Turbocharged prices. Bitcoin miners cut flaring. Clean AKLNG. Biden Plan B.

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Oil Price Jumps Above $80 and Natural Gas Races Higher, Turbocharged by Supply Shortages
Amrith Ramkumar, The Wall Street Journal, October 11, 2021

Crude prices are outpacing copper and other commodities by the widest margin in more than a decade

The extended climb in oil prices is leaving some other industrial commodities behind, a divergence that reflects bets that energy supply shortages will offset any slowdown in the global economy. 

U.S. crude rose more than 2% early Monday to a seven-year high of $81.50 a barrel, bringing its climb since the end of last October to more than 120%. If sustained, it will be the first time the U.S. oil benchmark closes above $80 a barrel since October 2014, when the shale revolution set off a multiyear slump in fossil-fuel prices.

Oil is now on track to outpace copper this year by the largest amount since 2002 and is topping an index of raw materials by the biggest margin in more than a decade, according to Dow Jones Market Data. Like oil, natural gas is also far outpacing other commodities.  

Copper prices are about 10% below a May record, while rallies in some other materials such as zinc and lead have largely stalled. 

Some industrial metals have fallen due to fears of softening growth in China, the world’s biggest commodities consumer and largest oil importer. Economic fallout from the impending collapse of indebted property developer China Evergrande Group could magnify the slowdown caused by the Delta variant of the coronavirus, traders say. That is because the Chinese economy is heavily reliant on real-estate developers for growth and jobs. 

Crude’s persistent rise in the face of those growth concerns shows the extent to which many traders expect weak supply to buoy prices, lifting fuel costs for consumers and businesses. Energy supply shortages are slowing factory activity around the world and contributing to a recent pickup in inflation. Worries about accelerating consumer prices and climbing government-bond yields have in turn sparked volatility in U.S. stocks in recent weeks.

Even if fewer consumers travel and consume fuel, many analysts project that tumbling investment in new supply by energy companies will prop up oil prices. Investors are pressuring companies, including Pioneer Natural Resources Co. and Occidental Petroleum Corp. , to limit spending and environmental damage while returning money to shareholders.

Now, some are betting that a world-wide shortage of natural gas and other fuels needed to power homes and businesses will spill into the oil market. With power prices in Europe surging, U.S. natural-gas futures on Oct. 5 hit a nearly 13-year high at $6.31 a million British thermal units, bringing their advance for the year to almost 150%. Despite a recent retreat, prices could shoot even higher if cold temperatures in the coming months increase demand.

Lofty natural-gas prices and depleted inventories could prompt some power plants to use oil as an alternative to natural gas for electricity generation, some analysts say. That would boost demand for crude at the same time that traders ramp up wagers that environmental pressure from investors will drive long-term shortages, adding to the momentum.

“There’s a lot feeding on itself right now,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. She has continued favoring shares of energy infrastructure companies that store and move energy products. “We don’t know what the weather is going to bring…The worst-case scenario is pretty ugly.”

Investors who have long avoided the lagging energy sector because of poor returns and environmental fears are playing catch-up and increasing their exposure to one of the year’s best-performing trades, some analysts said. 

The S&P 500 energy sector has been the broad index’s best-performing group this year, advancing about 50%. Rebounds in shares of companies such as Pioneer, Occidental and Diamondback Energy Inc. have led the way, while industry giants Exxon Mobil Corp. and Chevron Corp. have trailed many stocks in the sector but have still surged. 

Brent crude, the global gauge of oil prices, closed at $82.39 a barrel on Friday. Bank of America analysts said in a recent note that Brent could crest $100 this winter if demand surges. Further price increases could add pressure to the economy and complicate the Federal Reserve’s plans to gradually raise interest rates starting next year, analysts said. 

“It’s the conflation of the higher-than-normal oil prices with the other bottlenecks in the economy that make for something to watch,” said Nela Richardson, chief economist at the human-resources software firm Automatic Data Processing Inc. “It puts the Fed in an uncomfortable position.”

