Subscribe now

FIRST UP: The rapidly deteriorating winter outlook for European energy markets has laid bare the EU’s geopolitical vulnerabilities. With gas stocks running perilously low, EU leaders have been slogging it out over divisive energy issues — to no avail.

PLUS: Coal is king, and it won’t be dethroned for many years. And, redomiciling lithium mining is proving to be another thorny energy transition issue for the EU. That’s all right here in this jam-packed bumper end-of-year newsletter (keep scrolling👇)

BREAKOUT STORY: When the EU does achieve a consensus on energy matters, it is rarely a pretty sight. The treatment of hydrogen in the second ‘fit for 55’ package is a case in point. That’s this week’s breakout story (5-min read):

Energy Flux

EU embraces wasteful hydrogen blending

Blending low-carbon hydrogen in natural gas pipelines is an extremely wasteful use of an expensive and energy-intensive energy vector that is best deployed elsewhere. We know this. But the European Commission has put H2 blending at the heart of the new EU framework to decarbonise gas markets. Natural gas pipeline operators must be popping corks at this massive lobbying victory…

a year ago · Seb Kennedy

Subscribe now

IN THIS EMAIL:

💥EU tearing itself apart over nuclear, gas, carbon and Russia

💥Global coal consumption poised to break records in 2022

💥Lithium mining is kryptonite to the EU’s ‘just’ energy transition

‘Toxic run-off’ poisons relations
Jobs engine or resource colonialism?
Portugal’s new gas-hungry lithium mine
DRC’s lithium industry fails ESG test

📺Quote of the week

🌎Global headlines by key topic (20+ curated links)

🧠Energised minds: ‘Humanity is entering a fifth age of oil’

💥 EU tearing itself apart over nuclear, gas, carbon and Russia

European leaders are always at each other’s throats, whether it’s over immigration, decarbonisation, internal market rules or Russia. But the situation in EU energy markets is so dire so early in winter, the stakes are higher than usual for such squabbles.

Wholesale gas and power prices surged to fresh record highs yesterday after Germany’s regulator said the Nord Stream 2 pipeline won’t be certified in H1’22. Gazprom then turbo-charged trading anxiety by not booking any capacity to ship gas on the Yamal-Europe pipeline this week.

January-dated TTF futures are now trading at >$47/MMBtu, which is – unusually – above the prevailing Asian LNG spot price. In a sense, this is good news. This ludicrous price might tempt some more spare LNG cargoes away from northern Asia and into EU terminals.

But it also shows how desperate the situation is becoming. European gas inventories are 23% lower than at this time last year, and at their lowest pre-Christmas level since 2013. The odds are not yet in favour of physical gas shortages and analysts expect prices to calm down by February.

That gives Russia a window of opportunity to make a geopolitical point. With the Kremlin still amassing troops on Ukraine’s border, the EU is facing US pressure to prepare sanctions against Russian banks and energy companies in anticipation of an attack. How might that play out?

Javier Blas @JavierBlas

ENERGY GEOPOLITICS: I struggle to see how any meaningful sanctions on Russian natural gas exports do not trigger electricity blackouts in Europe. And Moscow knows it. However, oil is different (but prices will rise, perhaps significantly) | #OOTT #ONGT

bloomberg.comBloomberg - Are you a robot?

EU leaders were debating this late into last night at a marathon EU Council meeting. Aside from sanctions, they were also at odds over whether to include gas and nuclear in the contentious EU taxonomy for sustainable investments, which is due for an update next week.

The sudden loss of 6 GW of French nuclear capacity provided a dramatic backdrop for the face-off between pro-nuclear France and gas-friendly Germany. Sky-high electricity prices are hurting consumers in both countries, and that’s even before Germany switches off its operational nuclear fleet.

Adding to the problems are surging carbon prices on the EU emissions trading system (ETS), which Poland claims is due to speculation (here’s a great thread exploding that myth).

The EU’s power market structure is also coming under scrutiny. The ‘pay-as-clear’ model allows the marginal power source to set the price for all plants that dispatch power.

What this means, as Energy Flux readers will recall, is that a small amount of pricey gas or coal-fired electricity at the peripheries can drag up the price paid to all generators – including zero marginal cost wind and solar.

Pay-as-clear is bad for consumers but great for renewable plant operator’s profit margins. Spain wants the Commission to review EU electricity market design. Brussels has so far refused to do either.

All of this was in the mix as the EU Council talks dragged on. Pronouncements today from bleary-eyed attendees might shed some light on the direction of travel… or maybe not.

