leases with some of the largest oil companies of the day – Union Oil, Amoco, Texaco, and Chevron – provided critical revenue for the fledgling ASRC and its subsidiaries, the Arctic Slope Native corporation still had a tough financial road ahead.
As the regional corporations were going about implementing ANCSA, a major dispute arose over how to interpret ANCSA Section 7(i), a way to bring balance to regional and village corporations by sharing of net revenues from resource development on ANCSA lands.
In 1982, a 7(i)-settlement agreement was signed, which set out in very specific terms how resource revenues would be shared among all 12 regional corporations.
ANCSA Section 7(i) requires regional corporations to distribute 70% of net revenues from resource development on ANCSA land among the other regional corporations. In turn, Section 7(j) requires that half of the Section 7(i) payments received are distributed to the respective village corporations within each of the ANCSA regions.
This put ASRC in the position of owing $7 million in back 7(i) payments to the other regions, a significant amount for a corporation trying to get on its feet.
Faced with a financial crisis, the leaders of ASRC came up with an ingenious solution – trade surface estate it owned within the Gates of the Arctic National Park for subsurface mineral rights under the village of Kaktovik and within ANWR.
The Kaktovik Iñupiat Corp. (KIC), a village corporation, owns the surface rights to this 92,000-acre land package.
According to the U.S. Geological Survey, the non-wilderness area of ANWR’s Coastal Plain is believed to hold a mean estimate of 10.6 billion barrels of recoverable oil.
With the 2017 Congressional legislation approving responsible energy development within the 1002 Area of ANWR and the January leases within a small portion of the coastal plain, it looked as if ASRC and KIC would benefit from the foresight of the land exchange.
The Biden administration, however, put a freeze on the ANWR oil leases in June.
“The Biden administration’s decision to stall this progress not only reneges on promises made to producers that took part in January’s oil lease sale but also does not take into account the benefits to our region,” ASRC penned in a June 1 statement. “We are disheartened by this decision, as opening the 1002 Area to oil and gas development is a valuable way to bring jobs and opportunity – like health clinics, support for our schools and other benefits – to our communities.”
And any benefits from oil drawn from the ANWR lands owned by ASRC and KIC would flow across Alaska as the other ANCSA regions received their share under Section 7(i).
More than petroleum
While oil and gas are the primary drivers for ASRC, the Arctic Slope region also has hardrock mineral potential, especially at the west end just north of the world-class Red Dog zinc mine.
On lands owned by NANA Corp., the ANCSA corporation for Alaska’s Northwest Arctic, Red Dog produces roughly 1.3 billion pounds of zinc per year, or about 5 percent of the world’s new supply of the galvanizing metal, along with healthy supplies of lead, silver, and germanium.
Kuna Formation, a package of black shale and chert that hosts the Red Dog deposits, extends north into the ASRC region.
The Arctic Slope ANCSA corporation said eight areas based on geological and geochemical merit have been recognized within the ASRC region, which is only about 10 miles north of the Red Dog Mine.
Geochemically anomalous zones in the ASRC region exhibit high concentrations of zinc, lead, silver, and pathfinder elements such as barite, cadmium, manganese, vanadium, and nickel.
Though very little exploration has been carried out in this area, several occurrences of disseminated sulfide mineralization have already been discovered.
ASRC seeks a mining company to explore, develop, and mine deposits, which may be located on its lands.
World’s coal storehouse
The western half of the ASRC region also hosts enormous stores of high-quality coal.
Northern Alaska Coal Province, which extends east across 300 miles of the ASRC region from the Chukchi Sea, hosts an estimated four trillion tons of high-quality bituminous and subbituminous coal. This accounts for roughly 11% of the world’s known coal resource and about 33% of the U.S. resource.
Exploration by a large mining company working in partnership with ASRC identified approximately 2 billion tons of high-rank bituminous coal resource in the Western Arctic.
ASRC said that exploration thus far has concentrated its studies on a single coal deposit located only six miles from tidewater on the Chukchi Sea.
The Arctic Slope corporation said drilling has upgraded more than 100 million tons of coal in the Western Arctic Coal deposit to reserves for mining and estimates another 50 to 100 million tons could be added to the reserves of this single near-coast deposit.
Not only is the Western Arctic Coal deposit world-class in size, but the coal there is premium quality and ultra-low sulfur. According to ASRC, Western Arctic Coal averages 0.23% sulfur, 3% moisture, 7% ash and has a heating value in excess of 12,000 British thermal units (BTU) per pound.
This provides an environmentally preferred alternative to lower quality coals presently utilized for power generation. With many Pacific Rim nations moving to stricter environmental standards for coal-generated power, using Western Arctic Coal as a blend would reduce sulfur dioxide emissions.
ASRC said early results from studies of the economic feasibility of mining Western Arctic coal are encouraging and the ANCSA corporation is seeking a mining company to explore and develop its coal deposits.
Solid mineral potential
The Arctic Slope region is also believed to host one of the largest deposits of tungsten in the U.S. Because it is inside ANWR, however, there is little chance this critical mineral occurrence known as Bear Mountain will be developed into a mine in the near future.
During visits to Bear Mountain in the 1980s, U.S. Bureau of Mine geologists James Barker and R.C. Swainbank identified a 100-acre area of surface mineralization indicative of a large porphyritic molybdenum-tungsten deposit.
Analysis of 20 soil and 36 rock samples collected during 1985 returned abundant tungsten and molybdenum along with lesser amounts of niobium.
Soil samples collected over roughly 75-acres returned tungsten values of more than 500 parts per million wolframite, with the best samples containing 5,000 ppm of this tungsten mineral.
“I believe Bear Mountain to be likely the most important tungsten deposit in the U.S.,” Barker, who has extensively studied Alaska’s critical mineral potential, told Mining News.
