NEWS OF THE DAY:
From the Washington Examiner, Daily on Energy:
OIL COMPANIES NOTCH A LEGAL WIN: BP, ExxonMobil, and other oil giants will get another opportunity to push city and state lawsuits seeking to force them to pay for climate damages to federal court after a Supreme Court ruling in their favor this morning.
The Supreme Court’s opinion will have implications for the more than two dozen climate liability lawsuits oil companies now face from cities and states.
The oil industry has been attempting to move those lawsuits to federal court, which they see as a more favorable venue. Several federal appeals courts have rejected the industry’s claims, and the Supreme Court was considering the oil industry’s appeal in Baltimore’s case.
The Supreme Court’s ruling didn’t go as far as the oil companies and their industry allies were hoping, however. The court didn’t address the merits of Baltimore’s claims against the oil companies, nor make any decision about whether the case should be held in federal or state court.
Critics of Biden’s proposed oil-and-gas industry taxes fueled by gas shortages
Casey Harper, Fairfield Sun Times, May 17, 2021
Gas shortages on the East Coast have helped rally Congressional opposition to the portions of President Joe Biden’s infrastructure plan that would force oil and gas companies to pay more in taxes.
House Republicans sent a letter to House Speaker Nancy Pelosi, D-Calif., and House Majority Leader Steny Hoyer, D-Md., calling on Democrats to oppose Biden’s plan to “eliminate tax preferences for fossil fuels.”
The letter, signed by 55 Republicans, came after a cyber attack of Colonial Pipeline shut down a major pipeline on the East Coast and led to fear-driven gasoline shortages. The attack also raised questions about the nation’s energy infrastructure and vulnerability to attack.
OIL:
Russia Is Making A Mad Dash To Outrun Peak Oil Demand
Irina Slav, OilPrice.Com, May 16, 2021
Several of the world’s largest oil-producing nations have recently made public plans to boost their production capacity. The reason: peak oil demand is looming and countries are determined to make the most of their oil resources while they can.
“Everything that can be produced should be produced while there is still demand to sell it,” the head of the energy committee at the Duma, the Russian parliament, said last month at the presentation of a draft document aiming to do just that.
“The main thesis in this strategy is the monetization of current reserves and resources – that is, the maximum monetization of exports,” Pavel Zavalny also said at the event.
Russia is one of the three biggest oil exporters in the world, alongside Saudi Arabia and the United States. It has enough oil to keep producing at current rates at least until 2080, with enough gas reserves to last for another 103 years. And the state is pouring billions—$110 billion to be precise—into the development of new oil reserves in eastern Siberia to tap 100 million tons of new crude annually. That’s about a fifth of the country’s annual output in 2019.
Much of this oil will replace depleting fields in western Siberia. According to the Energy Ministry of the country, Russia does not seem to have plans to considerably boost current production rates. In the last pre-pandemic year, the daily production rate was 11.3 million bpd, a record high. Now, the Energy Ministry sees the current – constrained – production rate rising from 10.3 million bpd to 11.1 million bpd by 2029 before beginning to decline. In other words, Russia has eight years to take advantage of growing global oil demand as per its own scenario.
Yet, there are various scenarios for the peak of oil demand. BP, for instance, predicted that in the worst-case scenario peak oil demand has already arrived, and in the best-case scenario, it will come in 2030. Norway’s Equinor expects peak oil demand sometime in 2027 or 2028. Rystad Energy sees demand peaking in five years, and the International Energy Agency expects peak demand over the next decade. All in all, forecasts are within the range of 2030.
This means producers such as Russia, Saudi Arabia, Iraq, and the Gulf nations have very little time to make the most of their oil reserves before demand begins declining steadily. And with all of these countries boosting their production capacity and making plans for higher production, competition in the oil market is bound to become even more severe than it is now.
When it comes to competition, Russia is better positioned than its Middle Eastern partners. It has always been less dependent on oil export revenues than Middle Eastern producers. Recently, it has been deliberately reducing this dependence. Oil and gas revenues still account for a solid 30 percent of gross domestic product, but with things like hydrogen catching the eye of the Kremlin, diversification is slowly but surely underway. Still, there are all those billions of barrels of oil sitting in the ground, and it would be a pity to keep them there, hence the plans to boost production. But who will be buying?
