Today’s Key Takeaways: Biden’s newest release of oil from the Strategic Petroleum Reserve is the largest in it’s 45-year history – by a factor of 3.6x. LNG executives cautiously optimistic that the White House is an ally. Global copper industry needs $100 billion investment to build mines to close the gap. Former state Sen. John Coghill, R-North Pole, a constitutional conservative, filed to finish late Don Young’s term in Congress. 4.5 million barrels of Russian oil have gone missing…
NEWS OF THE DAY:
Biden ordering massive release of oil in bid to curb gas prices
Ben Geman, Erin Doherty, Axios, March 31, 2022
President Biden is ordering the release from the Strategic Petroleum Reserve of 1 million barrels per day on average for the next six months, the White House said Thursday.
Why it matters: The historic release size underscores how much Russia’s war is causing havoc in energy markets — and how the White House hopes to limit political fallout from high gas prices.
Driving the news: The release is expected to “shore up global supplies,” per senior administration officials, who also say that it will lower gas prices.
- “This record release will provide a historic amount of supply to serve as bridge until the end of the year when domestic production ramps up,” the White House said.
- Biden, set to deliver remarks later on Thursday, is also expected to authorize the use of the Defense Production Act to support the production and processing of minerals and materials used for large capacity batteries, including lithium, nickel, cobalt, and graphite.
- Biden on Thursday will also urge Congress to charge oil and gas companies if they are sitting on wells that are not producing oil and leases that they are not developing, per the White House.
What they’re saying: “It is hard to overstate the scale of this intervention if it bears out. It would be the largest drawdown volume announced in the 45-year history of the SPR by a factor of 3.6x,” the research firm ClearView Energy Partners said in a note.
Between the lines: Oil prices fell sharply Wednesday night after Bloomberg, Reuters and elsewhere reported on Biden’s expected announcement, with the U.S. benchmark WTI down more than 4% to $104.46 and Brent seeing a similar drop.
What we’re watching: The effect of the plan on the tight oil market, and potential new releases from other nations coordinated through the International Energy Agency.
- The impacts are hard to tease out as international efforts to isolate Russia could lead to sharp declines in its exports that exceed the reported daily size of the SPR release.
- Goldman Sachs, in a note, said the reported plan would ease, but not resolve, oil’s “structural deficit” and help the market rebalance.
- “This would reduce the amount of necessary price-induced demand destruction, the sole oil rebalancing mechanism currently available in a world devoid of inventory buffers and supply elasticity,” Goldman Sachs noted.
- “This would remain, however, a release of oil inventories, not a persistent source of supply for coming years.”
Catch up fast: It’s the latest of several Biden administration attempts to try and tame prices via the SPR.
- In November, the White House announced 50 million barrels in releases, with another 30 million in early March, alongside 30 million from other nations.
The Energy Department, which manages the reserve, says it holds more than 568 million barrels of oil.
OIL:
Russian oil tankers have vanished from tracking systems. Someone is buying that crude and we don’t know who
Sophie Mellor, Yahoo! Finance, March 30, 2022
Since Russia invaded Ukraine, many Western oil companies as well as traders, shippers, and bankers have stayed away from Russian oil. But a new report by CNN indicates Russian crude may be seeing a resurgence in demand—in relative secret.
Russian tankers transporting oil and petroleum products have been disappearing from tracking systems. Dark activity, or when a ships’ transponders are turned off for at least a couple of hours, is up 600% compared to before the Ukraine War began, maritime risk management company Windward told CNN.
“We’re seeing a spike in Russian tankers turning off transmissions deliberately to circumvent sanctions,” Windward CEO Ami Daniel said in an interview with CNN, referring to oil import sanctions imposed by the U.S., U.K., and other countries. “The Russian fleet is starting to hide its whereabouts and its exports,” he added.
During the week of Mar. 12, there was 33 occurrences of dark activity by Russian oil tankers, according to Windward A.I. intelligence—a 236% jump from the same week a year ago.
