Today’s Energy Crisis Spells Disaster For The Global Economy

By Gail Tverberg - Aug 01, 2022, 

• The price of energy has been too low for producers in recent years while the price of extraction has increased, this will cause the global economy to shrink.
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• As the economy changes from growth to shrinkage, the rate of shrinkage of GDP will be greater than the rate of shrinkage of energy consumption.
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• As interest rates rise, energy supplies will become even tighter, leading to a shortage of goods, a potential increase in conflict, and rising debt.

It is my view that when energy supply falls, it falls not because reserves “run out.” It falls because economies around the world cannot afford to purchase goods and services made with energy products and using energy products in their operation. It is really a price problem. Prices cannot be simultaneously high enough for oil producers (such as Russia and Saudi Arabia) to ramp up production and remain low enough for consumers around the world to buy the goods and services that they are accustomed to buying.

Figure 1. Chart showing average annual Brent-equivalent oil prices in 2021$ based on data from BP’s 2022 Statistical Review of World Energy, together with bars showing periods when prices seemed to be favorable to producers.

We are now in a period of price conflict. Oil and other energy prices have remained too low for producers since at least mid-2014. At the same time, depletion of fossil fuels has led to higher costs of extraction. Often, the tax needs of governments of oil exporting countries are higher as well, leading to even higher required prices for producers if they are to continue to produce oil and raise their production. Thus, producers truly require higher prices.

Governments of countries affected by this inflation in price are quite disturbed: Higher prices for energy products mean higher prices for all goods and services. This makes citizens very unhappy because wages do not rise to compensate for this inflation. Prices today are high enough to cause significant inflation (about $107 per barrel for Brent oil (Europe) and $97 for WTI (US)), but still not high enough to satisfy the high-price needs of energy producers.

It is my expectation that these and other issues will lead to a very strangely behaving world economy in the months and years ahead. The world economy we know today is, in fact, a self-organizing system operating under the laws of physics. With less energy, it will start “coming apart.” World trade will increasingly falter. Fossil fuel prices will be volatile, but not necessarily very high. In this post, I will try to explain some of the issues I see.

[1] The issue causing the price conflict can be described as reduced productivity of the economy. The ultimate outcome of reduced productivity of the economy is fewer total goods and services produced by the economy.

Figure 2 shows that, historically, there is an extremely high correlation between world energy consumption and the total quantity of goods and services produced by the world economy. In my analysis, I use Purchasing Power Parity (PPP) GDP because it is not distorted by the rise and fall of the US dollar relative to other currencies.

Figure 2. Correlation between world GDP measured in “Purchasing Power Parity” (PPP) 2017 International $ and world energy consumption, including both fossil fuels and renewables. GDP is as reported by the World Bank for 1990 through 2021 as of July 26, 2022; total energy consumption is as reported by BP in its 2022 Statistical Review of World Energy.

The reason such a high correlation exists is because it takes energy to perform each activity that contributes to GDP, such as lighting a room or transporting goods. Energy consumption which is cheap to produce and growing rapidly in quantity is ideal for increasing energy productivity, since it allows factories to be built cheaply and raw materials and finished goods to be transported at low cost.

Humans are part of the economy. Food is the energy product that humans require. Reducing food supply by 20% or 40% or 50% cannot be expected to work well. The economy suffers the same difficulty.

In recent years, depletion has been making the extraction of fossil fuel resources increasingly expensive. One issue is that the resources that were easiest to extract and closest to where they were needed were extracted first, leaving the highest cost resources for extraction later. Another issue is that with a growing population, the governments of oil exporting countries require higher tax revenue to support the overall needs of their countries.

Intermittent wind and solar are not substitutes for fossil fuels because they are not available when they are needed. If several months’ worth of storage could be added, the total cost would be so high that these energy sources would have no chance of being competitive. I recently wrote about some of the issues with renewables in Limits to Green Energy Are Becoming Much Clearer.

