Today’s Key Takeaways: ConocoPhillips is challenging a land use permit issued by the state of Alaska for Santos’ Pikka project. Experts predict gasoline prices will rise even higher. Oil sunk below $100 a barrel as fears of a COVID-19 lockdown in China’s capital ease the global demand crunch. Top Republican on House climate change panel harangued the American Petroleum Institute for preparing to propose a carbon tax. US could enter lithium market in a big way.
NEWS OF THE DAY:
ConocoPhillips challenges permit for Santos’ Alaska oil project
Sonali Paul, Reuters, April 22, 2022
ConocoPhillips (COP.N) is challenging a land use permit issued by the state of Alaska that may block the development of Santos’ (STO.AX) $3 billion Pikka project, the biggest new oil project on Alaskan land in decades.
The appeal marks the latest move in a dispute between ConocoPhillips and Pikka developer Oil Search, which Santos acquired last year, over fees that Oil Search would pay ConocoPhillips to use roads in the U.S. independent’s Kuparuk River Unit (KRU), next to Pikka.
Oil Search rejected ConocoPhillips’ proposal to pay $95 million in fees and applied to the state for a permit to access the roads, which the Alaska Department of Natural Resources granted on March 29, until the two companies reach a road use agreement. read more
ConocoPhillips is challenging that permit on the grounds the department “improperly granted” Oil Search “access to KRU roads that are the private property of the KRU lessees”, according to a letter dated April 5, and reviewed by Reuters, from the company to department Commissioner Corri Feige.
Feige has granted ConocoPhillips until May 18 to file additional information and given Oil Search until June 7 to respond, according to an April 8 letter reviewed by Reuters from Feige to the two companies.
Feige denied a request from ConocoPhillips to put a hold on the land use permit while the appeal is being considered.
The roads dispute casts a cloud on Santos’ effort to attract buyers for its 51% stake in Pikka. ConocoPhillips, the largest oil producer in Alaska, had earlier held talks with Oil Search to buy a stake in Pikka and is still seen as a likely bidder.
In a quarterly report on Thursday, Santos reaffirmed its guidance on Pikka, saying the project’s Phase 1 has received all major environmental and regulatory approvals and is on track to be ready for a final investment decision by mid-year.
OIL:
Oil just dropped below $98 a barrel and analysts are now backing away from their $200 predictions, saying war and COVID may ‘calm high prices’
Sophie Mellor, Forbes, April 25, 2022
In a whiplash turn, oil has again sunk below $100 a barrel as fears of a COVID-19 lockdown in China’s capital ease the global demand crunch.
The international benchmark Brent crude fell 4.6% to $101.74 a barrel at 4:34 a.m. ET; the U.S. crude West Texas Intermediate fell 4.9% to $97.07.
The oil price downturn comes after a rise in the number of COVID-19 cases in China’s capital Beijing prompted mass-testing, lockdown rumors and panic-buying. In Shanghai, the Shanghai composite stock index saw its worst day since February 2020 after the city reported record daily deaths over the weekend.
In addition to a drop in demand for oil in China—the world’s biggest crude importer—analysts believe the Ukraine War and surging inflation are also destroying the demand for oil.
“The ongoing war in Ukraine, COVID-19 lockdowns in China and surging commodity prices are going to take a significant bite out of global oil demand this year, with the potential to calm high prices,” Claudio Galimberti, senior vice president of analysis at research company Rystad Energy, wrote in a note.
Rystad Energy estimates oil demand will drop around 1.4 million barrels per day with a rebound unlikely until at least 2023. It projects annual world average of oil demand will hit 99.6 million barrels per day, dropping well below the pre-pandemic high of 100.2 million barrels set in 2019.
And as GDP growth is further weighed down by COVID-19 related lockdowns and geopolitical issues—the International Monetary Fund recently downgraded its 2022 world GDP growth forecast from 4.4% to 3.6%—global oil demand will continue to feel downward pressure.
Supercycle or demand destruction
Falling oil prices have been welcomed by the Western world, which was grappling with rising inflation even before many countries shut off the tap to Russian oil following the country’s invasion of Ukraine.
The U.S., Canada, the U.K., and Australia have banned Russian oil outright, while the EU, which is far more dependent on Russian energy, is planning to roll out its own embargo. Sanctions on Russian exports are sustaining high oil prices, which analysts at Rystad say will lead to a broad economic slowdown, negatively impacting the demand for oil.
Oil has also weakened on the prospect of higher U.S. interest rates. A strong U.S. dollar makes dollar-priced commodities like oil more expensive for other currency holders and increases risk aversion among investors.
