NEWS OF THE DAY:
Oil industry CEOs on clean energy transition: You still need us
Ben Geman, Axios, December 7, 2021
The pitch from CEOs of oil giants at a major industry gathering in Houston seems pretty clear — you need us.
Driving the news: Here’s what Saudi Aramco CEO Amin Nasser said at the big World Petroleum Congress in Houston on Monday, via the Financial Times:
- “I understand that publicly admitting that oil and gas will play an essential and significant role during the transition and beyond will be hard for some.”
- “But admitting this reality will be far easier than dealing with energy insecurity, rampant inflation and social unrest as the prices become intolerably high and seeing net zero commitments by countries start to unravel.”
- CEOs of Exxon, Chevron and Equinor emphasized long-term demand even as they touted emissions efforts, per Reuters and the WSJ.
The intrigue: The industry’s posture comes amid growing activist and investor pressure to act more aggressively on climate.
Wall Street holds fast to fossil fuels as climate pressure grows
Bloomberg, December 7, 2021
With the ink hardly dry on a landmark pledge by the finance industry to fight climate change, the world’s biggest banks are making clear they plan to stand by their fossil-fuel clients.
Take JPMorgan Chase & Co., the leading arranger of bonds for oil, gas, and coal companies. In the weeks since the bank in October joined Mark Carney’s global alliance to achieve net-zero emissions from finance, it has underwritten some $2.5 billion in bond deals for companies like Gazprom PJSC and Continental Resources Inc., equivalent to the same period in previous years.
Wells Fargo, which Bloomberg data show as lending the most of any bank to fossil-fuel companies, is on track to double the amount of credit it has granted to the sector this year.
In total, global banks led by the Wall Street titans have helped fossil-fuel companies issue almost $250 billion in bonds so far in 2021, a figure that also broadly matches average annual fundraising for the industry since 2016. And while the International Energy Agency argues that funding for new oil and gas needs to stop now to avoid catastrophic climate change, bankers counter that polluters need help to transition to new sources of energy.
“You can’t just walk away, because the world is still heavily reliant on fossil fuels for the vast majority of our energy demand,” said Marisa Buchanan, global head of sustainability at JPMorgan in New York. “It is really important that our clients take steps to innovate and decarbonize, but we also need to bring capital to the table for the commercialization of those solutions.”
It’s an argument repeated across the financial industry. Most agree it’s necessary to fight rising temperatures, yet hardly any of the major global banks are willing to shun profitable fossil-fuel clients. Moody’s Investors Service estimates that banks, insurers and asset managers in the world’s 20 biggest economies still have about $22 trillion exposed to carbon-intensive industries. The rating company also says it’s a business model that puts banks at risk of losses as global warming progresses.
How quickly lenders pull off a transition to finance a lower carbon economy will play a major role in determining the planet’s chances of avoiding a cataclysmic degree of overheating. And scientists have calculated that the current decade is the last chance humans have to prevent more than 1.5 degrees of warming. So far, executives are stressing that they don’t intend to ditch any clients soon if they can help it.
“The most important thing is to help our customers on the journey that they’re going to go on as they retool their industrial base from old technology, carbon-heavy, to new technology, carbon-light or carbon neutral,” HSBC Holdings Plc Chief Executive Officer Noel Quinn said in an interview on Bloomberg Television.
Meanwhile, scientists are issuing increasingly alarming warnings as CO2 continues to spew into the atmosphere. Even if the latest round of climate pledges pans out, the world is still on track to be a disastrous 2.4 degrees Celsius warmer by the end of the century, according to Climate Action Tracker.
For a lot of banks, pressure to re-orient lending and underwriting without losing business is feeding tensions in the boardroom. Executives at several major global banks, speaking on condition of anonymity, revealed that sustainability executives and commercial bankers are frequently at loggerheads over how to strike a balance between revenue and climate goals. Often, sustainability staff lose the argument, the people said.
In Europe, where politicians are aiming for the world’s most ambitious green finance rule book, a few banks are indeed beginning to say no to major clients. ING Groep NV pulled out of a revolving credit facility for German coal power generator RWE AG, according to people familiar with the matter. The 2019 decision, which the bank never made public, was triggered by environmental concerns, the people said. A spokesman for ING declined to comment on the decision.