Dark activity is seen by the U.S. government as a deceptive shipping practice used to evade sanctions. International regulation requires ships to always keep their transponders switched on, and the U.S. Treasury Department said in a sanctions advisory note to the maritime industry, energy, and metals sectors in May 2020, that any automatic identification system “manipulation and disruption may indicate potential illicit or sanctionable activities.”
“These vessels want to disappear from radar. From a compliance perspective, it’s a red flag,” Daniel said.
Who is buying the oil?
Energy research firm Rystad Energy estimated that 1.2 million to 1.5 million barrels per day of Russian crude oil exports vanished in the five weeks since the war against Ukraine began.
The destination of the remaining crude exports from Russia is “increasingly unknown,” Rystad Energy wrote in a report this week, estimating in total around 4.5 million barrels of oil have mysteriously gone missing.
Analysts say that refineries in China and India are buying up some of the Russian oil products. According to CNBC, there has been a “significant uptick” in Russian oil deliveries to New Delhi, and China is also being lured by the oil traded at a deep discount.
And while the U.S. and U.K. have both banned the import of Russian oil, the EU, which is far more reliant on Russian energy, has kept up its buying—only planning to slash natural gas imports by two-thirds within the next year, to avoid an energy crisis.
Russian Urals, the benchmark for Russian crude oil, is trading at an alluring $30 a barrel discount to Brent, the European benchmark. But despite the cheap prices, many Western traders have avoided buying Russian oil. “Russia’s oil has effectively become toxic,” one banker previously told the FT.
According to S&P Global, traders said that public perception caused many Western firms to stop buying Russian oil, even at a relative cheap price. Many do not want to be seen as funding the invasion of Ukraine.
“The ships are going dark because they are afraid if they take on Russian business, they will be blacklisted for a period of time and unable to get future business,” Andy Lipow, president of consulting firm Lipow Oil Associates, told CNN.
But as millions of barrels of oil keep going missing, analysts predict the spike in dark activity could be put down Western traders avoiding a PR crisis.
GAS:
How long will Biden’s new alliance with LNG last?
James Osborne, Houston Chronicle, March 30, 2022
Since President Joe Biden came into office last year, Texas’s fast growing LNG industry has faced an uncertain future in the face of his administration’s historic push to fight climate change.
But Biden’s seeming antipathy toward natural gas appears to be shifting rapidly amid soaring energy prices and a war in Ukraine that threatens to upend global energy security.
After the president and officials from the European Union last week announced plans to expand U.S. LNG exports to Europe over the next eight years — in an effort to reduce reliance on Russian natural gas — LNG executives began to wonder if they might have an ally in the White House after all.
“The signals coming from the administration today are almost a 180 in direction,” said Charlie Riedl, executive director of the Center for Liquefied Natural Gas, a trade group. “We think we’re in a good position.”
On HoustonChronicle.com: Biden torn in competing directions on cutting off Russian oil
Speaking to reporters last week, Jake Sullivan, Biden’s national security adviser, said that while the administration was still focused on transitioning to clean energy, natural gas remained “a substantial part of the energy mix.”
“We want to make sure that the Europeans do not have to source that gas from Russia,” he said.
How long this newfound allegiance will last remains to be seen.
Biden’s announcement Friday has already generated criticism from environmental groups, who argue that it threatens to increase harmful emissions and upend U.S. efforts to fight climate change.
So far, members of the Democratic Party’s environmental wing have held off similar criticism, giving Biden some cover. But it’s unclear how much longer that will last, said Kevin Book, managing director of the consulting firm Clearview Energy Partners.
If peace broke out (in Ukraine) tomorrow would Biden change his tune? If you look at the budget the White House proposed yesterday, it’s very closely aligned with the climate messaging you saw on the campaign trail,” he said. “The administration says they’re on war footing, and there’s few things that focus the mind more than a loss of energy supply.”
In the budget released Monday, Biden proposed ending tax breaks for oil and gas drilling, along with major funding expansions for clean energy.
