Today’s Key Takeaways: North Slope scientific research on long-term production of methane hydrates approved. What to watch for in the global energy market. Carrot and stick approach to methane fee in Inflation Reduction Act. IEA: mining industry needs hundreds of new mines to meet global carbon emissions goals. Inflation Reduction Act: Changes will be more gradual than headlines imply
NEWS OF THE DAY:
Drilling agreement approved for scientific research on North Slope
KINY, August 5, 2022
The Alaska Division of Oil and Gas on Friday approved a drilling agreement, on behalf of an international inter-governmental research consortium, for test wells on the North Slope to confirm the long-term production prospects of methane hydrate resources.
The consortium – of the Japan Oil, Gas and Metals National Corporation, the U.S. Department of Energy, the U.S. Geological Survey, and the U.S. National Energy Technology Laboratory, is funding the effort to conduct a long-term production test through 2024.
Methane hydrates are natural gas molecules trapped in ice lattices that form under a specific set of temperature and pressure conditions.
They occur both in the subsurface and in the deep ocean.
Alaska is one of the only areas with well-characterized and abundant onshore subsurface hydrate deposits close to existing oil and gas infrastructure.
In 2018, the U.S. Geological Survey assessed the mean undiscovered conventional resource potential of methane hydrates on the North Slope to be almost 54 trillion cubic feet of gas.
This research aims to demonstrate that methane can be predictably and consistently produced from a subsurface hydrate formation.
“This is a major milestone to continue exploring what could be a significant resource and energy source in the future,” said Governor Mike Dunleavy. “I am proud that Alaska is so well positioned to host this research, and optimistic that we will be one of the premier places in the world for potential production if the test is successful. I am also encouraged to be cooperating with the Government of Japan in such a significant way; this is yet another area of strategic cooperation and energy partnership between Alaska and Japan.”
The test is currently slated to continue through 2024, and the U.S. Geological Survey and U.S. Department of Energy may release reports, studies, or data about the test based on its results going forward.
OIL:
American Energy Society – Energy Matters:
When oil and geopolitics collide:
- Russia has reduced exports of natural gas and oil to Western Europe.
- Germany is desperate for fuel; customers are already hording energy resources before the government implements rationing; runs on energy resources will also happen in other Western European countries.
- A new or revived nuclear deal with Iran is unlikely; thus, sanctions on the country will not be lifted and Iranian oil will not be flowing into world markets.
- Saudi Arabia (and United Arab Emirates) will not increase oil production and will not release spare capacity.
- China’s demand for oil has been significantly reduced by its “zero-COVID” lockdowns; however, when restrictions are lifted, consumption and demand will increase.
- US refineries are operating at maximum capacity while most of the rest of the world is at about 70% or less (China, India, Russia, etc). Note: Canada is ramping up production.
Conclusion: the global energy market is fragmented, vulnerable and precarious; for the next six months watch for accidents (spills), poor policy decisions (especially among petro-states that run NOCs), and extreme weather (like a hurricane knocking out refineries on the US Gulf Coast).
GAS:
From the Washington Examiner, Daily on Energy:
METHANE FEE INCOMING: Senate Democrats’ tax credit and grant-laden reconciliation bill aims to facilitate greenhouse gas emissions largely by handing financial incentives to clean energy project developers, but it also includes a fee on excess methane in a win for those advocating emissions-pricing policies to mitigate greenhouse gas pollution.
The bill’s methane emissions reduction program establishes a methane fee schedule targeting emissions of the potent greenhouse gas in the oil and gas sector, which environmentalists and green policy advocates have long considered a kind of low-hanging fruit for climate change mitigation.
Under the program, owners and operators of wells, pipelines, or other applicable facilities that report more than 25,000 metric tons of carbon dioxide equivalent per year would be subject to charges for excess methane emissions, defined for each source in the legislation.
The fees would begin in 2024 and would be charged at $900 per metric ton, increasing to $1,200 and $1,500 over the next two years, respectively.
