Race to seize Arctic resources. G7 quiet on oil and gas. Ban on bitcoin?

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News of the Day:

Tensions over Arctic resource rights grow as Russia takes leadership role
Laura Millan Lombrana, World Oil, May 23, 2021

-A battle of words between top Russian and U.S. diplomats this week is the latest sign of rising tensions between superpowers racing to seize Arctic resources made more accessible by climate change.

Ministers gathering in the Icelandic capital Reykjavik for a meeting of the Arctic Council weren’t due to discuss security. But the issue dominated conversations on the sidelines after Russia’s Foreign Affairs Minister Sergei Lavrov declared ahead of the summit that the Arctic “is our land and our waters.”

“We are especially concerned with what’s going on close to our borders,” Lavrov said on Thursday after journalists asked him about what Russia sees as increased U.S. military activity in the region. “We are going to undertake necessary measures in order to ensure our security, but our priority is to ensure dialogue.”

At the summit this week, which marked Iceland’s handover of the Arctic Council presidency to Russia for the next two years, most representatives called for the eight-nation body to remain focused on peaceful cooperation. But Lavrov signaled that Russia could take a different approach.

“Within the next two years we will create proper conditions so proper security will be part of the work of the Arctic Council,” he said. “We believe we can revitalize this mechanism if we decide so.”

The Arctic is one of the regions most affected by climate change and is warming more than twice as fast as the rest of the world. Ice that used to cover the region’s waters for most of the year is shrinking and thinning. That’s opening new shipping routes and creating the prospect of easier access to once-trapped resources such as natural gas, oil, and minerals.

Superpowers including Russia have rushed to claim some of these assets, leading to a stronger military presence that has resulted in a series of confrontations.

Last year, Russian planes buzzed U.S. fishing boats on the northern Bering Sea during a military exercise. In February, the U.S. deployed bombers to Norway for the first time, strengthening its presence in the region, and the two countries signed a new agreement in April to boost military cooperation.

“The Arctic as a region for strategic competition has seized the world’s attention, but the Arctic is more than a strategically- or economically-significant region” U.S. Secretary of State Antony Blinken said at the Arctic Council’s meeting on Thursday. “Its hallmark has been and must remain peaceful cooperation.”

The council, which gathers the eight Arctic nations— Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the U.S.—as well as indigenous peoples, has no mandate to address security matters. These used to be negotiated at a separate Arctic Security Forces Roundtable, but Russia was removed from that forum, as it was from the Group of Eight advanced economies, following its annexation of Crimea from Ukraine in 2014.

The region doesn’t have a history of military conflicts because it’s difficult to access and its harsh climate makes it hard to position soldiers there. That’s changed as ice melts and countries try to get a foothold in the area, said Kate Guy, a senior fellow at the Council on Strategic Risks, a Washington-based nonprofit.

The Arctic is home to about 30% of the world’s undiscovered but recoverable gas reserves and 13% of undiscovered oil reserves, according to a report co-authored by Guy that was published this week. Private shipping activity has increased 25% in recent years. Having more tankers and fishing boats in the waters could lead to more accidents, with search and rescue operations often performed by the military, the report found.

Russia is making the so-called Northern Sea Route, which runs along its Arctic coastline, a key part of its strategy to boost natural gas exports to Asia. At the same time, China has signaled its interest in small islands such as Svalbard, Guy said.

Armed forces are also upgrading their facilities in the region as permafrost, the frozen ground that covers most of Arctic land, thaws. The U.S. Department of Defense has already requested over $1 billion to retrofit and repair three Alaskan bases in the past five years, according to the report.

“We’re concerned about the level of recent angry and provocative rhetoric,” James Stotts, president of the Inuit Circumpolar Council in Alaska, said at the summit. “We don’t want to see our homeland turned into a region of competition and conflict, we don’t wish to see our world overrun with other people’s problems.”


From the Washington Examiner, Daily on Energy:

WHAT ABOUT OIL AND GAS? G7 countries aren’t saying whether they’ll limit investments in oil and gas projects, even as the International Energy Agency says new oil and gas development must stop immediately for the world to reach its climate targets.

