Today’s Key Takeaways: OPEC warns of limited excess capacity. U.S. oil and gas exports lead to wealth for Americans. Exemption for some oil & gas producers from methane fee. Progressive Policy institute paper argues that U.S. natural gas is cleaner for Asia – good for AKLNG! All eyes on Turkey for rare earth materials.
NEWS OF THE DAY:
New Study study shows energy exports big win for U.S. economy.
Chris Woodward, The Boston Herald, August 3, 2022
Progressive Democrats are demanding a ban on all U.S. oil exports, claiming it will drive down the price of gas at the pump. Nationalist Republicans are attacking the Biden administration for selling oil from the Strategic Petroleum Reserve on the open market, allowing millions of barrels to be bought by China.
But new research shows allowing U.S. oil exports and gas exports lead to more wealth and work for Americans.
The study, conducted by consulting and communications firm ICF on behalf of the American Petroleum Institute and American Exploration and Production Council (AXPC), analyzed the six years since the ban on exporting U.S. crude oil was lifted in December 2015.
The data showed enabling exports not only reduced global oil prices by an average of $1.93 per barrel but also added $161 billion to gross domestic product and added 50,000 jobs to the economy.
“American energy leadership doesn’t just deliver significant benefits to Americans — fueling the U.S. economy and American jobs, delivering reliable energy, and helping put downward pressure on prices, but it also strengthens global security and supports our allies,” said API president and CEO Mike Sommers.
“U.S. energy exports provide critical stability to the global market, support our allies across the world who depend on American energy to meet their needs, and strengthen American energy security here at home.”
OIL:
OPEC+ Flags Severely Limited Availability of Excess Capacity
Andreas Exarheas, Rigzone, August 4, 2022
The 31st OPEC and non-OPEC ministerial meeting, which was held via videoconference on Wednesday, offered several warnings, including the identification of a “severely limited availability of excess capacity”.
In the meeting, the group noted that this limited availability of excess capacity “necessitates utilizing it with great caution in response to severe supply disruptions”. The group also warned that “chronic underinvestment” in the oil sector has reduced excess capacities along the value chain and outlined that dynamic and rapidly evolving oil market fundamentals necessitated “continuous assessment” of market conditions.
“Insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023 from non-participating non-OPEC oil-producing countries, some OPEC Member Countries and participating non-OPEC oil-producing countries,” a statement posted on OPEC’s website noted.
The statement highlighted that preliminary data for OECD commercial oil stocks level stood at 2,712 mb in June 2022, which it pointed out was 163 mb lower than the same time last year, and 236 mb below the 2015-2019 average. The statement also noted that emergency oil stocks had reached their lowest levels in more than 30 years.
At the latest meeting, OPEC+ decided to increase its production by 0.1 million barrels per day in September. According to a production table published on OPEC’s website, “required production” in September 2022 will be topped by Saudi Arabia and Russia, with 11.030 million barrels per day, each. Iraq’s required production is next highest in the table at 4.663 million barrels per day, followed by Kuwait at 2.818 million barrels per day.
At OPEC+’s previous meeting, which was held on June 30, the group reconfirmed its decision to increase its monthly overall production by 0.648 million barrels per day in August. OPEC+ is currently scheduled to hold its next meeting on September 5.
In a White House press briefing held on Wednesday, White House Press Secretary Karine Jean-Pierre was asked if President Joe Biden felt like the production increase was an insult, “given what the President has invested”. Responding to the question, Jean-Pierre said, “the fact of the matter is that oil and gas prices are coming down”.
“They have been coming down since the President announced his trip. The moment he announced his trip, we saw gas prices and oil prices coming down. And so that is also important to note,” Jean-Pierre added in the statement.
“We’re not members of OPEC – of OPEC+, but we welcome … their announcement,” Jean-Pierre went on to say.
Last month, Enverus Intelligence Research cautioned about the limited benefits Biden’s trip to the Middle East would have on increased oil production or changes to crude prices.
GAS:
From the Washington Examiner, Daily on Energy:
MORE LNG TO ASIA IS GOOD FOR CLIMATE: PAPER: Asian economies should shirk natural gas imports from Russia in favor of relatively cleaner liquefied natural gas imports from the United States, a new paper from the Progressive Policy Institute argues.
The authors maintain that the global imperative to displace coal with gas and the rising energy demands in Asia provide an “in” for U.S. LNG to be a reliable and more climate-friendly energy source for the developing region.
Citing estimates that Russian gas has a larger greenhouse gas emissions footprint than Chinese coal itself, the authors conclude that “any pretense by China that using Russian gas reduces overall greenhouse gas emissions is false.”
Because of the high fugitive emissions associated with Russian gas, any climate change-related justification for expanding pipeline imports to China and the broader region is undermine and “will only subvert Asian and global climate protection goals.”
It’s an increasingly common argument and one that co-author Paul Bledsoe, a strategic adviser at PPI who worked in the Clinton administration, has been making to encourage more shipments of U.S. LNG to Europe as a means of displacing demand for Russian gas.
MINING:
The World Is Scrambling For New Rare Earth Supplies
Ag Metal Miner, August 3, 2022
- Rare earths prices are sliding despite a global supply shortage.
- Now more than ever, countries are frantically searching for ways to reduce their dependence on Chinese rare earth metals.
- All eyes are on Turkey following its report that it had discovered the second largest reserve of rare earth metals in the world.
The Rare Earths MMI (Monthly MetalMiner Index for rare earth metals) extended its decline in July, dropping another 2.8%. This is a significant move for rare earths prices, and reinforces the subtle downtrend that began back in April. Now more than ever, countries are frantically searching for ways to separate their rare earths supply from China.