Rising population is a second problem leading to falling efficiency. In order to feed, clothe and house a rising population, a growing quantity of food must be produced from essentially the same amount of arable land. More water for the rising population is required for the rising population, often obtained by deeper wells or desalination. Clearly, the need to use increased materials and labor to work around problems caused by rising world population adds another layer of inefficiency.

If we also add the cost of attempting to work around pollution issues, this further adds another layer of inefficiency in the use of energy supplies.

More technology is not a solution, either, because adding any type of complexity requires energy to implement. For example, adding machines to replace current workers requires the use of energy products to make and operate the machines. Moving production to cheaper locations overseas (another form of complexity) requires energy for the transport of goods from where they are transported to where they are used.

Figure 2 shows that the world economy still requires more energy to produce increasing GDP, even with the gains achieved in technology and efficiency.

Because of energy limits, the world economy is trying to change from a “growth mode” to a “shrinkage mode.” This is something very much like the collapse of many ancient civilizations, including the fall of Rome in 165 to 197 CE. Historically, such collapses have unfolded over a period of years or decades.

[2] In the past, the growth rate of GDP has exceeded that of energy consumption. As the economy changes from growth to shrinkage, we should expect this situation to reverse: The rate of shrinkage of GDP will be greater than the rate of shrinkage of energy consumption.

Figure 3 shows that, historically, world economic growth has been slightly higher than the growth in energy consumption. This growth in energy consumption is based total consumption of fossil fuels and renewables, as calculated by BP.

Figure 3. Annual growth in world PPP GDP compared to annual growth in consumption of energy supplies. World PPP GDP is data provided by the World Bank; world energy consumption is based on data of BP’s 2022 Statistical Review of World Energy.

In fact, based on the discussion in Section [1], this is precisely the situation we should expect: GDP growth should exceed energy consumption growth when the economy is growing. Unfortunately, Section [1] also suggests that we can expect this favorable relationship to disappear as energy supply begins to shrink because of growing inefficiencies in the system. In such a case, GDP is likely to shrink even more quickly than energy supply shrinks. One reason this happens is because complexity of many types cannot be maintained as energy supply shrinks. For example, international supply lines are likely to break if energy supplies fall too low.

[3] Interest rates play an important role in encouraging the development of energy resources. Generally, falling interest rates are very beneficial; rising interest rates are quite detrimental. As the economy shifts toward shrinkage, the pattern we can expect is higher interest rates, rather than lower. As limits of energy extraction are hit, these higher rates will tend to make the economy shrink even faster than it would otherwise shrink.

Part of what has allowed growing energy consumption in the period shown in Figures 2 and 3 is rising debt levels at generally lower interest rates. Falling interest rates together with debt availability make investment in factories and mines more affordable. They also help citizens seeking to buy a new car or home because the lower monthly payments make these items more affordable. Demand for energy products tends to rise, allowing prices of commodities to rise higher than they would otherwise rise, thus making their production more profitable. This encourages more fossil fuel extraction and more development of renewables.

Once the economy starts to shrink, debt levels seem likely to shrink because of defaults and because of the reluctance of lenders to lend, for fear of defaults. Interest rates will tend to rise, partly because of higher inflation rates and partly because of the higher level of expected defaults. This debt pattern will reinforce the tendency toward lower GDP growth compared to energy consumption growth. This is a major reason that raising interest rates now is likely to push the economy downward.

[4] With fewer goods and services produced by the economy, the world economy must eventually shrink. We should not be surprised if this shrinkage in some ways echoes the shrinkage that took place in the 2008-2009 recession and the 2020 shutdowns.

The GDP of the world economy is the goods and services produced by the world economy. If the economy starts to shrink, total world GDP will necessarily fall.

What happens in the future may echo what has happened in the past.

Figure 4. World energy consumption per capita, based on information published in BP’s 2022 Statistical Review of World Energy.

Central bank officials felt it was important to stop inflation in oil prices (and indirectly in food prices) back in the 2004 to 2006 period. This indirectly led to the 2008-2009 recession as parts of the world debt bubble started to collapse and many jobs were lost. We should not be surprised if a much worse version of this happens in the future.

