Afghanistan’s mineral bounty 💥 Big Oil’s chemical high
Plus: Governments bankroll dubious hydrogen projects, the escalating cost of decarbonisation, Equinor ‘trolls’ EU gas market + MORE
First up: Demand for petrochemicals helped pandemic-bludgeoned integrated oil companies repair their balance sheets in the second quarter. The outlook for petchems is bullish, and strategic investments are flowing according.
And: The Taliban’s return to power in Afghanistan is stoking fears that vital energy transition minerals and rare earth metals could end up in China’s hands. But the situation is more nuanced than some commentators would have you believe.
Here’s the line-up:
Afghanistan’s minerals, China and the Taliban
Governments bankroll dubious hydrogen projects, despite warnings
Decarbonisation starts cheap, gets more expensive
Equinor ‘trolls’ overheated EU gas markets
Tellurian fever breaks Nasdaq
And lots more…
EU faces long battle over carbon border taxes
China’s aluminium decarbonisation paradox
Big Oil’s chemical high
Fate loves irony. Having been crushed by the 2020 Covid-induced oil crash, integrated US and European supermajors are reporting giddying post-lockdown earnings. Profits in the second quarter were propelled in part by handsome margins for petrochemicals, which are used inter alia in medical equipment to fight the pandemic. Meanwhile, the energy transition is also driving demand for fossil-derived products and materials.
Decarbonisation stories you need to read
AFGHAN MINERAL BOUNTY STAYING PUT: What will become of Afghanistan’s abundant, untapped mineral reserves that could be used to build key energy transition technologies? Not much in the near term, judging by the chaos on the ground and fragile relationship between the war-torn country’s new Taliban rulers and the neighbouring People’s Republic of China.
The Biden administration’s chaotic military withdrawal was widely condemned as a strategic disaster. Political opponents seized upon the US ‘own goal’ of handing Afghanistan’s mineral resources to Kabul’s new Beijing-friendly jihadist government.
The energy transition will require ample supplies of the many of the minerals buried beneath Afghanistan’s mountainous terrain. Media commentators issued shrill warnings of Beijing (and even Tehran) helping the Taliban to mine and ship Afghan metals and rare earth elements to global markets. But the complexity of the situation deserves a more considered assessment.
We are not about to see millions of tonnes of iron, aluminium, copper, lithium, uranium, chromium, lead or zinc loaded onto Chinese-built highways and railroads out of Afghanistan. At least, not for a very long while yet.
Global powers have long eyed Afghanistan’s multi-trillion-dollar ‘treasure trove’ of mineral resources. There are many reasons why these deposits remain in the ground, not least the difficulty of doing business in Afghanistan. Also, reserves estimates are outdated and speculative.
Yes, the Taliban is talking about China playing a “constructive and positive” role in reconstruction and economic development. Yes, China is a major player in overseas rare earth metals. Yes, Beijing probably wants to increase Afghanistan’s role in the China-Pakistan Economic Corridor.
Yet Chinese firms previously failed to secure Afghan resource supplies. The concession for the Mes Aynak copper mine project near Kabul was awarded to a Chinese consortium in 2007-8 and is still yet to reach commercial operations. Contractual disputes and local warlords are said to be the main stumbling block.
Similarly, disagreements over the terms of crude exports reportedly brought operations to a halt in 2013 at the Amu Darya oil and gas project, built and operated by China National Petroleum Corporation (CNPC).
Carole Nakhle, founder and CEO of London-based advisory Crystol Energy, told Energy Flux it is difficult to foresee a boom in Afghanistan’s mining sector:
“Chinese firms are no stranger to Afghanistan; for years, they have tried to pursue opportunities in the extractive industry in the country but their success has been limited... Why would it be any different now? Then one [must] factor in the potential imposition of sanctions by the international community […] Afghanistan will not properly and efficiently exploit its natural resources potential nor will it be able to play a major role in international markets unless massive reforms are undertaken – and on that front, I am not particularly optimistic.”
Also, can we be sure about what China really wants? Regional security is said to be a greater concern to Xi Jinping’s government than economic opportunity. Afghanistan borders China’s Xinjiang region, which has become synonymous with Beijing’s persecution of Muslim Uyghurs. Would economic cooperation with the Taliban risk re-awakening suppressed ethnic minorities in Xinjiang?
Afghanistan’s airports are closed and the country is in turmoil. Chinese dealmakers will have to bide their time before trying to extract concessions from Kabul. Over time, as the dust settles, we shall see whether the new regime wields the “strong hand” needed to facilitate mineral exploitation.
Even if it does, Afghan mineral exports would have to compete in global markets. Getting mined materials across thousands of miles of mountainous terrain won’t prove easy – or cheap.
HYDROGEN WARNINGS GO UNHEEDED: Concerns about the urgent need to clean up existing hydrogen production before expanding end-use applications are starting to get more air time, but are governments listening? Environmental law non-profit Earthjustice released a report calling for existing hydrogen production to be decarbonised first, before other applications are considered:
“[T]he first priority should be deploying green hydrogen to displace the millions of metric tons of hydrogen that the United States already makes from fossil fuels each year... It will always be more efficient to rely first on the direct use of renewable electricity wherever it is possible to do so, rather than convert that electricity into hydrogen before using it as an energy source.”
The report highlights hydrogen’s existing greenhouse gas footprint of 0.83 gigatonnes of CO2-equivalent emissions – which is greater than Germany’s GHG emissions of 0.75 GtCO2e (in 2018 figures).
