Today’s Key Takeaways: In the absence of Russian gas – EU expedites fossil fuel projects. “Anywhere but America” – Biden’s response to OPEC decision to reduce production. Graphite One Inc’s Alaska mine elevated by shortage. World’s longest offshore gas pipeline on deck for next year. Republican states withdraw $1 billion over Black Rock’s ESG policies.
NEWS OF THE DAY:
Experts: When Putin Came to Shove, a Pragmatic Europe Returned to Fossil Fuels
Joseph Markman, Hart Energy, October 10, 2022
Without Russian natural gas, European governments scramble for enough LNG, but will settle for coal this winter, panelists say at Baker Institute conference.
Russia’s cutoff of natural gas to western Europe forced governments there to became very pragmatic, very quickly, experts concluded at the recent Annual Energy Summit hosted by Baker Botts law firm and Rice University’s Baker Institute for Public Policy.
“[Germany], in essence, wiped away all of their regulatory structures in order to allow [fossil fuel] projects to move at a rapid pace,” said Dan Brouillette, president of Sempra Infrastructure and former U.S. Secretary of Energy. “I applaud that. I think it’s important that we do that, just given the acuteness of the situation that we face today as a world.”
While the start of the European energy crisis is commonly tied to Russia’s Feb. 24 invasion of Ukraine, the continent was in crisis before that, said Marc Merrill, president and CEO of Uniper North America, a division of German electric utility Uniper SE.
Energy policies that mandated a rapid move away from fossil fuels toward renewable sources were put on hold.
Germany was forced to restart mothballed coal plants to generate power, and its decision to continue to use nuclear power was presented with its own challenge because the European drought has severely limited the water supply necessary to cool the plants. Immediately, though, the country—indeed, the entire EU—rushed to fill natural gas storage ahead of winter.
An unacceptable source
But it’s not simply a short-term pivot in energy strategy, not when the supplier of 40% of European natural gas suddenly decides to not supply it.
“Seven months ago, we were thinking about how to incorporate Russian energy in Europe, in particular,” said Anna Mikulska, fellow in Energy Studies at the Baker Institute, who specializes in the geopolitics of natural gas in the EU, Russia and the former Soviet bloc. “Now, we’re thinking how to replace it completely, and that’s a huge change that will not happen from one day to another. And that will actually cause a lot of pain, both in terms of ability to heat your house at an affordable rate, but also going forward in economic terms.”
Natural gas has long been heralded as a fuel that easily fit into the “three A” paradigm: availability, affordability, and accessibility. Mikulska added “acceptability” as a fourth.
OIL:
Biden, Venezuela and the Oil Dictators
The Editorial Boad, The Wall Street Journal, October 9, 2022
This Administration wants more oil anywhere except in America.
The madness of the Biden Administration’s energy policy has been horrifying to watch, like a car crash except all Americans are passengers. The latest bizarre twist is that the White House may ease sanctions on Venezuela and its dictator Nicolás Maduro in an effort to increase the supply of oil on the global market.
The Journal reports that the U.S. is “preparing to scale down sanctions” on Venezuela’s nasty regime so Chevron Corp. can resume pumping oil. The move is contingent on the Maduro government entering good faith talks with the political opposition, which is an oxymoron.
“There are no plans to change our sanctions policy without constructive steps from the Maduro regime,” Adrienne Watson, spokeswoman for the National Security Council, told the Journal. But the regime has never been willing to concede anything to the opposition. The likeliest result would be that Mr. Maduro opens talks, the U.S. eases sanctions (after the November election), and the talks go nowhere.
The Venezuela gambit is part of the Biden Administration’s rolling dictator tour to encourage more oil supply anywhere except in America. President Biden tried courting the Saudis, but this week they and OPEC+ chose to reduce production by two million barrels of oil a day. The Iran nuclear talks are supposed to liberate Tehran’s oil production, but the mullahs won’t take yes for an answer and are holding out for more U.S. concessions.
That leaves Venezuela, whose production and sales have fallen off a cliff thanks to its own socialist mismanagement and the sanctions imposed by the Trump Administration. Lifting sanctions now on the mere hope of political concessions in Caracas would reward the regime for impoverishing its people and creating a refugee crisis in the region. It isn’t clear how much or how fast Venezuelan oil, which is a hard-to-refine kind of heavy oil, could reach the global market. But Mr. Biden is desperate to reduce American gasoline prices.
Meanwhile, the Administration is hinting that it could allow the Justice Department to file an antitrust suit against the OPEC+ cartel for fixing prices. This might be politically satisfying, but the Saudis and its Gulf allies could easily retaliate by cutting production further and hurting U.S. consumers.
