Today’s Key Takeaways: COP27 draft agreement doesn’t call for phasing down all fossil fuels. Biden asks for $500 to modernize the SPR. 63 billion cubic foot rise in natural gas inventories. AK Senators call out DOI for failure to produce required mining permitting report. Will industry give up on EV tax credits?
NEWS OF THE DAY:
At COP27, oil and gas stay out of crosshairs — for now
Ben Geman, Axios, November 17, 2022
The initial draft for a COP27 agreement out this morning omits calls for phasing down all fossil fuels, which means the fraught meeting may not move beyond coal-focused goals from last year’s summit.
Why it matters: The20 pages of preliminary text released by the Egyptian COP president in Sharm el-Sheikh are a blank slate on how to compensate vulnerable nations for climate damages.
- Wording on fossil fuels and specifics on payments for “loss and damage” are two of the most contentious and still-unresolved topics.
The big picture: The lack of a consensus agreement on fossil fuels is a blow to India, the U.S., the EU, small islands, and others that pushed to expand last year’s call to phase down “unabated” coal use.
- However, it could still reappear in subsequent drafts.
- What the Egyptians put forward is a bulleted list of possible decision language, known as cover text. But instead of advancing the talks, it could actually complicate the task at hand.
- Typically, as talks go down to the wire at such meetings, the decision texts get shorter, but this one grew compared to the first draft.
Zoom in: The document is notable for what is missing.
- On climate damages, which concern the significant toll global warming is already taking in the countries that did the least to cause the problem, the document does note “deep concern towards the significant financial costs associated with loss and damage.”
- However, talks between industrialized countries and developing nations over establishing a fund to pay for climate damages are bogged down, which led to placeholder language about a possible fund for compensating countries for climate damages.
- As an example of such climate damages, a study released on Wednesday evening found that human-caused global warming made heavy rain that killed more than 800 in Nigeria and other countries this year about 80 times more likely and nearly 20% more intense.
- UN Secretary-General António Guterres addressed negotiators in Egypt after flying from the G20 summit in Bali. “The world is watching and there’s a simple message to all of us: stand and deliver,” he said.
- “The time for talking on loss and damage finance is over. We need action.”
Yes, but: The COP27 document reaffirms central elements of the Glasgow Climate Pact, including the importance of sticking with its 1.5°C temperature limit, doubling climate adaptation funding, and urging countries to make far more ambitious commitments to cutting emissions.
What they’re saying: Nongovernmental organizations involved in the talks were quick to criticize the Egyptian COP leadership for the new text.
- “This was intended to be a COP for implementation, where governments could showcase their progress and commit to significant new climate finance, action and targets, but that is not what we have seen,” saidManuel Pulgar-Vidal, WWF global climate and energy lead, in a statement.
What’s next: Expect new versions to drop, possibly as early as today, as countries offer their feedback.
OIL:
Biden Asks Congress For $500 Million To Modernize The SPR
Charles Kennedy, OilPrice.Com, November 17, 2022
The Biden administration has asked Congress to approve $500 million in funds for the modernization of the four sites of the country’s Strategic Petroleum Reserve, suggesting in its request that the SPR is at risk of shortfalls.
In a request to Speaker Nancy Pelosi, the White House’s Office of Management and Budget said that “The proposal would allow the SPR to both maintain operational readiness levels and also alleviate anticipated shortfalls due to supply chain issues, the COVID-19 pandemic, and related schedule delays.”
The U.S. strategic petroleum reserve came under the spotlight this year when President Biden announced his administration will use 180 million barrels of the oil stored in it to release into the market and reduce retail fuel prices.
This was the largest-ever release of oil from the SPR and sparked worry among observers that it could leave the U.S. vulnerable to oil supply shocks. The administration said it would refill the SPR in the fullness of time, more specifically when oil price fell to $72 per barrel or less.
Meanwhile, President Biden said he was ready to release more oil from the SPR even after the 180-million-barrel program ended if need be. The news caused a stir in oil market circles and many saw it as a last-ditch effort by the administration to prop up the Democrat party ahead of the midterms.
The biggest problem with using the SPR as a way of regulating oil prices is that, as a reserve, it would be dangerous to draw too much from it. Last month, Goldman Sachs predicted that the White House could sell another 16 million barrels on top of the 180 million approved for release this year.
This should not make a major difference in inventory levels, but observers are already getting nervous about those levels. At a little over 400 million barrels, the current amount of oil in the SPR is not enough for a month of consumption in case of emergency.
GAS:
Analysts Expect 63 Billion-Cubic-Foot Rise in U.S. Natural-Gas Inventories
Dan Molinski, Wall Street Journal, November 16, 2022
U.S. government natural-gas data due Thursday are expected to show inventories registered a counter-seasonal increase last week as an important LNG-export facility in Texas that was shut in June remained offline.
The Energy Information Administration is expected to report that gas-in-storage levels increased by 63 billion cubic feet during the week ended Nov. 11, according to the average forecast of 12 analysts, brokers and traders surveyed by The Wall Street Journal.
The EIA is scheduled to release its natural-gas storage data for the week at 10:30 a.m. ET Thursday.
