Today’s Key Takeaways: IEA proposes 10-point plan to cut global oil use dramatically. Germany secures deal with Qatar for energy partnership. Graphite materials facility to leverage low-cost hydropower in WA. SEC proposes first climate rules for corporations.
NEWS OF THE DAY:
With gas prices soaring over the Ukraine war, here’s a plan to cut oil consumption
Jeff Dean, NPR, March 18, 2022
With gasoline prices soaring, the International Energy Agency says it’s time to cut oil use dramatically. The energy organization has a 10-point plan to do that, suggesting a range of actions — from cutting highway speed limits to launching car-free Sundays in big cities.
Global gasoline prices have surged following Russia’s invasion of Ukraine last month, with U.S. gas prices setting a new national record of more than $4 per gallon.
As the U.S. and its allies continue to levy economic sanctions on Russia, markets have been bracing for serious disruptions to crude supplies. Earlier this month, U.S. oil prices rose to as high as $130.50 per barrel, the highest since 2008.
In response, the IEA has released a list of proposed actions to ease strains and price pains for oil as the peak consumption months of July and August are rapidly approaching.
“As a result of Russia’s appalling aggression against Ukraine, the world may well be facing its biggest oil supply shock in decades, with huge implications for our economies and societies,” IEA Executive Director Fatih Birol said.
The United States and 30 other countries in the IEA have already moved to release 60 million barrels of oil from their reserves. “We can also take action on demand to avoid the risk of a crippling oil crunch,” Birol added.
The IEA says its plan would cut oil demand by 2.7 million barrels a day within four months of implementation, which it said would equal the oil demand of all the cars in China.
With a majority of oil demand coming from transportation, the plan mostly focuses on how to use less oil getting people and goods from place to place.
Some short-term measures recommended are reducing speed limits on highways by at least 10 kilometers per hour (about 6 mph), implementing car-free Sundays in cities, making public transportation cheaper and incentivizing walking and cycling.
The IEA also suggests encouraging people to work from home up to three days a week where possible.
The organization looked at air travel as another opportunity to cut down on global oil consumption, recommending that businesses avoid using air travel when alternatives exist and that individuals should consider using high-speed and night trains when possible.
It also highlights that adopting electric and more efficient vehicles will decrease oil demand into the future.
OIL:
Russia-Ukraine war: oil prices jump, IEA calls for cut in energy usage (cnbc.com)
Weizhen Tan, CNBC, March 21, 2022
- Crude futures were up more than 3% on Monday morning during Asia trading — international benchmark Brent crude was at $111.46, and U.S. futures at $108.25.
- Oil prices have been volatile in recent weeks – soaring to record highs in March before tumbling more than 20% last week to touch below $100. They jumped again in the latter half of last week.
- Ukrainian and Russian officials have met intermittently for peace talks, which have failed to progress to key concessions.
- Tight supply continued to worry markets, sparking a call by the International Energy Agency (IEA) on Friday for “emergency measures” to reduce oil usage.
Oil prices jumped even higher on Monday after Russia-Ukraine talks appeared to yield no sign of progress, and markets continued to fret over tight supply — sparking a call by the International Energy Agency to reduce oil demand.
Crude futures were up more than 3% on Monday morning during Asia trading — international benchmark Brent crude was at $111.46, and U.S. futures at $108.25.
Oil prices have been volatile in recent weeks – soaring to record highs in March before tumbling more than 20% last week to touch below $100. They jumped again in the latter half of last week to rise above that level.
In a note on Monday, Mizuho Bank said two factors were pushing oil prices higher: lingering Russia-Ukraine uncertainty as well as hopes that China’s latest Covid impact could be less dire than anticipated amid expectations of easing restrictions. The key hub of Shenzhen partially opened up Friday, as five districts were allowed to restart work and resume public transportation, Reuters reported.
Ukrainian and Russian officials have met intermittently for peace talks, which have so far failed to progress to key concessions. Still, Ukrainian President Volodymyr Zelenksyy has called for another round of talks with Moscow.