The price moves are drawing attention from other policy makers around the world. Russian President Vladimir Putin last week said Moscow could help calm the natural-gas crisis by increasing supply of the power-generation fuel to Europe, sending prices lower. 

U.S. Energy Secretary Jennifer Granholm, meanwhile, said at a Financial Times conference recently that the U.S. is considering releasing oil from the Strategic Petroleum Reserve. President Biden earlier this year urged the Organization of the Petroleum Exporting Countries to increase oil production more quickly to ease any supply constraints. 

Oil prices are also in focus because their recent advance comes just weeks ahead of a global climate summit in Glasgow, Scotland. Many analysts say the recent swings show the risks of phasing out fossil-fuel production too quickly.

“There’s a lot less margin for error today when you think about energy supplies and power generation,” said Stacey Morris, director of research at index provider Alerian. “That’s creating some of these problems that we’re seeing.”

OPEC, countries such as Russia and private companies that are less subject to environmental pressure are poised to exert more influence in commodity markets, analysts said. OPEC recently opted to stick with measured supply increases, helping power oil prices even higher. 

Steps such as reserve releases could help briefly balance energy markets, but some investors still think the long-term push by investors for producers to curtail supply and emissions will help buoy prices. 

Many analysts expect the supply of copper and other metals to be limited by climate concerns, but demand worries have hurt those commodities lately. The Chinese property sector accounts for about 10% of global copper demand, according to Jefferies, so some traders now think metals markets will be adequately supplied.

That isn’t the case for oil, many investors said.   

“There is that scarcity mentality,” said Noah Barrett, an energy research analyst at Janus Henderson Investors. “People are anticipating a tighter market.”


Oil and gas producers are still holding back
Kate Marino, Axios, October 11, 2021

Oil and gas prices have skyrocketed this year as energy demand rushes back — but U.S. producers aren’t activating their dormant rigs in droves.

Driving the news: The U.S. added five rigs last week and a total of 30 over the past four weeks, according to Baker Hughes.

  • But the current count of 533 is far off the roughly 790 from just before the pandemic.

Why it matters: Adding to the supply would help keep a lid on the price growth. Rising oil and gas prices translate to higher electricity and gasoline costs, and weigh on consumer spending.

  • But U.S producers are exercising some caution. Some have been burned in the past when they ramped up production only to have prices move down to unprofitable levels.
  • And pressure from investors, governments and the broader population to focus on the transition to renewables has some of the larger oil companies directing more funds to clean tech.

What’s happening: Thanks to a supply-and-demand imbalance, oil has doubled since its low last year and natural gas is up about 130%.

What to watch: Whether producers remain cautious in the weeks and months to come, or decide to open the spigot faster — especially as winter heating needs approach.


New analysis of emissions gives Alaska new sales tool for big Alaska LNG Project
Tim Bradner, The Frontiersman, October 11, 2021

Alaska has a new sales tool to pitch customers for the proposed $40 billion-plus Alaska LNG Project.

A report released last Thursday by the state-owned Alaska Gas Development Corp. shows greenhouse gas, or GHG, life-cycle emissions significantly lower for its Alaska liquefied gas project compared to coal-fired power generated in China or competing LNG projects on the U.S gulf coast.

This will be important for customers interested in purchasing energy from sources with lower emissions.

“The world is increasingly focused on the climate impact of new high-volume energy projects, said Frank Richards, AGDC’s CEO. “This assessment uses respected and transparent methodologies to quantify the value of replacing high-emissions energy sources in foreign markets with low-emissions Alaska LNG. The justification for Alaska LNG is compelling,” Richards said.