On HoustonChronicle.com: FERC tells gas pipelines, LNG to start calculating climate impacts
Last year the United States exported 22 billion cubic meters of LNG to Europe, and now Biden is saying the United States will increase that number to 50 billion cubic meters by 2030.
With gas prices soaring in Europe, the United States is already on track to meet that goal this year, according to analysis by the research firm IHS Markit. Gulf Coast LNG terminals including Cheniere Energy’s Sabine Pass and Venture Global’s Calciseau Pass are already sending more than 70 percent of their LNG to Europe.
But the future of that trend is uncertain. And should European gas prices fall, U.S. gas exports would likely shift to markets in Asia that typically run at a premium to Europe.
“U.S. LNG is its going to be driven by commercial motivations which means price,” said Gautam Sudhakar, a senior director at IHS Markit. “What’s been very clear about the market is it’s extremely unpredictable and we’ve seen an incredible amount of volatility in price.”
The uncertainity of the market presents an opportunity for U.S. LNG developers, who argue that the Biden administration needs to approve more export terminals if they are to meet the president’s 2030 goal.
Currently there are 17 LNG projects awaiting approval by the Federal Energy Regulatory Commission, representing more than 200 billion cubic meters of LNG exports a year, Riedl said.
More: Read the latest oil and gas news from HoustonChronicle.com
“There’s going to have to be additional approvals,” he said. “That sends the signal that the U.S. is willing to stand shoulder to shoulder with Europe.”
The other hurdle is Europe, where LNG import facilities are already at capacity. Importing more LNG from the United States and its allies will require the construction of new import terminals and pipelines, something that could be a tough sell politically as Europe seeks to reduce its greenhouse gas emissions.
In their joint statement with the United States Friday, European officials only agreed to increased imports through 2030. But LNG exporters are typically looking for 20-year deals, presenting a potential stumbling block to the signing long-term contracts necessary to build exports terminals that cost billions of dollars to build.
“Europe is saying they want to be off gas in 20 years,” Book said. “LNG developers are going to want something more than through 2030 because the facilities won’t be built for 5 years. America’s got the molecules. What we don’t have is the certainty of long-term contracts.”
MINING:
Miners need to invest over $100 billion to meet copper demand
Cecelia Jamasmie, Mining.Com, March 31, 2022
The global copper industry needs to spend more than $100 billion to build mines able to close what could be an annual supply deficit of 4.7 million tonnes by 2030, Erik Heimlich, head of base metals supply at CRU said this week.
Speaking at the 2022 CRU World Copper Conference held in Santiago, Chile, the analyst said the supply gap for the next decade is estimated in six million tonnes per year, as the clean power and electric vehicles sectors take off.
It means the world would need to build eight projects the size of BHP’s (ASX: BHP) Escondida in Chile, the world’s largest copper mine, in the next eight years. Such task, Heimlich said, seems questionable “possible” rather than “probable,” given the bigger scale developments required and the fact that about half the projects in the pipeline are greenfield projects.
“Historically, the completion rates of these projects have been low. A large share of the greenfield possible projects in 2012 remain under-developed so there are questions about the ability to respond to the supply gap in an efficient and timely manner,” he said, as reported by Mining Journal.
Some major copper mines have come online in the last three years. First Quatum’s (TSX: FM) Cobre Panama achieved commercial production in September 2019. The asset is estimated to hold 3.1 billion tonnes in proven and probable reserves and at full capacity can produce more than 300,000 tonnes of copper per year.
Ivanhoe Mines (TSX: IVN), began copper concentrate production at its Kamoa-Kakula project in the DRC in May last year, achieving commercial production in July.
Anglo American (LON: AAL) mined first ore at its Quellaveco mine, located in the Moquegua region of Peru, in October 2021. The asset is expected to reach commercial production by mid-2022, generating between 120,000 and 160,000 tonnes of copper this year, and 300,000 tonnes annually for the first 10 years at full production.