“If these attempts fail, that would mean that this is a third world war,” Zelenskyy told CNN’s Fareed Zakaria in an interview that aired Sunday morning.
“The breakdown of peace talks between Russia and Ukraine sawcrude oil prices extend their rebound on Friday,” ANZ Research analysts Brian Martin and Daniel Hynes wrote in a Monday note. “However, it failed to offset the losses earlier in the week, with Brent crude ending down more than 4%.”
Meanwhile, tight supply continued to worry markets, sparking a call by the International Energy Agency (IEA) on Friday for “emergency measures” to reduce oil usage.
The Russia-Ukraine war has led to worries over supply disruptions as a result of U.S. sanctions on Russian oil and gas. The U.K. and European Union also said they would phase out Russian fossil fuels. Russia supplied 11% of global oil consumption and 17% of global gas consumption in 2021, and as much as 40% of Western European gas consumption in the same period, according to statistics from Goldman Sachs.
European Union governments are set to meet U.S. President Joe Biden this week as the EU considers an oil embargo on Russia over the unprovoked invasion of Ukraine.
The Commonwealth Bank of Australia warned Monday that oil prices have fallen below recent peaks because markets are still largely pricing oil by “assessing the likelihood of a diplomatic solution to the Ukraine conflict.”
“Physical shortages, linked to current sanctions on Russia, though will eventually play a more dominant role in oil price determination,” said Vivek Dhar, the bank’s director of energy commodities research, in a note.
“The industry’s apparent inability to fill any potential gap has seen calls for consumption to be reduced,” the ANZ Research analysts said.
GAS:
Russia Suffers Blow as Germany Strikes Natural Gas Deal With Qatar
Xander Landen, Newsweek, March 20, 2022
Germany said Sunday that it had reached a deal on an energy partnership with Qatar, as the European powerhouse seeks to reduce its dependence on Russia amid the invasion of Ukraine.
Robert Habeck, Germany’s Federal Minister for Economic Affairs and Climate Action, met with Qatar’s Emir Sheikh Tamim bin Hamad al-Thani on Sunday.
State-owned QatarEnergy said in a statement that the two countries “would re-engage and progress discussions on long term LNG supplies,” Reuters reported. While Qatar didn’t say that an agreement had been reached, a German spokesperson told the news outlet that a deal between the nations had been finalized.
“The companies that have come to Qatar with (Habeck) will now enter into contract negotiations with the Qatari side,” the German spokesperson said, according to Reuters.
The deal with Qatar comes as Germany has taken other steps to reduce its dependence on Russian energy in recent weeks.
Last month, German Chancellor Olaf Scholz announced the nation would stop the certification of the Nord Stream 2 pipeline after Russian President Vladimir Putin said Moscow would recognize the sovereignty of self-proclaimed “people’s republics” of Donetsk and Luhansk in Ukraine—a step Putin took just before he invaded Ukraine.
The pipeline was estimated to be worth about $2.7 billion per year to the Russian economy, and about $1.8 billion to the German economy. After Scholz backed out of the pipeline plans, Habeck, Germany’s Federal Minister for Economic Affairs and Climate Action, began to explore options to reduce the country’s reliance on Russia.
“We need to admit that in the past we have been too reliant on Russian imports,” Habeck said in late February, according to Deutsche Welle. “In the medium and long term, we are going to significantly reduce the consumption of fossil fuels.”
MINING:
Washington chosen for Graphite One plant
Shane Lasley, March 18, 2022
Graphite materials facility to leverage low-cost hydropower
Graphite One Inc. March 14 announced that it has selected Washington as the location for the processing plant that will upgrade concentrates mined at its Graphite Creek project in Alaska to the spherical coated graphite needed for lithium-ion batteries and other advanced graphitic materials.
According to a 2019 calculation, the Graphite Creek mine project about 35 miles north of the Alaska gold mining town of Nome hosts 10.95 million metric tons of measured and indicated resources averaging 7.8% (850,534 metric tons) graphitic carbon, plus 91.89 million metric tons of inferred resource averaging 8% (7.34 million metric tons) graphitic carbon.