Yet government funding is flowing into questionable hydrogen applications. Chinese state oil and chemicals giant Sinopec plans to spend a reported 30 billion yuan ($4.6 billion) on hydrogen by 2025, with a big expansion of ‘green’ H2. Sinopec is Asia’s largest refiner, so decarbonising existing feedstock makes sense. But the company is also making a big push for H2 as a transportation fuel, despite the greater cost and energy efficiencies of using renewables to power electric vehicles directly. Sinopec is targeting annual capacity of 200,000 tonnes by 2025, which would make it China’s largest hydrogen refueller.
In Japan, the government is subsidising state LNG buyer JERA’s hydrogen power demonstration project. This will see H2 co-fired with regasified LNG over a five-year period. JERA intends to switch 30% of the LNG volume it uses for power generation to hydrogen by 2025. Japan launched a 2 trillion yen hydrogen-for-power fund last year. And today, Tokyo signed high-level agreements with Russia to cooperate on hydrogen and ammonia.
RELATED: The blue-versus-green hydrogen debate rumbles on. Norwegian think-tank SINTEF took a swipe at the Jacobson-Howarth paper, which found blue H2 is more carbon-intensive than unabated coal or gas burn in certain applications. “We find the boundary conditions and parameters used in the study not representative for European conditions and are puzzled by the technology and process choices in the paper,” SINTEF said. Robert Howarth of Cornell University issued his own rebuttal, which calls SINTEF’s figures into question.
DECARBONISATION COST INFLATION: The lowest-hanging fruit on the emissions reduction tree is still going begging, but grabbing it won’t get us anywhere near ‘net zero’. A report from Evolved Energy Research finds that more than 2 gigatonnes of CO2 could be saved by 2050 at costs ranging from negative to “very modest” (<$60 per tonne). The study uses a new marginal abatement cost (MAC) curve methodology to compare least-cost systems over multiple years. It finds that targeted policies could unleash deployment of zero-emissions vehicles, building efficiency and electrification, wind, solar and “nuclear relicensing”. But beyond these first 2 Gt (remember, we need to erase >5 Gt) the MAC rises, gradually then steeply, due to the need for new infrastructure to integrate more renewables. Another factor is lower output from the same installed capacity as the best sites are exhausted and less windy/sunny locations are developed. (This finding chimes with the recent Cole et al paper on shifting the US to 100% renewables.)
EQUINOR TROLLS EU GAS MARKETS: Norway’s state oil company proudly announced the start-up of its ‘highly profitable’ Troll phase 3 upstream gas project — just as the market is overheating. The project has a break-even price below $10 per barrel, making it “one of the most profitable projects throughout Equinor’s entire history”. The wholesale price of gas on the Dutch Title Transfer Facility has spiked above €50 per MWh, and there are fears of further surges in winter as European gas stocks are depleted well below their five-year seasonal average. In reality, the extra volumes will be welcomed by a tight market, although Troll 3’s startup has not calmed wholesale prices; the ICE front-month TTF contract yesterday settled at €50.23/MWh and the Q1’22 contract is threatening to breach €50/MWh too.
TELLURIAN FEVER BREAKS NASDAQ: Being a meme stock has its pros and cons. Surging retail interest prompted Nasdaq to halt a $50 million bond issuance by US LNG hopeful Tellurian. Executive chairman Charif Souki said “massive” retail investment market has disrupted institutional investing rules, “first in equities and now in bonds”. Tellurian is raising funds from its loyal army of investor fans to bankroll operations until its flagship 11 mtpa Driftwood LNG project in Louisiana achieves final investment decision. A recent 3 mtpa offtake deal with Shell, indexed to Asian spot LNG marker JKM and European gas index TTF, boosted the TELL ticker on Nasdaq. But as previously detailed in Energy Flux this type of deal exposes the project to global gas price volatility, which tends to deter lenders. Now, non-profit IEEFA has issued a similar warning. Caveat emptor.
For the record:
More than two-thirds of ESG-focussed funds are not aligned with Paris climate goals
Tesla files to become an electricity provider in Texas
Extreme weather events are pushing consumers to solar and residential storage
Shell unveils massive expansion of UK electric vehicle charging infrastructure
UK competition watchdog clears National Grid’s $11 billion acquisition of Western Power Distribution
China’s CNOOC launches first offshore carbon capture project in South China Sea, designed to store >1.46 million tonnes of CO2
Shell takes final investment decision on Timi gas project, its first offshore wellhead platform in Malaysia powered by solar and wind
Shell sets up 1.4 GW floating wind project joint venture in South Korea
Saudi Aramco invests in 1.5 GW Sudair solar PV mega-project, helping ACWA Power achieve financial close for the $0.91 billion development
Solar-battery mega-project Sun Cable eyes expansion beyond 14 GW and incorporation of green hydrogen/ammonia. Going big is all the rage in Australia; InterContinental Energy is seeking economies of scale at its mammoth 50 GW Western Green Energy Hub. Energy Flux crunched the numbers on that beast a short while back.
Critical thinking on crucial energy issues
‘EU faces long battle over carbon border taxes’ – The EU is better known for considered diplomacy than picking fights, but it has come out swinging punches with the Carbon Border Adjustment Mechanism (CBAM), writes Timera Energy. “The EU faces a huge challenge in ensuring consistent & accurate reporting across a range of countries, companies & complex supply chains. It may also need to deal with governments that try and introduce ineffective carbon taxes in an attempt to protect industry.”
‘China’s aluminium decarbonisation paradox’ – The aluminium market is overheating amid speculation and output curbs as Chinese provinces scramble to meet mandated emissions targets, writes Reuters columnist Andy Home. But building more renewables to decarbonise coal-fired smelters requires, ironically, significant amounts of aluminium. “The Chinese authorities may succeed in shooing away the aluminium speculators for now but they’ll be back unless someone can resolve aluminium’s puzzling carbon paradox.”
Just how hard is it to eradicate natural gas from a UK home? Very, according to one man’s battle to electrify his house and cut off the gas supply...
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