Indeed, while G7 environment ministers agreed last week to end financing for new overseas coal projects by the end of this year, they didn’t address oil and gas investment at all. The G7 ministers instead acknowledged that natural gas could play a role in reducing greenhouse gas emissions in the near-term.

“We recognize that natural gas may still be needed during the clean energy transition on a time-limited basis and we will work to abate related emissions towards overwhelmingly decarbonized power systems in the 2030s,” the ministers said in a joint communique.

Their language on coal-fired power, however, was much different. The G7 leaders called coal power “the single biggest cause of global temperature increase,” and said they will take “concrete steps towards an absolute end to new direct government support for unabated international thermal coal power generation” by the end of this year.

The call last week from the IEA for new oil and gas development to end was welcomed by many environmentalists because it emboldens their calls for governments to keep fossil fuels in the ground. The IEA report will also increase pressure on both governments and private financial firms such as banks and asset managers to minimize their future investments in oil and gas.

Convincing governments to comply, however, won’t be easy: Already, some governments are pushing back on the IEA’s message.

Japanese minister Hiroshi Kajiyama said the Japanese government doesn’t agree with the IEA’s statements on stopping fossil fuel investment and eliminating coal, according to the Financial Times. Even though Japan signed onto the G7 commitment to end overseas coal financing, it has not revealed any plans to phase down its domestic use of coal power.

Norwegian oil minister Tina Bru said it wouldn’t “make a difference from a global perspective” if the country halted oil production, the outlet reported.

IEA executive director Fatih Birol, in a LinkedIn post over the weekend, addressed some of the criticism that the IEA would include “such a radical” scenario requiring such drastic changes to the world’s energy mix.
“[F]or many years, we have been focused on shaping a secure and sustainable energy future for all, which requires transitioning to clean energy,” Birol wrote. “A secure energy future demands this – a world ravaged by climate change from fossil fuel emissions won’t be secure.”

Related:          Five Reasons Why IEA’s Net-Zero Drive Needs Oil and Gas


Can The U.S. Compete With Qatari LNG?
Irina Slav, OilPrice.Com, May 23, 2021

Qatar’s recent announcement that it would build the world’s largest LNG production facility did not prompt any applause from other LNG producers. Now, the tiny Gulf nation is also cutting its prices and expanding into the spot market to retain its number-one position in LNG exports. This could result in the death of some planned U.S. LNG projects.

U.S. liquefied natural gas quickly became a threat for the world’s top exporter. While Qatar is still the cheapest LNG producer, the abundance of shale gas made it cheap and competitive in some markets, which in turn led to a flurry of LNG projects as the U.S. staked its claim on the international market. 

The country quickly found a place among the world’s largest exporters, thanks not least to the fact that U.S. LNG producers index their gas to Henry Hub benchmarks rather than crude oil. The quickly growing spot market for LNG was also favorable for these producers. No wonder so many more projects followed the first wave of LNG capacity. Yet not all of them made it, and more are under threat of becoming commercially unviable.

Some already have: the list of LNG projects awaiting a final investment decision has shrunk in the last year and while part of the reason was the pandemic, the other part was that the economics for most of these projects had changed. According to Wood Mackenzie, this year, no new LNG project in the United States will reach a final investment decision, either. The reason: it’s tough to find long-term buyers.

“Generally, we’ve seen a slowdown in the pace of sales contract activity,” said Wood Mackenzie’s principal analyst for North American LNG, Alex Munton, as quoted by Natural Gas Intelligence. “Pre-FID projects will continue to struggle to secure buyers, given the huge wave of LNG currently under construction globally. For that reason, we see a limited window to project FIDs in the U.S. for the next couple of years.”

Competition is certainly tough in the LNG space, and with Qatar firmly on the path to securing its number-one spot over the long term, it will get even tougher. There are many LNG producers around the world, but they are all higher cost than Qatar.

“Nobody can compete with Qatari costs,” according to Jonathan Stern, a senior research fellow at the Oxford Institute of Energy Studies, as quoted by Bloomberg in a recent report. “They can do whatever they like and everybody will have to respond the way they can. And, especially when the market is in surplus and prices are low, that will impact the competition’s profits.”