Estimates ranged from increases of 50 bcf to 72 bcf. The average forecast compares with a 23-bcf increase in storage last year and a 5-bcf five-year-average decline.
A 63-bcf increase last week would mean gas stockpiles totaled 3.643 trillion cubic feet, 0.1% above last year’s total at this time, and just 0.2% below the five-year average for this time of year.
The market maintained a bullish inventory deficit compared with averages throughout nearly all of 2022 as a cold winter and then a hot June and July offset a reduction in feedgas demand due to the June 8 shutdown of the Freeport LNG plant in Texas.
Late summer and fall, however, have seen bearish increases in domestic production along with more seasonal, mild weather patterns. What’s more, the Freeport plant has remained offline longer than expected, and that’s causing inventories to rise sharply by reducing liquefied natural gas exports.
A storage deficit nearly 20% below the five-year average in the months prior to the Freeport shutdown is now almost completely erased, a factor that could help prevent shortages in the Northeastern U.S. this winter.
MINING:
Senators Call Out DOI, USDA Failure to Produce Permitting Report Required by Infrastructure Law
U.S. Senator Lisa Murkowski (R-AK) this week led a letter to the Departments of the Interior (DOI) and Agriculture (USDA), questioning whether they would produce a report outlining options to improve the federal mineral permitting process on the timeframe required by federal law. Under Section 40206 of the Infrastructure Investment and Jobs Act, the Departments were required to complete the report within one year of enactment—which is today—but have failed to adhere to that statutory deadline.
U.S. Senators Dan Sullivan (R-AK), James Risch (R-ID), Mike Crapo (R-ID), and Kevin Cramer (R-ND) also signed the letter.
The Senators wrote, in part:
“As you may know, Section 40206 requires the Departments of the Interior and Agriculture, acting through the Bureau of Land Management and the U.S. Forest Service, to improve the quality and timeliness of the federal permitting and review process for critical mineral production on certain federal lands.
“The section lays out nine ways to improve permitting [and] establishes a deadline of one year from enactment for your Departments to issue a new report that identifies additional regulatory and legislative measures that would increase the timeliness of permitting, ensure adequate staffing for the timely consideration of authorizations on federal land, and quantify the period of time required to complete each step of the permitting process.
“The nine improvement priorities and the report are the basis of a new performance metric required under Section 40206 to meet the permitting and review process improvements it requires and will serve as the basis of new annual reporting to Congress to accompany the President’s budget.
“These are serious and substantial requirements that represent a first step to address serious deficiencies in the federal permitting process. Yet DOI and USDA have outwardly paid little attention to them, and internally appear to have devoted critical resources to discretionary projects that trace back to Executive Orders, rather than legally binding federal statutes…
“As our mineral security and foreign mineral dependence become more important at a time of rising global demand, Congress remains focused on a variety of means to encourage new domestic production.”
To read the full letter, click here.
POLITICS:
INDUSTRY COULD GIVE UP ON EV TAX CREDITS: New conditions Congress put on the revised electric vehicle tax credit could overwhelm manufacturers and cause them to give up on the incentive, a key industry player warned yesterday.
Democrats revised the tax credit via the Inflation Reduction Act, creating progressively more strict content requirements for EV batteries. The intention was to cut into China’s dominance of the battery supply chain and incentivize more mining, recycling, and manufacturing of battery components in the U.S. and a handful of allied nations.
All automakers want to be eligible for the up to $7,500 credit, said Joe Britton, executive director of the Zero Emission Transportation Association. The group represents U.S. electric vehicle makers, including Tesla and Rivian, as well as utilities and others with a part in the EV world.
But, Britton said, the requirements for compliance may be out of reach for some, or simply not worth the cost or effort.
“People will give up,” Britton said yesterday during an event hosted by the National Mining Association. “If the cost is too much, if compliance exceeds the value of the credit, you’ll see companies say, ‘This is something I can’t do.’”
The credit’s domestic content and “entity of concern” conditions, the latter of which requires companies to cut China out of their battery supply chain if they want their products to be eligible, will be especially challenging to meet, he said.
Is there wiggle room? To be determined — but that’s what automakers and various governments in countries with affected manufacturers want.
Treasury is taking input as it prepares to draw up guidance on the EV and other credits, which have generated an uproar among the Europeans and Asian partners who say their industries will be disadvantaged from protectionist measures, especially the EV assembly and domestic content requirements.
Secretary Janet Yellen has downplayed expectations that the department can do a whole lot in the way of softening requirements.
Corporations and governments chiming in on Treasury’s impending guidance see some opportunities for flexibility, with some requesting waivers from certain requirements and suggesting carefully crafted definitions of relevant terms to make it as easy as possible to comply.
For example: The EV tax credit’s critical minerals requirement mandates that an eligible electric vehicle battery contain an increasing amount of critical minerals extracted or processed in the United States or a U.S. free-trade agreement partner or recycled in North America.
Mercedes-Benz North America recommends that because Congress has not codified a definition of “free trade agreement,” it should define the term for the purposes of tax credit implementation to include countries in the Minerals Security Partnership launched earlier this summer.
That would include European governments that aren’t on the official free trade agreement list.