The 2020 shutdowns were characterized in most news media as a response to Covid-19. Viewed on an overall system basis, however, they really were a response to many simultaneous problems:

• Covid-19
• A hidden shortage of fossil fuels that was not reflected as high enough prices for producers to ramp up production
• Hidden financial problems that threatened a new version of the 2008 financial collapse
• Factories in many parts of the world that were operating at far less than capacity
• Workers demonstrating in the streets with respect to low wages and low pensions
• Airlines with financial problems
• Citizens frustrated by long commutes
• Very many old, sick people in care homes of various types, passing around illnesses
• An outsized medical system that still desired to increase profits
• Politicians who wanted a way to better control their populations–perhaps rationing of output would work around an inadequate total supply of goods and services

Shutting down non-essential activities for a while would temporarily reduce demand for oil and other energy products, making it easier for the rest of the system to appear profitable. It would give an excuse to increase borrowing (and money printing) to hide the financial problems for a while longer. It would keep people at home, reducing the need for oil and other energy products, hiding the fossil fuel shortage for a while longer. It would force the medical system to reorganize, offering more telephone visits and laying off non-essential workers. Many individual citizens could reduce time lost to commuting, thanks to new work-from-home rules and internet connections. The homebuilding and home remodeling industries were stimulated, offering work to those who had been laid off.

The impacts of the shutdowns were greatest on poor people in poor countries, such as those in Central and South America. For example, many people in the vacation and travel industries were laid off in poor countries. People making fancy clothing for people going to conferences and weddings were laid off, as were people raising flowers for fancy events. These people had trouble finding new employment. They are at increased risk of dying, either from Covid-19 or inadequate nutrition, making them susceptible to other illnesses.

We should not be surprised if some near-term problems echo what has happened in the past. Debt defaults and falling home prices are very real possibilities, for example. Also, making a new crisis a huge focal point and scaring the population into staying at home has proven to be a huge success in temporarily reducing energy consumption without actual rationing. Some people believe that monkeypox or a climate change crisis will be the next area of focus in an attempt to reduce energy consumption, and thus lower oil prices.

[5] There is likely to be more conflict in a world with not enough goods and services to go around.

With a shrinking amount of finished goods and services, we should not be surprised if we see more conflict in the world. Many wars are resource wars. The conflict between Russia and Ukraine, with other countries indirectly involved, certainly could be considered a resource war. Russia wants higher prices for its exports of many kinds, including energy exports. I wrote about the conflict issue in a post I wrote in April 2022: The world has a major crude oil problem; expect conflict ahead.

World War I and World War II were almost certainly about energy resources. Peak coal in the UK seems to be closely related to World War I. Inadequate coal in Germany and lack of oil in Japan (and elsewhere) seem to be related to World War II.

[6] We seem to be facing a new set of problems in addition to the problems that gave rise to the Covid-19 shutdowns. These are likely to shape how any new crisis plays out.

Some recently added problems include the following:

• Debt has risen to a high level, relative to 2008. This debt will be harder to repay with higher interest rates.
• The US dollar is very high relative to other currencies. The high level of the US dollar causes problems for borrowers from outside the US in repaying their loans. It also makes energy prices very high outside the US.
• Oil, coal, and natural gas are all in short supply worldwide, leading to falling productivity of the overall system Item 1. If extraction is to continue, prices need to be much higher.
• Difficulties with broken supply lines make it hard to ramp up production of manufactured goods of many kinds.
• Inadequate labor supply is an increasing problem. Baby boomers are now retiring; not enough young people are available to take their place. Increased illness, associated with Covid-19 and its vaccines, is also an issue.

These issues point to a situation where rising interest rates seem likely to send the world economy downward because of debt defaults and failing businesses of many kinds.

The high dollar relative to other currencies leads to the potential for the system to break apart under stress. Alternatively, the US dollar may play a smaller role in international trade than in the past.

[7] Many parts of the economy are likely to find that the promised payments to be made to them cannot really take place.