In addition, the bill would also target un-captured methane by assessing royalties on “all gas produced” on federal lands and waters, including gas that is vented, flared, or released.
It comes with help: The methane fee is paired with financial assistance measures to enable emissions reductions. Some $1.5 billion would be provided to EPA in the form of grants and other incentives to operators for the purposes of emissions monitoring, obtaining technical and financial assistance, and installing equipment.
The lowdown on methane: Methane, the primary component of natural gas, has roughly 25-times the warming potential of carbon dioxide.
For that, environmental groups and the Biden EPA have focused a lot of attention on reducing emissions and some industry groups, most prominent among them the American Petroleum Institute, have endorsed methane regulations.
Dan Grossman, associate vice president for global energy transition at the Environmental Defense Fund, said companies and industry groups “see the writing on the wall” on methane regulation. He argued, too, that limiting methane emissions is in their business interest.
“When you’re talking about reducing pollution from industry, reducing methane emissions is so cost effective because after all, this is the product that they’re selling,” Grossman told Jeremy.
“Here we’re talking about just improving the efficiency of the supply chain in ways that really, to a large extent, offset the costs of the investments that [operators] need to reduce emissions,” he said.
There are holdouts: Some other industry groups, including the Marcellus Shale Coalition and the American Exploration and Production Council, have come out against the methane fee in this bill and in earlier iterations of Democrats’ negotiations from last year.
AXPC, which represents independent oil and gas firms, said it favors reducing methane emissions but opposes the approach in the reconciliation bill, which it dismissed as a “poorly designed tax.”
What EPA is already doing on methane: The methane fee would add to rules that the Biden EPA is currently formulating to strengthen regulations covering methane emissions from new oil and gas sources. The administration is also crafting rules covering existing sources.
MINING:
Hundreds of new mines required to meet 2030 battery metals demand — IEA report
Henry Lazenby, Mining.Com, August 6, 2022
Global battery and minerals supply chains need to expand ten-fold to meet projected critical minerals needs by 2030, a report published by the International Energy Agency (IEA) has found.
The report concludes the industry needs to build 50 more lithium mines, 60 more nickel mines and 17 more cobalt mines by 2030 to meet global net carbon emissions goals.
Pressure on the supply of critical materials will continue to mount as road transport electrification expands to meet net-zero ambitions. According to the IEA, demand for electric vehicle (EV) batteries will increase from around 340 GWh today to over 3500 GWh by 2030.
“Additional investments are needed in the short-term, particularly in mining, where lead times are much longer than for other parts of the supply chain. In some cases, requiring more than a decade from initial feasibility studies to production, and then several more years to reach nominal production capacity,” the report reads.
The projected mineral supply until the end of the 2020s is in line with the demand for EV batteries in the ‘stated policies scenario’ of the IEA’s world energy model. But the supply of some minerals, such as lithium, would need to rise by up to one-third by 2030 to satisfy the pledges and announcements for EV batteries in the ‘announced pledges scenario (APS) of the same energy model.
“For example, demand for lithium – the commodity with the largest projected demand-supply gap – is projected to increase sixfold to 500 kilotonnes by 2030 in the APS, requiring the equivalent of 50 new average-sized mines,” according to the report.
By 2030, nickel is facing the largest absolute demand increase as high-nickel chemistries are the current dominant cathode for EVs and are expected to remain so.
For cobalt, the opposite is true as battery makers continue to thrift to lower cobalt content chemistries (and even potentially cobalt-free chemistries by 2030) to reduce costs and due to environmental, social and governance (ESG) concerns.
Despite the trend, the report cautions that the surge in global demand for EV batteries still increases total cobalt demand this decade.
The IEA believes that to meet the projected demand in 2030 in the Stated Policies Scenario, 41 nickel and 11 additional cobalt mines are needed – a significant scaling up of the current project pipeline.