But China’s lockdown policy is the greatest threat to rising oil prices, as millions of residents in a Beijing district were told to submit to three days of virus testing starting Monday, stoking fears of another city-wide lockdown. “It seems that China is the elephant in the room,” Jeffrey Halley, analyst at brokerage OANDA told Reuters. “The tightening COVID-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today,” he said.
“The big story in oil continues to be China,” said Keshav Lohiya, founder of consultant Oilytics told Bloomberg. “The hit to domestic demand will be significant if Beijing follows Shanghai’s route.”
As risks to consumption escalate, analysts have turned bullish on oil prices. “Shrinking demand is a direct result of the impact of lower economic activity globally,” Galimberti wrote, adding, “despite continued supply tightness, a demand slump could provide some respite for global prices.”
GAS:
Forecasters Predicting Gasoline Prices Will Rise Even Higher
Andreas Exarheas, Rigzone, April 25, 2022
In this week’s preview of what to watch in oil and gas markets, Rigzone’s regular energy prognosticators take a look at gasoline prices, Congress action, crude production rates, and more. Read on below to find out the specifics.
Rigzone: What developments/trends will you be on the lookout for this week?
Phil Kangas, Advisory Leader for Natural Resources & Mining, Grant Thornton LLP: According to AAA, gasoline prices nationwide stand roughly $1.20 above where they were this time last year. Forecasters are now predicting these prices will rise even higher, despite efforts by the Biden administration to lower summer gasoline prices with increased use of ethanol. In Washington, the U.S. House and Senate each held committee hearings earlier this month on the rising price of gasoline and its effect on American consumers. As both chambers of Congress return from spring recess … it will be worth watching to see if any substantive legislative action follows.
Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: U.S. Crude Production rose 100,000 barrels per day to 11.9 million barrels per day last week. Production forecasters expect production to reach anywhere from 12 to 12.9 million barrels per day by the end of the year. Production increases are anticipated for the back half of the year, especially given the June oil and gas drilling lease sales on public lands announced by the U.S. Department of Interior. Most of the acreage on offer is located in Wyoming. U.S. production is being closely watched with global supply hindered by outages in Libya, CPC pipeline damage, and continued official and voluntary sanctions on Russian oil.
MINING:
Experts: U.S. Could Enter Lithium Market In A Very Big Way
Ag Metal Miner, April 24, 2022
- Experts: U.S. could enter the lithium market in a very big way.
- U.S. must reduce its reliance on lithium imports from the lithium triangle.
- Geothermal technologies could unlock large lithium deposits in the U.S
The US could enter the lithium market in a very big way. At least, that’s what some experts are claiming. The global demand for lithium is on the rise, especially in the US. This should come as no surprise, as lithium-ion batteries are essential to electric vehicles and energy storage. Still, the question remains: is the US capable of breaking its reliance on lithium imports from Argentina, Chile, Russia, and China?
Lithium Production Needs to Increase
Because of the increased demand for electric vehicles, lithium extraction technology has seen heavy investment. These millions aren’t just coming from the likes of General Motors either, but the US Energy Department.
Right now, much of the focus is on direct lithium extraction (DLE). These technologies aim to extract lithium from brine using filters, membranes, ceramic beads, and other “micro-level” solutions. While such methods are successful, it’s unclear whether they can be scaled up for commercial production.
DLE technology necessitates vast amounts of potable water and electricity. Before the US could boost lithium production, we would need a clear plan to provide ample amounts of both. Since these resources are not particularly abundant, it also gives detractors more ammo to criticize lithium investment.
Looking to Geothermal Sources
According to this report, geothermal technologies are about to unlock large amounts of lithium hidden in naturally occurring hot brines. These are essentially concentrated saline solutions that circulate through super-heated rock in places like San Diego’s Salton Sea. In doing so, the solutions pick up many of the elements contained within the rock, including lithium.
The previously mentioned issue of water supply is clearly addressed through this method. After all, geothermal power plants use heat from the earth to generate a constant supply of steam. This allows them to run the turbines necessary to produce electricity.
The report also stated that if current tests are successful, the 11 existing geothermal plants along the Salton Sea could produce enough lithium metal to meet US demand 10 times over.
Science Paving the Way to the Lithium Market
Cypress Development Corp recently announced results from its Lithium Extraction Pilot Plant in Amargosa Valley, Nevada. It stated that the lithium extracted via the ion exchange in the recovery area boasts superior separation efficiencies. At the same time, major cations exceeded 98%. Results have also identified preliminary extraction rates of between 83% and 85% within the washed tails.
Meanwhile, lithium extractions performed with the Lionex process are clocking in at 98%. Perhaps most importantly, the report stated that overall impurity removal exceeded 99%. US Energy Secretary Jennifer Granholm remarked at an energy conference last month that DLE technology was a “game-changer” and a “great opportunity” for the United States.