Share

💥 Global coal consumption poised to break records in 2022

If you need any further proof that expensive gas is bad for the energy transition, look no further than the International Energy Agency’s latest annual coal report. The paper forecasts that coal-fired power generation will break records in 2021, and that overall global consumption of the most carbon-intensive fuel could reach all-time highs next year.

Why? Astronomical natural gas prices rendered coal more cost-competitive. This year’s rapid economic recovery, and inadequate low carbon power supply growth, were aggravating factors. Depending on weather patterns and economic growth, overall coal demand (including non-power applications) could reach a new all-time high in 2022 and remain at that level for the following two years.

It is notable that coal power generation in the US and EU, two markets that are supposedly leading the clean energy transition, will rise by almost 20% this year. This is a faster rate than India (12%) and China (9%), illustrating just how empty the heralded COP26 pledges to “phase down” coal remain. And remember: China, India and the US declined to sign the Global Coal to Clean Power Transition Statement in Glasgow.

The situation in China reveals how difficult it is for industrialising economies to kick coal. China has expanded hydro, wind, solar and nuclear power capacity by more than any other country – and pursued intensive coal-to-gas switching in the residential heating and light industrial sectors, the IEA said. Yet still it is producing and burning more of the black stuff than ever before. Lower carbon energy sources are merely additional to coal, not a replacement.

The energy crunch led to brief and unusual tightness in coal supplies this year. China and India responded quickly to power outages and idle factories with policies to ramp up production – facilitated by the large presence of state-owned companies in the upstream. This sorry state of affairs demonstrates once again that short-term security of supply concerns will always trump longer-term decarbonisation objectives.

💥 Lithium mining is kryptonite to Europe’s energy transition

Reducing reliance on imports of raw materials used in electric vehicle batteries is a strategic priority for the European Union. Unfortunately, the political, social and environmental impacts of mining lithium lay bare exactly why the EU outsourced this industry in the first place.

Thousands of protestors took to the streets of Serbia last weekend to oppose Rio Tinto’s plans to mine the Jadar river valley in the west of the small Balkan country for jadarite – a lithium-rich mineral discovered there in 2004. Jadarite has a near-identical chemical composition to kryptonite, the fictitious green glowing mineral used by Lex Luthor to debilitate Superman in the 2006 film Superman Returns.

The EU hopes close-to-home sources of lithium could have a similarly debilitating effect on China’s dominance of the battery metals and cell production markets. But a Serbian grassroots movement against conventional lithium mining shows how tricky it could be to redomicile the EV battery value chain.

‘Toxic run-off’ poisons relations

The proposed $2.4 billion Jadar underground mine and chemical processing facility plant, due online in 2026, will use between 190-570 million litres of water per year drawn from underground aquifers and alluvium deposits from a nearby river. Campaigners claim toxic run-off will poison the river basin with arsenic, mercury and lead. Rio Tinto disputes their claims and says it will adhere to EU environmental standards.

The Jadar project is “one of the largest greenfield lithium projects in the world,” the company says. It will produce battery-grade lithium carbonate as well as borates, which are used in solar panels and wind turbines.

Jadar has become a lighting rod for popular opposition to Serbia’s autocratic government, which stands accused of pursuing “illegal” land appropriations and ignoring environmental concerns. The plant is also likely to become entangled in Serbia’s torturous talks to join the EU, which this week entered a new phase with the opening of four new negotiation ‘chapters’ spanning energy, transport, environment and climate change.

Resource colonialism or jobs engine?

Jadar could turn Serbia into a major global lithium producer. The question is whether the country will also host gigafactories to churn out high-quality li-on batteries – or whether Serbian raw material will end up as feedstock for factories in Germany, which would reap the economic benefits.

Rio Tinto, which has only embryonic plans for a battery manufacturing value chain in Serbia, says Jadar “promises to position Serbia as the European hub for green energy”. That claim will look a little hollow if Germany gets all the well-paid green collar jobs and Serbia is left to deal with Jadar’s 57 million tonnes of lifetime solid waste.

Critics fear the EU will take a colonial approach and use the EU accession negotiations to push Serbia to pursue low-value exports. There is no evidence that this is happening, but EU officials will want to avoid resource exploitation being seen as the price of membership. Better technologies such as this one based on existing geothermal plants might help convince EU citizens to host lithium mines in their back yards.

