Main Takeaways for the week of April 6, 2022
Horrific images from Ukraine prompt another round of sanctions, including potential European sanctions on Russian coal and oil. China’s Covid-19 lockdowns are providing some relief for oil markets, while also snarling up more supply chains, including those for EVs, providing relief for transition metals. Nevertheless, experts are moving toward consensus that there will not be enough nickel and copper over the next ten years. India’s largest coal miner restricts deliveries to industrial customers in current thermal coal squeeze. Italy in discussions with Azerbaijan on expanding Trans-Adriatic Pipeline for natural gas. France endures €3,000 per MWh prices for electricity. Canada announces $2 billion to enhance domestic battery minerals supply chain.
Featured Article
European refineries have struggled to match this revival in demand. One key reason is pricey natural gas. Refineries use gas to produce hydrogen, which they then use to remove sulphur from diesel. The spike in gas prices in late 2021 made that process prohibitively expensive, cutting diesel output. Low-sulphur crude is also in short supply: OPEC+ countries that pump that kind of oil, such as Nigeria and Angola, are unable to increase output. Any additional production has to come from Saudi Arabia and the United Arab Emirates, but both largely produce crude with high sulphur content.
From The Oil Price Rally Is Bad. The Diesel Crisis Is Far Worse, by Javier Blas for Bloomberg Opinion
Weekly Energy Chart
From Drought effects on hydroelectricity generation in western U.S. differed by region in 2021, by the EIA
Headlines
Global Petroleum Liquids
- OPEC replaces the International Energy Agency with Wood Mackenzie and Rystad Energy as secondary sources on Member crude oil production
- Reuters survey finds that OPEC’s oil production rise amounted to just 90k additional bpd in March, well short of planned 253k bpd increase, largely due to Nigeria and Libya production issues
- Biden Administration considers releasing 180 million barrels of oil from SPR in the coming months
Global LNG
- China state-owned firm signs 20-year contract to buy around 2.75 bcm/yr of LNG from 19.4 bcm/yr pre-FID West Coast North American LNG in Mexico
- Chinese companies are looking to buy spot Russian LNG cargoes at a steep discount
- S. LNG projects are beginning to self-finance development due to expected high demand from Europe
- New Panama Canal tolling structure seeks to extract more rent from LNG tankers by charging more for empty transits, hurting economics of U.S.-Asia LNG trade
Global Coal
- European Union proposes ban on Russian coal imports
- S. coal prices surge to over $100/ton, the highest since the brief peak in 2008
- Poland indicates that it will continue to use coal past 2049 to support energy security
North American Energy Infrastructure
China
Russia
Europe
- Germany readies emergency plan in case of Russian natural gas cutoff, urging consumers to reduce energy use wherever possible
- Lithuania fully suspends Russian natural gas imports via pipeline from Belarus, will instead meet needs through its Floating Storage and Regasification Unit “Independence”
- Germany temporarily nationalizes Gazprom subsidiary owner of German natural gas supply and storage companies
- UK orders an expert report on shale gas fracking
India
U.S. - Canada Energy Relations
- No significant developments
Middle East Energy Geopolitics
Central Asia Energy Geopolitics
- Azerbaijan and Italy in discussions about an expansion of the 10bcm/yr Trans-Adriatic Pipeline (TAP)
Canadian Oil and Gas
Electricity
- No significant developments
Nuclear
Renewables
- IPCC releases Working Group 3 report on Mitigation of Climate Change, with some of the most significant contributions seen as coming from wind and solar
- Abundant CAISO wind generation pushes prices negative in some parts of California, forcing solar curtailments
Energy Transition Metals
- Biden Administration invokes the Defence Production Act to speed up critical mineral supply chain buildup, with few details
- London Metals Exchange introduces 15% upper and lower daily price change limits for all metals to deal with an increasingly unstable market
- CRU base metals head says that $100 billion in investment is needed to meet copper demand between now and 2030
- Canadian Federal Government will spend $2 billion on a strategy to accelerate production and processing of battery critical minerals
Hydrogen
- No significant developments
Biofuels
- No significant developments
Quotes
That hasn’t stopped the Biden Administration from blocking a proposed copper mine in Minnesota and taking steps to slow another in Arizona. Regulators in February suspended a right-of-way for a road in Alaska, granted by the Trump Administration, that provided access to one of the world’s largest mineral deposits including zinc and copper.
From Critical Mineral Contradictions, by the Wall Street Journal Editorial Board
The issue is a stark illustration of why the global trading system should not be counted out just yet, despite all the strain it has been under in recent years. President Biden is determined to build up the US manufacturing base in low-carbon energy. It is one of his signature issues. […] The problem is that domestically produced equipment may often be higher-cost than the imports it is intended to replace, and may jeopardize renewable energy project economics. Onshoring can reduce risks in the supply chain. But it is an insurance policy that comes with a price tag.
From Rethinking Energy Security, by Ed Crooks for Wood Mackenzie
Even in the most optimistic scenarios where every single raw material project in the pipeline comes on stream and existing operations expand aggressively, there will not be enough raw material for the battery supply chain as we go into 2030
From Key Takeaways from the Battery Gigafactories USA Event, by Benchmark Mineral Intelligence
European refineries have struggled to match this revival in demand. One key reason is pricey natural gas. Refineries use gas to produce hydrogen, which they then use to remove sulphur from diesel. The spike in gas prices in late 2021 made that process prohibitively expensive, cutting diesel output. Low-sulphur crude is also in short supply: OPEC+ countries that pump that kind of oil, such as Nigeria and Angola, are unable to increase output. Any additional production has to come from Saudi Arabia and the United Arab Emirates, but both largely produce crude with high sulphur content.
From The Oil Price Rally Is Bad. The Diesel Crisis Is Far Worse, by Javier Blas for Bloomberg Opinion
Public enemy number one has to be the National Environmental Policy Act, or NEPA. Passed in 1970 as part of a wave of environmental regulatory reform, NEPA created regulatory standards and hurdles for infrastructure projects, industrial facilities, and more. NEPA’s practical effect has been the proliferation of environmental impact statements (EISs) for projects that could “significantly affect” the environment, including everything from denser housing supply in cities and high-speed electric rail to large-scale renewable-energy projects and, infamously, bike lanes. The constraints on breaking ground, let alone completing, projects like these are notorious. As Niskanen’s Hammond and Brink Lindsey have noted, the average EIS today runs over 600 pages in length and takes 4.5 years to complete.
From Cost-Disease Environmentalism, by Alex Trembath for City Journal
Because Russia exports so much oil, it would be impossible to reduce sales to zero in one fell swoop. Thankfully, there’s a ready playbook for sharply reducing a country’s oil sales: the one that the United States used against Iran since 2011.
From Time for Even Tougher Sanctions on Russia, by Edward Fishman and Chris Miller for Foreign Affairs
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