Today’s Key Takeaways: Three global lenders agree to reconsider their ESG policies after meeting with Alaska commissioners. Russian pullout costs Shell $5b. New Fortress Energy is a new player in the LNG export game – planning to supply 16% of total US exports within a few years. Zinc is one of the most versatile and essential materials – It is the fourth most used metal in the world behind iron, aluminum, and copper. Oil executives answer to gouging charges in DC hearing.
NEWS OF THE DAY:
Dunleavy administration making some progress rebutting lending policies against Arctic oil
Elwood Brehmer, Alaska Journal of Commerce, April 6, 2022
Members of Gov. Mike Dunleavy’s administration say they have gotten a handful of banks and investment firms to think twice about their in-house restrictions on financing Arctic oil and gas projects after months of talks.
Department of Natural Resources Commissioner Corri Feige said in an interview that executives with three global lenders agreed to reconsider their environmental, social and governance, or ESG, policies after meetings with her, Revenue Commissioner Lucinda Mahoney, and Dunleavy.
Feige declined to name the financial institutions because the conversations were understood to be confidential, she said.
The trio have met with representatives of numerous lenders over the past six-plus months, according to Feige, who said she believes Dunleavy’s calls for the state to cut its business ties with banks and other firms that have internal policies restricting their participation in Arctic development projects are having an effect.
Current high prices in energy markets brought on by the disruptions of the pandemic and exacerbated by Russia’s invasion of Ukraine have also drastically changed the global scenario from when many of the lenders’ Arctic investment policies were instituted in recent years, Feige noted.
They’ve toned their language down a little bit,” she said.
The goal of the meetings was to educate the individuals in charge of crafting the companies’ ESG policies on the environmental standards and practices in Alaska — particularly the North Slope oil fields — as well as the social benefits of the revenue generated at multiple levels of government from resource projects in the state, according to Mahoney. “There were several (lender executives) that flat-out said, ‘We had no idea the social impact was as strong as it is,’” Mahoney said, adding some of the executives asked for suggested changes to their policies. “We generally received a lot of ‘thank-you’s’ for coming and sharing with us what’s going on in Alaska.”
The meetings generally were with “VP-level” individuals in charge of setting the institutions’ investment policies, she said.
Mahoney also said some of the ESG policies targeting investments in Arctic projects come with a caveat of sorts. While they may limit project-specific investments, of the half-dozen or so major U.S. banks and other investors that implemented such policies to appease shareholders and address worries about climate change, many still invest in the large North Slope producers at the corporate level, Mahoney said.
Feige also emphasized a belief that the “draconian, anti-Arctic” policies stemmed from perception more than diligent study.
“These are really anti-Alaska policies, and we take that very personally,” she said.
“Nobody could communicate to me a vision of the Arctic and what the Arctic should be and worse yet a majority of the people who are responsible for these policies couldn’t even give me an accurate definition of what the Arctic is — so it’s a big problem.”
Feige also insisted the fundamentals of the Equator Principles, a financial industry benchmark for evaluating and managing the environmental and social risks of investments, are baked into development processes in Alaska.
Banking giant Morgan Stanley, which in the spring of 2020 instituted prohibitions on directly financing Arctic oil developments and any participation in industry activities in the Arctic National Wildlife Refuge, updated its Environmental and Social Policy Statement in March. It was one of the lenders approached by the Dunleavy administration. Questions about the meetings with the Alaska officials submitted by the Journal to Morgan Stanley’s corporate media office did not receive a response.
Feige detailed some of the administration’s arguments in a speech last month during the Meet Alaska support service industry trade conference in Anchorage. She highlighted that roughly $3.1 billion was shared among Alaska Native regional corporations from 1982-2015 as a result of the “Section 7(i)” provision in the Alaska Native Claims Settlement Act that requires the corporations to share at least 70% of their resource revenue with other regional corporations. The regional corporations are then required to share half of their 7(i) revenue — named for its place in ANCSA — with the village corporations in their areas. That money, along with local oil and gas and mining property tax revenues translates directly to “sustainable communities,” according to Feige.
The Permanent Fund and its dividends to Alaskans are effectively similar, she said.
“We’re setting the stage for economic self-determination, which allows for practicing of our enduring cultural traditions,” Feige said of the resource revenue flowing particularly to rural governments and communities.
The state’s regulations and laws against practices such as methane venting and flaring that are common in some other oil- and gas-producing jurisdictions are examples of the governance part of the “ESG equation,” according to Feige. She also said nearly every large development project in the state is subject to multiple layers of scrutiny because the state’s abundance of wetlands regularly triggers a lengthy National Environmental Policy Act review, on top of the “comprehensive, science-based” regulatory programs, “with the requirement to enrage in public notice and comment at every stage of project development” managed by the State of Alaska.
