Today’s Key Takeaways: CERAWEEK – world’s biggest energy conference – begins in Houston today. Governor Dunleavy and Commissioner Feige will attend, AKLNG will be a big topic.
Warren Buffet bought 91.2 million shares of Occidental Petroleum. With zinc added to the list of minerals and metals critical to the U.S., Red Dog is now top dog!
NEWS OF THE DAY:
CERAWEEK Energy conference returns to Houston as Ukraine conflict puts market in turmoil
David Gaffen, Reuters, March 6, 2022
The world’s biggest gathering of energy industry leaders returns to Houston this week as Russia’s invasion of Ukraine delivers an oil price shock to the global economy and embattled executives face growing criticism for the industry’s role in climate change.
Global oil prices have reached levels not seen for a decade at over $115 a barrel as disruption to crude and fuel exports from Russia has left the world short of supply. Gas prices have also reached record highs, delivering a combined rise in energy costs that is slowing economic growth.
“We’re meeting not only at a time of political turbulence but also turbulence in the energy markets – extreme turbulence of a kind that’s rarely been seen,” said Daniel Yergin, author, and vice chairman of S&P Global, which presents the conference.
The United States and allies have imposed heavy sanctions on Russia. While those efforts have specifically not targeted Russian oil and gas, Russian oil companies are having trouble selling barrels as buyers effectively “self-sanction” to avoid unwittingly falling foul of existing or future sanctions.
“The idea was not to sanction oil and gas because of their essential nature but oil is getting sanctioned by private actors not wanting to pick it up or ports not wanting to receive it and the longer this goes on the more supply chains are going to buckle,” said Yergin.
That has exacerbated already short supplies, adding pressure on oil producers to increase output as global demand surpasses pre-pandemic levels. After cutting spending and production during the depths of COVID outbreak, however, the industry has been in no shape to match the growth in consumption.
OPEC+ producers, meanwhile, are routinely falling short of their targeted supply increases, and the number of operating U.S. oil rigs, while rising, is still 24% below where it was prior to the pandemic. read more
Executives are weighing the need for more oil in the short term with the pressure they face to pump less in the long term as the economy transitions away from fossil fuels.
This year’s CERAWeek is expected to attract more than 4,500 attendees and features numerous presentations on the energy transition – including a Monday kickoff discussion with U.S. climate czar John Kerry.
CERAWeek was canceled in 2020 as the coronavirus pandemic exploded, and last year’s event was held virtually at a time when oil-and-gas demand was beginning to rebound in earnest from the lockdowns and travel bans that dominated 2020. Back then, top executives, including the CEOs of Shell and BP, suggested that the peak in oil demand could have been reached.
Instead, consumption has surged. Energy security will be back on the agenda at CERAWeek.
“The world will continue to demand more energy, not less. And the question is whether that energy comes from the United States or hostile regimes like Russia,” said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at industry group the American Petroleum Institute.
The United States and European partners are exploring banning Russian oil imports, U.S. Secretary of State Antony Blinken said on Sunday, but stressed the importance of maintaining steady oil supplies globally. read more
Advocates of greater use of renewables say that additional fossil-fuel investment now will only increase the world’s dependence on oil and gas at a time when the climate continues to warm – and Russia’s actions makes transitioning to cleaner fuels more desirable.
High oil and gas prices should encourage fuel demand destruction and make renewable energy and battery cars more competitive – although $100 oil is not necessarily good for the transition. read more
The average price of a gallon of gasoline in the United States hit $4.009 on Sunday, according to AAA, an automobile association, which is the highest since July 2008. Consumers are paying 40 cents more than a week ago, and 57 cents more than a month ago. read more
“These prices will affect how people operate,” said Yergin. “It may make people more interested in electric cars.”
OIL:
Buffett buys into oil giant as Icahn exits
Dan Primack, Axios, March 7, 2022
Warren Buffett moved big into one of the country’s largest oil companies, Occidental Petroleum, just as Carl Icahn hit the exits.
Why it matters: This comes as oil prices Monday hit a 14-year high, as both the U.S. and EU consider bans on Russian imports.
Buying in: Buffett’s Berkshire Hathaway on Friday disclosed that it bought 91.2 million Occidental shares, on top of existing warrants to buy another 83.9 million shares. If it were to exercise its warrants, Berkshire’s stake would climb to 17% from 9%.
- Berkshire’s warrants are exercisable at $59.62 a piece.
