NEWS OF THE DAY:
OPEC, Biden and Gas Prices – WSJ
The Editorial Board, The Wall Street Journal, July 6, 2021
As cognitive dissonance goes, this is a classic. President Biden’s explicit policy goal is to reduce U.S. oil and gas production, limiting the global supply of fossil fuels in the name of fighting climate change. Yet his Administration is now imploring the OPEC oil cartel to pump more oil so U.S. gasoline prices don’t rise more than they already have on Mr. Biden’s watch.
Oil prices climbed to a six-year high on Tuesday after the Organization of the Petroleum Exporting Countries and Russia failed to agree on increasing production quotas. Last spring OPEC slashed production quotas after crude prices plunged to $20 per barrel amid economic lockdowns and a price war between Saudi Arabia and Russia.
But energy demand has snapped back in much of the world as Covid-19 vaccines roll out, governments ease lockdowns, and freight shipments surge. U.S. petroleum consumption is now roughly where it was at this time in 2019. OPEC estimates that oil demand in industrialized countries will increase by 2.7 million barrels a day this year.
In early June OPEC modestly raised production quotas, but demand is still rebounding faster than supply. The upshot is that crude prices are averaging around $74 a barrel, up 45% or so this year. OPEC countries naturally want to take advantage of the pandemic recovery to boost production and generate more petrodollars to fund their governments.
But a squabble between Saudi Arabia and the United Arab Emirates over quotas is blocking an agreement, sending U.S. gasoline prices to a near seven-year high. Enter the Biden Administration. A White House spokesperson on Monday said it is urging OPEC and its allies to quickly come up with a compromise “that will allow proposed production increases to move forward.”
The Administration is worried that higher gas prices could undermine Mr. Biden’s climate agenda and spending plans. Republicans have been linking his veto of the Keystone XL pipeline with higher gas prices. The two aren’t directly related. But no Keystone does mean that more crude from Canada and the northern Bakken Shale will have to move by rail to U.S. refiners.
This is contributing to higher freight demand and prices, as well as supply-chain bottlenecks, all of which are adding to inflationary pressure. Consumers feel the pain at the pump and on their utility bills as natural gas and propane prices have also surged. Rising energy costs are also feeding into the higher price of goods more broadly.
Mr. Biden knows surging prices for gas and other goods hurt middle-class Americans and could undermine his Presidency. This is one reason he refused a proposal to pay for the Senate’s bipartisan infrastructure deal by increasing the gas tax.
But note the irony that Mr. Biden is now urging OPEC to open its taps even while his Administration is pursuing policies with the goal of shutting down U.S. oil and natural gas production. His Administration has sought to halt new leases on federal land, suspended leases in Alaska’s Arctic National Wildlife Refuge, and is expanding endangered-species protections to limit oil production on private land, among other policies designed to punish fossil fuels.
But reducing U.S. production means reduced global supply even as demand surges. This means more pricing leverage for OPEC and Russia—and for Iran if Mr. Biden lets Tehran escape sanctions on its oil exports as part of a renewed nuclear deal. So Russia and Iran will benefit from Mr. Biden’s fossil-fuel disarmament while Americans pay more for energy.
The way out of such contradictions would be to let U.S. producers respond to higher prices without new political obstacles. He can tell the climate lobby it beats political defeat.
OPEC oil stalemate: Here’s why U.A.E. is blocking a deal
William Watts, MarketWatch.Com, July 7, 2021
Want to know why the United Arab Emirates is blocking an OPEC+ deal on collectively raising output unless it gets to effectively raise its own output quota?
It all goes back to the April 2020 agreement by OPEC+ — the group made up of the Organization of the Petroleum Exporting Countries and its allies — to cut output by 10 million barrels a day.
That agreement required most individual countries to cut output from their October 2018 production levels. U.A.E, wants to change the baseline from October 2018 to April 2020. That would allow U.A.E. to pump significantly more oil, as its production in April 2020 stood at 3.841 million barrels a day versus 3.16 million barrels a day in October 2018.
