Today’s Key Takeaways: State of AK talking to Hilcorp and Conoco Phillips re: gas for AKLNG project. New Study: Japan – a likely customer for AKLNG – may ask people to limit natural gas use. Reality check on hope for Saudi oil. Hidden cost of renewable technology. Opportunity to use budget reconciliation for energy policy-ANWR Part 2.
NEWS OF THE DAY:
Alaska in Gas Talks with Hilcorp, ConocoPhillips on LNG Plan
Sergio Chapa, Bloomberg News, July 12, 2022
The state of Alaska is in talks with Hilcorp Energy and ConocoPhillips to secure natural gas for a project that would liquefy the fuel for export to Asia.
Governor Mike Dunleavy and Frank Richards, president of Alaska Gasline Development Corporation, met with officials from both companies during a visit this week to Houston about securing feedgas for the Alaska LNG project, the governor told Bloomberg in an interview. While terms of the discussions were not disclosed, the project has a federal permit to make and export 20 million tons of liquefied natural gas per year.
ConocoPhillips said it supports selling gas from the wellhead to the Alaska LNG project. Privately held Hilcorp didn’t respond to a request for comment.
Both companies are active drillers in Alaska, with ConocoPhillips producing 70.9 billion cubic feet of natural gas last year and Hilcorp nearly 3.4 billion.
The feedgas talks come on the heels of a June trade mission to Japan where Dunleavy and Richards met with company officials from JERA, Tokyo Gas, INPEX and other potential customers. The project has signed letters of intent with Asian buyers whose identities are protected by non-disclosure agreements, Richards said. A final investment decision is expected by early 2024 and production could start in 2027.
Global natural gas prices have increased dramatically following Russia’s Feb. 24 invasion of Ukraine, increasing the prospects of LNG exports to Asia along the Pacific Coast. From the Alaska site, costs to deliver the fuel to Asian ports are $6.70 per million British thermal units. U.S. Gulf Coast projects are producing LNG for $7.50 per million Btu, while buyers are paying $50 in Europe and $39 in Asia for spot cargoes, according to BloombergNEF.
OIL:
Biden’s hope for Saudi oil faces slim capacity reality check
Grant Smith, World Oil, July 11, 2022
Even if Joe Biden secures a pledge for more oil when he visits Saudi Arabia this week, it may do little to drive down the high fuel prices roiling the global economy.
The U.S. president’s visit to a country he once vowed to isolate represents a significant thawing of relations, but the Saudis and their OPEC partners have limited spare production capacity to offer in return for this political concession. Some market watchers also question whether tapping this supply buffer would calm energy markets, or just make matters worse.
“A surge in Saudi production seems unlikely,” said Ben Cahill, senior fellow at the Center for Strategic and International Studies. “Saudi Arabia and OPEC+ have very limited spare capacity, and they have to manage it carefully.”
Oil prices retreated last week but remain above $100 a barrel. World crude production and refining output are still struggling to keep pace with the post-pandemic rebound in demand and the supply disruption resulting from sanctions on Russia over the invasion of Ukraine. The price of gasoline remains a source of political peril for a president heading to mid-term elections with approval ratings near 40%.
Biden said his visit to the Middle East, which includes a stop in Israel, will focus on security issues rather than energy supplies. He said he won’t specifically ask Saudi King Salman or Crown Prince Mohammed Bin Salman to raise oil production. Nevertheless, the trip represents a reversal for the president, who previously vowed to recalibrate America’s relationship with the kingdom after the 2018 murder of regime critic Jamal Khashoggi.
The Saudis have already offered up one gesture of reconciliation before Biden’s visit by steering the OPEC+ alliance to speed up its output increases this month and next — rolling back the last of the production cuts introduced at the outset of the Covid-19 pandemic in 2020.
Biden has signaled he wants exporters around the Persian Gulf to do even more, which is where questions about spare capacity come to the fore.
Narrow Margin
Saudi Arabia and the United Arab Emirates are the only members of the Organization of Petroleum Exporting Countries with significant volumes of unused output. Together they currently have a buffer of about 3 million barrels a day, official data from the countries indicate.
That’s about 3% of global oil output, and roughly equivalent to the amount of Russian oil that could be kept off the market by sanctions at year-end, according to the International Energy Agency. But the margin of emergency supplies could be even narrower than official figures indicate.
French President Emmanuel Macron was caught on camera at the G-7 summit last month, telling Biden that UAE ruler Sheikh Mohammed bin Zayed had admitted to him that Abu Dhabi is at “maximum” production and the Saudis can only increase “a little more.”
The UAE’s Energy Minister Suhail al Mazrouei promptly sought to clarify that it his ruler been referring to quota limits agreed with fellow OPEC+ members, but uncertainty persists. Shell Plc CEO Ben van Beurden warned on June 29 that the world faces an “ever-tighter market” and a “turbulent period” because OPEC has less spare capacity than assumed.