We have been taught that money is a store of value. We have also been taught that government promises, such as pensions, unemployment insurance, and health insurance can be counted on. If there are fewer goods and services available in total, the whole system must change to reflect the fact that there are no longer enough goods and services to go around. There may not even be enough food to go around.

As the world economy hits limits, we cannot assume that the money we have in the bank will really be able to purchase the goods we want in the future. The goods may not be available to purchase, or the government may put a restriction (such as $200 per week) on how much we can withdraw from our account each week, or inflation may make goods we currently buy unaffordable.

If we think about the situation, the world will be producing fewer goods and services each year, regardless of what the promises that have been made in the past might say. For example, the number of bushels of wheat available worldwide will start falling, as will the number of new cars and the number of computers. Somehow, the goods and services people expected to be available will start disappearing. If the problem is inflation, the affordable quantity will start to fall.

We don’t know precisely what will happen, but these are some ideas, especially as higher interest rates become a problem:

• Many businesses will fail. They will default on their debt; the value of their stock will go to zero. They will lay off their employees.
• Employees and governments will also default on debts. Banks will have difficulty remaining solvent.
• Pension plans will have nowhere nearly enough money to pay promised pensions. Either they will default or prices will rise so high that the pensions do not really purchase the goods that recipients hoped for.
• The international system of trade is likely to start withering away. Eventually, most goods will be locally produced with whatever resources are available.
• Many government agencies will become inadequately funded and fail. Intergovernmental agencies, such as the European Union and the United Nations, are especially vulnerable.
• Governments are likely to reduce services provided because tax revenues are too low. Even if more money is printed, it cannot buy goods that are not there.
• Citizens may become so unhappy with their governments that they overthrow them. Simpler, cheaper governmental systems, offering fewer services, may follow.

[8] It is likely that, in inflation-adjusted dollars, energy prices will not rise very high, for very long.

We are likely dealing with an economy that is basically falling apart. Factories will produce less because they cannot obtain financing. Purchasers of finished goods and services will have difficulty finding jobs that pay well and loans based on this employment. These effects will tend to keep commodity prices too low for producers. While there may be temporary spurts of higher prices, finished goods made with high-cost energy products will be too expensive for most citizens to afford. This will tend to push prices back down again.

[9] Conclusion.

We are dealing with a situation that economists, politicians, and central banks are ill-equipped to handle. Raising interest rates may squeeze out a huge share of the economy. The economy was already “at the edge.” We can’t know for certain.

Virtually no one looks at the economy from a physics point of view. For one thing, the result is too distressing to explain to citizens. For another, it is fashionable for scientists of all types to produce papers and have them peer-reviewed by others within their own ivory towers. Economists, politicians, and central bankers don’t care about the physics of the situation. Even those basing their analysis on Energy Return on Energy Invested (EROEI) tend to focus on only a narrow portion of what I explained in Section [1]. Once researchers have invested a huge amount of time and effort in one direction, they cannot consider the possibility that their approach may be seriously incomplete.

Unfortunately, the physics-based approach I am using indicates that the world’s economy is likely to change dramatically for the worse in the months and years ahead. Economies, in general, cannot last forever. Populations outgrow their resource bases; resources become too depleted. In physics terms, economies are dissipative structures, not unlike ecosystems, plants, and animals. They can only exist for a limited time before they die or end their operation. They tend to be replaced by new, similar dissipative structures.

While the current world economy cannot last indefinitely, humans have continued to exist through many bottlenecks in the past, including ice ages. It is likely that some humans, perhaps in mutated form, will make it through the current bottleneck. These humans will likely create a new economy that is better adapted to the Earth as it changes.

London’s High Court rules against Venezuela’s Maduro in $1 billion gold battle

YANKEE PUPPET STEALS FROM THE PEOPLE
Reuters | July 29, 2022

President of Venezuela, Nicolas Maduro (Credit: Kremlin.ru)

London’s High Court has rejected President Nicolas Maduro’s latest efforts to gain control of more than $1 billion of Venezuela’s gold reserves stored in the Bank of England’s underground vaults in London.