Indeed, the chart shows that U.A.E. was “heavily penalized” by the decision to use 2018 as the baseline, Campanella said, noting that the expansion in production capacity resulted from a series of investments that are expected to increase output to around 5 million barrels a day by 2030.
The U.A.E., as a result, is now sacrificing 31% of its capacity, the highest such percentage among OPEC+ members even though it’s only a midsize producer, the economist said. A shift to a 2020 baseline would see U.A.E. idling just 17% of its capacity, largely in line with other countries.
The U.A.E. has grumbled about the baseline before, but it all came to a head last week when the country refused to sign on to a proposal to further ease output curbs by 400,000 barrels a day per month from August through December — a move that would add around 2 million barrels a day to output through the end of 2021. U.A.E. has said it’s fine with OPEC+ boosting output but contends it should be able to use the more favorable baseline.
The U.A.E. has also pushed back against a proposal to extend the expiration date of the current agreement on output cuts from April 2022 to the end of next year.
The stalemate has raised questions about U.A.E.’s commitment to OPEC and whether the country could be tempted to exit the cartel.
Saudi Arabia, OPEC’s de facto leader, and Russia, OPEC’s key ally, have both rejected those calls, in part out of fears other countries might also demand changes in their baselines, analysts said. An OPEC+ meeting on Friday ended without an agreement, while a Monday meeting was scrapped after no progress was made over the weekend.
The uncertainty around OPEC+’s next move has made for volatile trading in oil markets, with futures on West Texas Intermediate crude CL00, -1.84% CLQ21, -1.81%, the global benchmark, hitting a 6 1/2-year high Tuesday before turning sharply lower. Brent crude BRN00, -1.62% BRNU21, -1.62%, the global benchmark, traded at its highest since 2018 before also turning south in Tuesday’s session.
Energy Department orders lifecycle review of Alaska LNG emissions
Larry Persily, July 6, 2021
The U.S. Department of Energy has ordered a supplemental environmental review of the full lifecycle of greenhouse-gas emissions from production on the North Slope to consumption by customers for the proposed export of liquefied natural gas from Alaska.
Referring to executive orders issued in the first week of the Biden administration, the department determined “it was appropriate to further evaluate the environmental impacts” of exporting LNG from the proposed Alaska project.
The department issued a notice June 28 that it will prepare a supplemental environmental impact statement for the project.
The review “will include an upstream analysis of potential environmental impacts associated with natural gas production on the North Slope of Alaska.”
The supplemental EIS, which will be prepared by the department’s National Energy Technology Laboratory, will include a lifecycle calculation of greenhouse-gas emissions, “taking into account unique issues” in the production of North Slope gas; pipeline transport more than 800 miles through Alaska; liquefaction at the gas plant proposed for Nikiski, on Cook Inlet; and marine transport, primarily to Asian buyers.
A footnote to the June 28 order explained that lifecycle analysis “is a method of accounting for cradle-to-grave” greenhouse-gas emissions. The department considers emissions from the entire LNG supply chain, the footnote said, “from the ‘cradle’ when natural gas is extracted from the ground, to the ‘grave’ when electricity is used by the consumer.”
The order to prepare a supplemental EIS comes 15 months after the Federal Energy Regulatory Commission, as the lead agency for environmental analysis of the Alaska project, issued its final EIS for the project in March 2020. The Department of Energy adopted that final EIS 10 days after FERC, as has been customary in recent years for the department to adopt the commission’s environmental analysis.
Both agencies later issued final authorizations for the project: FERC governs construction and operation of the pipeline, LNG plant and other facilities; the Department of Energy regulates exports of U.S. natural gas.
Under new leadership, FERC also is attempting to measure lifecycle emissions in reviewing natural gas pipeline projects.
The FERC and Energy Department authorizations are held by two different entities. The state-owned Alaska Gasline Development Corp. holds the FERC authorization. The corporation proceeded with the expensive project application and EIS process on its own after North Slope producers in 2016 decided not to spend more money on the economically challenged $38 billion project and dropped out of the application process.