In response to this week’s OPEC decision, some politicians are also threatening to withdraw U.S. troops from Saudi Arabia and the United Arab Emirates. Reps. Tom Malinowski (D., N.J.), Sean Casten (D., Ill.) and Susan Wild (D., Pa.) declared that “it is time for the United States to resume acting like the superpower in our relationship with our client states in the Gulf.” If you want to drive the Saudis further into the arms of Russia and the Chinese, keep this up, guys.
All of this international drama, and growing American economic vulnerability, could have been avoided if the Biden Administration hadn’t made a policy of waging war on the domestic U.S. oil-and-gas industry. The White House blames the industry for high gas prices while it does everything it can to make drilling more difficult and financially risky.
As an act of strategic self-sabotage, this is matched only by Germany’s determination over two decades to make itself vulnerable to Russian natural gas.
Amid a war in Europe, a global energy crisis, and a risk of a global recession, a serious U.S. Administration would do everything in its power to encourage more domestic energy production. This Administration would rather make America more dependent on the “constructive steps” of dictators.
GAS:
The World’s Longest Offshore Gas Pipeline Could Get The Green Light Next Year
Michael Kern, OilPrice.Com, October 10, 2022
Nigeria, Morocco, and their partners expect to make a final investment decision next year on what would be the world’s longest offshore gas pipeline from Nigeria to Morocco and onto southern Europe, the chief executive of the Nigerian state oil firm told Bloomberg in an interview.
The pipeline, expected to cost between $20 billion and $25 billion, is planned to run for 3,840 miles (5,600 kilometers) from Nigeria along the West African coast to Morocco before connecting with pipelines in Italy and Spain and potentially delivering more non-Russian gas to Europe.
Nigeria wants to monetize and export more of its vast natural gas resources, which are now currently only exported by Nigeria LNG, a joint venture of NNPC and international oil and gas majors. More gas exports for Nigeria would also mean diversifying the African producer’s gas export routes and eliminating gas flaring, according to Nigerian officials.
Last month, NNPC and the Moroccan Office National of Hydrocarbons and Mines signed the Memorandum of Understanding for the construction of the Nigeria-Morocco gas pipeline.
“We will take a final investment decision next year,” Mele Kyari, CEO at the Nigerian National Petroleum Corporation (NNPC), told Bloomberg in an interview published on Monday.
According to NNPC’s top executive, the huge pipeline will be built in stages, with the first one expected to take three years to complete. The other phases of the construction would take five years, Kyari told Bloomberg. Nigeria, Morocco, and other stakeholders are currently discussing terms of financing with potential financial partners and lenders, he added.
Nigeria plans to significantly boost its gas production, and quadrupling output in the next four years is “very realizable,” the manager said.
The longest offshore pipeline – if completed on time – could supply more pipeline gas from Africa to Europe by the end of this decade, when the EU will have freed itself from Russian gas, according to its current plans.
MINING:
Graphite Creek criticality on the riseShane Lasley, North of 60 Mining News, October 6, 2022
Global mined graphite supply is being outpaced by enormous EV demand; nearly 100 Graphite Creek-size mines needed.
A shortage of the graphite required for the lithium-ion batteries powering the transition to electric mobility is elevating the criticality of Graphite One Inc.’s plans to develop a mine in Alaska and advanced graphite processing and recycling facility in the Pacific Northwest.
“Our strategy is to build a complete graphite anode supply chain – from mine to battery – located in the United States,” said Graphite One CEO Anthony Huston. “And to complete the circular economy for battery materials, G1 is also adding a battery materials recycling facility to feed recovered materials right back into our manufacturing process.”
As the primary ingredient in the anode side of lithium-ion batteries, graphite is the single largest of the mined materials that go into these electric vehicle fuel tanks. A 30 gigawatt-hour lithium battery factory, roughly the size of Tesla’s Gigafactory One in Nevada, requires approximately 33,000 metric tons of flake graphite each year.
The global lithium-ion battery supply chain experts at Benchmark Mineral Intelligence have identified more than 300 gigafactories in operation, being built, or on the drawing board for development around the globe. These battery factories are creating giga-scale demand for graphite.
“The central demand driver for the graphite market is now the electric vehicle. It’s become the largest end market for flake graphite,” said George Miller, senior price analyst at Benchmark Mineral Intelligence.
In a report published earlier this year, S&P Global Platts’ forecast that automakers alone will need more than 5 million metric tons of graphite per year by 2030.
This compares to U.S. Geological Survey estimates that only about 1 million metric tons of graphite was mined globally during 2021.
This means that a batch of new graphite mines with the combined output of all the graphite produced around the globe during 2021 would need to come online every two years to keep pace with demand between now and the end of the decade.
And the mining sector is already falling behind.
“This is the first year that battery anode demand will overtake demand from the refractory and foundry industries,” said Miller. “It is also the first year we expect a structural deficit for the graphite industry in the gigafactory era, with new supply now needed to meet rapidly rising near-term demand.”