According to the analysis, LNG from Alaska would result in release of about half the planet-warming GHGs compared with generating the same power in China with coal, or 541 kilograms of carbon dioxide equivalent per megawatt hour of power produced compared with 1,085 kilograms of CO2 per megawatt hour of power with Chinese coal. The figure for China comes from a 2019 study by the U.S. Department of Energy National Energy Technology Laboratory, according to the report.

AGDC’s report also compared Alaska LNG emissions to equivalent LNG projects in Louisiana and Australia that have undergone similar lifecycle analyses. It shows that the production and delivery of Alaska LNG also provides 50 percent lower greenhouse gas intensity compared to those projects.

One advantage for Alaska in the gulf coast and Australia comparisons is the shorter shipping distance to Asia, which lowers emissions. Also, the gas in Alaska would be produced in the Prudhoe Bay and Point Thomson fields with integrated infrastructure compared with Lower 48 LNG made from has produces in many areas and requiring a broad network of pipelines and producing facilities/

“This assessment uses transparent methodologies to quantify the value of replacing high-emissions energy sources in foreign markets with low-emissions Alaska LNG,” Richards said.

In June the DOE ordered a new GHG analysis of the big Alaska project to include downstream uses of the LNG in export markets.

A GHG analysis in a Final Environmental Impact Statement for Alaska LNG Project prepared by the Federal Energy Regulatory Commission considered only GHG emissions from the project itself, such as in gas production on the North Slope, pipeline transportation to a south Alaska port and operation of a large LNG plant at the port.

A new Supplemental Environmental Impact Statement being prepared for DOE by NETL will include downstream uses of the LNG such as in power generation. NETL is expected to publish its report in mid-2022.

Richards said AGDC hired consultants for its report who have worked with NETL on similar GHG lifecycle studies and relied on the model the lab will use in its report.

AGDC did the report to get its own assessment of the GHG downstream impact several months ahead of the NETL report, which is expected to show similar results because the same assumptions and procedures were used, Richards said.

Other U.S. LNG developers like Cheniere Energy have commissioned lifecycle GHG studies, in Cheniere’s case for its Sabine Pass LNG project.

The Alaska LNG Project would involve an 800-mile, 42-inch pipeline from the North Slope to a large gas liquefaction plain at Nikiski, on the Kenai Peninsula. The pipeline would pass through the Matanuska-Susitna Borough and would make gas available at economical costs for residential and commercial space heating as well as industrial uses.

It would also create a large industrial property tax base for the Mat-Su Borough, lowering reliance on residential property taxes.


Bitcoin miners help US oil producers cut flaring
Argus Media, October 8, 2021

US oil producers are turning to an unexpected source to help solve the environmental problem of excess natural gas — cryptocurrency miners.

On remote well pads dotted across the Bakken shale play of North Dakota and Montana, shipping container-sized data centers packed with computers power energy-intensive operations of Bitcoin miners. Their computers, running around the clock to earn crypto tokens by authenticating digital transactions, are powered by natural gas-fired generators, running on gas from the oil wells that would otherwise be flared on site.

Mining for virtual currencies has attracted widespread criticism — from environmental groups to tech entrepreneur Elon Musk — because it uses vast quantities of energy, more than some nations use in a year. That has led crypto miners to try and cut down on their energy use, or at least find ways to shrink their carbon footprint.

In the Bakken, they are able to capitalize on an abundance of surplus natural gas — a common byproduct of oil production — that would otherwise be burned off given a lack of pipeline infrastructure to take it to market. The environmentally harmful practice of flaring has come under intense scrutiny from regulators, climate campaigners and investors, including fund manager Blackrock.

Companies tapping surplus gas to run their crypto-mining computer banks see a double benefit — reducing the negative impacts of gas flaring and cutting their carbon footprint.

Denver-based Crusoe Energy operates 44 data centers in Montana, North Dakota, Wyoming and Colorado, and was due to deploy another 16 units by the end of September. Plans are afoot to start an initial project in the top oil producing Permian basin of Texas and New Mexico later this year before ramping up there in 2022.