In terms of export destinations, Russia has mixed luck. Its biggest client by far is China, which is good for future oil asset monetization plans. Its second-biggest client is Europe, and that continent will be reducing its oil intake fast if everything in the EU’s energy transition scheme goes as planned. That means Russia will need to find new buyers for all the new oil it will be pumping from eastern Siberia.
India is an obvious candidate. The country imports 80 percent of the oil it burns, and it likes it cheap because of that. In India, Russia will be competing with its OPEC partners and the United States, for whom India is also a top oil export destination. The rest of emerging Asia will also be a key market for oil exporters as peak demand draws nearer and nearer.
Oil producers are then in a rush to sell as much oil as they can while there are still buyers, it seems, based on demand forecasts. But the truth is that peak oil demand may indeed come in ten years or fewer, but it does not mean demand will then fall off a cliff—unless another pandemic hits the planet, that is. In the absence of such an unforeseen event, oil demand is likely to decline pretty gradually, giving forward-looking producers plenty of time to adjust by boosting their non-oil sectors. From this perspective, Russia has enough time to reduce oil and gas revenues as a portion of GDP. Whether it will use this time wisely to achieve those aims remains to be seen.
GAS:
Will the Colonial Episode Spur a Pipeline Rethink?
Matthew V. Veazey, Rigzone, May 17, 2021
Amid last week’s uproar surrounding the Colonial Pipeline cyberattack and subsequent gasoline supply constraints in the Eastern United States, a photo circulated on social media that captured some degree of irony. Although the date, location, and source of the photo were unclear, the image showed an individual pumping gasoline into his or her SUV’s fuel tank. The SUV also bore a license plate from one of the states affected by the Colonial outage and a bumper sticker protesting, in all caps: “NO PIPELINE.”
On the one hand, this individual was obtaining the fuel to help him or her continue to easily perform tasks associated with modern life – such as driving to work or school, shopping for groceries, going to a medical appointment, visiting friends or family, going to the beach, etc. On the other, he or she was objecting to the vital infrastructure that helps to get that fuel to the gas station.
Might the recent gasoline supply constraints help to foster a greater public appreciation for pipelines? Some of Rigzone’s regular prognosticators consider that topic in this week’s installment of what to watch in the oil and gas markets. Read on for perspectives on timely market trends.
Mark Le Dain, vice president of strategy with the oil and gas data firm Validere: It will be interesting if the Colonial attack starts resulting in more favorable views towards pipelines in North America, at the very least to existing ones. A lot of statements recently by stakeholders confirming that they do view pipelines as the safest way to transport products and that their absence drives emissions through more inefficient modes of transport.
Jon Donnel, Managing Director, B. Riley Advisory Services: The shutdown of the Colonial Pipeline following a ransomware attack last week created fuel shortages through the East Coast and Mid-Atlantic states and drove gasoline prices higher ahead of the expected increase in demand for the summer driving season. The short-term turmoil highlighted the importance of existing pipeline infrastructure for the efficient distribution of hydrocarbons throughout the country. Pipeline projects have been under increasing scrutiny, most notably with an executive order cancelling the Keystone XL on the first day of the Biden administration and lawsuits to determine whether the Dakota Access and Enbridge Line 5 pipelines can continue to operate. It will be worth watching to see if the pendulum begins to swing back as the benefits of a smoothly running pipeline system were made clear and as the administration continues to tout infrastructure spending to kickstart the economy.
Barani Krishnan, Senior Commodities Analyst, Investing.com: How demand will be shaping ahead of the weekend prior to the May 31 Memorial Day, which marks the start of the peak driving season in the United States.
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: With the Colonial Pipeline outage behind us, will we see other “copycat” hackers attempt to disrupt other energy infrastructure in the U.S.? India’s virus crisis is only getting worse, presently drawing concern over global oil demand. Meanwhile, low inventories of gasoline heading into summer will support higher wholesale and retail prices.
