Today’s Key Takeaways: Biden moves to restrict oil & gas development in NPRA. Oil demand and price increases. Big shifts in the World LNG Map in 2021. Trending: huge deals to secure critical minerals for EV’s and clean energy technology. Manchin says “no” to ending filibuster.
NEWS OF THE DAY:
Biden administration plans return to Obama-era protections for National Petroleum Reserve-Alaska
Elwood Brehmer, Alaska Journal of Commerce, January 10, 2022
Biden administration officials in the Bureau of Land Management on Monday announced plans to return to Obama-era rules for oil and gas development in the vast National Petroleum Reserve-Alaska on the North Slope.
According to a written statement by the BLM Alaska office, attorneys for the agency are expected to file a status report in U.S. District Court of Alaska indicating that BLM leaders want to go back to the 2013 NPR-A Integrated Activity Plan, which is essentially the land-use plan for the 23 million-acre reserve. The filing is in a lawsuit brought by conservation groups over the NPR-A land-use plan finalized by Trump administration officials shortly before they left office last January.
The plan approved under Trump opened an additional 7 million acres to industry leasing, or about 30% of the reserve, making a total of about 18.5 million acres on the western North Slope open to development.
For comparison, the previous NPR-A plan approved in 2013 under the Obama administration allowed BLM to lease just more than 11.7 million acres, or almost exactly half of the reserve. That plan closed to oil and gas leasing more than 3.5 million acres — much of which is a vast wetlands complex — in the Teshekpuk Lake Special Area.
The area is the calving grounds for a distinct population of caribou and is the summer nesting home for large numbers of migratory birds, both of which are important subsistence resources, according to area tribes opposed to oil development there.
However, since 2013 a handful of large oil discoveries have been made around the Teshekpuk Lake area, most notably ConocoPhillips’ $8 billion Willow prospect.
With work currently on hold as its permits are currently under a court-ordered revision, Alaska Republican Sen. Lisa Murkowski has said keeping the Willow oil project moving toward development is a top priority for her this year.
Kristen Miller, acting executive director for the Alaska Wilderness League said the Trump administration’s changes to the NPR-A plan were rushed and violated multiple federal environmental laws.
[Once-heralded North Slope ‘renaissance’ oil drilling projects now face uncertain futures]
“Returning to the 2013 management plan is the right move and will restore protections to the reserve’s critical special areas, in particular Teshekpuk Lake. Now, especially as it prepares to take public comment on its ‘America the Beautiful’ initiative, we hope the (Biden) administration recognizes the potential for America’s largest single piece of public land to provide landscape-level protection of ecosystems and sustain healthy and diverse wildlife and habitat for the future,” Miller said in response to BLM’s announcement.
The Trump administration plan mostly opened the Teshekpuk Lake Special Area to industry leasing. BLM Alaska officials said at the time that their plan responds to requests from the state and local governments for increased economic opportunities and uses seasonal restrictions on industry activity and other mitigation techniques to minimize the impacts on wildlife from oil exploration.
BLM’s announcement should also essentially end the lawsuit, largely filed to keep the 2013 plan in place.
In 2017, the U.S. Geological Survey drastically increased its estimate for the amount of recoverable oil in the NPR-A, largely on the belief that additional Nanushuk oil formations are available in and around the Teshekpuk Lake area. The USGS now estimates there are roughly 8.8 billion barrels of available oil in the reserve and adjacent state lands, up from just 896 million barrels in 2010.
OIL:
Oil tops $83, as Omicron impact expected to be short lived
Arathy Somasekhar, Reuters, January 11, 2022
- Summary
- Crude extends 2021 rally
- Libyan oil output rises, but Es Sider exports suspended
- U.S. crude inventories expected to fall for seventh week
- Coming up: API supply report, 2130 GMT
Jan 11 (Reuters) – Oil rose to more than $83 a barrel on Tuesday, supported by tight supply and expectations that rising coronavirus cases and the spread of the Omicron variant will not derail a global demand recovery.
A lack of capacity in some countries has meant that supply additions by the Organization of the Petroleum Exporting Countries (OPEC) are running below the allowed increase under a pact with its allies.
On the demand side, Federal Reserve Chair Jerome Powell on Tuesday said he expects the economic impact of the Omicron variant to be short lived, adding that ensuing quarters could be very positive for the economy after Omicron subsides.
Brent crude gained $2.6, or 3.22%, to $83.46 a barrel by 11:30 a.m. ET (1630 GMT), it highest since early November, after having lost 1% in the previous session.
U.S. West Texas Intermediate (WTI) rose $2.75, or 3.5%, to $80.97, also its highest since mid-November. On Monday, it fell 0.8%.
“Combination of facts that demand is going to be stronger than anticipated and that OPEC’s supply may not be grown as fast as the demand is why prices are climbing,” said Phil Flynn, senior analyst at Price Futures Group.
