Today’s Key Takeaways: Increased production on the North Slope combined with higher oil prices means more revenue for Alaska. 70% of U.S. voters support increased U.S. oil and gas production. Nickel trading cancelled on London metal exchange after price soars to $100,000/tonne. Energy consultant discusses Alaska’s competitiveness with House Resources committee.
NEWS OF THE DAY:
Biden on Russian oil import ban: “We will not be part of subsidizing Putin’s war”
Axios, March 8, 2022
President Biden announced Tuesday that the U.S. will ban all imports of Russian oil, natural gas, and coal in response to Vladimir Putin’s invasion of Ukraine.
What he’s saying: “We will not be part of subsidizing Putin’s war,” Biden said. “The American people will deal another powerful blow to Putin’s war machine.”
- Biden acknowledged that the decision “is not without costs here at home.”
- “I’m going to do everything I can to minimize Putin’s [gas] price hikes” in the U.S., the president said.
- “This crisis is a stark reminder that to protect our economy over the longterm, we need to become energy independent,” Biden added. “It should motivate us to accelerate a transition to clean energy.”
Driving the news: Biden had come under growing pressure from Congress and Ukraine to sanction Russia’s most important industry, but hesitated due to concerns about rising energy prices and opposition by U.S. allies in Europe.
- The U.K., which imports most of its energy from Norway, announced its own phased ban on Russian oil — but not natural gas — by the end of 2022.
- “This transition will give the market, businesses and supply chains more than enough time to replace Russian imports – which make up 8% of U.K. demand,” U.K. Business Secretary Kwasi Kwarteng tweeted.
The big picture: The European Commission released a plan to reduce EU demand for Russian gas by two-thirds before the end of 2022, and completely phase out dependence on Russian fossil fuels “well before” 2030.
- Top European leaders on Monday said they recognized the need to reduce the continent’s dependence on Russian oil and gas, but ruled out an embargo for now.
What to watch: House Speaker Nancy Pelosi told the Democratic caucus on Tuesday that the House will move forward with legislation to ban Russian oil imports, despite Biden’s executive action, according to a Democratic aide.
- The legislation could include other provisions, such as terminating normal trade relations with Russia.
By the numbers: Russia is the world’s third-largest oil producer, with Europe as its largest buyer.
- Oil from Russia accounts for roughly 3% of U.S. crude oil imports and about 1% of total crude oil processed by U.S. refineries, according to the American Fuel and Petrochemical Manufacturers (AFPM) trade association.
- It’s unclear how big of an impact the embargo will have at the pump, though talks about a possible ban or limits sent oil prices soaring to 14-year highs over the weekend.
- The average regular U.S. gasoline price spiked to a record high on Tuesday, hitting $4.173 per gallon, according to AAA. When factoring in inflation, however, gas prices remain cheaper on a historical basis.
Between the lines: Russian oil sales have already been crimped, even as initial sanctions avoided direct aim at the Kremlin-backed energy sector, due to “self-sanctioning” and Russian isolation from commercial transactions, Axios’ Ben Geman notes.
The Biden administration is exploring ways to unlock more global oil supplies to ease the shock to gas prices.
- That includes negotiating with the leadership of Saudi Arabia, which Biden had pledged to make a “pariah” after the murder of journalist Jamal Khashoggi, as well as heavily sanctioned Venezuela.
- The U.S. is also expected to reach a new nuclear deal with Iran in the coming days, potentially giving Tehran the ability to ramp up its oil exports.
OIL:
New oil projects on slope begin to lift production
Tim Bradner, The Frontiersman, March 7, 2022
North Slope production is starting to see the benefit of new projects going into operation, according to Alaska Department of Revenue production data. The gain is still small, but it will grow through the year.
More oil being produced combined with higher crude oil priced will mean more revenue for the state treasury this year and next.
Total production in February averaged 501,266 barrels per day in February, up from 499,972 barrels per in December and from 495,076 barrels per year-over-year from February 2021.
The effect of new production from two new ConocoPhillips projects, GMT-2 in the National Petroleum Reserve-Alaska and Narwhal, south of the Alpine field, was seen in Alpine field production data.
