PAST NEWSLETTERS

Main Takeaways for the week of March 9, 2022

The decoupling of Western and Eastern economies is in full swing. Western sanctions draw huge trade faultlines, with the U.S. and EU in opposition to Russia and China. Western energy companies are refusing to buy Russian oil. Aramco warns that there isn’t enough spare production. The EU looks to secure additional 50bcm of LNG. Russia threatens to shut off Nord Stream 1. U.S. attempts reproachment with Venezuela and Saudi Arabia. China will likely fill in gaps in Russian commodity investment and consumption. Boris Johnson calls for “climate pass” for Canadian and American energy production. Nickel prices hit $100k/tonne, raising questions about battery cost declines.

Featured Article

The Invasion of Ukraine Is Causing Crisis at Sea, by Elisabeth Braw, Senior Fellow at the American Enterprise Institute for Foreign Policy

Headlines

Global Petroleum Liquids

• United States sends officials to meet with the Maduro regime of Venezuela to discuss energy security, considering easing sanctions
• After facing backlash for buying a shipment of oil, Shell announces end of all spot purchases and shutdown of Russian commercial operations
• Thousands of traders bet on Brent rising to $200 per barrel in the face of widespread Russian oil disruption
• Aramco warns that the world has only 2 million bpd of “effective spare capacity”, well short of Russia’s enormous exports
• United States bans Russian oil, LNG, and coal and prohibits U.S. investment in Russia’s energy sector
• EIA predicts U.S. energy consumption will grow through to 2050, with fast renewables growth and slower growth in petroleum and natural gas

Global LNG

• European Commission REPowerEU plan includes legislation that will require gas storage infrastructure to be filled to 90% by October 1 every year
• Russian LNG subject to self-sanctions as LNG importers de-risk
• REPowerEU plan sets out target of additional 50 bcm of LNG imports by the end of 2022
• Cheniere signs agreement with Bechtel to build 10mtpa expansion of the Corpus Christi liquefaction terminal, set for operation in 2025
• Shell signs 20-year contract to buy 2mtpa of LNG from Venture Global’s pre-FID Plaquemines LNG liquefaction terminal

Global Coal

• 2021 was China’s strongest year of growth in coal consumption in a decade
• Consumption and CO2 emissions from coal rose to an all time high in 2021, according to the IEA

North American Energy Infrastructure

• No significant developments

U.S. - China Energy Relations

• China asks State-owned refineries to halt gasoline and diesel exports, further tightening the market

EU – Russia Energy Relations

• European Commission will set out new energy security proposals for ending reliance on Russian natural gas on Tuesday
• European leaders reinforce position that a blanket ban on Russian energy is unlikely
• Dutch watchdog opposes any expansion of Groningen gas field production ahead of April 1 decision on the field’s future
• In response to sanctions, Russian Deputy PM Alexander Novak threatens to shut off Nord Stream 1

China – Russia Energy Relations

• Europe shunning Russian imports could mean closer trade ties to China on nickel, copper, and coking coal, according to SP Global Platts
• China’s Asian Infrastructure Investment Bank freezes lending to Russia to mitigate the possible impact of Western sanctions
• China is considering moving in on Russian commodity firms to bolster energy and food security

U.S. - Canada Energy Relations

• UK PM Boris Johnson wants the US and Canada to be given a “climate change pass” to ramp up production of oil and gas in assistance to Europe
• John Kerry says that natural gas will be a “key component of the energy transition” at CERA week

Middle East Energy Geopolitics

• Biden may visit Saudi Arabia this spring in an attempt to repair relations and secure more oil supplies, after calling SA a “pariah” on the campaign trail
• Saudi Arabia and the UAE duck Biden's calls, holding out for more U.S. support for their local geopolitical aims

Central Asia Energy Geopolitics

• No significant developments

Canadian Oil and Gas

• National bank of Canada economists say that Canada should step up to its role as a secure, stable, and predictable source of commodities
• Canadian Minister of Environment Steven Guilbault says “The solution to global energy problems is not to increase our dependency on fossil fuels”
• Guilbault says the oil and gas emissions cap will not be included in the March 31 climate change plan, may have to wait until 2023