Major economies have avoided a return to severe lockdowns, even as coronavirus cases have soared. European jet fuel refining margins, for example, are back to pre-pandemic levels as supplies in the region tighten and global aviation activity recovers despite the spread of the Omicron variant. read more
“Omicron has yet to wreak the havoc of the Delta variant and may never do so, keeping the global recovery on track,” said Jeffrey Halley, analyst at brokerage OANDA.
Brent rose by 50% in 2021 and has rallied further in 2022, with investors expecting increasing demand while OPEC and its allies, collectively known as OPEC+, slowly ease record output cuts made in 2020.
Recent outages in Libya have also supported prices and the National Oil Corp on Tuesday said it was suspending exports from the Es Sider terminal. read more
A weaker U.S. dollar also helped to support oil because it makes oil cheaper for buyers holding other currencies and tends to reflect higher risk appetite among investors.
Upcoming reports on U.S. inventories are expected to show crude stockpiles fell by about 2 million barrels.
The first of this week’s supply reports, from the American Petroleum Institute (API), is due at 2130 GMT.
GAS:
Gas Line, Q4 2021 | Center for Strategic and International Studies (csis.org)
Nikos Tsafos, Center for Strategic and International Studies, January 11, 2022
January 10, 2022
Gas Line is a quarterly publication that looks at major news stories in global gas—ranging from project development to markets and geopolitics. My goal is not to cover every story but to draw connections between stories across time and space in order to shed light on the major themes that will drive global gas markets in the years ahead. My main takeaways from this quarter:
Big Shifts in World LNG Map in 2021
The bottom line: The liquefied natural gas (LNG) market witnessed profound shifts in 2021. China finally emerged as the world’s largest importer, while the United States narrowed the gap with Australia and Qatar and is due to become the world’s largest exporter in 2022. LNG flows into South America spiked, driven by Brazil and Argentina, while Mexico’s imports declined to almost zero. Egypt’s exports reached a 10-year high, while Jordan effectively ceased imports. India’s imported volumes declined, as did Europe’s. All these changes are a reminder that this market remains incredibly dynamic and fluid and that our mental maps of this system need to keep adjusting year after year.
The backstory: The LNG map changed a lot in 2021. On the supply side, Australia finally edged ahead of Qatar, following two years where the two had been effectively tied. Meanwhile, the United States became the world’s third-largest LNG exporter for the year, pulled ahead of Qatar in November, and narrowed the gap with Australia in December. By year’s end, a lot of that U.S. LNG was headed to Europe, triggering a sharp price correction there. And unless something astonishing happens, the United States will become the world’s largest LNG exporter in 2022.
On the demand side, China surpassed Japan to become the world’s largest LNG importer. But that switch came with some costs: the price that China paid for LNG topped $18 per million British thermal units in November 2021, far above what the country paid for pipeline gas. It also came with a growing dependence on Australia and the United States—a fact that strategists in Beijing are unlikely to welcome. Yet that’s the geography of supply and demand now.
Beyond the top of the table, the year witnessed a number of other interesting changes. On the import side of the ledger, Mexico and Jordan effectively disappeared as LNG markets, turning instead to pipeline imports to meet their needs. India’s LNG imports fell for the first time since 2013, evidence, perhaps, of that country’s price sensitivity. Brazil’s imports boomed, courtesy of a drought that pushed up demand for gas-fired power: the country imported almost as much in 2020 as it did the previous three years combined. Argentina’s LNG imports rose to the highest point since 2017, although they remained at nearly half the level of the peak (in 2013).
On the supply side, Egypt returned as a major player, exporting almost 7 million tons of LNG, the highest in a decade. Its exports went mostly to Asia, especially China, India, and Pakistan. But Turkey was the second-largest recipient of Egyptian LNG, an ironic twist given the constant complaints from Turkey that it is being shut out of the gas game in the eastern Mediterranean. Other countries faced serious supply troubles: LNG exports fell 90 percent in Norway, 35 percent in Peru, 32 percent in Trinidad, and 18 percent in Nigeria. Combined, those losses amounted to 11 million tons—enough to satisfy the import needs of a country like the United Kingdom.
European Gas Prices Went Berserk
The bottom line: Gas prices in Europe reached unprecedented levels in Q4 2021. These prices raise profound questions about how the gas market operates in Europe, about the role and responsibilities of supplier companies like Gazprom, and about the need to provide a better structure for managing the big swing in gas demand between summer and winter. Europe needs a new effort to strengthen the institutions meant to provide gas security, and it cannot let the imperative of the energy transition act as an excuse to delay this work.