- Occidental shares opened last Monday at $38.53 and closed Friday at $56.15. They opened up higher this morning.
Selling out: Carl Icahn fully exited what once was a 10% stake in Occidental, which he began building in 2019 as opposition to the company’s highly-leveraged, $38 billion buyout of Anadarko Petroleum.
- His two board reps at Occidental also resigned.
- Icahn is estimated to have earned around $1 billion off his Occidental investment but may regret not holding on for a few more days.
- And, just to square the circle, Berkshire got its aforementioned warrants by helping to finance the Anadarko deal that Icahn despised.
Meanwhile, there are reports that Oasis Petroleum and Whiting Petroleum are nearing an all-stock merger that could value the combined North Dakota shale drillers at around $6 billion.
The bottom line: Oil price volatility isn’t tamping down on oil industry deal making.
GAS:
As Russian energy falls out of favor, a push for an Alaska gas pipeline
Amanda Bohman, Fairbanks Daily News Miner, March 6, 2022
At the “world’s premier energy event” CERAweek, starting Monday in Houston, Texas, Gov. Mike Dunleavy will be promoting the Alaska natural gas pipeline project with new hope.
World leaders are talking about sanctioning energy exports from Russia, a major global liquified natural gas (LNG) provider that invaded a neighboring sovereign nation. Some Alaska leaders see an opening for a long-sought mega-project tapping massive gas reserves on the North Slope.
“Interest in Alaska LNG has significantly increased with recent global developments,” Dunleavy said in an email through his press office.
Members of the Fairbanks North Star Borough Assembly, Fairbanks City Council and North Pole City Council are coordinating on resolutions asking state and federal leaders to work together to bring Alaska natural gas to export and help reduce Europe’s reliance on Russian energy. In 2020, 38% of all-natural gas imported to the European Union came from Russia.
This comes a week after Russian President Vladimir Putin invaded Ukraine, drawing in nearby nations, shedding blood, stoking fears of nuclear annihilation, and sparking a refugee crisis.
Drilling Alaska gas to serve Asia would position Gulf of Mexico energy providers to meet increased demand in Europe, according to the governor’s office.
“Even though the U.S. is the world’s leading LNG exporter, U.S. LNG producers are currently unable to meet demand from both European and Asian allies,” read the email sent by Patty Sullivan, deputy press secretary for the governor. “Adding Alaska LNG to U.S. export capacity will free up Gulf Coast LNG producers to focus on serving U.S. allies in Europe.”
Next week, Dunleavy will join a team from the Alaska Gasline Development Corp. who will meet with “potential partners” at CERAweek, which bills itself as “an integrated framework for understanding what’s ahead for global energy markets, geopolitics and technology.”
The conference is attended by “senior executives, government officials, thought leaders, academics, technology innovators and financial leaders,” according to the CERAweek website. U.S. Sen.s Lisa Murkowski and Daniel Sullivan, both R-Alaska, are billed as speakers. Other speakers include Jennifer Granholm, secretary of the U.S. Department of Energy; John Kerry, special presidential envoy for climate; and the CEOs of BP, Royal Dutch Shell, ConocoPhillips and more.
Dunleavy and Alaska gas line officials will present findings from a competitiveness analysis by the global energy industry consulting firm Wood Mackenzie showing that “strong LNG demand is expected to create a gap in supply starting in 2028 which new projects are required to fill.”
Executives with the gas corporation have maintained “solid relationships with oil and gas producers, pipeline and LNG developers, and LNG buyers around the world,” according to the governor’s email. The corporation is “leveraging these relationships now that global interest in LNG is skyrocketing.”
Building the future
Building the pipeline will cost billions.
“It is a complex and expensive project requiring global LNG expertise,” according to the governor’s office. “However, the recent Wood Mackenzie competitiveness analysis demonstrates that Alaska LNG is able to deliver a competitive return on investment, plus the favorable climate study, have added new momentum to our talks with potential partners.”
There was momentum a year ago when the state announced an unnamed “strategic party” was negotiating to develop, finance and construct all or part of a pipeline to bring natural gas north of Fairbanks to Chatanika as soon as 2025. A smaller pipe would need to be constructed to bring gas to Fairbanks.
From Chatanika, the LNG pipeline would eventually be routed to Nikiski where gas would be liquified, loaded onto tankers and shipped overseas, according to details released last year.