Electricity

• REPowerEU plan calls for doubling deployment of heat pumps over the next five years

Renewables

• REPowerEU plan calls for accelerating the rollout of rooftop PV, saving 2.5 bcm of natural gas
• Solar power and batteries will make up the lion’s share of new electricity generation in the U.S., with largest share in Texas

Copper

• Copper prices spike, but then retreat from all-time highs - market is still seriously unstable

Lithium

• Chile’s constitutional edits open the door to nationalizing major copper and lithium mines

Nickel

• GM and POSCO announce plans to build cathode active material factory for high-nickel Ultium EV cells, helped with CAD$500M from Canada and Quebec govts
• LME halts trading of nickel when prices top $100,000 in a short squeeze, threatening battery price expectations

Cobalt

• No significant developments

Carbon/Graphite

• No significant developments

Hydrogen

• RePowerEU plan calls for an additional 15 mt of renewable hydrogen bt 2030 to replace 25-50 bcm of Russian gas by 2030

Nuclear

• Nuclear mentioned in REPowerEU plan as an acceptable source of “fossil-free hydrogen”

Biofuels

• RePowerEU plan calls for doubling the previously planned production of biomethane

Fertilizer and Food

• Russia, the world’s largest urea exporter, urges producers to halt exports of the methane-derived fertilizer, worsening an already tight market
• Wheat prices hit insane highs due to war in Ukraine

Quotes

Ultimately, the Biden administration just needs to play a supporting role as oil and gas companies take their cues from the market and from investors. Shale companies are in their best financial shape since the beginning of the unconventional oil and gas boom. With oil prices at this level, the industry has all the incentives it needs to raise production. Shale companies cannot simply flip a switch, and it will likely take six months or more to raise output, but a big ramp-up in production is all but inevitable.

From Call Houston and Wall Street for an Emergency Summit, by Ben Cahill for the Center for Strategic and International Studies

Russia’s unilateral initiatives to escape the hold of the dollar may be defensive in nature, but it has also worked with other countries to chip away at the dollar’s dominance. These coalitions present a long-term threat to the dollar’s preeminent role in international commerce and, consequently, a challenge to U.S. global leadership.

From The Anti-Dollar Axis, by Zongyuan Zoe Liu and Mihaela Papa for Foreign Affairs

Europe is unlikely to use public funds to support an expansion in gas production unless that investment can be made compatible with its long-term aspirations to be climate neutral by 2050. To square this circle, Europe and the United States can make sure that their joint push for gas can support the world’s efforts to lower greenhouse gas emissions. This can happen by targeting the biggest climate prize of all: coal consumption in Asia.

From How U.S. LNG Could Help Europe and Climate, by Nikos Tsafos for the Center for Strategic and International Studies

Even before Russia’s invasion of Ukraine last month, it was becoming obvious that the current extreme degree of globalization was unsustainable. Companies can’t keep operating as if there are no borders when countries are increasingly squaring off against one another. Russia has now dealt a severe blow to globalization and its foremost representative, global shipping.

From The Invasion of Ukraine Is Causing Crisis at Sea, by Elisabeth Braw for Foreign Policy

Accelerating investment in clean and efficient technologies is at the heart of the solution, but even very rapid deployment will take time to make a major dent in demand for imported gas. The faster EU policy makers seek to move away from Russian gas supplies, the greater the potential implications in terms of economic costs and/or near-term emissions.

From A 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas, by The International Energy Agency

We have already seen stoppages in Europe at production facilities such as fertiliser plants, which are highly sensitive to natural-gas prices — the ammonia they require is produced from hydrogen derived from methane. Going forward, with a $15 difference between US and European natural gas and no end in sight, businesses will naturally shut production. Beyond such curtailments, non-critical industries will also need to be incentivised or forced to close production, noting that industry represents 20% of the continent's demand for natural gas. A 200TWh saving may be possible with such measures.

From The 1,600TWh challenge: The six key steps needed to wean Europe off Russian gas, by Gerard Reid for Recharge News