Pipeline of hopes
While copper projects are in the pipeline, producers are wary of repeating oversupply mistakes of past cycles by speeding up plans at a time when mines are getting a lot trickier and pricier to build.
Prices for the metal have traded around decade highs, though they fell on Wednesday to $10,331 a tonne in London due to concerns over demand in top consumer China, which is grappling with the worst resurgence of covid-19 cases since early 2020.
Bank of America (BofA) Global Research’s latest report backs CRU’s forecast. According to the bank’s analysts, visibility over the near-term copper project pipeline is good, but activity increases will “come with a wrinkle.”
“Many of the projects currently developed have been in the making for almost three decades, and with exploration activity relatively limited in recent years, supply increases may fade from 2025,” the experts said.
A lump of next decade’s new supply will potentially come from the Reko Diq deposit in Pakistan, as Barrick Gold (TSX: ABX) (NYSE: GOLD) reached a deal last week that ended long-running dispute with the country’s government.
Alcantara Group’s Tampakan project in the Philippines is also expected to contribute closing the global supply gap and so is Seabridge Gold’s KSM project in British Columbia, Canada.
Rio Tinto (ASX, LON: RIO) is developing a $6.93 billion underground expansion of the giant Oyu Tolgoi copper-gold mine in Mongolia, which has been plagued by delays and costs overruns. First production has been deferred several times and it is now expected in the first half of 2023.
The market is also following closely what SolGold (TSX, LON: SOLG) is doing with its Alpala copper-gold project at the Cascabel property in Ecuador.
The company has yet to publish a pre-feasibility study (PFS) for the project, but it says that once developed, it would produce an average of 150,000 tonnes of copper, 245,000 ounces of gold and 913,000 ounces of silver in concentrate per year during its 55-year life-of-mine.
POLITICS:
Former Sen. John Coghill adds his name to a growing list of candidates seeking Don Young’s House seat
Amanda Bohman, Fairbanks Daily News Miner, March 29, 2022
The 71-year-old is one of two hopefuls so far from the Fairbanks area as the list of candidates grows. The other local candidate is Bill Hibler, a left-of-center retired professor. The deadline to file for the special primary election for U.S. Representative is 5 p.m. Friday.
Multiple well-known Alaskans are pondering a run, according to media reports.
Republican Nick Begich, whose grandfather preceded Young in Congress, and Democrat Christopher Constant, who belongs to the Anchorage Borough Assembly, plan to run as candidates for the remaining term plus another full two-year term, according to the Associated Press.
The campaign of Al Gross, who was defeated in 2020 after challenging U.S. Sen. Dan Sullivan, R-Alaska, confirmed that he will also seek to replace Young, according to KINY radio.
Coghill is not committed to run for the full term in Congress but rather the remainder of the current term, which ends in January, he said.
Since leaving the Alaska Legislature in 2020 after being defeated in the Republican primary following 22 years of service, Coghill has sold a house, built a house, had two knees replaced and started a new job at the Fairbanks Rescue Mission, he said.
“You feel responsible for what you know, and I know Alaska well,” said the son of a constitutional convention delegate who grew up in Nenana.
Coghill wants to make sure the batch of candidates includes a constitutional conservative with extensive knowledge of Alaska.
“I am going to bet there will be a lot of people like me up there, but if not, I want to be there,” he said.
Hibler was also defeated in a primary election in 2020 after unsuccessfully seeking the Democratic party nomination to challenge Young. He has lived in Alaska for almost 50 years.
The self-identified Bernie Sanders Democrat and professor emeritus ran on climate change saying, “I believe we cannot conserve our way out of climate change; we must science our way out.”
According to the Alaska Division of Elections, the lineup so far also includes Gregg Brelsford, undeclared, of Anchorage; Bob Lyons, Republican, of Houston; J.R. Myers, Libertarian, whose address is listed in Cut Bank, Montana; and Stephen Wright, Republican, of Wasilla.