This should come as no surprise to energy insiders. Recently, Warren Buffett’s Berkshire Hathaway Inc. was given a US $15 million grant by the US Energy Dept. to test DLE technology. Again, the site of the tests will be California’s Salton Sea.
Scoping Study in North America
Just 700 km from CentrePort Canada, Snow Lake Lithium is creating the world’s first all-electric, fully renewable lithium mine. Meanwhile, Snow Lake Resources Ltd. has commissioned a scoping study to assess the proposed creation of a Lithium Hydroxide Plant in South Manitoba. The company called the study “a strategically important step” toward creating North America’s first fully renewable, fully electric, and fully integrated lithium processing operation.
Starting this month, the study will accelerate the company towards commercialized lithium production. It’s hoped the research will identify the technologies, innovations, skills, and potential partners required to create a world-class lithium hydroxide plant in Manitoba.
The creation of a lithium hydroxide plant would greatly impact North American industry. Specifically, it would enable the integration of a domestic supply of this critical resource. Electric car companies could improve output and potentially even lower prices.
Waiting for the Future
Snow Lake Lithium currently has 11.1 million metric tons of inferred resources at 1% Li2O. The mine has further plans to expand its resources based on the current active drilling campaign.
The scoping study mentioned above will commence in April 2022 and should complete by Spring 2023. Meanwhile, Snow Lake Lithium will continue its engineering evaluation and drilling program across its Thompson Brothers Lithium Project site. Company leaders expect that the mine will transition to commercial production in late 2024.
Only time will tell if the US and its northern neighbor can capitalize on this massive opportunity. Until we experience a breakthrough, the entry into the global Lithium Market remains a matter of “baby steps.”
POLITICS:
Key Republican lashes out at API over ‘crappy’ carbon tax
Jean Chemnick, Climatewire, April 22, 2022
“Why don’t you just give Americans pink slips, force thousands into bankruptcy, and hand over Poland and the Baltics to [Russian President] Vladimir Putin while you’re at it?” asked Rep. Garret Graves (R-La.), the ranking member of the House Select Committee on the Climate Crisis, in a statement. “These European-based energy ideas are exactly what empowered Putin to invade Ukraine. Do us a favor and go sell these crappy ideas to North Korea, China, and Russia.”
Graves was responding to a report by The Wall Street Journal that API is in the process of moving a draft carbon tax proposal through its governing committees. The powerful oil and gas industry association first endorsed carbon pricing last year as part of a larger climate framework. The draft proposal, which was leaked to the Journal, has yet to be adopted.
Graves’ aggressive tone highlights again the growing wedge between industry and GOP lawmakers on a range of issues — including climate change (Climatewire, April 6).
His statement came the same day that Republicans in Florida’s state House voted to strip Disney — the Sunshine State’s top private employer — of long-established tax perks over the company’s opposition to Florida’s “Don’t Say Gay” law.
Graves, in his statement, cast a carbon tax as a blight to consumers in a period of rising gasoline prices.
GOP strategist Michael McKenna said that shows how the Republican Party has emerged as a “pro-consumer, pro-worker, and pro-market” party, “rather than reflexively pro-business.”
API argued that a carbon tax would not burden consumers — especially if it rebated a share of the revenue to households and replaced other regulations.
“At a time when Americans are paying for climate policy through hidden taxation and overlapping regulations that could increase the cost of energy, we are focused on analyzing solutions for the most transparent and impactful way to reduce emissions at the lowest cost to American families, and this proposal is part of that process,” said API Senior Vice President for Communications Megan Bloomgren.
API is far from the only big business organization to embrace a carbon tax, at least in theory. The U.S. Chamber of Commerce and the Business Roundtable have also expressed support for the policy.
Some advocates saw evidence as recently as last month that Republicans might be coming around to support a carbon levy if it’s written to benefit U.S. businesses over global competitors.
“In the context of climate policy, I think the lens with which [Republicans] view policy is a lens focused on U.S. competitiveness, securing supply chains, and a greater focus on ensuring the U.S. is a global supplier of clean energy and clean energy technologies,” said Greg Bertelsen, CEO of the Climate Leadership Council, in an interview with E&E News in March, before the API draft was leaked.
That trend had accelerated since Russia invaded Ukraine, he said.
While major legislation like an economywide carbon price would be unlikely to move during an election year, he said, “I feel confident in saying that you will continue to see businesses from all industries of all sizes increasingly come to a market-based solution like a carbon price as their preferred approach, and I think you will continue to see Republicans coming to climate policy in a meaningful and sincere way.”