Today’s Key Takeaways: Inflation Reduction Act impact is “statistically indistinguishable from zero.” $25 billion in new oil industry taxes in Manchin spending deal. Is now the time for AKLNG? $60M shot in the arm for Pebble Project from unnamed investor. Emissions from oil leasing mandates in Manchin bill tiny compared to carbon cuts.
NEWS OF THE DAY:
INFLATION REDUCTION ACT: PRELIMINARY ESTIMATES OF BUDGETARY AND MACROECONOMIC EFFECTS
Penn Wharton, July 29, 2022
Summary: PWBM estimates that the Inflation Reduction Act would reduce non-interest cumulative deficits by $248 billion over the budget window with no impact on GDP in 2031. The impact on inflation is statistically indistinguishable from zero. An illustrative scenario is also presented where Affordable Care Act subsidies are made permanent. Under this illustrative alternative, the 10-year deficit reduction estimate falls to $89 billion.
Key Points
- PWBM estimates that the Inflation Reduction Act, as written, would reduce cumulative deficits by $248 billion over the budget window.
- The Act would very slightly increase inflation until 2024 and decrease inflation thereafter. These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.
- We project no impact on GDP by 2031 and an increase in GDP of 0.2 percent by 2050. These estimates include the impact of debt and carbon reduction as well as capital and labor supply distortions from rising tax rates.
- As written, the Inflation Reduction Act contains a sunset for the Affordable Care Act (ACA) subsidies provision at the end of 2025. Under an illustrative scenario where that provision was extended indefinitely, the 10-year deficit reduction estimate falls to $89 billion. The impact on GDP remains zero through 2040.
OIL:
Manchin Spending Deal Includes Billions in Tax on Oil
Ari Natter, Bloomberg, August 1, 2022
The climate and tax spending deal announced last week by Senate Majority Leader Chuck Schumer and Senator Joe Manchin could cost the oil industry $25 billion in new taxes.
The legislation, which may get a Senate vote as soon as next week, would reinstate and increase a long-lapsed tax on crude and imported petroleum products to 16.4 cents per barrel, according to a summary of the plan released Sunday by the Senate’s tax-writing committee.
A similar proposal, included in the House-passed Build Back Better Act, would have raised nearly $25 billion over a 10-year period, according to a congressional estimate.
The Superfund tax, which previously stood at 9.7 cents per barrel until it lapsed at the end of 1995, is paid by refiners and other importers to help fund the clean-up of hazardous waste sites. In addition to increasing the tax, the Senate proposal would index the fee to inflation.
The 725-page bill released last week would also impose other costs for the oil and gas industry. It places a new first-time fee on methane emissions rising to as much as $1,500 a ton and increases the royalty rate companies pay to the government for oil and gas produced on federal land.
The legislation, which includes some $370 billion in spending to help fight climate change, also has benefits for the oil and gas sector such as requiring more lease sales on federal land.
It remains to be seen whether the legislation will be backed by the full Democratic caucus in the 50-50 Senate. It would also have to pass the House, where progressives sought a much more expansive plan.
GAS:
Is now the time for Alaska’s massive liquified natural gas line project?
Sabine Poux, Alaska Public Media, July 31, 2022
For decades, Alaska was Japan’s sole supplier of liquefied natural gas, or LNG — a version of the substance used to heat homes and electrify power plants. Those exports stopped when competition from other producers edged Alaska out of the picture.
But this month, Brad Chastain told an audience in Kenai that Japan is once again interested in importing natural gas from Alaska — and that his project is the best way to get it there.
“The best way I can describe it is: Every planet possible that we can think of is aligned right now,” he said.
Chastain manages the $39-billion Alaska Liquefied Natural Gas project, which would construct an 800-mile pipeline to send North Slope natural gas to Nikiski, where it would be liquified, shipped out and sold.
It’s been on the table for as long as Alaska has been an energy state, though the steep costs of constructing the pipeline have long been too prohibitive to make it a reality.