State-run giant Saudi Aramco says it can reach and sustain maximum production of 12 million barrels a day. OPEC data show the country has only held this level for a single month, April 2020, in its many decades as a major oil producer.
US President Joe Biden’s Op-Ed: “Its energy resources are vital for mitigating the impact on global supplies of Russia’s war in Ukraine.” #OOTT #SaudiArabia https://t.co/SPUGXBQJTj
— Javier Blas (@JavierBlas) July 10, 2022
The kingdom didn’t make full use of its OPEC+ quota in May, pumping about 125,000 barrels a day less than it could have, despite international pleas for more supply, the group’s data show. RBC Capital Markets estimates that there may be “near-term soft ceiling” of 11.5 million barrels a day, with more drilling needed to reach higher levels.
“There’s a realization that Saudi Arabia doesn’t have much to bring to the table in terms of supplies, at least for the time being,” said Bill Farren-Price, a director at Enverus Intelligence Research.
Magic Wand
As a result, Saudi Arabia and the UAE may offer a generic pledge to stabilize world oil markets while keeping their “spare production capacity powder dry” for a period of even tighter supplier expected later in the year, said Bob McNally, president of Washington-based consultant Rapidan Energy Group and a former White House official.
“There’s no magic wand for any president in this situation,” said McNally. “The best you can do is ask OPEC, and they don’t have much to give.”
If the Gulf nations were to fully tap their spare capacity, it could backfire. Traders tend to grow anxious when the global market has nothing held in reserve to cover potential disruptions. The recent collapse of production in OPEC member Libya due to renewed unrest has served as a reminder of the perennial risks to global production.
“They’re going to be judicious on how they deploy any remaining spare barrels,” said Helima Croft, chief strategist at RBC Capital and a former CIA analyst. “I don’t think they want to exhaust all of their spare capacity as part of a strategic reset with the US.”
Setting aside all the potential risks and rewards related to OPEC’s crude flows, there’s one pressing problem they can do little to solve — the lack of capacity around the world to make gasoline, diesel, and jet fuel.
US refineries are operating at 95% of capacity, the highest in almost three years, as they strain to keep up with peak summer fuel demand. Years of underinvestment, coupled with the disruption to Russian oil-product exports, have spurred the White House to consider restarting mothballed refineries.
“This energy crisis needs long-cycle investment in infrastructure like refineries, and addressing energy and military security issues,” said Jeff Currie, head of commodities research at Goldman Sachs Group Inc. “The questions over OPEC production capacity are a sideshow.”
GAS:
Japan may ask people to cut back on natural gas
Bloomberg/Energywire, July 12, 2022
The government will first ask households and businesses to curb gas usage to the best of their abilities, and if that’s not enough to avoid supply shortages, it will follow up with specific conservation targets, according to documents released yesterday.
Japan may ask households and businesses to cut back on natural gas use on the back of concerns that increase in global competition for the precious fuel will disrupt stable supply.
A panel within Japan’s trade ministry called for discussion to create a framework that would allow the government to ask households and businesses to conserve gas when supply is tight, according to documents released yesterday. While long-term liquefied natural gas contracts help the country secure stable supply, competition over the fuel is increasing and “conservation measures will be needed” in the event there are disruptions to energy procurement, the document said.
The government will first ask households and businesses to curb gas usage to the best of their abilities, and if that’s not enough to avoid supply shortages, it will follow up with specific conservation targets, according to the documents. Local media Nikkei reported the plan earlier.
The discussion comes after recent moves by Russia to transfer the rights to the Sakhalin-2 natural gas project to a new company, which could threaten foreign owners including Japanese firms. The Japanese government is already asking its citizens to play their part in power conservation, as electricity supply is expected to be tight this summer and winter.
Japan is expected to have enough power supply this week, with rainy weather expected to lower temperatures in several parts of the country. The power-reserve ratio, which measure spare capacity of generators, is expected to be lowest for the Tokyo area tomorrow at 7.1 percent, according to the trade ministry, still above the 3 percent needed for a stable grid. Japan’s next-day spot electricity price settled at 31.22 yen a kilowatt-hour yesterday, according to the Japan Electric Power Exchange, down 3.8 percent from a week earlier.
MINING:
Lithium mining: New study reveals a hidden cost of renewable technology
Christopher McFadden, Interesting Engineering, July 12, 2022
It turns out lithium brine mining is less than “green”.
Researchers from the University of Massachusetts Amherst (UMass) and the University of Alaska (UAA) Anchorage have released a ground-breaking new analysis on the environmental impact of lithium brine mining. The first to fully account for the hydrological impact of lithium mining, the new study is an interesting insight into the all-to-often ignored “hidden cost” of renewable technologies that use lithium as a raw material.