One might reasonably ask why bother with LNG then if nobody can compete with Qatar on prices. The reason to bother is that large buyers like to have the comfort of supply diversity, and this makes them willing to pay a little more—or a lot more in some cases—to avoid being completely dependent on a single, albeit lowest-cost, producer.

Yet cost is important, and for some import markets, so are emissions. Europe is a big consumer of gas, but it is also a big proponent of renewable energy and low emissions. At the moment, renewable energy is winning the fight when it comes to new electricity generating capacity.

“Most European utilities don’t want to touch gas-related projects with a barge pole as companies seek to improve their ESG metrics, improve valuation and avoid stranded asset risks,” said Bloomberg Intelligence analyst Elchin Mammadov earlier this month.

What’s worse, per a Bloomberg report from earlier this month, European utilities are trying to come up with alternative uses for liquefied natural gas because there is not enough demand for it for electricity generation.

So, Asia remains the key focus for U.S. LNG producers. The problem here is that it is also the key focus for every other LNG producer in the world, from Qatar to Mozambique and Australia.

“With the Qataris adding more capacity at a very cheap cost, it does not make financial sense for U.S. companies to be building greenfield projects,” Reuters quoted Matt Smith, commodity research director at Clipper Data as saying this week. Smith said that in the current supply environment it made a lot more sense to add trains to already existing facilities.

There are currently three or four LNG projects in the U.S. that plan to have a final investment decision by the end of the year. Tellurian appears confident it would be able to make a final investment decision on its Driftwood project this year. Sempra Energy, on the other hand, has pushed the FID for its Port Arthur LNG project to next year. This is the latest in a series of delays in the final investment decision on the project.

Finding long-term buyers to make the necessary commitments for a whole new LNG plant was hard even before the pandemic. Now, with Qatar on the warpath, Wood Mackenzie’s forecast may turn out accurate, and all of these FIDs planned for this year might get pushed forward to 2022 or later. Worse, the projects might get shelved as Europe snubs hydrocarbon LNG and Asian buyers shun long-term contracts that secure the money for new LNG facilities that cost billions to build.


China will likely ban all bitcoin mining soon
Tim De Chant, arsTechnica, May 24, 2021

Bitcoin took investors on another rollercoaster ride over the weekend after a top regulator in China announced a crackdown on mining, a new tack in the country’s ongoing fight against the cryptocurrency.

The government will “crack down on bitcoin mining and trading behavior and resolutely prevent the transfer of individual risks to the society,” said the statement, which was issued by the Financial Stability and Development Committee of the State Council, the country’s cabinet equivalent. The committee is chaired by Vice Premier Liu He, who acts as President Xi Jinping’s top representative on economic and financial matters.

The wording of the statement did not leave much leeway for cryptocurrency mining,” Li Yi, chief research fellow at the Shanghai Academy of Social Sciences, told the South China Morning Post. “When all mining activities are banned in China, it will be a turning point for the fate of bitcoin, as a large chunk of its processing power is taken out of the picture.”

The Chinese government isn’t just worried about financial stability, either. A commentary piece in Xinhua News, the Communist Party’s official media outlet, elaborated on the government’s stance, voicing concerns about bitcoin’s role in money laundering, drug trafficking, and smuggling. It also mentioned bitcoin’s profligate energy use. Last week, China warned financial institutions not to participate in crypto-transactions or related services.

Crypto payments above $10,000 would be reported to IRS under Treasury plan

China isn’t the only country concerned about the role of bitcoin and other cryptocurrency in illegal activities. Late last week, the US Treasury Department announced that businesses must report cryptocurrency transactions greater than $10,000 to the Internal Revenue Service. “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury Department said. And earlier this month, news leaked that three US agencies, including the IRS, the Department of Justice, and the Commodity Futures Trading Commission, were investigating crypto-exchange Binance for potential criminal violations. A significant portion of illicit bitcoin makes its way through the Binance exchange, according to a 2020 report by Chainalysis.

China’s hardening stance toward bitcoin comes as the highest-valued cryptocurrency is under increasing scrutiny for its outsize carbon footprint. Fewer than two weeks ago, Elon Musk announced that Tesla would no longer be accepting bitcoin to buy one of its electric vehicles. When Tesla’s bitcoin purchase policy was announced, the bitcoin cost of a Model 3 produced about 400 metric tons of carbon dioxide, compared with just 8.85 metric tons to make and drive the car over its lifetime. When Musk canceled the policy—a decision apparently influenced by Ars’ coverage—the Model 3’s bitcoin carbon footprint had swelled to more than 500 metric tons. “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions,” he wrote in a tweet.