The court ruled on Friday that previous decisions by the Maduro-backed Venezuelan Supreme Court aimed at reducing opposition leader Juan Guaido’s say over the gold, should be disregarded.

It marked the latest victory for Guaido, who has won a series of legal clashes over the bullion after the British government recognised him rather than Maduro as the Latin American country’s president.

“I have … concluded that the Guaido Board succeeds: that the STJ (Venezuelan supreme court) judgments are not capable of being recognised,” the judge in the case said.

The Maduro and Guaido camps have each appointed a different board to the Central Bank of Venezuela (BCV) and the two have issued conflicting instructions concerning the gold reserves.

Lawyers for the Maduro-backed BCV board said the central bank was considering an appeal after Friday’s ruling, while Guiado, who has seen some international support falter over the last 18 months, called it an important victory.

Maduro’s legal team has said he would like to sell some of the 31 tonnes of gold to finance Venezuela’s response to the pandemic and bolster a health system gutted by years of economic crisis.

Guaido’s opposition has alleged that Maduro’s cash-strapped administration wants to use the money to pay off his foreign allies, which his lawyers deny.

“This decision represents another step in the process of protecting Venezuela’s international gold reserves and preserving them for the Venezuelan people,” Guaido said in statement.

“This type of honest and transparent judicial process does not exist in Venezuela.”

The British government in early 2019 joined dozens of nations in backing Guaido, after he declared an interim presidency and denounced Maduro for rigging 2018 elections.

Guaido at that time asked the Bank of England to prevent Maduro’s government from accessing the gold. Maduro’s central bank then sued the Bank of England to recover control, saying it was depriving the BCV of funds needed to finance Venezuela’s coronavirus response.

Legal experts have said the latest case has been unprecedented as it has seen one country’s highest courts interpreting the constitution of another.

“This is an unfortunate ruling,” said Sarosh Zaiwalla at Zaiwalla & Co, which represented the Maduro-backed central bank, adding that it would continue to pursue the case despite Friday’s decision.

“The BCV remains concerned that the cumulative effect of the judgments of the English Court appears to accord a simple statement by the UK Government recognising as a head of state a person with no effective control or power over any part of that state,” Zaiwalla added.

(By Marc Jones; Editing by Michael Holden, Catherine Evans and Barbara Lewis)

Miners’ profits face an unusual foe: extreme weather

“Mining companies have been prioritizing their bottom line over investing in safety and resiliency for too long,” said Jan Morrill of Earthworks.

Reuters | July 29, 2022 | 


Heavy rainfalls, withering droughts and other extreme weather patterns across the globe are denting miners’ profits and crimping supply of iron ore, copper and other widely-used minerals as climate change roils yet another industry.


It is an unusual situation for companies that have experience operating anywhere in the world, include miles underground and at the tops of mountains and in places where temperatures often range from 100 degrees Fahrenheit (38°C) to 0F (minus 18°C).

But the first part of 2022 saw the mining industry – parts of which have long faced criticism for how coal production affects climate patterns – contend with a raft of weather-related incidents entirely outside its playbook. Executives detailed their weather-related troubles in earnings reports this week and warned they are likely to continue.

“We are reviewing a few different scenarios to adjust to the likelihood that there are further strange weather patterns,” said Lundin Mining Corp Chief Executive Peter Rockandel.

Lundin cut its 2022 copper production forecast after heavy rains dented production at its Chapada mine in Brazil, a facility that as recently as 2019 was contending with drought.

Anglo American Plc slashed its dividend after torrid rains hurt its iron ore production in Brazil during the first half of the year, coal mining in Australia and platinum mining in South Africa.

“The extremes that we saw in quarter one of this year outpaced all reasonable forecasting ability that we had,” said Anglo CEO Duncan Wanbald.

Rio Tinto Ltd’s iron ore shipments from Australia’s Pilbara region fell 2% in the first half of the year compared with the same period in 2021, partly due to “significantly higher than average rainfall in May.”

Rio also said titanium dioxide production slipped in Madagascar amid one of the worst cyclone seasons in that country since 2008.