That was before global demand for LNG shot up. Today, overseas buyers are desperate for gas, as they look to move away from their dependence on Russia — which has historically supplied some European countries with as much as half of their supply. Russia, in turn, is responding to the opposition by cutting off its natural gas flow to Europe.
“And so, what’s happening is Europe is sucking up all available LNG, and everyone is paying the price,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington, D.C.
He said natural gas prices in Europe rose last summer, even before Russia invaded Ukraine. But the war has supercharged that crisis.
Cahill said LNG project developers are noticing — and, like Alaska LNG, trying to push their projects to the finish line while the timing is right.
“There are a lot of proposed LNG projects,” Cahill said. “And there’s no way they can all move forward.”
He said to get projects financed, producers first have to convince buyers they have long-term supply and that their project rises above the others, which he said mostly comes down to cost.
That high project cost has stymied the Alaska plan in the past. And Cahill said he still sees that as a big hurdle.
Larry Persily said that hurdle is simply too large to overlook. Persily was previously tasked with getting an Alaska gas line built, under former President Barack Obama.
Persily said with all the competition, there’s no way Alaska LNG will come out on top, due to “the cost and the risk, and the fact that there are a lot more projects out there that are less risky and a lot cheaper than ours.”
Many of the new proposed gas projects are on the country’s Gulf Coast, which is the top exporter of LNG worldwide. Gas, and the costs of shipping it out, are generally cheaper there.
Plus, Persily said, he’s skeptical that buyers overseas will want to sign long-term contracts with gas companies as renewable energy picks up steam.
“And that move has been accelerated by the high cost of oil and gas,” Persily said.
Industry analyst Jason Feer from intelligence firm Poten & Partners said it’s true that the Gulf Coast is better positioned to deliver gas to Europe.
But he said Alaska has at least one potential advantage over its competitors: its proximity to Asia.
“I think that sort of dynamic, where you might see Gulf Coast LNG being pulled to Europe, may create opportunities for projects on the west coast,” Feer said. “So, I think that’s a very interesting dynamic.”
He said demand in Asia is high, too — and he doesn’t see it dropping any time soon.
This spring, Gov. Mike Dunleavy visited Japan to talk up the plan. Feer said Japan has for years been the world’s biggest importer of LNG.
“So those are hugely significant markets that are accounting for the bulk, or very significant shares, of global LNG,” Feer said.
That demand, in Asia and elsewhere, is already driving a slate of natural gas projects toward development. Cahill said there has been an uptick in signed contracts in recent months, as buyers look to secure their energy futures.
But even if the planets are aligning, like Chastain said, analysts say there’s still just no guarantee one of those contracts will be inked in Alaska
MINING:
Surprise $60 million investment for Pebble
A.J. Roan, North of 60 Mining News, July 29, 2022
Funding could spell the eventuality of vital copper project
In a move that could help it push the Pebble project across the permitting finish line, Northern Dynasty Minerals Ltd. has entered into an agreement with an unnamed investor for US$60 million over the next two years in exchange for royalties from the gold and silver that would be recovered as a byproduct of the copper produced if a mine is developed at the world-class deposit in Southwest Alaska.
With an initial $12 million in good faith, this substantial investment could potentially be the starting shot for Pebble.
“It has become clear to us that to develop a world-class mineral deposit like Pebble requires time, patience and sufficient liquidity to successfully navigate the established legal process and continue ongoing efforts to work with the people in the region,” said Ron Thiessen, Northern Dynasty president and CEO.
Per the terms of the agreement, the initial US$12 million payment provides the royalty holder the right to receive 2% of the payable gold production and 6% of the payable silver production from Pebble, in each case after accounting for a notional payment from the investor of $1,500 per ounce of gold and $10 per ounce of silver, respectively, for the life of the mine.
