Today’s Key Takeaways: Russia building a “scrappy fleet” to ship oil, defying EU sanctions.
Turkish authorities cause tanker traffic jam with their demand for proof of insurance. Can U.S. ramp up LNG production to meet demand? 13 states join Governor Dunleavy in challenging EPA preemptive veto efforts. Biden backs Manchin permitting reform in defense authorization bill.
NEWS OF THE DAY:
Russia is amassing a shadow fleet of tankers to avoid EU oil sanctions
Aurora Almendral, Quartz, December 6, 2022
A flurry of unnamed buyers bought aging oil tankers, with as many as 100 ships joining the ranks of a Russian shadow fleet
Russia has spent the last few months amassing a scrappy fleet of over 100 tankers to cart its oil to willing buyers, hoping to defy the EU sanctions that went into effect on Monday (Dec. 5).
The shipping industry refers to the Russian tankers as a “shadow fleet.” An analyst for Braemar, a shipping broker, told the Financial Times that a spike in anonymous tanker sales to unnamed and new buyers was likely sending ships to Russia.
The shadow fleet, sourced from the Middle East, Turkey, and Southeast Asia, was described by one shipbroker as “vintage,” old and rickety vessels, plucked from near-retirement for the lucrative oil smuggling market. A fleet of 100 isn’t large enough to carry even half of Russia’s oil exports, which are critical to the country’s finances.
Russia has been building this fleet in anticipation of the double blow that the US and EU inflicted on its oil exports. The EU sanctions package bans imports of Russian oil by sea. The US-led price cap limits Russian oil to a maximum price of $60 per barrel.
How do the EU sanctions work?
EU-flagged ships are no longer allowed to carry Russian crude. With over half of Russian oil exports carried by Greek-owned ships, the ban creates a huge shortfall of ships to transport Russian oil.
But the sanctions reach beyond EU-flagged ships by limiting access to maritime services from European companies, including maritime insurance. The companies providing most of the world’s maritime insurance are based in the UK or the EU. They cover about 90% of the world’s ships, meaning the ban could be applied to most of the world’s oil shipments. Ships that are uninsured—against collisions or oil spills—are not allowed to dock in most ports inside and outside the EU, including in India and China.
OIL:
G7 Price Cap Causes An Oil Tanker Traffic Jam In The Black Sea
Tsvetana Paraskova, OilPrice.Com, December 6, 2022
Many oil tankers have dropped anchor near the key Turkish straits connecting the Black Sea with the Mediterranean, waiting for clearance from Turkish authorities who now demand new proof of insurance cover for tankers as the EU embargo and the EU-G7 price cap on Russian crude came into effect.
Some 20 tankers, most carrying Kazakhstani – not Russian – crude were waiting offshore Turkey on Monday, the Financial Times reported, quoting shipbrokers, tanker-tracking services, and oil traders.
Turkey now demands new proof of insurance cover for tankers passing through the Bosphorus and Dardanelles straits, the main waterways linking the Black Sea with the Mediterranean. Most of the oil now sitting on tankers off Turkey is from Kazakhstan, shipbrokers told FT.
Kazakhstan ships its crude from Russian ports on the Black Sea and oil from Kazakhstan is not subject to the EU embargo or price cap.
According to the International Group of P&I Clubs, which provides protection and indemnity cover to about 90% of global shipping trade, the new Turkish request of proof goes “well beyond” the information that is usually necessary, FT noted.
While the demand from Turkey for proof of insurance could potentially create another bottleneck for global oil trade, the Turkish rules are not unreasonable, considering the aging tankers of the ‘dark fleet,’ which is now thought to be servicing a growing part of Russian crude flows.
Russia and entities willing to capitalize on trade with Russian oil have amassed in recent months a ‘shadow fleet’ of possibly hundreds of tankers whose new owners are unknown or little known, analysts and ship brokers say. Russia, which has rejected the price cap and has said it would not sell its crude to countries that have joined the mechanism, is looking at various ways to circumvent the sanctions by using its own fleet and insurance and ships of owners that are less scrupulous than the major West-based tanker owners and charterers.
GAS:
U.S. LNG Is Booming, But Who Supplies The Gas?
Alex Kimani, OilPrice.Com, December 4, 2022
- In the current year, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG.
- Pundits are asking if the United States can ramp up production to meet future demand.
- It’s going to be a real challenge for the United States to meet future LNG demand.
This year, the United States became the world’s biggest liquefied natural gas (LNG) exporter as deliveries to energy-starved buyers in Europe and Asia surged. In the current year, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG to energy-starved buyers in Europe and Asia. As energy analysts RBN Energy notes, the first wave of LNG export expansion has mostly gone smoothly thanks to fast-rising natural gas supplies in the Lower 48 and a slew of pipeline reversals and expansions that allowed low-cost Marcellus-Utica gas supplies to reach Gulf Coast markets. But with LNG demand already high and set to grow at a frenetic pace, the big question becomes how quickly can the United States ramp up production to meet future demand?
There’s been no shortage of long-term offtake deals signed by multiple U.S. gas producers.