“Our systems reduce greenhouse gas emissions by the equivalent of hundreds of thousands of cars in the process, primarily by reducing the amount of methane escaping into the atmosphere from incomplete combustion in flares,” company president and co-founder Cully Cavness said.

Crusoe expected to reduce flaring in areas where it is operating by almost 10mn cf/d by the end of September. Its technology lowers CO2-equivalent emissions by as much as 63pc compared with continued flaring.

The company’s digital flare mitigation system is also used to support other computing intensive processes, such as artificial intelligence.

The prices of crypto currencies including Bitcoin have fluctuated wildly this year with China banning all related transactions and mining. The Chinese crackdown “plays greatly into the advantage of US-based operators as it makes available hardware for domestic projects and increases the competitiveness of American operations,” Cavness said.

Equinor, Devon among crypto-miner customers

Before divesting its Bakken acreage earlier this year, Norway’s state controlled Equinor was one of the producers that sold excess gas to Crusoe and provided the company with space on a well pad for its equipment. Other clients have included Devon Energy, private equity backed Kraken Oil & Gas, and Canadian oil firm Enerplus.

North Dakota has had targets to curb flaring since 2014, with the industry spending billions trying to solve the problem. While flaring eliminates most methane — a potent greenhouse gas — the process still emits CO2. Flaring rose to 10pc of all gas produced in July, above the current 9pc limit allowed in North Dakota, due to several natural gas processing plants being offline.

As an incentive to curb the practice, North Dakota lawmakers passed legislation earlier this year that offered operators a tax credit for installing gas flaring mitigation systems  like those Crusoe operates. Crusoe qualifies for emissions reduction credits because it uses waste gas to generate electricity that would otherwise have come from the grid.

Texas regulators also have adopted a tougher stance against flaring in recent months, after previously taking a largely hands-off approach.

Jim Wright, one of three Republican commissioners on the Texas Railroad Commission, said recently that companies stuck with unwanted gas should reach out to third parties — including crypto currency miners — who can “eliminate the vast majority of emissions that flaring produces and even pay the operator for the gas.”


A new bill aims to create the US’s first high-level Arctic diplomatic office
Melody Schreiber, Arctic Today, October 8, 2021

New legislation introduced to the U.S. Senate would create a new diplomatic position for the Arctic at the Department of State.

The bill would establish a new Senate-confirmed role, the Assistant Secretary of State for Arctic Affairs, in order to centralize U.S. Arctic leadership from the agency.

Unlike other Arctic nations, the United States does not have an Arctic ambassador.

Jim DeHart, who has almost three decades of diplomatic experience, is the U.S. coordinator for the Arctic region at the State Department, where he collaborates between offices and departments on Arctic policy.

Previously, Adm. Robert J. Papp, Jr., was the State Department’s Special Representative for the Arctic, but that position has not been revived.

“It’s high time that we have such representation,” Sherri Goodman, former U.S. deputy undersecretary of defense and senior fellow at the Wilson Center’s Polar Institute, told ArcticToday. “It’s been a long time in the making. We absolutely need to up our game for American leadership in the Arctic.”

The new assistant secretary would establish a diplomacy strategy, cooperate with other nations, incorporate Arctic Indigenous knowledge and oversee several Arctic priorities, including natural resource management and economic development, scientific monitoring and research, and environmental protection and conservation.

Even some non-Arctic nations, such as China, have high-level diplomatic representation in the Arctic, Sen. Lisa Murkowski said in a statement, calling the absence “unacceptable.”

“It is important that the U.S. play an active and influential diplomatic role in the region,” Murkowski, a Republican from Alaska, said. “It is pivotal that the U.S. establish this position in order to conduct the type of diplomacy necessary to preserve a peaceful, prosperous Arctic.”