The Pebble Mine project advanced to the final step of the permitting process would produce 320 million pounds of copper; 363,000 oz of gold; 15 million lb of molybdenum; 1.8 million oz of silver; and 12,000 kilograms rhenium annually over the first 20 years of mining.
Considering that a recent PEA shows that the Pebble deposit is large enough to support a mine of this size for roughly a century, royalties could be sizeable indeed.
You can read the forecasted economic benefits of Pebble at PEA reveals Pebble economics, benefits in the September 10, 2021, edition of North of 60 Mining News.
“This financing, when completed, also gives us the financial wherewithal to keep fighting against what we consider to be unfounded interference by U.S. Federal Government agencies in an otherwise well-established, legal permitting process, as well as to deal with challenges from well-funded parties from outside the area that lack scientific or other factual studies to support their opposition,” added Thiessen.
These biting words come from the last few years of uncertainty the project has faced due to opposition from the Environmental Protection Agency. Most recently, with the federal agency pursuing a decision that could set a precedent for mining in America for all time.
EPA Pebble predetermination raises concerns
In a May announcement, the EPA released a revised proposed determination under the Clean Water Act Section 404(c) to prohibit and restrict the use of certain waters in the Bristol Bay watershed.
If finalized, the decision would lock out any future for a Pebble mine and the enormous quantities of copper and other resources it could provide for the global transition to renewable energy.
“This is clearly a giant step backwards for the Biden Administration’s climate change goals,” Pebble Limited Partnership CEO John Shively told North of 60 Mining News at the time of the announcement. “I find it ironic that the President is using the Defense Production Act to get more renewable energy minerals such as copper into production while others in the Administration seek political ways to stop domestic mining projects such as ours. As we are still actively working through the established permitting process via our appeal of the Army Corps of Engineers permit denial, we oppose any action that is outside of that process.”
You can read about the initial Army Corps denial at Army Corps denies permit for Pebble Mine in the November 25, 2020, edition of North of 60 Mining News.
“This preemptive effort is clearly a political maneuver to attempt to block our ability to work through that established process,” continued Shively. “Further, the Army Corps of Engineers published an Environmental Impact Statement for Pebble in 2020 with input from many agencies including the EPA that states that the project can be done without harm to the region’s fisheries.”
You can read about the release of the FEIS at Major milestone on long path for Pebble in the July 31, 2020, edition of North of 60 Mining News as well as the full impact statement at https://www.arlis.org/docs/vol1/Pebble/Final-EIS/Pebble-FEIS-ch1.pdf.
After careful consideration of the environmental concerns, the Army Corps of Engineers approved the FEIS for developing a mine at Pebble, only to deny federal permits when it came time to issue a record of decision shortly after the 2020 U.S. presidential election.
You can read about the contradiction by USACE at Pebble assails Corps economic findings in the March 19, 2021, edition of North of 60 Mining News.
Regardless if one is for or against Pebble, lawmakers are concerned with EPA’s intention to implement a predetermined Section 404(c) of the Clean Water Act decision. By law, the 404 section of the Clean Water Act is under the jurisdiction of the Army Corps of Engineers, with the EPA given the option to veto after a determination has been given by USACE.
Concerns arise from EPAs encroachment and overreach into Pebble due to the possible precedent it would set by advancing final section 404 determination. Such a move to make a project off limits for development after more than US$1 billion has been invested could deter other companies from investing in U.S. projects for fear that EPA could subjectively issue a veto without a full evaluation of the proposal – a predetermination before all the information has been accumulated.
Nonetheless, a final environmental impact statement was issued showing that negligible harm would befall the Bristol Bay fisheries, and Northern Dynasty Minerals Ltd. – the company heading the advancement of the Pebble mine – stands firmly behind the data.
“The Pebble project remains an important domestic source for minerals necessary for the Biden Administration to reach its green energy goals and if it blocks Pebble it will have to seek minerals to meet its goals from foreign sources which simply do not have the same environmental standards as we do,” finished Shively.