The export authorization for the gas is held by Alaska LNG LLC, a consortium of ExxonMobil, ConocoPhillips and Hilcorp Alaska. The original application for exports was filed in 2014, with BP one of the partners. Hilcorp bought up BP Alaska last year, giving it the same one-third stake in Alaska LNG LLC as Exxon and Conoco.
The producers hold no interest in the state corporation, and the state is not a party to the export authorization.
The notice of a supplemental EIS had been anticipated after the department on April 15 granting a rehearing filed by the Sierra Club and determined that it would proceed with the additional environmental review of the Alaska project.
After the supplemental review is completed, the department may “reaffirm, modify or set aside the Alaska LNG (export) order,” according to the April 15 decision.
The department said June 28 it will issue a notice in the Federal Register when the draft supplemental EIS is released, dates of “one or more online public hearings” on the draft, and instructions for submitting public comments.
The department will pay for the supplemental EIS, an official reported July 6.
The FERC and Energy Department authorizations for the Alaska LNG project have been challenged in the U.S. Court of Appeals for the District of Columbia Circuit by the Sierra Club and other opponents of fossil-fuel projects. “Those lawsuits are ongoing and are currently subject to various pending procedural motions,” according to the energy department order for a supplemental EIS.
For its additional review of upstream production issues, the department has “tentatively identified the following resource areas for analysis (although the following list is not intended to be comprehensive or to predetermine the potential impacts to be analyzed): land use and visual resources; geology and soils; water resources; air quality and noise; ecological resources; cultural and paleontological resources; infrastructure; waste management; occupational and public health and safety; socioeconomics; transportation; and, environmental justice.”
Those are the same areas covered in the FERC-led EIS, which took three years to complete after the state corporation submitted the last of its required reports.
For the lifecycle analysis, the Energy Department said it will “examine the global nature of GHG emissions associated with exports of LNG from Alaska.”
One of the presidential executive orders referenced in the department’s June 28 notice directs all federal agencies to “immediately review all regulations, orders and other actions issued after January 20, 2017,” that may increase greenhouse-gas emissions or affect climate change.”
The second calls to “organize and deploy the full capacity of [federal] agencies to combat the climate crisis,” according to the department’s footnote, requiring the federal government to assess, disclose and mitigate “climate pollution and climate-related risks in every sector” of the U.S. economy.
Donlin progresses toward mine decision
Shane Lasley, North of 60 Mining News, July 1, 2021
Optimized feasibility study expected after 2021 drill program
Donlin Gold LLC partners Novagold Resources Inc. and Barrick Gold Corp. are more than 8,650 meters into a 20,000-meter drill program that will likely provide the final data needed for an optimized plan for a mine at the 39-million-ounce gold project in Southwest Alaska.
“After the 2021 drill season, we anticipate that, on the completion of the updated geologic model and, subject to a formal decision by the Donlin Gold LLC Board, we will turn our attention to the upcoming feasibility study with Barrick,” Novagold Resources President and CEO Greg Lang informed shareholders in a letter included in the company’s second quarter 2021 results.
As the partners close in on an updated feasibility study, Donlin Gold and its Alaska Native partners – Calista Corp. and The Kuskokwim Corp. – continue to make headway on obtaining the final state permits needed to develop a mining operation that matches the world-class deposit.
“During the second quarter, Donlin Gold, together with Calista and TKC, continued to provide support to state agencies in their efforts to advance remaining permits and approvals needed for the project,” Lang added. “Several key permit decisions were made in support of the project in the quarter.”
This includes Alaska’s Department of Environmental Conservation Commissioner Jason Brune’s decision to uphold a certification of reasonable assurance that the proposed Donlin Gold Mine will comply with state water quality standards. This decision, however, has been appealed to a higher court.