The bitcoin network demands a staggering amount of energy. Today, it uses as much power as the Netherlands to maintain its normal operations. That load must be particularly obvious to the Chinese government, since a recent Nature Communications paper estimated that 75 percent of all bitcoin mining happens in China.

Private-equity firm revives zombie fossil-fuel power plant to mine bitcoin

The combination of bitcoin’s high price and its tremendous energy demand has pushed miners to take extreme positions. Miners in China have flocked to provinces such as Inner Mongolia, where cheap coal power makes mining more profitable. The scale of these facilities reflects how much money investors have sunk into the projects. At least one mining facility in Inner Mongolia draws more than 50 MW. Similarly large operations are popping up in the US, too. In upstate New York, a private equity firm bought and revamped an abandoned power plant just to mine bitcoin. When its data centers are completed, mining will consume 79 percent of the power plant’s capacity, or 85 MW.

China’s warning to bitcoin miners is certain to push many operations out of the country. At least one bitcoin observer said that he anticipates miners pushed out of China will set up operations in Mongolia, Kazakhstan, and Afghanistan.


The last terrible idea of the 2021 Alaska legislative session
Anchorage Daily News, Editorial Board, May 21, 2021

It took 121 days, but the Alaska Senate found a way to make the dysfunction of this year’s Legislature even worse. In the waning hours of the regular session, senators voted on dozens of floor amendments totaling billions of dollars in changes from the last iteration of the state budget that Alaskans were able to weigh in on. The wholesale revision and horse-trading on the floor was itself a mockery of a process that residents should be able to witness and comment on, but the worst idea of the evening came last: An unlawful overdraw of the state’s last savings account, hobbling the state’s fiscal future to pay a fatter Permanent Fund dividend check.

Sen. Mike Shower of Wasilla, a self-avowed fiscal conservative, led the charge to raid the Permanent Fund’s earnings, successfully advocating for a $2,300 PFD check that — in defiance of all rationality — will overdraw the legal limit by a massive $1.5 billion. In doing so, he not only forfeited his right to the “fiscal conservative” claim, he tried to obfuscate the severity of the savings grab.

He did so by handing legislators a hastily-prepared chart that showed the gap could be covered in future years — if legislators suddenly decide that seven years of dithering away the state’s savings was enough, and move enthusiastically to pass multiple taxes: a substantial increase in oil taxes, to the tune of $300 million per year, and a 2% sales tax, which Sen. Shower claimed would bring in $600 million per year. In this fantastic scenario, the remaining $600 million gap was covered via a set of rosy assumptions about the state’s existing revenue streams. That apparently didn’t bother a majority of senators, who voted 12-8 to pass the budget amendment Shower authored (co-sponsored by Sens. Shelley Hughes, Mia Costello, and Senate President Peter Micchiche. The sponsors are fiscal conservatives all, or so their campaign literature would have you believe).

Speaking of campaign literature, Alaskans surely remember the analogy these senators ran their campaigns on the last time they were up for reelection: If our state were a household, they said, we’d be finding ways to cut expenses. Tighten our belts. Live within our means.

It sounded great. So relatable.

Imagine our state as a household. The primary wage earner has been working a single part-time job for the past six years but paying our mortgage and dining out by spending our now-depleted savings. Rather than lowering our monthly spending or looking for second job to make ends meet (the Legislature promises these will happen next year, as it’s promised for half a decade now), this plan would have us raid the last source of money — the kids’ college fund — not just to pay our overdue bills, but also to buy the big-screen TV we’ve had our eye on. It’s the height of short-term thinking and irresponsible budgeting, spending money today that could generate new money for Alaskans in perpetuity, all to send out bigger checks right now. These senators would never risk their own families’ livelihoods this way — why are they so cavalier about dipping into our state’s signature fiscal accomplishment, one that has the word “permanent” in its very name?

