Today’s Key Takeaways: OSHA withdrawing Biden administration vaccine or test mandate.
US Supreme court to review case that could have ramifications for oil and gas companies operating on private lands where the EPA may have jurisdiction over waters. A rebalancing year in store for mining. John Kerry calls natural gas a “bridge fuel” in the energy transition.
NEWS OF THE DAY:
Biden admin withdraws temporary vaccine-or-test mandate for large employers
Oriana Gonzalez, Axios, January 25, 2022
The big picture: OSHA said it made the decision to withdraw the mandate following the Supreme Court’s decision blocking the rule.
- OSHA does not have the power to “regulate public health more broadly,” the court said. “Requiring the vaccination of 84 million Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category.”
- The agency added that it’s “prioritizing its resources to focus on finalizing a permanent COVID-19 Healthcare Standard.”
Catch up fast: The administration’s mandate, which was issued in November, said that companies with more than 100 workers must require their employees to either get vaccinated or tested every week.
What they’re saying: The “Department of Labor’s [OSHA] is withdrawing the vaccination and testing emergency temporary standard issued on Nov. 5, 2021, to protect unvaccinated employees of large employers with 100 or more employees from workplace exposure to coronavirus. The withdrawal is effective January 26, 2022,” OSHA said in a statement.
- “OSHA continues to strongly encourage the vaccination of workers against the continuing dangers posed by COVID-19 in the workplace.”
OIL AND GAS:
Supreme Court to review Clean Water Act jurisdiction dispute
Alan Kovski, Oil & Gas Journal, January 24, 2022
The US Supreme Court agreed Jan. 24 to review a court case that could redefine the jurisdiction of the Clean Water Act, especially in regard to isolated wetlands.
The case could have ramifications for oil and gas companies operating on private lands where the Environmental Protection Agency (EPA) and the US Army Corps of Engineers may at times assert a disputed authority to regulate activities that could affect nearby water bodies.
The jurisdiction issue can affect such oil industry responsibilities as pipeline routes and spill prevention control and countermeasures, said Lee Fuller of the Independent Petroleum Association of America (IPAA).
The case is Sackett v. EPA, brought to the court by a married couple who have been trying for 15 years to build a home in a housing development near Priest Lake, Idaho, only to be frustrated by EPA because their property is near a wetland that drains into the lake.
EPA insists the Sacketts need approval from the Corps of Engineers to build on their land, and the US Court of Appeals for the Ninth Circuit agreed in August, accepting EPA’s test to determine whether the couple’s land can have an impact on the quality of water in the nearby wetland and the lake, a tricky subject that includes determining whether the couple’s lot is itself part of the wetland.
The Supreme Court said it granted review to determine “whether the Ninth Circuit set forth the proper test for determining whether wetlands are ‘waters of the United States’ under the Clean Water Act.”
“The Sacketts’ ordeal is emblematic of all that has gone wrong with the implementation of the Clean Water Act,” said Damien Schiff, a senior attorney at Pacific Legal Foundation, in a statement issued after the Supreme Court agreed to take the case. His foundation represents the Sacketts.
“The Sacketts’ lot lacks a surface water connection to any stream, creek, lake, or other water body, and it shouldn’t be subject to federal regulation and permitting,” Schiff said.
Regulations to be revised
The Trump administration tried revising the regulations, but a federal court ruling blocked those changes, and the Biden administration is in the process of revising the regulations to return to what it calls the pre-2015 rules, with updates to take into account court rulings since then. The public comment period on the Biden EPA’s proposal (jointly developed with the Corps of Engineers) will end Feb. 7.
The Clean Water Act mandates that the federal government protect the “chemical, physical, and biological integrity of the nation’s waters.” As for jurisdiction, the law says it is intended to protect “navigable waters,” which means the “waters of the United States.” But it does not define its terms.
It has been accepted since the 1985 Supreme Court ruling in US v. Riverside Bayview Homes Inc. that wetlands adjacent to a navigable river are jurisdictional because of their close ecological interconnection with the river. That leaves much unresolved—such as wetlands that are not adjacent, or land like the Sacketts’ lot.
In 2006, in Rapanos v. United States, the court fractured over the jurisdictional issue. A plurality of four justices agreed that a continuous surface water connection to navigable waters should determine jurisdiction. A fifth justice, Anthony Kennedy, wrote that jurisdiction should hinge on a “significant nexus” analysis of the ecological connections between a location and a jurisdictional water body.
“Ever since then we’ve been fighting over significant nexus and what it meant,” IPAA’s Fuller said.
The court will be revisiting the Rapanos case as it considers the Sackett case, according to Pacific Legal Foundation. The foundation, often arguing for property owners, hopes to see the current court majority adopt the plurality opinion in the Rapanos case.