“For the Announced Pledges Scenario, 60 nickel and 17 cobalt new mines are required in 2030, (assuming average annual mine production capacity of 38,000 tonnes for nickel and 7,000 tonnes for cobalt).”
After an extractable resource is identified through exploration, the IEA says it can take four to more than 20 years for a mine to begin commercial production.
Coupled with this critical need for new mines is that mine development timelines have telescoped to up to 16 years to undertake the necessary feasibility studies, and engineering and construction work. In addition to the time required to begin commercial production, mines often require around ten years before they reach nameplate production capacity.
The IEA says upstream mineral extraction can cause significant bottlenecks unless adequate investments are delivered well in advance. “It appears that EV battery metals demand in the Stated Policies Scenario will likely be met for all metals up to 2025 if announced new supply comes online as scheduled.”
It would also not help if midstream processing didn’t keep up with rapidly expanding supplies. “Also, in order to translate this into EV deployment, tens of cathode and anode plants, gigafactories and EV production plants are required,” according to the report.
Innovative approaches
The IEA suggests innovative new extraction and processing technologies such as direct lithium extraction (DLE), high-pressure acid leaching (HPAL), and re-mining from mining waste could go a long way in bridging the gaping emerging supply gaps.
“Direct lithium extraction can increase production from existing mines. It bypasses the time-intensive need to evaporate the unconcentrated brine water and chemical removal of impurities,” the EIA says.
“As well as offering cost and lead time advantages, DLE has sustainability advantages and widens the pool of economically extractable lithium supply.”
However, the technology is not yet economically proven and is yet to be applied commercially in the field.
HPAL offers a solution for increased nickel production. The process uses acid separation under high temperature and pressure to produce nickel at Class 1 grade for battery applications using laterite resources.
However, the technology is not a panacea. “Capital costs for HPAL projects typically are double that of conventional smelters for oxide ore and take about four to five years to reach capacity,” according to the IEA.
“There are also concerns with the environmental impact of HPAL as it often uses coal or oil-fired boilers for heat, thus emitting up to three times more greenhouse-gas emissions than production from sulphide deposits.”
The IEA also highlighted the mixed hydroxide precipitate (MHP) process, an intermediate product produced from laterite that can be refined into nickel and cobalt sulphates needed for batteries at a low cost.
MHP can also be processed into nickel and cobalt products from selective acid leaching, a process with a lower environmental footprint.
POLITICS:
The market’s biggest winners and losers in the Inflation Reduction Act
Tim Mullaney, CNBC, August 8, 2022
KEY POINTS
- Automakers are winners in the Inflation Reduction Act, but maybe not as much as you think, and maybe not Tesla.
- Utilities (and ratepayers) get tax breaks for renewable energy.
- Amazon on the list of companies likely to pay more taxes.
- Elon Musk’s prediction that lithium refiners will get rich will receive help from this bill.
Want to know what the Inflation Reduction Act means for the market’s biggest companies, as well as for your wallet? When it comes to politics, you always have to follow the money – and remember that the devil is in the details.
The Senate on Sunday passed the bill that’s designed to fight climate change, make significant tax changes, trim the federal deficit, cut drug prices for Medicare recipients, and extend expanded health insurance subsidies under the Affordable Care Act. As it moves to the House of Representatives, the roster of the winners and losers under the bill is coming into sharper focus even before it goes to President Joe Biden.
For both winners and losers, the impact is more modest than you would think, given the sheer size of the numbers being bandied about. That’s because of details like strings attached to some of the new or extended tax breaks, or the schedule for implementing Medicare’s negotiations with big pharmaceutical companies over drug prices.
Changes will be more gradual than many headlines imply.
Beginning with the biggest-dollar provisions of the 10-year package of spending and tax cuts, these are some of the effects American corporations and citizens will see from the law. The two biggest changes are the bill’s deficit reducers – just two provisions of the law that account for 80% of its $300 billion in deficit reduction, according to Moody’s Analytics.