As important a tungsten resource as Bear Mountain is, its far northeast Alaska location inside ANWR will likely prevent its development.
“It’s a shame that mineral evaluations aren’t done before we place an area off-limits,” Barker reflected.
While Bear Mountain may be off-limits, an extensive network of strategically located gravel deposits owned by ASRC are not. Found near villages, petroleum development, and high potential resource areas across the Arctic Slope, these deposits offer building materials vital to roads, airstrips, pads, and other infrastructure.
So, while Alaska’s North Slope oil and gas played a central role in settling Alaska Native land claims and has been a major economic driver for ASRC, more solid minerals have the potential to become increasingly important to the future of the region and its people.
Russia’s Energy Influence In Europe Is Growing
Haley Zaremba, OilPrice.Com, October 11, 2021
- The Nord Stream 2 pipeline is playing a growing role in Russia’s energy influence in Europe.
- As the European energy crunch has intensified, Russia has not increased its supply to meet the region’s demand, in a move that many experts have interpreted as a form of “energy blackmail.”
- Increasing reliance on Moscow is not only a geopolitical danger — the increase of demand for fossil fuels also poses a serious threat to climate goals.
For years, the United States has stood in strong opposition to the construction and then opening of the Nord Stream 2 pipeline, which runs under the Baltic Sea to directly connect Germany, and thereby the greater European Union (EU) to Russia’s considerable natural gas reserves. While the $11 billion pipeline itself is finished, it has yet to come online thanks to setbacks related to the extremely controversial nature of its construction. Proponents of the pipeline argue that it is essential for Europe’s energy supply, as exemplified by the continent’s current energy crunch. Opponents, with the United States at the helm, argue that not only will the project perpetuate the region’s reliance on world-warming fossil fuels, the pipeline will furthermore greatly compromise the EU’s energy security and dangerously increase the region’s reliance on Russia, giving Moscow enormous geopolitical power.
Opposing the Nord Stream 2 pipeline was one of the rare common grounds shared by both the Obama and Trump administrations, and the Biden administration initially followed suit and announced sanctions against any companies involved in the project’s completion, but then decided to step down and waive those sanctions in May in a reported attempt to improve relations between the United States and Germany. But while the pipeline has now been completed, it has yet to get final approval from Germany to begin operations.
Now, Russia has more bargaining power than ever to get approval for the pipeline and increase their geopolitical reach in Europe. As the European economy has surged back to life after lockdown and people resume life-as-usual post-pandemic, demand for energy has far outstripped supply, leading to a severe energy crunch and subsequent spike in prices across the EU. Regional benchmark energy prices have already skyrocketed to nearly 500% just this year and will likely only get worse as the Northern Hemisphere heads into the colder winter months when energy demand typically rises significantly.
All of this has almost certainly been music to Moscow’s ears, which already supplied nearly half of the EU’s natural gas supplies and would love nothing more than to monopolize that market. As the European energy crunch has intensified, Moscow has not increased its supply to meet the region’s demand, in a move that many experts have interpreted as a form of “energy blackmail” in order to strong-arm the German government into greenlighting the Nord Stream 2.
Now, in the latest development of the drama between Russia and Europe, Moscow has finally offered to increase its supply of natural gas to the energy-strapped region. On Wednesday Vladimir Putin announced that Russia would help to stabilize energy supply and energy prices across Europe, sending energy prices on a roller coaster ride and leading energy analysts to sound the warning bells that Europe is more vulnerable to Russian influence than ever before.
“Europe has now left itself hostage to Russia over energy supplies,” said in a Wednesday research note from Timothy Ash, emerging markets senior sovereign strategist at Bluebay Asset Management. ″[It’s] crystal clear that Russia has Europe (the EU and U.K.) in an energy headlock, and Europe (and the U.K.) are too weak to call it out and do anything about it,” he wrote, before putting a finer point on it: “Europe is cowering as it fears as it heads into winter Russia will further turn the screws (of energy pipelines off) and allow it to freeze until it gets its way and NS2 is certified.”
Increasing reliance on Moscow is not only a geopolitical danger — the increase of demand for fossil fuels also poses a serious threat to climate goals. Europe hasn’t just turned to Moscow for natural gas, it has also looked into stockpiling coal for the winter. China and India, too, are facing their own energy crunches. China has even experienced rolling blackouts in recent weeks as Beijing struggles to keep up with demand.
This has led to skyrocketing coal demand in a time that the world needs to stop burning coal altogether. Ultimately, these energy crunches around the world showcase just how much we are still reliant on fossil fuels to shore up our energy security, and the outsized power that this gives to major energy players such as Russia, creating a dangerous and delicate geopolitical (im)balance.
From the Washington Examiner, Daily on Energy:
CARBON CAPTURE QUEUE GROWING: The number of carbon capture and storage projects that are operational or being developed increased for the fourth year in a row, and rose almost one-third over the previous year, according to a new report today from the Global CCS Institute.
Of the 135 commercial CCS facilities currently in the project pipeline, 27 are fully operating, four are under construction, and 102 are under development. Of the total, 71 new CCS facilities were added to the project pipeline in 2021. North America continues to be the global leader in CCS deployment, with over 40 new CCS projects announced in 2021, largely because of the 45Q tax credits in the U.S., and anticipated rise in demand for low-carbon energy technologies.
But several new countries now have CCS facilities under development, including Belgium, Denmark, Hungary, Indonesia, Italy, Malaysia, and Sweden. The list of sectors it is used for is expanding to include power generation, LNG, cement, steel, hydrogen production, and more.
“The momentum we have seen over the last year towards CCS is considerable, however more is required if we are to reach climate goals”, said Guloren Turan, general manager of advocacy and communication at the Global CCS Institute.