Home to the largest known graphite deposit in the U.S., Graphite One’s Graphite Creek mine project in western Alaska is a top candidate for providing American automakers with a domestic supply of this material vital to their e-mobility ambitions.
Alaska graphite source
Located near Alaska’s west coast, about 40 miles north of the legendary gold mining town of Nome, Graphite Creek hosts 32.5 million metric tons of measured and indicated resources averaging 5.25% (1.7 million metric tons) graphite, plus 254.7 million metric tons of inferred resource averaging 5.11% (13 million metric tons) graphite.
And this resource estimate represents a small fraction of the layers of graphite that extend for more than 10 miles across the Graphite Creek property.
“Graphite Creek is the largest deposit of graphite in the Nation and would be a superior domestic supply of this critical mineral, which is necessary for modern batteries, renewable energy technology, and many other high-tech uses,” said Alaska Gov. Mike Dunleavy.
A prefeasibility finalized for Graphite One in August envisions a mine at Graphite Creek that would produce an average of 51,813 metric tons of graphite concentrate per year, which would be shipped to a new processing facility in Washington to be transformed into the battery-grade graphite product the auto sector is craving.
Utilizing the graphite concentrates shipped from Alaska, along with purchased graphite material, Graphite One’s planned Pacific Northwest processing plant would produce 49,600 metric tons of spherical coated graphite that serves as the anode material in lithium-ion batteries and 25,400 metric tons of other graphite products per year.
“At this point, with drilling to date of just 7% of our 16-kilometer deposit showing a pre-tax NPV (net present value) of $1.9 billion, we see Graphite Creek as a generational strategic resource,” said Huston.
U.S. graphite mine incentives
With the rapid transition to e-mobility driving the demand for nearly 100 new Graphite Creek-sized mines by the end of the decade, policymakers in Washington, D.C., are providing incentives to establish graphite and other battery materials production in the U.S.
The Inflation Reduction Act offers companies that produce lithium-ion battery materials in the U.S. with a tax credit equal to 10% of the production costs. This credit begins to fade by 25% per year starting in 2030.
The $750 billion piece of legislation offers a second tax credit equal to 10% of the costs incurred in relation to the production of 99.9% graphite on American soil. This credit does not have a sunset date.
Graphite One’s mine-to-coated spherical graphite anode material supply chain would qualify for both tax credits.
“Benchmark Mineral Intelligence has just made the call that we are now entering the first supply deficit of the Gigafactory Era, driven by the rapid rise in natural graphite demand for EV batteries,” said Dan McGroarty, president of the American Resources Policy Network and a member of Graphite One’s advisory board. “With this supply shortage emerging just as U.S. policy is implementing incentives for domestic production – tax incentives and domestic content rules for EV batteries – this is a defining moment for the technologies that will define the 21st century. It’s time to make the connection between the transition to renewable energy and the tech metals that make it possible.”
POLITICS:
Republicans Withdraw $1 Billion From BlackRock Due To Its ESG Policies
Tsvetana Paraskova, OilPrice.Com, October 10, 2022
Multiple U.S. states governed by Republicans are withdrawing state funds from BlackRock’s management, as they disapprove of the ESG investment policies of the world’s top asset manager, the Financial Times reports.
In recent weeks, Louisiana, South Carolina, Utah, and Arkansas have announced they would divest funds from BlackRock totaling more than $1 billion.
Last week, Louisiana State Treasurer John Schroder announced in a letter to BlackRock’s CEO Larry Fink that he would divest all Treasury funds from BlackRock. Louisiana has removed $560 million to date and will pull out a total of $794 million by year’s end, Schroder noted.
“This divestment is necessary to protect Louisiana from mandates BlackRock has called for that would cripple our critical energy sector,” said Schroder. “I refuse to spend a penny of Treasury funds with a company that will take food off tables, money out of pockets and jobs away from hardworking Louisianans.”
South Carolina will pull $200 million from BlackRock by the end of the year, State Treasurer Curtis Loftis told FT in an interview.
For months now, Republican states have said they would not do business anymore with asset managers who have ESG-aligned investment policies, which, the states say, show that those financial firms are boycotting the oil and gas industry.
Texas, the largest oil-producing state in America, is leading the campaign against this movement. The Lone Star State published in August a list of financial firms that could be banned from doing business with Texas, its state pension funds, and local governments.
Texas and other Republican-led oil and gas states see the ESG investment trend as an implicit attack on fossil fuels and a boycott of conventional energy resources, the revenues from which make up a large portion of state budgets in the oil, gas, and coal country.
In early August, the Attorney Generals of 19 states—including Texas, West Virginia, Louisiana, Montana, Oklahoma, Idaho, and Ohio—sent a letter to BlackRock’s CEO Larry Fink expressing concerns with the asset manager’s commitment to net-zero emissions across all its assets.
“Rather than being a spectator betting on the game, BlackRock appears to have put on a quarterback jersey and actively taken the field,” the attorney generals wrote.