Back on July 7th, Turkey reported that it had discovered the second largest reserve of rare earth metals in the world. The site, located in central Anatolia, is estimated to contain 694 million tons of rare earth reserves. This would put it just 106 million tons behind the Bayan Obo deposit in Northern China. If true, this would represent a supply shift that could impact rare earths prices significantly.
Of the 17 elements under the “rare earths” category, the forthcoming Anatolia site will produce ten.
According to Fatih Donmez, the country’s Minister of Energy and Natural Resources, Turkey will soon be able to process 570,000 tons of rare earths each year. Hopefully, the pilot plant will be operational by the end of 2022 and provide a significant supply of rare earth metals.
While the prospect of breaking China’s pseudo-monopoly over rare earths proves tempting, the jury is still out on the quality of the Anatolia deposit. According to Jon Hykawy, the President of Stormcrow Capital, “the old adage that ‘grade is king’ in mining still holds. If this Turkish discovery is gigantic, but of very low grade, well, we usually call material like that ‘dirt.’”
Concerns also abound as to whether or not Turkey is up to the challenges of mining and refining the minerals on a large scale. For now, the marketplace is waiting with baited breath.
Earlier this month, rare earths company Pensanna broke ground on the UK’s first ever rare earths processing plant. The project began as part of an overarching strategy to reduce China’s dominance over the rare earths marketplace. According to officials behind the £150 Million facility, the movement also saw renewed interest following the Russian invasion of Ukraine.
UK Secretary of State Kwasi Kwareng took the time to remind his fellow Europeans of the need to ween themselves off the Chinese teet. “Critical minerals will become even more important as we seek to bolster our energy security and domestic industrial resilience,” he said. He later added that the strategy would also “bolster our resilience to market shocks and geopolitical events.”
That said, a recent Financial Times article revealed that some industry experts are unhappy with the amount of disclosure around the project. For instance, little is known at this point about executive pay, resource quality, and the capacity of the site to meet its stated goals. As of this writing, the facility is supposed to produce 12,500 tons of separated rare earths along and 5% of global magnet metals by 2024.
However, Pensana’s plan hinges on sourcing rare earth oxides from its Longonjo site in Angola, which has only just broken ground. This fact is compounded by fears that processing the Angolan ore will generate high amounts of thorium, which is radioactive. In short: the market is crossing its fingers, but not exactly optimistic.
North America Continues Strides Toward Rare Earth Independence
Last month, we reported extensively on the US’ dependence on Chinese rare earth supplies. A month earlier, we touched on the rare earth manufacturing facility set to be built in Stillwater, Oklahoma. At the time, the $100 million facility was primed to create 100+ jobs and help move the US towards a point of self-sufficiency. However, that plant isn’t scheduled to come online until 2023. And depending on who you ask, that amount of time could prove to be an eternity.
In the meantime, there’s good news coming out of Canada. Vital Metals, who owns the rare earths extraction facility in Saskatchewan, recently announced some promising test results. It seems the first feed of the DMS (dense media separation) unit at the site has revealed capabilities comparable to TREO grades seen in lab test work.
TREO Grade refers to “total rare earth oxide.” Essentially, Vital Metals’ plant is operating at an extraction efficiency (43.7%) very close to those achieved in lab conditions (44.6%). On top of that, the unit achieved 75.2% recovery during the test. This bodes very well for the site’s capacity estimates and for its ability to produce high-quality product.
According to Managing Director Geoff Atkins, “the fact that on the first run we hit the laboratory test grades for total rare earths with 75% recovery with low-grade feed material is above expectations.” Of course, the site plans to continue optimizing its processes. Still, these results represent a real shot in the arm for the facility’s overall potential.
POLITICS:
How Democrats’ methane fee works with EPA regulations
Jean Chemnick, Climatewire, August 3, 2022
A methane fee proposed in the Senate climate bill would offer exemptions to some oil and gas producers.
The climate spending package Senate Democrats hope to pass in the coming days would not slap methane fees on the whole oil and gas industry.
To secure the approval of Sen. Joe Manchin (D-W.Va.), the legislative language has been tweaked from the House-passed “Build Back Better Act” to provide a carve-out for oil and gas sources that comply with a coming set of EPA methane rules that could be in place by next year.
Manchin, a conservative Democrat who negotiated for months with Democratic leaders before signing off on a climate and energy package last week, expressed concern that if oil and gas producers were subject to both a fee and regulation it would amount to double counting.
“If they’re basically complying with the regulations, then you shouldn’t be subject to a fee,” Manchin told reporters in December (E&E Daily, Dec. 9, 2021).
The agreement Democrats announced last week would levy a charge on oil and gas sources that exceed a certain methane intensity threshold. The fee would start in 2024 at $900 per ton of methane, which translates to $36 per ton of CO2 equivalent.
The fee would rise to $1,200 a ton in 2025, and then to $1,500 in 2026. At that level, it amounts to a $60 per ton price on CO2 equivalent.
The Senate language phases the price in a little more slowly than the House version, which would have started the fee in 2023 at $1,500.
Oil and gas advocates haven’t vocally opposed last week’s energy package, which included provisions on leasing and other issues that benefit fossil fuels (Climatewire, July 29).
The methane reduction section of the legislation includes $1.5 billion in assistance and incentives to help companies cut emissions and remediate wells.
Some environmentalists support the bill’s methane fee even though it was softened compared to earlier versions.