Lenders that have already set up processes to deal with the conflict are more open about handling that tension between earnings and environmental goals.
“When we change or review our policies, we need evidence of the impact on potential revenue losses,” said Roberta Marracino, head of ESG strategy at UniCredit SpA, Italy’s second-largest lender. “There is an impact from a business point of view that has to be considered. It is considered also when we discuss specific deals and in specific cases we say ‘no, we won’t do it.’”
European banks also face climate stress tests next year that may indirectly result in higher capital requirements. And more regulatory scrutiny is focusing minds. But the transition toward a low-carbon future remains in its infancy, according to assessments by the European Central Bank.
Lenders have started asking clients for transition plans, including more detail on their carbon footprints. Yet according to executives at some of the most polluting companies, who declined to be identified by name discussing private conversations, the questions they’re being asked tend to be largely superficial.
In some cases, companies have simply pointed their bank to the web-link of a sustainability report in order to satisfy inquiries into environmental risk, according to officials at energy and industrial companies.
Still, the added scrutiny from regulators and the public means banks may be reluctant to ramp up fossil-fuel financing and overall funding may have peaked.
The volume of bonds arranged for the industry as well as the amount of bank loans granted are set to fall this year from last when the pandemic boosted demand for cash. Banks are also implementing restrictive lending policies for the worst climate offenders, notably in coal mining, and are taking a more conservative view of dirtier power generation.
On top of the data presented here, banks are arranging financing tied specifically to green projects by fossil-fuel companies, although these firms still issue larger amounts of conventional debt. Investment bankers are making serious money from financing green projects across the whole economy, which this year overtook oil and gas funding for the first time.
That surge has coincided with skepticism around labeling, as green derivatives, repos and other lightly or unregulated products proliferate.
In the end, much of the financial sector has pledged to decarbonize balance sheets, but money from polluting industries is still flowing in. Bankers say civil society needs to be patient.
“Society needs to understand that we accompany transitions,” said Cornelius Riese, the co-CEO of Germany’s DZ Bank AG. “Our entire economy and ecology will have a problem if our industry is forced over 12 or 18 months to throw all the companies out of our portfolio that aren’t pure green.”
A New Chapter in U.S.-China LNG Relations
Nikos Tsafos, Center for Strategic and International Studies, December 6, 2021
The United States and China have always had a complicated relationship when it comes to liquefied natural gas (LNG). But after several false starts, and a few twists, the United States is now China’s second-largest LNG supplier, and several Chinese companies have signed up to buy U.S. LNG on a long-term basis. This is a major turn. And it is a sign that the commercial logic tying these two geopolitical rivals together is strong and will persist alongside and, sometimes, despite of their broader political animosity.
History of a Complicated Relationship
The early signs were that the United States and China would trade LNG. In November 2010, a Chinese company (ENN) was among the first to sign up to buy LNG on a long-term basis from a U.S. export project. But that deal was never finalized and none came to succeed it until February 2018. In the intervening years, Chinese companies signed long-term contracts to purchase LNG from every conceivable supplier—but not the United States.
It is unclear why Chinese companies avoided the United States. Maybe they attached a risk premium to U.S. supply that others did not. Maybe they wanted a clearer signal from Beijing to proceed. Or maybe the Chinese government wanted a clear signal from Washington that such deals would be allowed (Washington would counter that such a message was delivered). Either way, eight LNG projects have come online or are under construction in the United States, but very little of that capacity has had any Chinese buyers, investors, or financiers.
Even in the absence of long-term agreements between U.S. sellers and Chinese buyers, China imported U.S. LNG through intermediaries or from the short-term market. In 2016, over 9 percent of U.S. LNG went to China, and China ranked third among U.S. customers. China retained this position in 2017, receiving almost 15 percent of U.S. LNG exports. Then, as part of an escalating trade war with the United States, China imposed tariffs on U.S. LNG—at the rate of 10 percent in September 2018 and then 25 percent in June 2019. Soon enough, U.S. LNG exports fell to zero.