With inflation and high energy costs already biting into companies’ cash reserves, the disruptions caused by extreme weather are even more evident.

“When markets are tight, these things just become a lot more material … but there is not a lot you can do,” analyst Ben Davis at broker Liberum said.

The cost of weather extremes is also measured in human lives. In Burkina Faso, unexpectedly heavy rains during the dry season caused flash floods at Trevali Mining Corp’s zinc mine in April, killing eight miners who were trapped underground.

Brazil’s Vale SA, one of the world’s largest iron ore miners, said its output of the steel-producing mineral dropped in the first three months of the year due to torrential rains. Glencore warned that flooding could dent its Australian coal production this year.

Sibanye Stillwater Ltd shuttered its Montana platinum mines last month after mountain snow rapidly melted amid unusually warm weather, causing runoff that took out several key roads and bridges.

ArcelorMittal SA said steel production at its South Africa’s unit fell nearly a third during the first half after severe flooding in the KwaZulu-Natal province damaged rail lines.
Drought

In Chile, the world’s largest copper producer, miners have faced an ongoing water crisis due to historic drought that has lasted more than a decade and only grown worse this year. Antofagasta Plc, one of the country’s largest copper miners, expects its production of the red metal to fall this year due to that drought.

Water is essential in copper production, used abundantly to separate the mineral from its ore and in subsequent steps. To counter water shortages, many mining companies desalinate ocean water and use it in their processes.

Earthworks, an environmental group that tracks the mining industry, said mining companies must do more to fund infrastructure improvements amid the changing climate.

“Mining companies have been prioritizing their bottom line over investing in safety and resiliency for too long,” said Jan Morrill of Earthworks.

(By Clara Denina, Helen Reid, Nelson Banya, Gabriel Araujo, Ernest Scheyder and Praveen Menon; Editing by Marguerita Choy)

Bolivian authorities investigate tailings pond collapse near Potosí
Valentina Ruiz Leotaud | July 31, 2022 | 

Mud and mine residue flowing through a Potosí river. 

(Image by Reyna Menacho, Facebook).

Bolivian authorities are investigating the causes behind the collapse of a tailings facility near the southern town of Potosí, an accident that took place a week ago and that caused a mix of mud and mine residue to reach at least four rivers that drain into the Pilcomayo River.


Pilcomayo is an international, 1,100-kilometre-long river that passes through Bolivia, Argentina and Paraguay and that defines most of the border between the latter two before it joins the Paraguay River near Asunción.

The tailings pond that failed belonged to the Departmental Federation of Mining Cooperatives whose members extract silver and zinc through artisanal means in the nearby areas.

Following a visit to the site where the accident took place, Potosí city councillor Reyna Menacho published a series of videos on social media pointing out that the residues are starting to sediment, which means that it may take about 10 years for the ecosystem to fully recover.

Together with Menacho were representatives from the Mining Administrative Jurisdictional Authority (AJAM), the governor’s office of the Potosí Department, the Bolivian Mining Corporation, and the Mining and Forestry Environment Commission, among others. They carried out a full inspection that allowed them to find clandestine mining work in the vicinity of the Mazuni Lagoon, something the AJAM had been reporting since 2017.

According to the councillor, the illegal mineshafts, some of them over 80 metres in depth, were destroyed and authorities made a commitment to monitor the area and dismantle similar operations that “that threaten the environment and public health.”

This is not the first time this type of accident has occurred in Bolivia, a situation that has been criticized by its neighbours to the south.

Los Pelambres’ desalination plant 86% complete

Valentina Ruiz Leotaud | July 31, 2022 | 

Los Pelambres miner. (Image by Antofagasta, Flickr).

Chilean miner Antofagasta (LON: ANTO) announced that the desalination plant that is part of the $2.2-billion expansion of Los Pelambres is 86% complete while the offshore infrastructure that is meant to bring in the seawater is 87% complete.


According to the miner, this project will turn Los Pelambres into the first mining operation that uses seawater to produce copper in Chile’s central region, and it will benefit both the existing and expanded operation in cases of prolonged or severe drought.