The two projects are near, but not in, the Alpine field but the new oil is processed in in Alpine field facilities and metered there.
Alpine field production is seeing a gradual increase, averaging 54,720 barrels per day in February, up from 53,007 barrels per day in January and 50,389 barrels per day year over year, from February 2021.
The increase in the Alpine field along with higher production in the Prudhoe Bay field was enough offset a continued decline in Kuparuk River field, which averaged 106,801 barrels per day in February, down from 108,867 barrels per day in January and from 117,034 barrels per day in February 2021.
The small Lisburne field, where oil from several small nearby accumulations is processed, is holding generally steady at 20,733 b/d in February against 21,274 barrels per day in January and 21,873 barrels per day year-over-year from February 2021.
Production at the Prudhoe Bay field, largest on the North Slope, continued to show increases in February. Prudhoe output was 319,013 b/d in February compared with 316,825 barrels per day in January and 305,780 barrels per day year-over-year in February 2021.
Energy is the field operator at Prudhoe Bay and has engaged in an aggressive redevelopment of the aging field since taking over as operator in mid-2019 from BP.
Hilcorp would not comment on its operations but Alaska’s Commissioner of Natural Resources, Corri Feige, said in an interview that one strategy used by the company is increasing capacity utilization of processing plants, which allows for more oil to be processes and shipped to nearby Pump Station One of the Trans Alaska Pipeline System.
Hilcorp itself, in earlier briefings to industry groups, has said that an aggressive schedule to repair older out-of-service wells and restore production has paid benefits.
Hilcorp has a strategy of buying mature fields, investing in redevelopment, and increasing production. It did that with 50-year-old offshore platforms in Cook Inlet, in south Alaska, after purchasing the fields in 2012 and 2013, and is now following a similar path at Prudhoe Bay.
State officials expect overall North Slope production to gradually increase through 2022 as output ramps up at GMT-2 and Narwhal. Another project, Fiord, is due to begin production in 2022 but is behind schedule due to technical problems encountered in drilling extended horizontal production wells, some of them seven miles from the surface location of the drill rig.
Feige is also upbeat about larger new projects planned for the slope. In the interview she said she expects Pikka, one of two larger projects, to be ready for a Final Investment Decision in the second quarter of this year.
Pikka’s phase one, if it proceeds, would produce 80,000 barrels per day beginning in 2025.
Pikka is being developed by Oil Search, now a subsidiary of Australia-based Santos Ltd., and Madrid-based Repsol. Oil Search holds 51 percent of Pikka and is operator, with Repsol as minority owner at 49 percent.
The commissioner said expects the project would expand in two 40,000 b/d increments to its expected full output of 160,000 b/d.
Feige also said ConocoPhillips Is making progress in clearing obstacles with its planned Willow project in the NPR-A west of Alpine. Willow is now stalled by lawsuits brought by environmental groups, but negotiations have been underway with the U.S. Bureau of Land Management, which administers the petroleum reserve, on revised plans for the project to meet objections raised by the litigants.
BLM has announced that it will publish a new Supplemental Draft Environmental Impact Statement for the project by mid-year, which could set the stage for approvals of permits for the project.
ConocoPhillips had hoped to have a Final Investment Decision on Willow this year and production in 2025 or 2026 but is now saying the project will start up about six years from an FID, whenever it happens.
The company has also said that Willow’s estimated cost is now $8 billion, up from earlier projections of $6 billion.
GAS:
70% Favor Increased U.S. Oil and Gas Production
Rasmussen Reports, March 7, 2022
With gas prices soaring, energy policy is likely to be a major issue in the midterm election campaign, and voters strongly favor a policy of promoting domestic petroleum production.
The latest Rasmussen Reports national telephone and online survey finds that 70% of Likely U.S. Voters believe the U.S. government should encourage increased oil and gas production to reduce America’s dependence on foreign sources of oil and gas. Only 18% oppose a policy of encouraging U.S. energy independence, while 12% are not sure. (To see survey question wording, click here.)
Fifty-two percent (52%) of voters think the energy policy of President Joe Biden’s administration is worse than the policy of former President Donald Trump. Thirty-three percent (33%) believe the Biden administration’s energy policy is better than the Trump administrations. Another 11% say the policy of the two administrations is about the same.