2022 – a year of rebalancing for metals and mining
Wood Mackenzie, Mining.Com, January 24, 2022
Singapore, 24 January 2021 – If 2021 was the year of rebound for metals and mining (M&M) commodities, then 2022 is shaping as the year of rebalance, says Wood Mackenzie, a Verisk business (Nasdaq:VRSK).
Wood Mackenzie vice chair Julian Kettle said: “The most likely outcome is an environment where commodity prices can settle from the extraordinary highs of 2021. But there are plenty of risks to this outlook. The pandemic’s tendrils continue to ensnare markets for all mined commodities.”
Much of the evidence points to a year of lower demand growth. Government stimulus could wane, while fiscal and monetary policy will tighten. 2022 should be a year when supply chains refill and start to better meet the needs of consumers.
But there is plenty of uncertainty. With lockdowns out of favour in most places, the demand risks from new variants may be usurped by supply and logistics impacts, as workers isolate or refuse to vaccinate. Stimulus could be prolonged too, as governments, and central banks, fret more about the impact on growth than the looming inflation risk. China’s economy-versus-emissions dilemma will be critical to M&M markets.
Supply: Investment muted despite supply constraints and earnings boom
Mine supply shortages and logistics constraints will remain a feature across M&M markets in 2022. The European and Chinese energy crises are unsolved, directly affecting coal prices, and keeping input costs higher across all products, particularly the energy-hungry base metals. Logistics bottlenecks, container, and chip shortages, plus some unhelpful trade policies, will also keep regional price differentials and product premia skewed.
Vice president Robin Griffin said: “Supply will improve, but we do not expect a meaningful investment spike this year, despite the reinvigorated balance sheets of M&M companies. An obvious question is where will the record earnings of 2021 be directed?
“We know that the diversification trend from fossil fuels to future facing commodities will continue, but there has been a dearth of capital allocated to organic growth from diversified miners.”
Decarbonisation: Increased scrutiny to drive surge in low-cost abatement
With COP26 fresh in the memory, and COP27 already looming, miners can expect mounting pressure to meaningfully align with a 1.5-degree warming scenario. Calls for comprehensive net zero plans, and more sophisticated disclosure, will increase this year as investors seek to rank assets on ESG metrics.
Kettle said: “Miners and consumers will understandably focus on decarbonisation options that make the most economic sense. So, expect a plethora of new renewable PPAs and captive solar and storage plans this year at production sites. Mine haulage will get plenty of attention too with Komatsu’s 930E hydrogen fuel-cell haul truck trial at Anglo’s Mogalakwena platinum mine worth watching. But also look for more traction on battery, gas, bio- and green-diesel haulage options.”
Urban mining – recycling and scrap use – will be front of mind for consumers, both as a low-cost decarbonisation option in ferrous markets and a potential solution to looming supply deficits elsewhere. Expect plenty of noise from the nascent battery recycling sector.
Costs: Inflation to hasten margin decline
Cost inflation was a global phenomenon in 2021, and for the second year in a row will continue to affect most miners and smelter-refiners. Wood Mackenzie’s 2022 mine estimates include modest cost rises in 2022 but the risk is to the upside. Labour, fuel, and electricity costs remain elevated as supply struggles.
Mine labour costs, in particular, could gather momentum due to a combination of lockdowns, sickness and worker movement restrictions that are exacerbated by vaccine mandates. Attracting and retaining skilled mine labour is difficult, particularly in coal markets, and especially where competition from miners of battery raw materials or base metals is high.
The cost increases, combined with revenue falls, will accelerate the decline of margins in 2022. Average annual margins will stay close to 2021 highs, but by year end the current record profits will have fallen to below pre-pandemic levels for most commodities.
China: Both underpinning and undermining commodity markets
China, as ever, will dominate market outcomes across M&M commodities. Decisions around geopolitics, pollution control and energy consumption will be of particular importance.
Griffin said: “We see little chance of an end to current bans on Australian coal imports this year, and major improvements in global bilateral relations are probably too much to ask. Prices for energy commodities in China will remain higher-than-necessary, with implications for energy prices that in turn affect producers and consumers of M&M products.”
China’s approach to decarbonisation and pollution targets will drive uncertainty and volatility. Summary closures of energy intensive industries in order to meet emissions targets have been the modus operandi under China’s ‘dual-control’ regime. While the 2021 closures were bad for steel raw materials and alloys demand, complementary pollution controls saw mined output more than offset demand losses.
Meanwhile, base metals markets saw power-hungry smelter production plummet overnight, creating global supply shortages. Expect more interventions in 2022, although with broadened carve-outs to limit the kind of wild price swings seen last year.