The four rigs turning at Donlin Gold have completed more than 28 of the 64 holes slated for drilling this year in the ACMA and Lewis areas of the world-class deposit. This drilling is focused on continuing to confirm geologic modeling concepts, validate mineralization continuity, and test for extensions of high-grade zones encountered with the roughly 23,400 meters of drilling completed in 85 holes last year.
Highlights from the 2020 drilling include:
• 45.9 meters averaging 5.03 grams per metric ton gold from 35.4 meters in hole DC20-1866.
• 41.9 meters averaging 11.61 g/t gold from a depth of 30.4 meters in DC20-1871.
• 7.7 meters averaging 18.4 g/t gold from 60.9 meters in DC20-1873.
• 4.2 meters averaging 80.6 g/t gold from 123.5 meters in DC20-1877.
• 22.1 meters averaging 4.7 g/t gold from 158.8 meters in hole DC20-1886.
• 33.9 meters averaging 6.5 g/t gold from 218.2 meters in hole DC20-1886.
• 6.9 meters averaging 43.1 g/t gold from 178.6 meters in hole DC20-1888.
“We are excited to be building upon a successful 2020 drill program which included significant higher-grade gold intersections indicative of the impressive nature of this deposit,” said Lang.
No assay results have been reported from the 2021 drill program.
Reasonable assurance appeal
While assembling more detailed geological data for an optimized feasibility study and ultimately a construction decision for a world-class gold mine, Donlin Gold continues to work toward collecting the final state authorization needed, including water permits and right of way agreement for the 300-mile pipeline that will deliver natural gas to the proposed mine.
Following a six-year permitting process under the National Environmental Policy Act (NEPA), the U.S. Army Corps Engineers and Bureau of Land Management have already approved the federal permits needed to develop the mine proposed by Donlin Gold.
Part of the Alaska permitting process is the issuance of a certificate of reasonable assurance that the proposed mine approved by federal regulators will comply with the water quality standards, which was issued by DEC in 2018.
Earthjustice, a San Francisco-based law firm acting on behalf of the Orutsararmiut Native Council in Bethel, Alaska, challenged this certificate on the grounds that DEC cannot provide reasonable assurance a mine at Donlin will meet water quality standards for temperature, mercury, and protection of existing uses.
In April, Administrative Law Judge Kent Sullivan from the Alaska Office of Administrative Hearings, who heard the case, concluded DEC had not demonstrated with reasonable certainty that Alaska water quality standards would be met.
Judge Sullivan’s decision was sent to the state for review and Alaska DEC Commissioner Jason Brune had 45 days to determine whether to accept the decision, return it to the administrative law judge to consider additional evidence, revise its enforcement action, or reject the finding.
In a 50-page response, Brune affirmed the state’s position that there is reasonable assurance that the Donlin permits issued under the federal Clean Water Act would meet Alaska’s standards for water temperature, mercury concentrations, and existing uses.
On June 28, Earthjustice appealed the DEC commissioner’s decision in Alaska Superior Court.
In response to this expected appeal, Donlin Gold said it “strongly believes that the Commissioner’s decision to uphold the 401 Certification validates the project stakeholders’ commitment to advance the Donlin Gold project in a safe and environmentally responsible manner for the benefit of all Alaskans.”
“Simply put, we will not operate the Donlin Gold project without demonstrated compliance with the State’s water quality standards,” Lang informed Novagold shareholders. “Throughout the multi-year permitting process, Donlin Gold engaged with all relevant parties to answer their questions and address their concerns. We look forward to continuing that practice.”
Above and beyond answering stakeholder questions, Donlin Gold, Calista, and TKC have carried out a wide range of community engagement and support initiatives:
• Finalized shared value statements with two additional villages from the Yukon-Kuskokwim region for a total of seven shared value statements – Akiak, Sleetmute, Napaimute, Crooked Creek, Napaskiak, Nikolai, and Tuluksak – to date. These agreements include educational, environmental, and social initiatives to help support villages.
• Held the Lower Kuskokwim School District’s annual College and Career fair, where more than 42 vendors and 100 students attended the virtual event held in April.