The full study can be found in the journal Earth’s Future.
The new study provides some very interesting insight into the processes behind extracting lithium, which is a key component in lithium-ion batteries. These batteries are essential for the switch from fossil fuels to renewable energy.
The age and source of the water in which lithium is found are two of the most crucial aspects of assessing if lithium is obtained ethically that are often not covered in various studies on the true environmental impact of certain renewable and sustainable technologies. Despite the fact that the team also notes that the impact of lithium mining alone is rather minimal, this first-of-its-kind study reveals that total water demand in the Salar de Atacama is outpacing its resupply.
For example, they found that less than 10 percent of fresh water is used for lithium mining, and changes in surface-water characteristics or basin water storage are unrelated to brine extraction.
Lithium is a peculiar element, according to David Boutt, a professor of geosciences at UMass Amherst and one of the paper’s co-authors. Although it is the lightest metal, it doesn’t like to be solid under normal conditions. Although lithium frequently occurs in layers of volcanic ash, it reacts with water quite quickly.
For this reason, lithium leaches into groundwater as rain or snowmelt passes through the ash layers. It travels downward until it settles in a flat basin, where it remains in solution as a salty mixture of water and lithium. This brine is so dense that it frequently falls beneath pockets of fresh surface water that float on top of the brine. These freshwater lagoons frequently turn into havens for iconic animals like flamingos and rare, vulnerable ecosystems.
The investigation was conducted in the Salar de Atacama, an 850 square mile (2,201 km2) salt flat in arid Chile that has more than 40 percent of the world’s known lithium resources.
The Salar de Atacama is the ancestral home of numerous Atacameo indigenous groups, with whom the UMass team collaborated, and is also home to a number of ecologically distinctive animal preserves. The usage of water in the Salar de Atacama bears the risk of disrupting both the ecological health of the region and the indigenous ways of life because the salt flats are so environmentally sensitive and depend on limited supplies of fresh water.
However, there hasn’t been a thorough method of evaluating water use or the effects of lithium mining in the Salar de Atacama until today.
POLITICS:
GOP Gambit Could Help U.S. Energy Producers Build Back Better
Chris Jacobs, The Wall Street Journal, July 11, 2022
Republicans can use budget reconciliation to force politically difficult votes on energy policy.
Some bad ideas never die. Senate Majority Leader Chuck Schumer continues to talk with Sen. Joe Manchin about reviving the Democrats’ Build Back Better legislation. The discussions are focusing on tax increases, new price controls on prescription drugs, and a package of energy provisions.
Rather than moderating the package to cushion their party’s slim majority with Republican votes, Democrats have begun to submit their revised bill through budget reconciliation—a Senate procedure that allows certain tax and spending measures to pass with only 51 votes. That strategy could prove to be a boon to Republicans.
Consider energy policy. Despite current shortages, Democrats want to subsidize renewable energy consistent with their climate shibboleths. If faced with a reconciliation bill loaded with solar-energy pork, Republicans could force their Democratic colleagues to vote on pro-fossil-fuel provisions that could tamp down rising energy prices but that would be unsavory to the climate-obsessed left.
There’s a simple way to do it: Reintroduce provisions the Senate passed under budget reconciliation in 2005 to authorize oil and gas exploration in the Arctic National Wildlife Refuge. These provisions would require the administration to offer leases by a certain date and expedite reviews under the National Environmental Policy Act, which normally allow environmental groups to slow-walk leases and permits.
While the provisions were ultimately removed from the final version of the bill signed by President Bush, they passed the Senate via the reconciliation process—and thus were found compliant with Senate rules that limit what can be passed into law by that process.
This means that if Build Back Better is brought to the Senate floor via reconciliation, Republicans could simply reintroduce these energy-exploration amendments using the 2005 rubric. They would need only make clerical changes to the 2005 text—altering the required sales dates, lease site locations, and so forth. The amendments would need only a simple majority to pass, rather than the 60 votes usually required to break a filibuster. In other words, they’d need only one Democratic vote to clear the necessary threshold.
Energy legislation requiring that the Biden administration conduct leases—and expedite environmental reviews—would provide oil and gas companies with the certainty they need to bring in investment. And because oil and gas operate on spot markets, even the prospect of new energy supply coming online in future years could lower the price of oil and gas almost immediately. Given the pain that everyday Americans are feeling at the pump, it would be difficult for elected Democrats to justify voting them down.
Democratic senators with tough re-election contests in November— Raphael Warnock (Ga.), Mark Kelly (Ariz.), Catherine Cortez Masto (Nev.), and Maggie Hassan (N.H.)—would face an excruciating choice. They could oppose the GOP amendments and the interests of their constituents on arguably the most pressing issue facing American families. Or they could support them, and alienate climate radicals in the House and party leadership