Today’s Key Takeaways: A silver lining in the energy crisis. OPEC: Vigilance and caution. New England: no LNG, no lights? Mining done in a decade? World’ first carbon tariff.
NEWS OF THE DAY:
Silver Lining Playbooks: Five Reasons to Be Cheerful
Wood MacKenzie, December 2022
The past year has been defined by Russia’s war on Ukraine and a fully own energy crisis that has taken the world to the brink of recession. Consumers in many parts of the globe are suffering from rising cost of living, driven in no small party by surging energy costs. Only a year after the COP26 climate conference in Glasgow seemed to take real steps toward achieving the goals of the Paris Agreement, governments have been forced to revert to coal to keep the lights on and their economies ticking over.
Yet the crisis may prove to be a catalyst for the policy initiatives and and investment required to transform the way we power the planet. Our analysts have identified five developments that suggest that, despite the setbacks of the past year, the world is laying the foundations for a decade or more of sustained opportunity that will deliver better outcomes for the reliability, affordability and sustainability of our energy and natural resources.
- Seeing the light: policymakers accept that the world needs energy stability
- Fast, flexible and available: U.S.LNG will help keep Europe’s lights on
- Refining: new capacity will burst the margin bubble
- Lightbulb moment: investors adopt a more realistic attitude to investing in fossil fuels
- Rewiring Europe: A power market reset
OIL:
OPEC Urges Caution
Grant Smith, Bloomberg/Rigzone, December 13, 2022
OPEC urged “vigilance and caution” on its members as it reduced estimates for the amount of crude the group will need to pump in the coming months.
The Organization of Petroleum Exporting Countries now sees a finely-balanced market in the first quarter of 2023, instead of the deficit implied by its forecasts a month ago. The group’s latest figures follow an 11% slump in crude prices last week on concerns over weaker fuel consumption.
Doubts are growing over China’s ability to abandon anti-Covid measures, and there are signs that monetary policy will continue to tighten in the US. Meanwhile, newly-imposed sanctions on Russian oil exports have yet to noticeably dent supplies. OPEC predicted that the world’s demand for its crude in the period will be 380,000 barrels a day lower than previously expected.
“As the year 2022 draws to a close, the recent global economic growth slowdown with all its far-reaching implications is becoming quite evident,” OPEC’s Vienna-based research department said in its monthly report. “The year 2023 is expected to remain surrounded by many uncertainties, mandating vigilance and caution.”
OPEC and its partners have only just implemented a 2 million barrel-a-day supply cut, which was announced in October. Secretary-General Haitham Al-Ghais said over the weekend that the OPEC+ pact is working by keeping world markets in equilibrium. The latest downgrade to demand offers further justification for that output reduction, which initially drew fierce criticism from the White House.
Oil prices are now trading below $80 a barrel in London, tempering the spectacular windfall enjoyed by producers earlier this year. OPEC+ member Nigeria has said the group wants to keep prices above $90.
The 23-nation alliance, jointly led by Saudi Arabia and Russia, decided earlier this month to keep supply levels unchanged in early 2023, giving the group more time to gauge the impact of its cuts. Saudi Energy Minister Prince Abdulaziz bin Salman has stressed the coalition is prepared to intervene whenever necessary, and an influential ministerial committee will meet again in February, with the power to call extraordinary OPEC+ meetings.
OPEC estimates that its 13 members will need to provide an average of 28.93 million barrels a day in the first quarter of 2023, just a little more than the 28.83 million a day they pumped in November, according to the report.
The group expects global oil demand to increase by 2.2 million barrels a day next year, to average 101.77 million barrels a day. It sees supplies from its rivals rising by 1.5 million barrels a day, about 75% of which will come from the US.
GAS:
Can New England keep on the lights without LNG?
Benjamin Storrow, CLIMATEWIRE, December 13, 2022
New England faces an expensive decision in the coming years over the future of a liquefied natural gas import terminal near Boston, an industry analyst and the regional grid operator told a conference here Monday.
The potential closure of the Everett Marine Terminal in 2024 threatens to exacerbate New England’s long-standing energy issues. Gas accounts for about half the region’s power generation. But it lacks enough pipeline capacity to meet power and heating demand in the winter when temperatures drop.
LNG has helped paper over those cracks — until now. Gas imports delivered at Everett fuel a large power plant outside Boston. That power plant is now set to close in two years. It is unclear if the LNG terminal will remain open without the power plant. Yet without the supply of additional LNG injections, New England could be at greater risk of blackouts during extended cold weather events, analysts said.
“The decision window is closing for the winter of 2024-2025,” Richard Levitan, a power analyst, told a gathering of the New England Power Generators Association.
Keeping the import terminal open could cost around $60 million, a potentially expensive insurance policy to ensure electricity in New England, he said. Yet the terminal may be the difference between keeping the power on and the type of crippling blackouts that slammed Texas following a winter storm in 2021.
“Is that expensive? Or is it inexpensive? I guess it’s in the eye of the beholder,” Levitan said. “The Texas experience is a reminder that it can take just one week to burn through $30 billion of damages.”
The urgent warnings over the LNG terminal point to the larger challenge facing New England as it seeks to green its power sector.