Construction is slated to be finished by the end of the year, and the plant is expected to provide 400 litres per second of industrial-quality desalinated water.

“This desalination plant will allow us to start incorporating desalinated water into our processes, with which we not only move forward in creating a sustainable operation but also adapt to the long drought caused by climate change,” Alejandro Vásquez, general manager of Minera Los Pelambres, said in a media statement.

“This is the first of many investments that we are putting forward to be able to use mainly desalinated and recycled water starting in 2025.”
How it works

Vásquez explained that a gravitational capture system that doesn’t employ a motor or suction will feed the plant with seawater using an 800-metre-long pipe that is topped with a filter.

The executive also said that of every 10 litres of seawater that enter this desalination plant, five will be returned without any change in temperature or additional chemical components but will have twice the regular salt content.

To deal with the extra salty water, a discharge system will be set up, including a pipeline that will be located one kilometre offshore and 26 metres deep. The submarine pipe is 1.2 metres in diameter and will have 10 diffusers to facilitate the dilution of salt in the sea aided by sea currents.

“According to the studies we’ve performed, seven metres from this diffuser, there will no longer be any difference between the discharge and normal seawater,” Vásquez said. “Feedback regarding the operation of hundreds of similar desalination plants around the world, some of them in northern Chile, shows that they have no negative impact on the marine environment.”

The manager of Los Pelambres said that regardless of the evidence from elsewhere, his team will carry out continuous monitoring of the marine environment, in accordance with the provisions of the Environmental Qualification Resolution that authorized the construction and operation of the plant.

The mine’s expansion project is ongoing and expected to add 60,000 tonnes of copper a year over the first 15 years to Antofagasta’s overall production and boost throughput at the plant from 175,000 tonnes of ore a day to an average of 190,000 tonnes a day, and plans for further expansion are also underway.

If Antofagasta can secure the required environmental and regulatory approvals for that second project, the company is considering doubling the capacity of the desalination plant. This means that the facility will allow for 90% of the operation to run using desalinated and recycled water starting in 2025.

“This way, we can stop using water from the Choapa River,” Vásquez said.

Toyota-Panasonic battery JV to buy lithium from ioneer’s Nevada mine

Reuters | July 31, 2022 | 

Credit: Prime Planet Energy & Solutions

A joint battery venture of Toyota Motor Corp and Panasonic Corp will buy lithium from ioneer Ltd’s Rhyolite Ridge mining project and use the metal to build electric vehicle batteries in the United States.


The binding supply deal, announced on Sunday, is the second in less than a month for ioneer and a strong vote of confidence in a project that is racing to be the first new US source of the battery metal in decades.

Under the terms of the deal, ioneer will supply 4,000 tonnes of lithium carbonate annually for five years to Prime Planet Energy & Solutions (PPES), which was formed by Toyota and Panasonic in 2020 to better compete with battery market leader Contemporary Amperex Technology Co Ltd (CATL).

Supplies are slated to begin in 2025, a timeline that depends in part on ioneer obtaining financing and permitting.

The deal includes a commitment from PPES that ioneer’s lithium will be used to build EV battery parts inside the United States for the US EV market. PPES, which is based in Japan, has reportedly been considering building a battery plant in western North Carolina.

“The whole purpose of this agreement is for this lithium to be used in the United States,” James Calaway, ioneer’s executive chairman, told Reuters.

A proposed expansion of the US EV tax credit would require that lithium and other EV minerals be sourced domestically or from allies starting as soon as next year. That potential change, which is under debate in Congress, has shown a spotlight on the nascent US development plans of battery and automakers.

“Having an agreement with ioneer provides PPES a first step in securing a US supply of lithium,” said PPES President Hiroaki Koda, who added he has “confidence in ioneer’s technology.”

The amount of lithium that ioneer will supply PPES is enough to make batteries for about 150,000 EVs annually, though that figure would vary depending on design and other factors.

Australia-based ioneer aims to produce about 21,000 tonnes of lithium in Nevada annually starting in 2025. It signed a supply deal with Ford Motor Co in mid-July and last year with South Korea’s Ecopro Co.