Eighty-eight percent (88%) of voters believe energy policy will be important in this year’s congressional elections, including 60% who say it will be Very Important.
The survey of 1,000 U.S. Likely Voters was conducted on March 3 and 6, 2022 by Rasmussen Reports. The margin of sampling error is +/- 3 percentage points with a 95% level of confidence. Field work for all Rasmussen Reports surveys is conducted by Pulse Opinion Research, LLC. See methodology.
Majorities in every political category – 87% of Republicans, 55% of Democrats and 70% of voters not affiliated with either major party – believe the U.S. government should encourage increased oil and gas production to reduce America’s dependence on foreign sources of oil and gas.
While 59% of Democratic voters think Biden’s energy policy is better than Trump’s, 78% of Republicans and 56% of unaffiliated voters say the Biden administration’s policy is worse than Trump’s.
More Republicans (71%) than Democrats (51%) or unaffiliated voters (60%) believe energy policy will be Very Important in this year’s congressional elections.
More men (56%) than women voters (48%) say Biden’s energy policy is worse than Trump’s. Men are also more likely than women voters to favor a policy of encouraging U.S. oil and gas production.
While voters under 40 are about evenly divided as to whether Biden’s energy policy is better or worse than the Trump administration’s policy, a solid majority of older voters say Biden’s policy is worse.
Majorities in every racial category – 74% of whites, 55% of Black voters and 67% of other minorities – believe the U.S. government should encourage increased oil and gas production to reduce America’s dependence on foreign sources of oil and gas. Black voters are significantly less likely to believe energy policy will be Very Important in this year’s congressional elections.
While a majority of voters with annual incomes under $100,000 believe the Biden administration’s energy policy is worse than Trump’s, voters with incomes between $100,000 and $200,000 are evenly divided as to which administration’s energy policy is better, and those with incomes over $200,000 favor Biden’s policy by a 12-point margin.
Private sector workers are more likely than government employees to say the Biden administration’s energy policy is worse than Trump’s.
Among voters who say the Biden administration’s energy policy is worse than Trump’s, 76% say energy policy will be a Very Important issue in this year’s congressional elections.
Russia’s invasion of Ukraine has caused gasoline prices to spike, and most Americans expect the cost to continue rising.
Russia’s invasion of Ukraine will have a negative impact on the U.S. economy, most Americans believe.
Additional information from this survey and a full demographic breakdown are available to the public as well as to Platinum Members.
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MINING:
LME cancels nickel trading after price soars past $100,000 a tonne
Cecelia Jamasmie, Mining.Com, March 8, 2022
The London Metal Exchange (LME) cancelled nickel trading on Tuesday after a first-time 250% price spike triggered by Western sanctions against major producer Russia, which left brokers struggling to pay margin calls against unprofitable short positions.
Prices for the metal, key ingredient in batteries that power electric cars and high-tech devices, soared to a record above $100,000 a tonne amid a vicious short squeeze — the largest-ever on the LME.
The 145-year-old exchange responded by halting trade and in a later update announced the cancellation of all trades executed on or after 00:00 UK time on March 8 and deferring delivery of all physically settled contracts.
The LME said the move followed a close monitoring of the ongoing impacts of Russia’s invasion of Ukraine, as well as the recent “low-stock environment and high pricing volatility environment observed in various LME base metals, and in particular nickel.”
The move, BMO analyst Colin Hamilton said, will see questions resurface as to the efficacy of the LME to act as the market of last resort after the short squeeze in copper seen late last year.
“It is unlikely this is the last of extreme volatility we see in commodity markets,” Hamilton wrote.
The debacle brings back memories of one of the bourses darkest periods, known as the “Tin Crisis” of 1985, which saw the LME stopping tin trading for four years and pushed many brokers out of business.
“Although no such suspension like this has happened since the tin crisis in 1985-86, the move in LME three-month prices to $100,000 per tonne, from Friday’s close at $29,130 per tonne, is likely to be a spike,” Will Adams, head of Battery and Base Metals research at FastMarkets said in an emailed statement.