MINING:
Fort Knox Mine off to a strong 2021 start
Shane Lasley, North of 60 Mining News, May 14, 2021
With a strong gold production at Fort Knox, the start of development at the Gil-Sourdough satellite pits, and the programs aimed at Manh Choh into production by 2024, Kinross Gold Corp. got off to a busy start to 2021 in Alaska.
During the first three months of 2021, the company’s Fort Knox Mine north of Fairbanks produced 55,815 ounces of gold, which is slightly less than the 57,523 oz produced during the previous quarter but roughly 8% higher than the 51,667 oz of gold produced at the Interior Alaska mine during the first quarter of 2020.
Kinross said the higher gold production compared to the same period last year is primarily a result of timing of gold processed through the mill and an increase in ounces recovered from the heap leach pads.
The per-ounce cost of Fort Knox gold sold during the first quarter of this year was US$1,038, an 18% drop from the US$1,272 production cost of sales during the first three months of 2020.
Last year’s first quarter costs, however, were higher than normal due to an increase in the amount of operating waste being stripped off to reach ore at the Gilmore project and impacts from COVID-19, which slowed mining rates.
During the first quarter of 2021, 7.4 million metric tons of ore averaging 0.20 grams per metric ton gold was stacked on the Barnes Creek heap leach pad at Fort Knox, compared to 5.69 million metric tons averaging 0.23 g/t gold stacked on the Walter Creek pad during the same period last year.
In addition, the mill at Fort Knox processed 1.75 million metric tons of ore averaging 0.57 g/t gold, compared to 1.86 million metric tons averaging 0.6 g/t gold processed during the first three months of last year.
Kinross Gold Chief Technical Officer Paul Tomory told analysts and investors during a May 11 conference call that he expects gold production at Fort Knox to increase as the year progresses, reaching nearly 80,000 oz in the fourth quarter.
Increased gold production is expected to continue into 2022 as ore from Gil-Sourdough is anticipated to be delivered to the Fort Knox mill by the end of this year.
POLITICS:
BP’s lobbying for gas shows rifts over path to net-zero emissions
Kate Abnett, Simon Jessop, Shadia Nasralla, Reuters, May 17, 2021
Oil major BP (BP.L) has lobbied for the EU to support natural gas, a move that exposes divergent views among investors and reflects a wider European dispute about the role of the fossil fuel in the transition to a lower-carbon world.
The European Commission – aiming to reach net-zero greenhouse gas emissions by 2050 – had planned to omit gas-fueled power plants from a new list of investments that can be marketed as sustainable, but delayed the decision last month following complaints from some countries and companies.
Britain’s BP was among those lobbying against the plan. In a December 2020 response to the Commission’s public consultation on the issue, it said the new rules could threaten financing of gas projects, and obstruct a shift away from more polluting coal.
BP called for an increase in the emission limits that gas plants would have to meet to allow them to be labelled green without requiring the immediate installation of carbon capture and storage (CCS) technology, which is still deemed too expensive for wide-scale use.
Natural gas emits roughly half the CO2 emissions of coal when burned in power plants. But gas infrastructure is also associated with emissions of the greenhouse gas methane.
When asked about its lobbying, BP said it strongly supported the EU’s climate goals. It added that natural gas was enabling the transition from coal.
However investors gave mixed responses when asked whether BP’s championing of gas was at odds with its pledge to support the Paris Agreement. As well as committing to bringing carbon emissions from the barrels it produces to net zero by 2050, the company has pledged to align its lobbying activities to support net-zero carbon policies.
Natasha Landell-Mills, head of stewardship at asset manager Sarasin and Partners, said BP’s lobbying raised questions about its commitments.
“If their capex (capital expenditure) was oriented towards full decarbonisation by 2050, then you’d naturally expect to see lobbying align with this goal. The fact it seems to be pushing the other way suggests a problem,” she added.
Others, though, pointed to the question of what aligning with the Paris Agreement means in practice.
“It’s not like a standard setter has said ‘here, exactly, is what Paris-aligned means, industry by industry’,” said John Streur, CEO at U.S. asset manager Calvert Research and Management.
Another institutional investor, speaking on condition of anonymity, said he did not see a problem with BP’s response and that there was no blueprint for what Paris-aligned means, adding however it was not a good time “to stick your head out”.