As of February 2021, the AGDC had 35 major permits and approvals for the project to include a final Environmental Impact Statement, a Federal Energy Regulatory Commission order authorizing pipeline construction, a clean water permit from the U.S. Army Corps of Engineers and federal rights of way.
The email from Dunleavy’s press office said there are opportunities beyond gas.
“The world is looking to hydrogen as a new zero carbon energy source. Producing hydrogen requires methane, ample carbon sequestration and storage, and reliable energy production infrastructure. Alaska has all of these, and with Alaska LNG, should be well positioned to become a leading global supplier of clean hydrogen.”
On Thursday, the Borough Assembly will take up a resolution asking President Joe Biden to enact policy to help bring Alaska LNG to market, for Congress to pass a new Trans-Alaska Natural Gas Pipeline Authorization Act and for Dunleavy to reach out to European stakeholders.
Assemblyman Aaron Lojewski, the sponsor, said he’s fine with the focus on the Asian market, not the European market, so long as the goal is met to reduce Europe’s dependence on Russian gas.
Fairbanks City Councilman Aaron Gibson is sponsoring a similar resolution as is North Pole Councilwoman Aino Welch.
MINING:
America’s largest critical minerals mine
Shane Lasley, North of 60 Mining News, March 3, 202
With zinc added to the list of minerals and metals critical to the U.S., world-class mine in Northwest Alaska is now top dog!
On Feb. 22, 2022, Teck Resources Ltd.’s Red Dog Mine in Northwest Alaska became the largest critical minerals operation in the United States, both in terms of quantity and value of the materials produced at this world-class base, precious, and critical minerals operation.
Being catapulted to America’s top dog when it comes to critical minerals production is not due to the germanium produced, though this semiconductor metal vital to ultrafast computing and communications is produced as a byproduct at Red Dog. Instead, the Northwest Alaska operation’s seat at the top of the U.S. critical minerals realm is for being the world’s second-largest producer of a metal traditionally considered much more basic – zinc.
After analyzing the data, conferring with other federal agencies, and considering input from the public, the U.S. Geological Survey included zinc among the 50 mined materials on its new list of minerals and metals deemed critical to America’s economic wellbeing and national security.
This move elevates Red Dog from an important base metal mine that produces 4% of the world’s zinc – along with lead, silver, and germanium byproducts – to a globally significant critical minerals operation that outproduces mines that supply the rare technology metals that typically come to mind when one thinks about critical minerals.
During 2021, Red Dog produced 1.1 billion tons of now critical zinc worth around US$1.5 billion at the roughly US$1.40 average price of the galvanizing metal during 2021.
By way of comparison, MP Materials Corp. generated US$332 million in revenue from the sale of 92.9 million lb of rare earth oxides from Mountain Pass, the only mine currently producing these critical elements in the U.S.
With Red Dog’s annual zinc output expected to remain above 1 billion lb, other U.S. critical mineral mines being developed to fill the massive new demand for rare earths and battery metals that will be required for the rapid transition to electric vehicles and renewable energy will have some work to do to outperform the Alaskan stalwart.
Why is zinc critical?
Critical minerals are typically thought of as obscure elements cloaked in geopolitical intrigue, such as rare earths and China’s global dominance of their production, or exciting metals that have risen to stardom due to their uses in new technologies such as quantum computing, smartphones, renewable energy, and electric vehicles.
Zinc – a metal better known for galvanizing guardrails, light poles, and buckets – doesn’t seem to fit this mold.
While not as glamorous as making smartphones smarter or allowing EVs to go further and charge faster, zinc’s corrosion proofing abilities are going to be highly demanded as the Biden administration invests well over $1 trillion into upgrading and revamping America’s infrastructure for the transition to EVs charged with low-carbon energy.
While zinc has not gained the notoriety of lithium, nickel, or even copper, this newest addition to the U.S. critical minerals list plays a vital role in the traditional highway and power infrastructure – think culverts, guardrails, and power poles – and is filling a similar role in providing a weatherproofing layer to wind turbines, solar farms, and the massive new electrical transmission infrastructure needed to deliver the extra power being drawn by millions of EVs plugged into the grid.
Zinc is demanded by wind power generation, which needs about 11,020 lb of the galvanizing metal for every megawatt of power-generating capacity, according to the International Energy Agency.
In addition to corrosion proofing the growing renewable energy infrastructure, zinc is also finding its way into batteries that store the intermittent electricity produced by wind and solar.
Zinc-batteries are one particularly exciting technology that leverages an underutilized property of zinc.