The proposed legislation will elevate Arctic issues in U.S. halls of power, Dr. Kelly McFarland, director of programs and research at Georgetown University’s Institute for the Study of Diplomacy, told ArcticToday.

The legislation “demonstrates the importance of the Arctic moving forward, in diplomacy and just in geopolitics in general,” he said, and it represents “a growing understanding” of the Arctic’s importance on Capitol Hill and within government agencies.

“It will allow Arctic policies and Arctic issues to be more front and center for policymakers to think about and to deal with, and I think that’s a good thing,” McFarland said.

Creating an assistant secretary position would also build out a bureau to support the position, including deputy secretaries and staffers specializing in environmental, economic, security and regional issues, among others, McFarland said.

The proposed legislation joins a slate of other recent Washington developments. In addition to co-sponsoring the new legislation, Murkowski has also worked to establish the Ted Stevens Center for Arctic Security, now led by retired Air Force major general Randy “Church” Kee.

The White House also recently revived the Arctic Executive Steering Committee, which advances U.S. interests and action in the North, and President Joe Biden appointed several new commissioners to the U.S. Arctic Research Commission in a move hailed as a return to science-based policies.

“The Arctic is known to be a region of peace, but as maritime traffic and economic activity increase to the north, this stability must be maintained through careful, steady leadership and engagement with the rest of the Arctic community,” Sen. Angus King, an Independent from Maine and one of the bill’s cosponsors, said in a statement.


Pondering Biden’s Plan(et) B
Ben Geman, Axios, October 11, 2021

Plan A for the White House is walking into the UN climate summit in Glasgow with a huge new emissions-cutting law from Congress. Plan B is more complicated.

The big picture: It’s anyone’s guess whether Democrats’ reconciliation plan will pass before the summit starts at the end of the month, and if so, whether huge climate investments will be intact.

  • The same goes for the bipartisan infrastructure plan, which has smaller, but still significant, climate measures.

Why it matters: As the window narrows fast to keep warming within the Paris Agreement targets, getting other nations on board with aggressive efforts is tougher if President Biden’s legislative agenda is stuck.

What we’re watching: What’s plan B?

  • A White House aide said there’s “a number of paths to meeting our emission goals and targets,” adding the agenda “doesn’t hinge on reconciliation or the infrastructure package alone.”
  • Biden’s pledge under the Paris Agreement is a 50%-52% cut in U.S. emissions below 2005 levels by 2030.

Here’s how the White House, if needed, will likely argue its pledge has teeth without Congress:

  • Regulations: EPA recently completed rules to phase down the use of powerful greenhouse gases called hydrofluorocarbons. And many other regulations are in the offing around vehicle emissions, methane, appliances and more.
  • Breadth: Beyond binding rules, Biden officials this year have rolled out an array of programs. Think new targets and approvals for offshore wind development and reviving the Energy Department’s loan guarantee program, to name just two.
  • Persuasion: The administration has been pushing the private sector and other nations on several fronts with domestic and global emissions ramifications, such as banks’ sustainable lending practices. For instance, it has lined up pledges to ramp up electric sales and, per Bloomberg, is crafting a new heavy industry coalition.

The intrigue: We’re watching for new moves before the summit. A strategy document on meeting the 2030 target is expected this year at some point. There’s also the possibility of a congressional deal during the two-week summit.

  • And who knows, maybe a wild card’s in the offing. Some legislators and activists want the White House to declare a climate “emergency” that frees up new federal powers.

Reality check: Executive moves are not a substitute for the scope of measures in the Democrats’ plans, such as hundreds of billions in new clean power and EV incentives and major new finance for utilities to get greener.

The bottom line: Tufts University climate expert Rachel Kyte tells the New York Times that if the bills don’t pass, the U.S. will roll into the Glasgow summit with “fine words” but “not much else.”

  • Kyte, dean of the Fletcher School and a UN adviser, doesn’t mince words about the fallout at the summit if the legislation flops: “The whole world is watching.”