Subscribe now

Portugal’s new gas-hungry lithium mine: Northvolt and Galp this week established Aurora, a Portuguese joint venture to mine Iberia’s lithium-rich spodumene deposits. They hope to produce enough lithium hydroxide for 50 GWh of batteries per year, or 700,000 electric vehicles. Unlike jadarite, refining spodumene requires flotation – a process commonly associated with wet slurry residue requiring storage in massive tailings dams that are prone to failure, with tragic consequences. It also needs lots of gas to achieve temperatures greater than 1,000°C. The JV promises to use “the most environmentally sound approaches” and find green sources of heat later. Aurora will want to avoid any association with the Barroso spodumene lithium mine in northern Portugal, which has been slammed by experts as a highly dangerous example of “reckless creativity” (PDF). A spokesperson declined to comment.

DRC’s lithium industry fails ESG test: Lithium mining in the Democratic Republic of Congo is at risk of being “seriously undermined” by environmental, social and governance (ESG) shortcomings. Global Witness says a lack of transparency around how mining concessions are granted, poor understanding of environmental impacts and risks to human rights could see this fledgling industry repeat the environmental and human rights abuses that have become synonymous with cobalt mining in the DRC.

📺 Quote of the week

“Behind us lie 250 years in which our prosperity was based on the burning of coal, oil and gas. Now we have about 23 years ahead of us in which we must and will get out of fossil fuels.” – German Chancellor Olaf Scholz

Share

🌎Global headlines by key topic

Hydrogen, ammonia, e-fuels

Thyssenkrupp to install 2 GW electrolysis plant for Air Products in NEOM – PR
Geothermal-powered green hydrogen plant opens in New Zealand – PR
Engie, Equinor launch blue hydrogen project in Belgium – PR

Natural gas, LNG, methane, flaring

US gas flaring hits nine-year low driven by improvements in Bakken, Permian – Rystad
Gas crisis fuels call for UK to update energy security policy – Guardian

Wind, solar, energy storage, DSR, grids

UK opens fourth CfD allocation round to procure 12 GW of renewable capacity – PR
China tariffs failed to rejuvenate US solar PV makers as imports soar – Rystad
Kentucky turning former coal mine into 200 MW solar project – SPW
Energy transition metals demand to exceed supply capacity – IMF

Nuclear, geothermal, hydro

EDF shares plunge after faults found at French nuclear reactor – Reuters
The Netherlands to build new nuclear plants under coalition deal – Politico
Finland’s Olkiluoto 3 nuclear plant to come online this winter, 12 years late – Nasdaq
Commonwealth Fusion Systems completes $1.8 billion funding round – Climate Tech VC
Deep Energy, Eavor partner to deploy closed-loop geothermal technology – PR
Geothermal energy offers a renewable future for Colorado's oil fields – NPR

Fossil fuel production, ESG

US oil capital expenditure still low despite higher crude prices – EIA
Heavy oil output in Alberta hits all-time high – Rystad
US oil pipeline capacity lying empty after building spree – Reuters

National oil companies (NOCs)

Saudi Aramco closes $15.5 billion gas pipeline deal with Blackrock-led consortium – PR

International oil companies (IOCs)

Shell acquires solar and energy storage developer Savion – PR

(Geo)politics, net zero and ‘the big picture’

Global debt reaches record $226 trillion (256% of GDP) – IMF
Rural US coal counties face greatest socioeconomic risks from energy transition – RFF

Carbon capture, utilisation, storage and removal

BP awards first engineering contracts for ‎UK power and carbon capture projects – PR

Digitalisation, crypto, bitcoin

Nuclear, hydro and solar-powered bitcoin miner lists on NASDAQ – PR
Blockchain company to mint carbon offset credits as non-fungible tokens (NFTs) – PR
How crypto mining became the oil industry’s new hope – Guardian

Subscribe now

🧠Energised minds

Critical thinking on crucial energy issues

‘Humanity is entering a fifth age of oil’ – Flat OPEC+ growth and shale capital discipline show that we are on the cusp of a fifth age of oil, writes investor and independent analyst Lyn Alden. “A decade of unprofitable shale oil growth threw energy markets out of balance towards excess supply for a long time, but I believe they are getting back into balance, and if anything, potentially a lack of balance towards high prices and shortages.”

Leave a comment

🙃And finally...

Something tells me US shale executives don’t really miss the halcyon days of ‘drill baby, drill!’…

Hadley Gamble @_HadleyGamble

U.S. Energy Secretary Jennifer Granholm: “Get your rig count up.” U.S. oil industry:

That’s all for now. Energy Flux returns to your inbox in early January. Wishing all readers a very Merry Christmas and a safe and prosperous New Year.

Thanks again for all your support this year. Energy will remain a hot topic in 2022, and I’m looking forward to bringing you lots more original and independent news commentary and analysis in the New Year.

Seb

Share

EU tearing itself apart over nuclear, gas…