Despite the escalation in tension, there were a number of initiatives to strengthen ties. In November 2017, the state of Alaska and the Alaska Gasline Development Corporation signed a preliminary agreement with Sinopec and others to participate in the Alaska LNG project (that agreement expired). In February 2018, the first long-term contract between a Chinese company (CNPC) and a U.S. LNG supplier (Cheniere Energy) was finally executed. And in April 2019, a deal for a Chinese company (ENN) to take over an existing LNG contract from a U.S. LNG project (Freeport) fell through, reportedly because approval for the transaction was not granted in time by the U.S. government.
The Turning Point
A more decisive turning point came in February 2020 when the Chinese government issued tariff waivers for a number of products, including LNG, as part of an agreement with the Trump administration to de-escalate the trade war between the two countries. Slowly, U.S. LNG started going to China again. These volumes grew with time, and so far in 2021, the United States has emerged as China’s second-largest LNG supplier, surpassing Qatar and Malaysia and trailing only Australia. This represents a major shift at a time when trade tensions remain high. Nominally, these waivers were part of the trade deal between the United States and China; but in practice, the massive increase in flows is easier to explain given China’s thirst for LNG.
At the same time, Chinese companies are finally signing long-term deals to buy U.S. LNG. In October and November 2021, four such deals were executed with a diverse set of buyers: ENN, Sinopec, Sinochem, and Foran Energy. After years of avoiding a commitment to buy U.S. LNG, Chinese companies have finally made their move. And they have done so without a relaxation in tensions or a political deal between Washington and Beijing, at least not a public one or anything beyond the trade truce that was negotiated in early 2020. That too is significant, making a turning point in the relationship between China and the United States.
This growing trade is a reminder of the power of supply and demand. Politics can lubricate a commercial relationship and it can sure stop one. But energy can overcome serious political obstacles when the commercial logic is strong—a fact that applies just as well to hydrocarbons as it does to solar, batteries, and other low-carbon products. China and the United States may be geopolitical rivals, but they are tied to each other in energy terms: China is importing fossil fuels from the United States, and the United States is importing low-carbon energy technologies from China. Managing these flows amid rising tensions is a major challenge for both countries.
The growth in trade is also a testament to China’s appetite for LNG. China’s demand for LNG is set to grow sharply in 2021, one of the highest growth levels ever. In September 2021, the Chinese government reportedly told Chinese companies to secure as much LNG as they can no matter the price. The urgency to secure energy seems to have overridden whatever squeamishness the Chinese may have in buying U.S. LNG. A country this hungry for energy has only limited luxury to pick its suppliers.
For Beijing, the reliance on the United States and Australia for half of its LNG imports must be uncomfortable, especially when tensions with both countries are high (of course, China is a major gas producer and pipeline importer too; LNG supplied 28 percent of the country’s gas in 2020). This possible dependence on Australia and the United States has been a long time coming. Still, its arrival is an ominous sign for Beijing as its thirst for a cleaner fuel must be accompanied by a dependence on countries it sees as rivals.
For the United States, this new chapter presents opportunities: a number of U.S. LNG projects are looking to start construction over the next few years, and strong demand from the world’s largest LNG market can only help them to the finish line. More generally, as U.S. competitors like Qatar and Russia have stepped up in LNG, these deals are a reminder that U.S. LNG can compete on equal footing.
At the same time, the president has set a target to reduce U.S. greenhouse gas emissions by 2030, which requires a reduction in emissions from gas. How will the United States reconcile these competing pressures—to reduce emissions from hydrocarbons at home while responding to the market pull for U.S. commodities overseas? China’s arrival as a U.S. LNG buyer shows that the answer to that question will depend not only on Washington, or even Houston, but on the pace and trajectory of the energy transition elsewhere. And on that count, it seems the demand for LNG in general and U.S. LNG, in particular, remains strong—and just got a big boost.
All will soon be able to buy into Valhalla
Shane Lasley, North of 60 Mining News, December 3, 2021
Valhalla Metals Inc., a privately held junior mining company focused on the exploration of the Sun and Smucker properties in Alaska’s Ambler Mining District, may soon have easier access to funding through a merger with SolidusGold Inc., a company listed on the TSX Venture Exchange.
Under a tentative agreement announced on Nov. 29, Solidus would acquire Valhalla through an exchange of shares that would result in current Valhalla shareholders owning 80% of the resulting company shares, with Solidus shareholders owning the remaining 20%.