For North Slope oil projects, the North Slope Borough has its own permitting requirements as well, she added.” It’s getting the community involved and when we talk about (environmental justice), that’s what we’re talking about — the communities know and are engaged in the discussion,” Feige said.
Lois Epstein, a longtime civil engineer in Alaska and a consultant to environmental organizations and tribes in the state, said the talking points from administration officials and other pro-development groups about the comprehensive environmental regulations in Alaska and the superior care taken to minimize the impacts of development in the state at times ring hollow.
Epstein said that while the state’s prohibitions on deliberate methane releases are often discussed, the State of Alaska does not have any rules addressing fugitive methane emissions from pipelines or natural gas storage facilities.
The State of Alaska also does not have its own “NEPA equivalent” for development projects that do not trigger a federal review, which does occur, she added.
Alaska, which has more coastline than the rest of the country combined, has also been the only coastal state without a coastal management program since 2011, she also noted. Coastal management programs are largely intended to elevate local input in coastal resource management decisions.
“It’s frustrating to me as a watchdog to hear these statements over and over and for new leadership at the state level to not acknowledge there are gaps,” Epstein said. “The details matter.”
Shell says its Russia pullout has cost $5 billion so far
Jacob Knutson, Axios, April 7, 2022
Shell’s decision to pull out of Russia has cost the company roughly $5 billion so far, the energy giant said in an update released Thursday.
Why it matters: Major international oil companies, including BP and Exxon, divested from Russian energy companies or projects following the invasion, potentially significantly reshaping the West’s energy relationship with Russia.
- The losses will likely come in the form of reduced value of Russian assets, credit losses and contract terms, according to the update, which the company shared before the publication of its first-quarter earnings in May.
The big picture: After the start of the invasion, the London-based company first ended its relationship with the Russian energy company Gazprom, then later withdrew from Russian hydrocarbons altogether.
- Those moves came after it and London-based BP faced pressure from the United Kingdom’s government to cut ties with Russia, as hydrocarbons exports are crucial for financing the Kremlin and its military.
Go deeper: Why it’s so hard to quit Russian energy
Billionaire Outlines Massive LNG Plan to Feed World Hungry for Gas
Gerson Freitas Jr., Bloomberg, April 6, 2022
- New Fortress Energy planning faster, cheaper LNG export plants
- Aims to produce as much as 16% of U.S. LNG shipments
New Fortress Energy Inc. is new to the LNG-export game, but its billionaire chief has big plans. Within a couple of years, he aims to supply as much as 11 million metric tons of the super chilled fuel annually — the equivalent of almost 16% of total U.S. exports.
For a company that’s mostly a buyer of the fuel, the plan sounds like a pipe dream. Wes Edens, the private equity investor who founded the company, says he will use fast-track permits, recycled jack-up rigs, and deep-water drill ships to get there.
His big ambitions speak to how much the global market for the power-plant and heating fuel has exploded on the back of an energy crisis in Europe and the war in Ukraine.
“If you want to make a great fortune, solve a great problem,” Edens, a billionaire co-owner of the Milwaukee Bucks NBA team, said in an interview. “And the problem of energy poverty and the problems of energy insecurity are gigantic.”
The threat of supply disruptions has driven prices for the fuel to record highs, handing a windfall to its suppliers and financially stressing its buyers. It’s also improved the prospects for new LNG export projects that didn’t have the financing to get off the ground.
“Not only is the price likely to stay high, but the duration of the crisis could be materially longer than what people might otherwise expect,” Edens said. “We’ll be providing gas at the most needed time.”
New Fortress owns gas-to-power projects and relies on LNG supplied by others under long-term contracts. In the long term, becoming an exporter could help New Fortress shield its import businesses from surging prices a time when the company eyes opportunities for new power projects in Europe, Brazil, and South Africa. That would also allow it to benefit from booming prices in the spot market.
New Fortress has soared almost 87% this year, more than twice the average gain for the companies in the S&P 500 Energy Index, to the highest in a year, with investors rushing to buy LNG stocks after the conflict in Ukraine began.
Last week, the company announced plans to build its first liquefied natural gas production facility off the coast of Louisiana with capacity to produce about 2.8 million metric tons of LNG per year. Edens says that the roughly $1.4 billion project could be completed in less than a year by avoiding much of the complex permitting process that new onshore export terminals are typically faced with. The company has adequate funds and capital to fund it, he said.
Since making the decision to move into LNG production in early 2021, New Fortress has acquired three jack-up rigs and two deep-water drill ships that will be recycled into LNG facilities with the installation of liquefaction equipment that’s been manufactured in Texas. The company has also reached terms for a fourth rig.
Roughly a dozen proposed terminals authorized by U.S. regulators over the past several years haven’t been built because developers are still trying to line up funds. What makes offshore projects easier to advance, according to Edens, is the fact that they can rely on old ships for storage as opposed to building new storage tanks.