‘FAIR TRANSITION’
The European Commission had originally said gas plants must emit below 100g of carbon dioxide equivalent per kilowatt hour (CO2e/kWh) to be labelled green – a level even the use of CCS would make it tough to achieve, according to BP.
In its December submission to the Commission, BP urged the EU to set a higher emissions limit to encourage power suppliers to shift more capacity to gas from coal plants.
“Natural gas should have a dedicated threshold, above the current 100g CO2e/kWh, to reflect its role to facilitate an affordable and fair energy transition by enabling a shift away from coal in power generation and heating, providing dispatchable power to complement renewables and offering an alternative fuel in transport,” it said.
BP is far from alone in its support of gas.
At least nine EU countries, including Poland, Hungary and the Czech Republic, lobbied the Commission to label gas plants as sustainable, documents seen by Reuters showed. Other governments including Denmark, Spain and Ireland urged Brussels to exclude the fuel.
European oil and gas producer Eni criticised the 100 g/kWH threshold as too low in December, while a group including Total (TOTF.PA) and Repsol (REP.MC) signed an open letter from several energy firms in support of gas as a means to replace coal in the energy mix.
“Any tonne we don’t emit today is much more valuable in terms of avoiding global warming then a tonne that is with the best intention avoided in 2040,” said Mario Mehren, Chief Executive of Wintershall Dea, who signed that letter.
‘UNABATED GAS’
The Paris Agreement set a target to limit global warming to 2 degrees Celsius above pre-industrial levels, and aim for 1.5 degrees.
The EU aims to cut its net greenhouse gas emissions by 55% by 2030, from 1990 levels, and eliminate them by 2050.
The role of gas depends on factors such as what volume of emissions can be captured and stored in the future, and fixing methane leaks from gas infrastructure, said Joeri Rogelj, a lead author on Intergovernmental Panel on Climate Change (IPCC) reports and Director of Research at the Grantham Institute at Imperial College London.
“In that context, unabated gas, without carbon capture and storage, is not part of the key sustainable investments,” he added.
Sandrine Dixson-Declève, co-president of the Club of Rome think-tank and one of the EU’s expert advisers on the sustainable finance taxonomy, said the rules needed to reflect climate science.
“No one is denying that gas can help the transition, but that does not mean it is Paris Agreement compliant.
CLIMATE CHANGE:
John Kerry irks some activists, experts with climate tech claims
Ben Geman, Axios, May 17, 2021
U.S. special climate envoy John Kerry waded into treacherous waters with comments about how much new tech is needed to fight global warming.
Driving the news: In part of a BBC interview that aired Sunday, Kerry said, “I am told by scientists … that 50% of the reductions we have to make to get to net-zero, by 2050, or 2045, as soon as we can, 50% of those [emissions] reductions are going to come from technologies that we don’t yet have.”
Why it matters: That irked some activists and experts, who see it at odds with what’s possible with the aggressive deployment of mature tech.
It’s the latest flare-up of climate-world tensions over how much innovation is needed (though Kerry also pushes accelerated steps with existing tools).
Driving the news: Influential activist Greta Thunberg and prominent climate scientist Michael Mann were among several who criticized Kerry’s comments.
- “Great news! I spoke to Harry Potter and he said he will team up with Gandalf, Sherlock Holmes & The Avengers and get started right away!,” Thunberg tweeted.
- Mann lamented “pernicious technophilia” he blames on Bill Gates and spoke with BBC for a subsequent segment (47 minutes in here).
The other side: Jason Bordoff, who heads a Columbia University energy think tank, said people are “way overreacting.”
- If Kerry had simply added that more tech was needed “at commercial scale,” the comment would have been spot-on, he argues.
- “[W]e need innovation, lots of it, to get anywhere close to net zero,” Bordoff tweeted.
The big picture: A Kerry aide noted to Axios his remarks are consistent with International Energy Agency findings.
IEA head Fatih Birol said last month: “IEA analysis shows that about half the reductions to get to net zero emissions in 2050 will need to come from technologies that are not yet ready for market.”