The backstory: Gas prices in Europe and the spot price for LNG in Asia were elevated for much of 2021, but they reached unprecedented heights in Q4. Before 2021, the high point at the Title Transfer Facility (TTF) in the Netherlands was €35 per megawatt hour (MWh). Between August and December 2021, the closing price was above €35/MWh every day. For a brief moment, on December 21, prices topped €181/MWh. In other words, the high point in 2021 was five times higher than the historical peak. And while Europe’s gas crisis had spillover effects into electricity and the Asian spot LNG price, no other major energy commodity experienced a similar rally.
These prices raise major questions about the functioning of the European gas market (and the spot market for LNG). The fundamentals did not justify such prices. The market was tight, of course, but not that tight. What drove prices up was a fear that Europe might run out of gas in February or March. It was anxiety, not an actual shortage, that drove prices so high. That’s why a modest amount of LNG going into Europe in December and January crashed prices. Could such a vicious cycle be tempered, especially since high prices did little to attract gas supplies (who wants to buy gas at the top and be left holding excess supply when prices crash)? This is a serious question for policymakers to grapple with.
Russia’s role in this crisis also deserves further scrutiny. At a minimum, it seems like Gazprom’s failure to fill its storage facilities in Europe was a major driver of the perceived inadequacy of European reserves for the winter. Do companies have any obligations to use the storage capacity they have reserved, and could that capacity have been released to other parties? Should Europe impose the same responsibilities to external suppliers like Gazprom as it does to importers? Could this be a new avenue through which Gazprom exercises market power, even if its behavior in 2021 might be better explained by the need to refill storage in Russia after the cold winter of 2021? All these are important questions for Europe to consider.
More broadly, these prices exposed a deeper problem for Europe: seasonal balancing. In the past, Europe has relied on a mix of domestic production, storage, and pipeline imports to meet the huge seasonal swing in gas demand. With gas production declining, the continent is far more reliant on storage and imports, including LNG. This is a problem. LNG is not very seasonal because it makes sense to produce at capacity year-round, and Asia absorbs the market’s seasonal capacity.
This leaves Europe in a bind. In 2021, South America imported a lot of LNG during the (Northern Hemisphere) summer, which left less LNG for Europe to import to refill storage. In fact, Europe was able to secure additional LNG in December once the needs of South America subsided. But Europe needs a more permanent fix to this problem. No matter how quickly the energy transition takes place, this seasonal challenge will persist. Europe needs better solutions.
MINING:
Tesla signs $1.5 billion deal for nickel from Talon Metals’ Minnesota project
Mining.Com, January 10, 2022
Tesla on Monday said it has signed its first US supply deal for nickel, tapping Talon Metals Corp’s Tamarack mine project in Minnesota.
Under the terms of the deal, which Talon (TSX:TLO) said came after “extensive and detailed” due diligence and “lengthy negotiations,” Tesla will buy 75,000 tonnes (165 million pounds) of nickel over six years, with an option to increase the delivered tonnage.
Based on the ruling nickel price the deal is nominally worth more than $1.5 billion. Any iron and cobalt by-products at the proposed mine are also part of the deal. Tamarack is currently the only high-grade development-stage nickel project in the US and is a joint venture between Talon and Rio Tinto.
“The Talon team has taken an innovative approach to the discovery, development and production of battery materials, including to permanently store carbon as part of mine operations and the investigation of the novel extraction of battery materials,” said Drew Baglino, SVP of Powertrain and Energy Engineering at Tesla.
In July last year Tesla signed nickel supply deals with BHP in Australia for an estimated 18,000 tonnes of nickel annually and New Caledonia’s Prony Resources for about 42,000 tonnes of the metal.
“This agreement is the start of an innovative partnership between Tesla and Talon for the responsible production of battery materials directly from the mine to the battery cathode. Talon is committed to meeting the highest standards of responsible production that is fully traceable and that has the lowest embedded CO2 footprint in the industry,” said Henri van Rooyen, CEO of Talon.
“Rio Tinto is working to support Talon to bring the Tamarack mine into production, as we strengthen our battery materials portfolio. We look forward to seeing it supply Tesla with nickel that is essential for the production of their electric vehicles,” said Rio Tinto Minerals Chief Executive Sinead Kaufman.
Talon needs to start commercial production at Tamarack by the end of 2025, which may be extended by the agreement of the parties for up to 12 months “following which Tesla has a right to terminate the agreement and Talon may elect to sell to other parties.”
Talon, for its part, undertakes to earn a 60% interest in Tamarack, a joint venture with Rio Tinto. Talon already owns 51% with an option to add another 9%. To earn the maximum interest, it must make staged payments totaling $22.5 million in cash and shares to Rio Tinto, spend $10 million on exploration and development, and complete a feasibility study on the project.
The Tamarack project, located 210 km north of Minneapolis and 89 km west of Duluth, is comprised of the Tamarack North and Tamarack South projects, with approximately 31,000 acres of private land and state leases.