• Launched a Subsistence Community Advisory Committee which will strengthen the role of Donlin Gold in guiding subsistence activities within the Kuskokwim River drainage.
“As a company, we aspire to make a positive difference in the Alaskan communities in the Y-K region. That’s why we give community members a chance to be heard,” said Lang. “Through that exchange of ideas and approaches, we develop lasting solutions to improve the way of life in the communities.”
Update: We now have the names of the members:
- Senator Lyman Hoffman, D-Bethel (Senate Majority)
- Senator Shelley Hughes, R-Palmer (Senate Majority)
- Senator Scott Kawasaki, D-Fairbanks (Senate Minority)
- Senator Jesse Kiehl, D-Juneau (Senate Minority)
- Representative Jonathan Kreiss-Tomkins, D-Sitka (House Majority)
- Representative Calvin Schrage, I-Anchorage (House Majority)
- Representative Ben Carpenter, R-Nikiski (House Minority)
- Representative Kevin McCabe, R-Mat-Su Valley (House Minority)
- Senator Mike Shower, R-Mat-Su Valley (Senate Majority)
- Senator Elvi Gray-Jackson, D-Anchorage (Senate Minority)
- Representative Grier Hopkins, D-Fairbanks (House Majority)
- Representative Mike Prax, R-North Pole (House Minority)
The carbon removal market is expanding
Ben Geman, Axios, July 7, 2021
Carbon Engineering, a firm looking to commercialize nascent “direct air capture” tech, just unveiled a new retail offering for its services in partnership with the firm BeZero Carbon.
Driving the news: The new service is basically about buying future removal in smaller amounts than the startup has previously offered and packaging them with other removal options via BeZero.
- Carbon Engineering is planning to build commercial-scale facilities. Ahead of that construction, BeZero has “pre-purchased” removal that it will, in turn, sell to clients, which can also be part of a “basket” of “removal offsets.”
Catch up fast: Carbon Engineering opened its doors for removal purchases earlier this year, with inaugural customer Shopify ordering 10,000 tons of CO2 removal.
- But that service has a minimum purchase of 100 tons. Customers pre-purchasing through BeZero’s platform buy removal amounts of any size, Carbon Engineering tells Axios, which expands the pool of companies and people.
The big picture: It’s the latest sign of an expanding suite of ways that businesses — and even individual clients — can purchase services or make investments that, if all goes well, will directly result in the removal of CO2 already in the atmosphere.
Here are some other examples (not a complete list)…
- May brought the launch of the nonprofit group Climate Vault. It’s complicated but involves the purchase of emissions permits from regulated trading markets, which are then monetized to finance removal efforts.
- The Swiss DAC firm Climeworks launched a retail subscription service in 2019.
- The startup Nori has launched a soil carbon removal market.
- Last month Nasdaq took a majority stake in the firm Puro.earth, a business-to-business trading marketplace for carbon removal credits.
- Elsewhere, the online payments company Stripe last year launched “Stripe Climate,” which allows users of its platform to direct some revenues toward companies investing in CO2 removal tech.
Why it matters: There’s growing interest in CO2 removal, a basket of tech and methods like direct air capture, afforestation, carbon mineralization and much more.
- Corporate heavyweights including Amazon, Microsoft, BP, Chevron and Bill Gates’ Breakthrough Energy Ventures are investing in various kinds of “negative emissions” startups.
- It comes at a time when global efforts to cut emissions are nowhere near on the scale needed to meet the goals of the Paris agreement.
- A major 2018 report by the United Nation’s science panel found that pathways to limiting warming to 1.5ºC — the Paris deal’s most ambitious goal — rely on varying levels of removal.
Yes, but: Removal doesn’t replace the need for steep emissions cuts to meet the Paris Agreement goals, and verification can be a mixed bag too.
- Also, it’s extremely unclear when and to what degree carbon removal will be deployed at a significant scale.
- Experts warn that potential carbon removal deployment in the future should not be used to delay or weaken emissions mitigation, especially given all the uncertainties.