Electricity flowing into a zinc-air battery splits the oxygen off zinc oxide and is stored in the resultant charged zinc particles. This stored electricity is released back to the grid by reuniting the charged zinc particles with oxygen, regenerating the zinc oxide for reuse.
These batteries can hold a charge much longer than their lithium-ion counterparts and do not catch fire.
Zinc-air batteries are also up to five times less expensive to operate than their lithium-ion counterparts with the same capacity.
Vancouver, BC-based Zinc8 Energy Solutions is advancing industrial-scale installations of this burgeoning battery technology in the U.S., Australia, and Canada – adding a new source of demand for the zinc produced at Red Dog.
The massive new supplies of zinc needed for the American infrastructure and renewable energy buildout, coupled with the fact that current global zinc mining operations already having a hard time keeping up with baseload demand, weighed on the USGS decision to elevate this galvanizing metal to critical status.
Galvanizing U.S. infrastructure
Even before the $1 trillion Infrastructure Investment and Jobs Act was passed by Congress and signed into law by President Biden, global demand for zinc was heating up.
Galvanized steel production in North America for 2021 increased by an estimated 19.6% over 2020, and European production was up over 15.5%. While much of this was the result of recovery from the COVID-19 pandemic, it speaks to the sharp rebound in demand for zinc.
In fact, 2021 galvanized steel production in the U.S. is estimated to have hit its highest level since 2012.
Zinc metal markets in Europe and North America remained tight, pushing zinc prices higher. The average price for the galvanizing metal was around $1.40/lb last year, up roughly 30% from 2020, and moving higher as the year wore on.
The price for a pound of zinc averaged $1.53 during the fourth quarter and has risen steadily to the current price of around $1.67/lb, the highest price in nearly 15 years.
The coming infrastructure and COVID-relief spending in the U.S. and around the globe, coupled with pent-up demand for consumer goods, automobiles, and housing is forecast to keep zinc demand and prices strong for the rest of the year.
Some analysts expect zinc prices to reach as high as $1.80/lb this year before retracting as global mines ramp up production as zinc nears the record of $2.00/lb set in 2006.
With zinc prices moving into near-record territory and Red Dog expected to produce more than 1.2 billion lb of the galvanizing metal this year, 2022 should be a banner year for the critical, base, and precious metal mine in Northwest Alaska.
“In 2022, we expect a significant increase in zinc production at Red Dog and a decline in total cash unit cost before byproduct credits despite ongoing cost inflation pressures,” Teck Resources CEO Don Lindsay informed investors and analysts on Feb. 24.
A more germane critical mineral
While the zinc produced at Teck’s Red Dog Mine is new to America’s critical minerals list, the germanium that is also recovered as a byproduct has long been considered critical to high-tech and renewable energy applications.
“The extensive use of germanium for military and commercial applications has made it a critical material in the United States and the rest of the world,” USGS penned in a special report on this technology metalloid.
Germanium traces its technological roots back to the 1950s, when scientists developed the transistor to replace vacuum tubes in the enormous computing mainframes of the day – a discovery that ushered in the era of personal computers.
Despite being a more powerful semiconductor, germanium was replaced by silicon, a more abundant and less expensive material.
Germanium’s intrinsic semiconducting superiority, however, is now being used in the transistors of quantum computers that are millions of times faster than their classical counterparts.
As an intrinsic semiconductor, germanium is also a powerful ingredient in highly efficient but expensive solar panels.
“Germanium substrates are used to form the base layer in multijunction solar cells, which are the highest efficiency solar cells currently available,” according to the USGS.
These solar arrays, which have three layers of cells that use germanium and other critical metals, are much more expensive to build than the typical photovoltaic cell that primarily uses silicon to convert light into electricity.
The high efficiency of the germanium-infused solar cells, however, make them preferred for space applications such as the Mars rovers and space stations.
“The solar cells are stacked in three layers on the rover’s solar arrays and, because they absorb more sunlight, can supply more power to the rover’s re-chargeable lithium batteries,” NASA Jet Propulsion Laboratory explains on technologies to power space missions.
In its 2022 Mineral Commodities Summaries, the USGS said an advanced materials producer with a germanium facility in Oklahoma announced that a new generation of solar arrays using germanium substrates were produced for the International Space Station to replace the existing silicon-based arrays. Similar germanium solar cell technology is also slated to power NASA’s Gateway space station currently under development.