The announcement came the same day world’s largest miner BHP announced a preliminary $50 million investment in Tanzania’s Kabanga Nickel.
Shares in Talon trended lower on the Toronto Stock Exchange on Monday ahead of the announcement and subsequent halt in trading. The company has a market capitalization of C$418 million ($329m).
POLITICS :
Manchin doubles down on filibuster ahead of Biden’s speech
Jordan Carney, The Hill, January 11, 2022
Sen. Joe Manchin (D-W.Va.) doubled down Tuesday on his support for the filibuster as President Biden heads to Georgia to publicly push for changes to the Senate rule in order to pass voting rights legislation.
“We need some good rules changes to make the place work better. But getting rid of the filibuster doesn’t make it work better,” Manchin told reporters.
Given support from Manchin and Sen. Kyrsten Sinema (D-Ariz.) for the legislative filibuster, which requires 60 votes for most bills to advance in the Senate, Democrats acknowledge that getting rid of it altogether isn’t on the table.
instead, they are discussing smaller changes including moving to a talking filibuster, where opponents could delay the bill for as long as they could hold the floor, but legislation would ultimately be able to pass with a simple majority. They are also mulling a carveout that would exempt voting rights legislation from needing 60 votes.
Democrats are also discussing smaller changes, including shifting from needing 60 votes to break a filibuster to needing 41 votes to sustain it or getting rid of the 60-vote hurdle currently required for starting debate while keeping it in place for ending debate.
But Republicans aren’t expected to support any of those rules changes, meaning Democrats would need to use the “nuclear option” that lets them change the rules via a simple majority.
Manchin hasn’t endorsed rules change option and, in a potentially bigger hurdle for Democrats, he has long opposed changing the rules through the nuclear option.
He added on Tuesday that the rules should be changed by two-thirds of the Senate, referring to the 67 votes needed to change rules outside of the nuclear option.
We need some good rules changes. We can do that together. But you change the rules with two-thirds of the people that are present so… Democrats, Republicans changing the rules to make the place work better. Getting rid of the filibuster doesn’t make it work better,” he said.
Democrats could change the rules on their own if they could get 50 senators to support the move and put Vice President Harris in the chair to break a tie.
But that would require both Manchin and Sinema to support not only changing the filibuster rule but also to change the rules along party lines.
Sen. Jon Tester (D-Mont.), who supports a talking filibuster, didn’t commit on Tuesday to using the nuclear option. Sen. Mark Kelly (D-Ariz.) also hasn’t endorsed a specific rules change proposal, telling reporters on Monday that he would wait to see the specifics.
Manchin’s comments come as Biden and Harris will speak in Georgia on Tuesday afternoon to push for the Senate to pass voting rights legislation.
Senate Majority Leader Charles Schumer (D-N.Y.) has vowed to take up election legislation this week and, if Republicans block it, to bring up a rules change vote by Monday, Jan. 17. Schumer hasn’t specified when the rules vote will occur, but senators and aides say they’ve been told to expect to be here this weekend and potentially into Monday.
A senior Democratic aide said on Tuesday that Schumer has invited Steven Levitsky and Daniel Ziblatt, professors and the authors of the book “How Democracies Die,” to present to Democrats during their virtual caucus lunch “on their research and the urgency of passing voting rights legislation to address growing threats to democracy.”
CLIMATE CHANGE :
Global race intensifies for EV raw materials
Ben Geman, Axios, January 11, 2022
A bunch of new developments highlights a wider trend: intensifying efforts by governments and corporations to secure key minerals needed for electric cars and other clean energy tech.
Driving the news: Tesla and Talon Metals announced a deal on Monday to supply the electric automaker with at least 75,000 metric tons of nickel concentrates from Talon’s planned mine in Minnesota. The Star Tribune has details.
- Separately, mining giant BHP said that it’s investing $100 million in a major project in Tanzania for mining nickel, a key material for vehicle batteries and energy storage projects. The FT has more.
- Meanwhile, Bloomberg reports: “France is aiming to raise 1 billion euros ($1.1 billion) to help secure enough supply of metals for industries like battery manufacturing as prices of raw materials skyrocket.”
- Back in the U.S., California Gov. Gavin Newsom’s just-proposed budget plan aims to help spur the development of lithium deposits in the Salton Sea area.
Why it matters: A global transition to cleaner mobility and power sources is slated to bring soaring demand for materials like lithium, nickel, cobalt, rare earth minerals and more.
Catch up fast: These are just the latest in a suite of plans among automakers, battery companies and others to lock down supplies of critical materials for electric vehicle components.
- To take just one example, General Motors last month announced two deals aimed at securing magnets and their raw material for EV motors.
Go deeper: The supply crunch that could slow the climate fight