In June, German utility EnBW announced that it had signed a 20-year deal for a substantial supply of LNG from U.S.-based exporter Venture Global. In the same month, Energy Transfer LP (NYSE: ET) signed an LNG sale and purchase agreement (SPA) with China Gas Holdings; Chevron Inc. (NYSE: CVX) signed a 4mtpa LNG offtake deal with Venture Global and Tellurian Inc. (NYSE: TELL) signed an LNG sales and purchase agreement (SPA) with commodity trader Vitol. In July, Cheniere Energy (NYSE: LNG) signed an offtake deal with Thailand’s state-owned energy company PTT. Finally, in September, Australian energy giant Woodside Energy Group Ltd finalized offtake agreements for U.S. supply from Commonwealth LNG.
Overall, offtakers have committed to more than ~31 MMtpa of U.S. LNG supply, with term lengths ranging from 15 to 25 years. But a lot more than that is likely to be demanded over the next couple of years.
RBN estimates that “…there’s another 100 MMtpa (14.3 Bcf/d) or so of proposed LNG export capacity with a medium-to-high chance of progressing in the next three years, including at least three projects totaling almost 19 MMtpa (2.5 Bcf/d) that we believe are highly likely to take FID within the next 12 months. That’s out of a universe of nearly 30 projects we track in the LNG Voyager Quarterly, representing over 280 MMtpa (38.3 Bcf/d) of potential export capacity, the bulk of it along the Texas and Louisiana coasts.”
According to RBN, availability of feedgas supply where and when it is needed is going to be one of the major factors that will influence the timing and commercialization of future LNG projects.
Where will all the gas come from?
MINING:
Dunleavy vows to take on EPA over Pebble
Shane Lasley, North of 60 Mining News, December 2, 2022
Says pending veto of Pebble copper mine permits sets a precedent with implications that go beyond Alaska.
Alarmed by the precedent that would be set if the U.S. Environmental Protection Agency is successful in issuing a preemptive veto of the Pebble Mine through the extension of its authority under the federal Clean Water Act, Gov. Mike Dunleavy says his administration is prepared to defend Alaska’s right and obligation to develop resources on state lands.
“The State of Alaska has the duty, under our constitution, to develop its resources to the maximum in order to provide for itself and its people, so it’s important that any and all opportunities be explored in furtherance of this idea,” said Dunleavy. “Our opportunities to show the world a better way to develop our resources should not be unfairly pre-empted by the Biden administration under a solely political act. This sets a very troubling precedent for the State and the country.”
The Alaska governor’s vow to take EPA to court is in response to the federal agency’s Dec. 1 decision to advance a determination to restrict the ability to store mined material in the area of Southwest Alaska where the world-class Pebble copper-gold-silver-molybdenum-rhenium deposit is located.
EPA Region 10, which covers the Pacific Northwest states and Alaska, asserts that its preemptive strike to ensure that large-scale mining could not take place at the Pebble project site is needed to protect the world-class salmon fishery in the Bristol Bay Watershed.
“EPA Region 10’s action represents the third step in EPA’s four-step Clean Water Act Section 404(c) review process,” said Casey Sixkiller, administrator of EPA Region 10. “If affirmed by EPA’s Office of Water, this action would help protect salmon fishery areas that support world-class commercial and recreational fisheries and that have sustained Alaska Native communities for thousands of years, supporting a subsistence-based way of life for one of the last intact wild salmon-based cultures in the world.”
Dangerous precedent
Aside from the revenues Alaska stands to lose from a federal decision that would put the brakes on developing a mine that would feed copper into America’s green energy economy, the Dunleavy administration is concerned that once EPA uses CWA 404(c) to veto a project before the issuance of permits, the agency will wield this wider authority to arbitrarily ban projects that would otherwise be authorized under America’s strict environmental laws.
“This is an incredible power for a federal agency – staffed by unelected officials, unaccountable to Alaskans – to have,” said Alaska Department of Environmental Conservation Commissioner Jason Brune.
This ability to veto projects being evaluated by the Army Corps has implications beyond Alaska.
“If this goes unchallenged, this issue will become precedent-setting, potentially for other states as well,” said Dunleavy.
This is why 13 states – Arkansas, Idaho, Indiana, Kansas, Kentucky, Louisiana, Montana, Nebraska, South Carolina, Texas, Utah, West Virginia, and Wyoming – joined Alaska in a September letter in opposition to EPA Region 10’s proposed decision.
POLITICS:
Biden Backs Adding Manchin Energy Bill to Must-Pass Defense Measure
Ari Natter, Roxanna Trion, Bloomberg, December 5, 2022
The White House says it supports an effort to attach previously stalled legislation to fast-track energy projects backed by West Virginia Senator Joe Manchin onto a must-pass defense bill.
“The president believes we should pass the defensive authorization bill, and that the permitting bill should be included in that legislation, so that is something that we support from here,” White House Press Secretary Karine Jean-Pierre told reporters Monday.
Her comments come amidst a last-minute push by Democratic leadership to add the energy-permitting legislation to the National Defense Authorization Act, according to people familiar with the effort.
Negotiations about attaching the legislation, which could speed approval of Equitrans Midstream Corp.’s stalled $6.6 billion Mountain Valley natural gas pipeline in Manchin’s home state, to the bill were ongoing at the leadership level and a final decision has yet to be made, the people said.
The legislation could resemble an effort by Manchin in September that would speed the approval of clean-energy, pipeline, and electricity transmission projects by shortening some federal environmental reviews and setting limits on court challenges.