Economic necessity
The vital importance of copper to the clean energy future was recently detailed in an independent report from world-renowned industry intelligence experts, S&P Global, entitled “The Future of Copper: Will the looming supply gap short-circuit the energy transition?” The paper was authored in response to the growing concern expressed by global authorities and governments that there are insufficient resources of copper – the “metal of electrification” – to support the global goal of net-zero emissions by 2050.
In the report, S&P concluded, “unless massive new supply [of copper] comes online in a timely way, the goal of Net-Zero Emissions by 2050 will be short-circuited and remain out of reach.”
A view industry leaders share with S&P.
The analyst goes on to state that the demand for copper is forecast to double from 25 million metric tons per year today, to nearly 50 million metric tons by 2035 and higher still by 2050.
“It is clear to us that the U.S., and frankly the world, are not adequately planning to deliver the raw materials that are necessary to fuel policy initiatives,” said the Northern Dynasty CEO. “This is supported by the S&P conclusions that expected copper supply cannot meet copper demand, even if permitting and construction could be accelerated.”
The report further warned that “[i]n the 21st century, copper scarcity may emerge as a key destabilizing threat to international security. Projected annual shortfalls will place unprecedented strain on supply chains. The challenges this poses are reminiscent of the 20th-century scramble for oil but may be accentuated by an even higher geographic concentration for copper resources and the downstream industry to refine it into products.”
Similar to other recent prognostications, S&P made the argument that the world will need to develop many large new copper mines, about three “tier one” mines per year for the next 29 years, in order to have enough new copper to achieve the lofty goals of net-zero carbon emissions.
“Pebble is the largest undeveloped copper deposit in the world and the proposed Pebble Mine needs to be part of this solution, instead of being portrayed as part of the problem by misguided environmental activists who do not have a credible plan for reaching net-zero,” added Thiessen.
With regards to the importance Pebble presents toward this looming scarcity, the pivotal investment by the unnamed royalty holder is perhaps the lynchpin move needed to jumpstart this project that could be a source of copper critical to the transition to low-carbon energy and transportation.
“As I have said many times before, a large amount of copper is critical for the generation and transmission of electricity, and we believe the world needs to develop the few world-class copper assets that have been discovered in order to have any chance of meeting its green energy goals,” said Thiessen. “We are also convinced that the Pebble Project has been designed – and can be built and operated – safely, without harming the environment or the fishery, as clearly outlined in the Final Environmental Impact Statement of July 2020. The Pebble Project represents an enormous amount of value, both to Alaskans and to the rest of the U.S., and we believe that value should increase significantly as the expected supply/demand imbalance leads to future copper price increases.”
POLITICS:
Climate deal’s CO2 cuts swamp fossil fuel emissions: analysis
Ben Geman, Axios, August 1, 2022
Emissions from oilleasing mandates in the revived Democratic energy bill would be tiny compared to carbon cuts expected from the legislation, a new analysis finds.
Why it matters: Pro-drilling provisions in the delicate deal have caused some grumbling among activists, even as huge swaths of the climate movement back the overall bill.
What they found: “For every ton of emissions increases generated by [the bill’s] oil and gas provisions, at least 24 tons of emissions are avoided by the other provisions,” concludes Energy Innovation, a firm that produces research in support of stronger climate policies.
- The Democratic deal includes the Gulf of Mexico and offshore Alaskan leasing, and over the long-term ties renewables lease sales to continued oil-and-gas auctions.
- Energy Innovation cites prior studies showing higher oil production on federal lands is largely offset by lower output on non-federal tracts and OPEC.
The big picture: Energy Innovation finds the bill would shove U.S. greenhouse gas emissions down to 37%-41% below 2005 levels by 2030, compared to 24% without the measure.
That’s largely consistent with separate Rhodium Group estimates Axios Generate covered Friday, though the Rhodium lower range shows shallower cuts.