Germanium also boasts superior optical properties that are widely used in fiber optic cables and night vision goggles, applications that have traditionally been the primary driver of demand for this zinc byproduct.
An extraordinarily high refractive index – the ability to bend light – is an important characteristic germanium lends to fiber-optic cables.
“Germanium is added to the pure silica glass core of the fiber optic cable to increase its refractive index and minimize signal loss over long distances,” the USGS explains.
This property is strengthened by germanium’s low chromatic dispersion – the scattering of light passing through a medium – which ensures that the digital data sent through fiber optic cables does not degrade by the time it reaches its destination that can be thousands of miles away.
The growing need to send and receive quality data continues to drive the demand for more fiber optic cable and the germanium that goes in it.
According to the USGS, roughly 140,000 kilograms (308,650 lb) of germanium was produced worldwide last year. Germanium currently sells for about US$2,185/kg (US$4,807/lb)
Tracing Red Dog germanium
Because the germanium at Red Dog is produced as a byproduct when zinc concentrates are processed at Teck’s Trail Operations in British Columbia, which also refines concentrates from other mines, there is not a lot of publicly available data on exactly how much of this critical metalloid is recovered from the Northwest Alaska mine.
This situation has created a conundrum for agencies tracking critical minerals.
“Because zinc concentrates are shipped globally and blended at smelters … the recoverable germanium in zinc reserves cannot be determined,” USGS penned in its 2022 mineral commodities report.
This opacity, however, could change with a pilot project Teck recently launched that will utilize the power of blockchain technology to trace Red Dog germanium.
Over the past decade, businesses have identified many uses for blockchain technology, from the settlement of financial records to the reliable and transparent traceability of supply chains.
Teck believes that materials traceability and assurance of both origin and handling of materials along supply chains can play a role in supporting responsible production of essential minerals and metals.
Working with DLT Labs, a leading provider of blockchain-enabled technology and enterprise solutions for supply chain management and financing, Teck’s pilot project will track germanium from Red Dog through the Trail refinery and to a manufacturer of fiber optic cables.
“Teck is proud to be advancing the first use of blockchain technology to trace the critical mineral germanium from the mine all the way to the customer,” said Teck Resources Senior Vice President of Sustainability and External Affairs Marcia Smith. “Ensuring the environmental and social responsibility throughout the metals production chain provides our customers and downstream consumers with the confidence that their products are sourced responsibly.”
DLT Lab’s DL Asset Track platform will be used to embed data, including information on responsible environmental, social and governance (ESG) practices along the supply chain, such as greenhouse gas emissions, product certifications and responsible production assessments.
“DLT is proud that its DL Asset Track product is being adopted by Teck in setting the standard for an innovative product passport,” said DLT Labs CEO Loudon Owen. “This product passport collects, stores, and provides reliable, tamper-proof, and real-time data at every stage in the resource supply chain from end-to-end, including comprehensive information about the provenance of the resources. Certainty of mine of origin, provenance and single source of truth are essential building blocks for an effective ESG program.”
This ability to track not only the source of minerals and metals but also the environmental footprint from mine to customer is expected to be increasingly important to manufacturers seeking to tout the global ESG credentials of the products they produce.
If the germanium pilot proves to be a success, the blockchain technology may be useful in tracking the basic lead, precious silver, and critical zinc also produced at the largest critical metals mine in America.
POLITICS:
Edie Grunwald Chosen As Charlie Pierce’s Lt. Governor Running Mate
Anthony Moore, KSRM, March 5, 2022
Alaska gubernatorial candidate Charlie Pierce has announced on Saturday that Edie Grunwald of Palmer has been chosen as candidate for Lt. Governor, according to a recent press release.
Most recently, Grunwald served as Chair of the State of Alaska Board of Parole. In addition, she spent 31 years in the military, starting out as an Air Force aircraft mechanic, and returning with the rank of Colonel. She also was a candidate for Lt. Governor in 2018.
In a statement, Grunwald said:
“It is a pleasure and an honor to join Team Pierce as Charlie’s running mate. This affords me the opportunity to join future Governor Pierce and fulfill his promise to put ‘Alaskans First’.”
Pierce said:
“I am thrilled to have Edie as my running mate in this election. In addition to the oversight of the Division of Elections, she will be assuming other elective duties and be an integral part of our promise to put ‘Alaskans First’.”
Grunwald earned master’s degrees in Business Organizational Management, and Strategy, National Security and Military. She also earned a Senior Human Resources certification and is a USCCA Firearms Instructor.