In 2017, Graphite One published a preliminary economic assessment that outlines plans for a mine at this deposit that would produce roughly 60,000 metric tons of 95% graphite concentrate per year and a processing facility to refine these annual concentrates into 41,850 metric tons of the coated spherical graphite used as an anode material in lithium-ion batteries, plus 13,500 metric tons of purified graphite powders annually.
The company has now confirmed that the processing facility will be built in Washington, a state with plentiful, low-cost hydroelectricity.
“This is a major step towards our 100% U.S.-based advanced graphite supply chain,” said Graphite One President and CEO Anthony Huston.
According to recent data from Benchmark Mineral Intelligence, the global leader for lithium battery materials analysis, expects the demand for graphite to grow by 500% over the next decade. This explosive growth is being driven by the rapid transition to electric vehicles, which require an average of roughly 118 pounds of graphite each.
This rapidly increasing need for the graphite that serves as the anode material in lithium-ion batteries powering EVs and storing intermittent renewable energy has garnered the attention of the White House.
“If I was going to follow through on my commitment to say we were going to make it in America and build it America … we needed a supply chain that was reliable … including in critical materials like lithium, graphite, rare earth materials, which are badly needed for so many American products,” President Joe Biden said in a February roundtable discussion on critical minerals.
With a graphite mine in Alaska and an advanced processing facility in Washington, Graphite One would provide a domestic supply of one of the major materials critical to America’s burgeoning EV sector.
Washington hydroelectricity, which averaged 5.81 cents per kilowatt-hour for industrial customers during 2021, is expected to provide Graphite One a significant advantage on the cost and carbon footprint of upgrading its graphite concentrates to advanced graphite anode material.
“Washington State offers the opportunity for Graphite One to use a green energy source – Washington state hydro – to manufacture a green energy material,” Huston said. “That’s core to our commitment at Graphite One to make our project a model of ESG in action.”
Graphite One is in discussions with Washington public authorities to determine the exact locale of the advanced materials facility that is expected to support 130 high-wage jobs.
The company is also advancing a prefeasibility study that will provide an updated and more detailed look at the economic and engineering parameters of its planned Alaska mine and Washington advanced graphite materials plant.
POLITICS:
SEC proposes first climate disclosure rules for public companies
Andrew Freeman, March 21, 2022
The Securities and Exchange Commission (SEC) is deciding Monday on a long-awaited proposed rule to, for the first time, require companies to disclose their greenhouse gas emissions as well as their exposure to climate change risks.
Why it matters: The rule is meant to give companies more certainty about how they need to incorporate climate change into their financial reporting, but it contains gaps that may allow big emitters to obscure their complete carbon footprint.
Driving the news: The SEC is expected to vote on the proposed climate disclosure rules later on Monday.
The big picture: In proposing climate risk disclosure rules, the SEC is effectively trying to set a floor for companies to meet or exceed when reporting how prepared they are for the consequences of a warming world.
Details: The proposed rule, which the SEC is debating Monday and expected to adopt, would require companies to include certain climate change information on their financial reports, such as their Form 10-K.
- The information to be disclosed would include how climate-related risks could affect the company’s business, strategy, and projections.
- The company’s greenhouse gas emissions would need to be audited by an outside party. The rule gives firms wiggle room over emissions embedded within its value chain, such as those caused when customers use its products, which are known as “Scope 3” emissions.
Yes, but: Companies would have a delayed start for disclosing Scope 3 emissions, and such disclosures would only apply to firms that consider Scope 3 emissions to be “material” or that have set Scope 3 emissions reduction targets.
- This could allow companies to avoid disclosing Scope 3 emissions, which in many cases are the largest share of their climate footprint.
- Also, on a call with reporters Monday morning, SEC staff members declined to discuss how the new rules would be enforced.
Between the lines: In crafting the new rule, the SEC has had to grapple with the near certainty that it will be challenged in court, which could result in a more cautious approach.