It is expected that the combined company will keep Solidus’ current board of directors and management team, which is loaded with geologists and executives that have worked on some of the biggest mineral exploration projects across Alaska and Canada’s North.
The SolidusGold board is chaired by Rick Van Nieuwenhuyse, a longtime Alaskan geologist renowned for founding and serving as the top executive of both Novagold Resources and Trilogy Metals. In 2009, Van Nieuwenhuyse was bestowed the Thayer Lindsley award for his role in the discovery of the world-class Donlin Gold deposit in Alaska during his tenure as president and CEO of Novagold and vice president of exploration for Placer Dome before that. He was also honored with the Colin Spence Award in 2016 for his role in the Bornite discovery while serving as president and CEO of Trilogy, which was spun out of Novagold for the purpose of advancing exploration and development of the Ambler Mining District. Van Nieuwenhuyse current serves as president and CEO of Contango ORE.
SolidusGold President and CEO Sorin Posescu is a geologist that worked on Novagold’s Donlin Creek and Galore Creek projects over the course of a 25-year career that includes diamond exploration in Nunavut, gold-copper-silver exploration in Northern BC, and the exploration and development of geothermal resources in Nevada. Posescu brings extensive experience in mergers and acquisitions, and a strong background in corporate and project valuation to Solidus.
Joe Piekenbrock, another award-winning Alaska geologist, sits on the Solidus board. Before serving as vice president of exploration for both Novagold and Trilogy, Piekenbrock was a member of the Cominco Alaska exploration team responsible for the discovery of the Whistler copper, Sleitat tin, Shotgun gold, and the enormous Pebble copper-gold deposits in Alaska. Piekenbrock currently serves as the chief exploration officer of Western Alaska Minerals, which is exploring the Illinois Creek Mining District property in western Alaska.
In addition to the management and board, Valhalla Metals founder Bonnie Broman is expected to be a control person of the merged company. A geologist with more than 15 years of experience, Broman has managed up to 20 geologists and geotechnicians, alongside managing up to five drill rigs and surface exploration programs at remote locations such as the Ambler Mining District and Nixon Fork high-grade skarn gold mine in Alaska, and the Black Butte copper deposit in Montana.
Valhalla Metals’ Sun and Smucker projects in the Ambler Mining District offer this geologist-laden team highly prospective volcanogenic massive sulfide deposits reminiscent of Ambler Metals’ world-class Arctic deposit, which is found in the same rocks about 40 miles to the west.
According to a 2018 calculation, the Sun deposit hosts 1.71 million metric tons of indicated resource averaging 4.32% (163 million pounds) zinc, 1.48% (55.8 million lb) copper, 1.11% (42 million lb) lead, 60 grams per metric ton (3.3 million oz) silver and 0.21 g/t (12,000 oz) gold; plus 9.02 million metric tons of inferred resource averaging 4.18% (831.3 million lb) zinc, 1.21% (239.6 million lb) copper, 1.46% (290.3 million lb) lead, 81.7 g/t (22.7 million oz) silver and 0.25 g/t (73,000 oz) gold.
Though calculated to NI 43-101 standards, Solidus is treating this resource estimate as historical due in large part to changes in metals prices and metal recoveries since the calculation.
With 10.7 million metric tons of resource averaging roughly 11% zinc-equivalent – calculating the value of all the metals in both resource categories – Sun is already considered a major deposit in terms and size and grade.
And there is geophysical evidence that the deposit detailed at the surface represents only a fraction of a larger VMS system.
Formed on the ocean floor as black smokers billowing out sulfides, VMS deposits such as Sun are often three- to 10-meter-thick bands of mineralization that are often enriched with base and precious metals. Because they are relatively thin and tend to get bent, broken, and folded by plate tectonics, these deposits are not always easy to find.
Even large VMS deposits such as Sun are not readily noticeable on the surface.
The rich concentrations of metals, however, make these deposits highly conductive, and geophysics is a great way to trace them below the surface.
VTEM (versatile time domain electromagnetic) and ZTEM (z-axis tipper electromagnetic) geophysical surveys flown during 2019 lit up an area dipping southeast from the Sun deposit that, if representative of a continuation of the layers of VMS mineralization already tapped by drilling, could expand the resource by several times.
To provide some sense of the size potential of this target, the Sun deposit extends to a depth of 200 meters; the much wider and stronger geophysical target extends 900 meters further down-dip of the resource.