The region has seen a series of nuclear, oil and coal plants retire in recent years. On one hand, that’s a good thing — the oil and coal retirements have helped reduce emissions from New England’s power plants.
But the region has struggled to replace the retiring plants with clean energy infrastructure.
Gas facilities face stiff opposition. Voters in Maine sought to block a transmission line carrying hydropower from Canada in a ballot measure, only to see the referendum declared unconstitutional by the state’s Supreme Court. The line’s permit remains in litigation. Fishing interests have opposed a build-out of offshore wind off southern New England. And large-scale solar facilities have encountered “not in my backyard” opposition in communities across the region.
As a result, New England remains reliant on its existing infrastructure to keep the power flowing. Yet the situation will become more difficult going forward as electricity demand increases from electrification of the home heating and transportation sectors, said Gordon van Welie, president and CEO of ISO New England, the region’s grid operator.
New England’s reliance on LNG has been tested by the turmoil roiling global energy markets. As Europe has scrambled to find LNG shipments to replace Russian imports, it has left New England paying more for the gas it uses to balance its power system. Yet the situation was precarious even before turmoil created by Russia’s invasion of Ukraine.
Everett received a brief stay when the Federal Energy Regulatory Commission issued an order in 2018 allowing Mystic Generation Station, the terminal’s largest customer, to recoup its costs from customers. But that deal ends in 2024, and the plant’s operator, Constellation Energy Corp., intends to close the facility.
“Now the clock is ticking, and the region has to make a decision again,” said van Welie. Referring to the deal approved by FERC, he added, “I struggle to see the ISO extending the Mystic RMR … contract in order to rescue Everett.”
Levitan and van Welie said the question of keeping Everett open likely will fall to the Massachusetts gas utilities that rely on shipments from the terminal. State regulators will need to decide if it is fair to leave gas customers paying for the cost of a terminal or if those should also be shared by the electric sector, analysts said.
The challenge of managing the region’s evolving energy systems is made more difficult by a changing climate, said Jim Robb, president and CEO of the North American Electric Reliability Corp.
Extreme weather poses an increasing risk to energy systems that already are experiencing massive change.
“It sure seems to us empirically that we’re seeing very, very different kinds of weather systems than what we’ve seen in the past,” Robb said. “We characterize those as broader, deeper, longer.”
MINING:
Canada’s mining minister wants minerals projects built within a decade
Jacob Lorinc, Battery Metals Canada, December 12, 2022
Canada’s mining minister wants critical minerals projects built in less than a decade — spurred on by government efforts to cut red tape.
“We need to get to the point where we can get these mines from concept to production certainly within a decade, and ideally less than that,” Natural Resources Minister Jonathan Wilkinson said in a Monday phone interview.
Wilkinson’s comments come days after his ministry published a critical minerals strategy that pledged to review Canada’s approval process for developing mines. Government estimates show it can take up to 25 years for a mining project to become operational. Wilkinson said he expects policy recommendations on streamlining processes within the next 12 months.
The time it takes to build a mine has been a source of concern for mining companies worldwide, given that lengthy approval processes pose investment risks and heightened costs, and is top of mind for many mining CEOs. The head of Vancouver-based Teck Resources Ltd., for instance, said last week that the Canadian government could help the industry with an approval process that ensures projects get done in a timely fashion.
“If we are going to bring supply online at the pace that the world needs to electrify, we need to shorten those timelines,” Chief Executive Officer Jonathan Price said in a Thursday interview. “Getting the approvals pathway right is very important, but we have to look for opportunities to accelerate so we can bring new production to market more quickly.”
POLITICS:
EU LEADERS STRIKE DEAL ON WORLD’S FIRST CARBON TARIFF: European Union leaders struck a political deal this morning on imposing a carbon dioxide emissions tariff on imports of polluting goods, such as iron, cement, steel, and aluminum—a first-of-its-kind effort aimed at shielding industries within the bloc from cheaper competition overseas.
The Carbon Border Adjustment Mechanism, or CBAM, will begin to take effect in October 2023, leaders said in a statement. Starting then, companies who import high-polluting goods into the EU will be required to purchase certificates to cover their CO2 emissions.
The goal of the tariff is to prevent industries in the bloc from being undercut by cheaper goods produced in countries with looser environmental rules. But it has also sparked criticism from China and India, and comes amid growing trade tensions with the U.S. over its Inflation Reduction Act, the measure with $369 billion in climate provisions that subsidizes “Made in America” green technologies and EV components.
“Of course CBAM will have [an] impact on our trade partners, because it’s designed to,” Pascal Canfin, the head of the EU Parliament’s environment committee, told reporters at a briefing. “It’s important that the EU leads on the connection between climate and trade policies.”
Some key details of CABM, including how quickly the phase-in takes effect, will be ironed out later this week, when leaders meet either Friday or Saturday for related negotiations on a reform of the EU carbon market.
Leaders say the goal is to ensure a balanced treatment of high-polluting imports with domestic industries in the EU, who are already required to buy permits from the bloc’s carbon market when they pollute.
From the Washington Examiner, Daily on Energy