“The storage tanks are the challenge,” he said. “They cost a lot of money, a lot of time to permit and they’re environmentally very sensitive.”
U.S. LNG exports are also constrained by limited pipeline capacity.
“Wes Edens is an entrepreneurial leader on a mission,” said Rob Thummel, portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “I would expect the New Fortress Energy project to cost more and take longer to build than what is currently estimated but it could be part of the global solution of replacing Russian gas imports into Europe.”
Understanding zinc’s role in a low-carbon economy
Visual Capitalist, April 7, 2022
When asked to describe how the metal zinc is used, people often mention vitamins, sunscreen, or metal coating.
But few are aware of zinc’s applications in transportation, infrastructure, electronics, food security, and renewable energy.
Zinc, the versatile metal
Zinc is one of the most versatile and essential materials known to mankind. It is the fourth most used metal in the world behind iron, aluminum, and copper.
The primary use of zinc is in the galvanizing process, which protects iron and steel from rusting. Zinc coatings play a key role in public transportation and infrastructure by extending the life of steel used in bridge rails and support beams, railway tracks, and public transportation hubs and terminals.
Additionally, zinc can be alloyed with other metals and used for die-casting into shapes such as door handles, alloyed with copper to make brass, and alloyed with copper and sometimes other metals to make some types of bronze, like architectural bronze or commercial bronze.
Furthermore, zinc also has applications in energy storage. Zinc-carbon batteries were the first commercial dry batteries, providing a higher energy density at a lower cost than previously available cells.
Due to its growing role in energy storage and its superior ability to protect metals against corrosion, zinc remains an essential material for the future.
Zinc in the energy transition
Zinc-ion batteries are considered safer than lithium-ion as they use a water-based chemistry, avoiding the fire problem that occurs with Li-ion batteries in electric vehicle (EV) battery packs.
Galvanized steel requires zinc and is the preferred material used by EV manufacturers for car bodies. The average EV requires 0.2 tonnes of steel.
Zinc is 100% recyclable—it can be recovered and reused without a loss in quality. Currently, 30% of all zinc produced worldwide originates from recycled or secondary zinc.
The metal plays a critical role in enabling other green technologies too, like solar and wind. Zinc coatings protect solar panels and wind turbines and prevent rust. A 10MWh offshore wind turbine requires 4 tonnes of zinc, while a 100MWh solar panel park—enough to supply 110,000 homes—requires 240 tonnes of zinc.
Zinc is a $40 billion per year market. Different from other metals, zinc is naturally abundant, and resources are available to meet future demand for many generations.
As the world transitions to a low-carbon economy, zinc will continue to play a key role in supporting clean energy technologies.
From the Washington Examiner, Daily on Energy:
OIL EXECUTIVES ANSWER TO GOUGING CHARGES: Energy and Commerce Democrats vented frustration at leading oil and gas industry executives yesterday for spending too much on shareholder returns and too little on new production while drivers face some of the highest gasoline prices ever.
“You have a decision with the profit. You put it into stock buybacks, that helps shareholders. You put it into dividends, it helps shareholders,” said Vermont Rep. Peter Welch. “Or you put it into production… you say, ‘You know what, maybe we’ll lighten up a little bit on the stock buybacks, maybe we’ll lighten up a little bit on the dividends, and maybe we lighten up a little bit to help folks in Vermont who are getting hammered with the price at the pump.”
Others shared their outright suspicions that companies are unethically profiting off the war in Ukraine via higher oil prices.
Maryland Rep. John Sarbanes accused executives of using “hocus pocus language” in responding to questioning. “I don’t trust you,” he said. “I don’t trust you not to take advantage of this situation.”
The witnesses, which included the heads of Shell, BP, ExxonMobil, Shell, Devon Energy, and Pioneer Natural Resources, retorted generally that their companies sell oil into a global market and don’t set its price.
Chevron Chairman and CEO Mike Wirth said he is overseeing both investment in production and prioritizing shareholders. The two are “not mutually exclusive,” he said.
Rick Muncrief, head of Devon Energy, emphasized that many of his company’s shareholders are pension funds for public employees like police officers and teachers, ostensibly to rebut notions that his company’s capital strategy is all about enriching executives or Wall Street firms.
The GOP line: Republicans inside and outside the committee pushed back against Democrats and blamed Biden’s energy policies for tying the hands of energy companies. Sen. Ted Cruz called it a “kangaroo court” hearing.
A number of oil and gas company heads have said publicly that they’re emphasizing capital discipline to avoid growing production too quickly in a way that could come back to bite them. Supply chain issues and worker shortages have also been blamed.
Production’s up: Oil production has grown in consecutive weeks, however. Output has stood around 11.6 million barrels per day for much of the year, including the week ending March 18, but it rose to 11.7 million bpd the last full week of March and to 11.8 million bpd through April 1.