If this conductive target Sun turns out to be a continuation of the zinc-rich VMS mineralization outlined so far, Sun has the potential to rival Ambler Metals’ Arctic deposit in terms of size.
Valhalla’s Smucker project, which lies about 15 miles northwest of Arctic, is another promising VMS target with exploration upside.
Smucker was first discovered in 1975 by Anaconda, and Cominco acquired an interest in the property in 1994. Extensive exploration was carried out at this VMS project between 1978 and 1991, including 24 holes drilled by Anaconda.
According to a calculation completed in 1986, Smucker hosts more than eight million metric tons of historical resource averaging 0.8% copper, 6.8% zinc, 2.3% lead, and 200 g/t silver.
Valhalla, which staked the Smucker project in 2017, said the extensions of the mineralized horizon remain largely untested and open at depth and laterally.
The upside potential of these properties can be more thoroughly explored in a publicly listed company with access to investor capital.
A definitive agreement on the proposed Valhalla-SolidusGold merger is expected by the end of the year. Solidus plans to complete a share consolidation and private placement financing in connection with the transaction.
From the Washington Examiner, Daily on Energy:
REPORT: BIDEN TO PRESSURE GERMANS ON NS2 IF PUTIN MOVES INTO UKRAINE: The Biden administration plans to urge Germany to put an end to the Nord Stream 2 natural gas pipeline if Russia were to invade Ukraine, Bloomberg reports.
The report coincides with a scheduled meeting this morning between Presidents Joe Biden and Vladimir Putin, during which Biden will discourage Putin from moving into the neighboring country as Russia scales up its military presence, the White House said during a call with reporters yesterday.
Since Biden lifted sanctions against the pipeline earlier this year, Republicans have been pushing for sanctions to be reintroduced in legislation to thwart growing Russia’s influence in Europe, although Democratic leadership has resisted the GOP’s efforts. The report could have some bearing, however, on the fate of Democratic Sen. Bob Menendez’s amendment to the National Defense Authorization Act to introduce sanctions in the event that Russia invades Ukraine.
Toyota chooses North Carolina for $1.3B battery manufacturing plant
Mychael Schnell, The Hill, December 7, 2021
Toyota announced on Monday that it has chosen North Carolina as the location for its $1.3 billion automotive battery manufacturing plant.
The plant, which is expected to create 1,750 new jobs in the U.S., will be located at the Greensboro-Randolph industrial “megasite”.
“The future of mobility is electrification and the Greensboro-Randolph Megasite is the ideal location to make that future a reality,” Toyota Motor North Carolina CEO Ted Ogawa said in a statement.
“North Carolina offers the right conditions for this investment, including the infrastructure, high-quality education system, access to a diverse and skilled workforce, and a welcoming environment for doing business,” he added.
Toyota announced in October that it was planning to build a $1.3 billion battery plant, but did not disclose the location. The plant is part of a $3.4 billion investment in the U.S. through 2030 that includes funding for the company to produce its own automotive batteries.
The company on Monday said the plant will be online in 2025 and have four production lines. Each one, according to Toyota, will be able to deliver enough lithium-ion batteries for 200,000 vehicles a year. The company said it intends to increase to at least six production lines, leading to a total of 1.2 million vehicles per year.
Toyota said it was interested in examining renewable energy availability and support from local stakeholders — such as governments, utilities, and partners — when determining where the new plant should be located.
It chose the Greensboro-Randolph Megasite because it “met and exceeded” a list of needs, according to a statement, including “an extensive and well-maintained highway system for overland logistics,” “four international airports and two seaports,” “onsite rail,” “an outstanding, diverse workforce,” “renewable energy availability,” a “world-renowned education system” and “strong government partnership at both the state and local levels.”
Toyota said it will work to use 100 percent renewable energy at the facility by 2050 as part of its efforts to attain carbon neutrality for its vehicles and operations.
North Carolina Gov. Roy Cooper (D) welcomed the news of Toyota’s plans, writing in a statement “I’m glad that Toyota Battery Manufacturing has chosen to call North Carolina home.”
“This investment in our state is a testament to our world class workforce and growing economy. North Carolina is working hard every day toward a clean energy future and projects like this will help us get there,” he added.