The audacity of the Permanent Fund overdraw is matched only by Sen. Shower’s debut of $900 million in notional new taxes on the Senate floor in the last hour of the session, after 121 days in which he could have introduced bills to institute either or both of those tax changes. Major revenue changes, as Sen. Shower and others reminded us last fall in opposing the oil tax hike initiative, were intended by Alaska’s constitutional framers to be debated at length, in public, transparently.

Justifying a $1.5 billion overdraw from the Permanent Fund with a few glossy pages of optimistic revenue assumptions is inexcusable, and Alaskans shouldn’t buy it. It’s like the weather forecast in the dead of winter, where the promise of warmer temperatures is always one day away: We know better than to trust it — especially when, unlike the weather, it hinges on legislators’ sudden willingness to make the hard fiscal choices they’ve now avoided for the better part of a decade by spending $16 billion of our savings.

The fact of the matter is, Alaska’s budget gap isn’t especially difficult to close this year if legislators abide by the legal limit on draws from Permanent Fund earnings. If lawmakers set the PFD amount at a sustainable level, around $1,000 — as the Senate Finance Committee approved before the floor shenanigans — and keep a tight lid on any “Christmas tree” additions to the operating and capital budget, no illegal overdraw would be necessary. The $1.5 billion Sen. Shower and others want to pour into a one-time check could remain in the Permanent Fund, providing close to $100 million every year for Alaskans, and more every successive year thanks to interest and investment gains.

Alaskans who don’t follow the budget process closely may wonder why this year’s proposed spend is substantially different than other years in which legislators have spent from savings. The answer lies in the source of the funds and the amount. The Permanent Fund is the last bastion of Alaska’s savings, and was established, according to former Gov. Jay Hammond, to provide “money wells” that could fund state services once the oil wells started running dry. It was not established to provide a government annuity for residents, much less one that took funding precedence over needs such as education and public safety. And if we let legislators spend past the legal limit established on draws from the Permanent Fund even once, it’s easy to see how things will go afterward. It’s a very short step from “just this once” to “just one more time.” After all, just look at the smoking craters where the $16 billion in Alaska’s statutory and constitutional budget reserves used to be.

If there’s any silver lining to this budget charade, it is that the Senate’s clown-car effort diverged so much from the House’s version that a conference committee is necessary to resolve the differences, which means the massive Permanent Fund overdraw can still be reversed. If the members of that committee have any regard for Alaska’s fiscal future, they must reverse the Senate’s disastrous, illegal overspending of the Permanent Fund.


Nonprofit launches with new approach to offset CO2
Ben Geman, Axios, May 24, 2021

A new nonprofit group called Climate Vault aims to offer reliable carbon offsets while providing fresh support for CO2 removal technologies and methods.

Driving the news: It’s the brainchild of the University of Chicago team led by economist Michael Greenstone, who served in the Obama White House.

Why it matters: Offsets enable companies and people to help reduce emissions, but ensuring their integrity is notoriously tricky.

  • Climate Vault aims to solve this problem by tapping into regulated cap-and-trade markets — in essence fusing voluntary efforts with the certainty of formal permit systems.
  • The group calls its approach an “antidote to the frequent credibility problems and opacity of voluntary offset programs.”
  • It then leverages this to support carbon removal methods that can complement fossil fuel emissions cuts to help reach ambitious climate goals.

How it works: Backers fund Climate Vault to buy emissions permits from cap-and-trade markets in North America, which operate in California, Quebec, and among northeast and mid-Atlantic states.

  • Climate Vault then takes those permits off the market to prevent industrial emitters from using them (that’s the “vault” part).
  • The group then can provide those permits to providers of carbon removal services, which could then sell them back into the market to finance the efforts.

Where it stands: Supporters include the trading firm DRW, whose CEO is a co-founder, Vanderbilt University, investment firm TPG and others.

  • Supporters have already enabled reduction of more than 200,000 metric tons of carbon, “surpassing more than five percent of the total CO2 saved by all Tesla vehicles to date in the U.S.,” the group said.
  • Advisers on the carbon removal side include former Energy Secretary Ernest Moniz.
  • Forms of carbon removal include carbon mineralization, ocean storage, direct air capture tech and others.

Go deeper: Nonprofit Seeks to Trap Carbon in the Financial Markets (WSJ)