The analyst believes that most of the buying pressure likely came from distressed shorts having to cover their positions on the exchanges, boosted by fears about supply from Russia and low levels of visible inventory on the LME. But Adams sees prices falling back “before too long.”
Nickel prices have steadily climbed in the past year as battery makers try securing steady sources of the metal, which has quadrupled its value over the past week on fears of further curbs on supply.
“We can expect nickel users in the growing market for batteries will be watching this volatility uneasily, particularly while the market is closed,” Adams said.
Russia not only is responsible for about 10% of the world’s production, but Moscow-based Norilsk Nickel (MCX: GMKN) is the biggest provider of battery- grade nickel at 15% to 20% of global supply.
Demand for high-grade nickel was already set to outstrip supply this year because of the increasing popularity of electric vehicles.
[Click here for an interactive chart of nickel prices dating back to 1989]
Goldman Sachs has forecast the nickel market to be in a 30,000-tonne deficit in 2022, up from their August forecast of a 13,000-tonne deficit.
Tesla boss Elon Musk has identified the shortage of nickel as one of the biggest hurdles to ramping up production of EV batteries. He promised in 2020 millionaire contracts to miners able to provide the EV maker with sustainable nickel.
POLITICS:
Renewables, low-carbon fuels draw global interest, analyst tells lawmakers
Linda F. Hersey, Fairbanks Daily News Miner, March 7, 2022
Energy demand is on the rise in America and across the globe. Alaska’s ability to compete remains to be seen as the United States and other industrialized countries pivot to renewables and low-carbon fuels.
The Alaska House Resources Committee received an overview of Alaska’s competitiveness in the world energy market at a presentation by GaffneyCline Associates, an energy market consultant.
“What is accepted and understood is that energy demand is going up and that is not going to change going forward,” said Michael Cline, director at GaffneyCline. “There is an energy transition underway, and we are in the early stages of it.”
But energy companies and developers are increasingly selective about investments, given global pressures to reduce greenhouse gases and address climate change.
“The takeaway is there is a large-scale commitment” to address carbon intensity, Cline said. “With that, investment dollars are flowing into renewables and clean energy to support decarbonization. We believe that the carbon producers that are high cost and high carbon will feel the greatest impact. This is important for Alaska because you are high cost and high carbon.”
Rep. Grier Hopkins (D-Fairbanks) said it was his understanding that Alaska’s oil producers adhere to high environmental standards compared to other operators in the U.S. and globally.
Nick Fulford, senior energy transition director at GaffneyCline, said that Alaska’s oil fields have aging infrastructure and technology in terms of gas recycling.
“A lot of it relates to the nature of the elements and the significant requirements for drilling” in the Alaska environment, Fulford said.
Cline described the energy market as dynamic, diverse, and competitive, with Alaska’s energy sector vying against other U.S. states as well as the Middle East.
Comparing oil and gas development in Alaska to other U.S. energy states, Cline said that exploration and drilling costs are higher in Alaska because of the lack of infrastructure and the remoteness of projects.
“Companies are under pressure from vendors and stakeholders to prove their financial performance and to meet and contribute toward climate initiatives,” he said.
“Some companies are divesting from projects as they look at their global portfolios. They and their boards are asking, ‘Where should I be putting my money now?’” he said.
GaffneyCline provided an overview of the natural gas market and the prospects for a liquefied natural gas (LNG) development in Alaska.
The consultants discussed the volatility of Russian exports of natural gas to Europe. Russia provides the European Union with 40% of its natural gas.
European consumers are seeing costs for natural gas rise, with sanctions against Russia for its war in Ukraine.
U.S. exporters, including from the Gulf states, are seeing a growing natural gas market to Europe. “Europe is realizing that Americans are the natural gas resource, clearly,” Fulford said.
“There is a realization that natural gas represents a significant foreign policy tool. Strategic buyers of gas are re-examining their purchase portfolios and reminding themselves of where their gas resources are and the nature of the jurisdiction,” Fulford said.
Fulford also discussed potential opportunities of hydrogen projects, carbon capture and other “unconventional ways” to monetize gas.
“Alaska, with its stable environment, excellent security situation and the rule of law that applies across the whole of the U.S., has become an interesting prospect for gas buyers who would not have prioritized it in the past,” Fulford said.