Alaska agency plans to halt investment in banks that don’t back Arctic oil and gas projects
Alex DeMarban, Anchorage Daily News, January 22, 2022
An Alaska agency is taking steps to remove about $24 million in investments issued by financial institutions that have said they won’t finance oil and gas projects in the Arctic.
The Alaska Industrial Development and Export Authority is eyeing a rule change that will prevent its fund managers from buying securities, such as bonds, from banks with policies that prohibit “engagement in oil and gas development” in the region, according to the proposed resolution.
The Arctic includes Alaska’s North Slope region, home to the giant Prudhoe Bay oil field and other large oil and gas prospects.
The resolution would prevent the state agency from buying securities in banks such as Bank of America, JPMorgan Chase, Morgan Stanley, and Citigroup, according to the proposal. Amid growing concerns about climate change, those and other major banks have said they would pull back from supporting new Arctic oil and gas projects.
The resolution is on the table for consideration at the agency’s board meeting on Thursday.
The quasi-independent state agency provides financing and support for Alaska projects.
It holds $23.9 million in securities that would be affected, according to a Dec. 1 memorandum.
The money is an “insignificant” part of a $400 million fund that is conservatively invested, mostly in U.S. government securities, said Alan Weitzner, the agency’s executive director, in an interview on Friday.
If the board approves the measure, the affected assets can be sold and reinvested elsewhere, he said.
The agency hopes its actions raise awareness about policies that he said hurt Alaska communities, such as those on Alaska’s North Slope, that have benefited from oil and gas development and related jobs and revenue, Weitzner said.
“It’s not fair to take sweeping anti-development policies without looking at the benefit to Indigenous and rural communities,” he said. “We’re really just trying to bring awareness.”
During the final days of the Trump administration early last year, the agency acquired seven 10-year leases for rights to explore and drill for oil in the Arctic National Wildlife Refuge. The agency is suing the Biden administration, after the administration suspended those leases to conduct an environmental review.
Bernadette Demientieff, executive director of the Gwich’in Steering Committee, representing 14 Gwich’in communities in Alaska and Canada who oppose oil and gas activity in the Arctic refuge, said she and others met with officials at some of the banks, encouraging them to adopt the policies.
She said the banks are listening to tribes and their people, while the state agency is not.
“It’s sad they are using money as a tool to try and punish people who are listening to our voice,” Demientieff said.
From the Washington Examiner, Daily on Energy:
THE LATEST ON NATURAL GAS FROM KERRY: Climate envoy John Kerry asserted yesterday the commodity is a “bridge fuel” that can help nations on their path to net-zero emissions — a notion rejected by many climate hawks, and one that’s motivating some EU member states to threaten suit against the European Commission for proposing to treat gas as such.
“Gas can be helpful in this transition,” Kerry said at a U.S. Chamber of Commerce event previewing next year’s COP27 climate change conference. “Gas is going to be important to the transition.”
The “bridge fuel” designation has the ring of an endorsement, but Kerry issued some major qualifications.
“But if we move too fast and too far with too much and build out an infrastructure for 30 and 40 years, with plans to be able to use it for 30 or 40 years without abatement — if it’s abated, terrific. If you can capture 100% and it makes it affordable, that’s wonderful. But we’re not doing that,” he said, also bringing up the consequences of methane leaks.
Looking back to COP26, it’s important to remember participating governments resolved to at least phase down coal, which will have to be replaced with something. The pro-gas Germans told the European Commission last week gas enables “rapid phase-out of coal” and to thus “achieve CO2 savings in the short term.”
The Germans also used “bridge” to positively describe the fuel and lobby the Commission to reduce restrictions on fossil gas in its proposed sustainable finance taxonomy (which, as we mentioned yesterday, Austria and Luxembourg oppose altogether for giving gas any chance at being considered green).
Kerry, who also emphasized the need to get rid of coal yesterday, seems to be in some broad agreement with Germany there.
It’s the latest refinement of the administration’s stance on natural gas from Kerry: Kerry last year, as the administration struggled to articulate a clear position on gas, said that it is not “anything near a long-term solution.” The politics have shifted somewhat since and become even more volatile, with environmentalists voicing displeasure over President Joe Biden’s perceived lack of achievements on the fossil fuel front in his first year.
The counterbalance has been political pressure on Biden to find a way to lower fuel prices, as well as, more recently, the pressure to try to counter Russia’s influence over Europe.
Kevin Book, managing director of ClearView Energy Partners, said the administration is “toeing a narrow line” on the issue of gas, accounting for the especially high, gas-driven prices in Europe and the geopolitics associated with the Russia-Ukraine conflict.
Book mentioned Biden’s comments last week suggesting the U.S. could help Europe by supplying it with more gas.
“Climate risk now appears to be competing with conventional energy security risk for administration bandwidth,” he told Jeremy.