The Rhyolite Ridge project has faced push back from some conservationists who worry it could harm a rare flower known as Tiehm’s buckwheat, though ioneer has said it believes it can safely extract lithium while also protecting the plant.

“We’ve figured out how we can build the mine and not touch the Tiehm’s buckwheat,” said Calaway.

(By Ernest Scheyder; Editing by Daniel Wallis)

GM prepaying Livent $198 million for guaranteed lithium supply

Reuters | August 2, 2022 |

GM is launching at least 20 new all-electric vehicles by 2023. (Image courtesy of General Motors.)

General Motors Co is prepaying Livent Corp $198 million for a guaranteed six-year supply of lithium, a deal that reflects the auto industry’s rising worry about a tightening market for the electric vehicle battery metal.


Prepaying cash for a guaranteed metal supply is unusual in the mining industry. The deal shows GM’s eagerness to ensure it has sufficient raw materials to meet its goal of producing 1 million EVs annually in North America by 2025.


Both companies announced the broad brushstrokes of the deal last week, but Livent announced financial terms on Tuesday as it posted a better-than-expected profit and raised its forecast for the year.

“GM is certainly thinking for the long term here,” Paul Graves, Livent’s chief executive, told investors on a Tuesday conference call. “By making the advanced payment, they are clearly giving us the commitment that we were looking for.”

Graves has long prodded automakers to work closer with lithium producers. In an interview with Reuters last fall, Graves warned that unless the auto industry signed long-term deals, “there may be periods where there is just insufficient lithium.”

Livent produces lithium in Argentina and has processing facilities in the United States.

Livent, which also supplies BMW, expects to receive the GM prepayment later this year. The company is set to start supplying GM in 2025 at a contractual price per tonne, though neither company disclosed volume.

Philadelphia-based Livent reported second-quarter net income of $60 million, or 31 cents per share, compared with $6.5 million, or 4 cents per share, a year ago.

Excluding one-time items, Livent earned 37 cents per share. By that measure, analysts expected earnings of 29 cents per share, according to IBES data from Refinitiv.

Livent said expansion of its Argentina site is on schedule. The company’s stock rose slightly in after-hours trading.

(By Ernest Scheyder; Editing by Jonathan Oatis, Bill Berkrot and David Gregorio)

CRIMINAL CAPITALI$M; GOLDBUGS

From profits to pay, JPMorgan’s gold secrets spill out in court
Bloomberg News | August 1, 2022 |

JPMorgan Chase Tower. Credit: Wikimedia Commons

The trial of JPMorgan Chase & Co.’s former head of precious metals has offered unprecedented insights into the trading desk that dominates the global gold market.


Michael Nowak, who ran precious metals trading at JPMorgan for over a decade, is being tried in Chicago along with colleagues Gregg Smith and Jeffrey Ruffo for conspiring to manipulate gold and silver markets. The focus now is on the jury, which began deliberations late Friday, but the proceedings have already shone a new light on the inner workings of the business, from its profitability and market share to its largest clients.

Annual profits

The court was shown internal figures detailing the bank’s annual profits from precious metals, the first time such detailed information has ever been made public. JPMorgan’s earnings reports don’t break out the results from the precious metals desk, or even its broader commodities unit. A spokesperson declined to comment on the disclosures in the trial.

In summary: the business is a consistent moneymaker for JPMorgan, notching up annual profits between $109 million and $234 million a year between 2008 and 2018. The lion’s share of that comes from trading in financial markets, but the bank does plenty of physical business as well. Trading and transporting physical precious metals makes the bank about $30 million a year on average.

Still, the profits disclosed in the trial have been overshadowed more recently: in 2020, JPMorgan made $1 billion in precious metals as the pandemic created unprecedented arbitrage opportunities, according to people familiar with the matter.

Market share

JPMorgan holds tens of billions of dollars in gold in vaults in London, New York and Singapore. It is one of four clearing members of the London market, where global gold prices are set by buying and selling metal held in a few London vaults — including JPMorgan’s and the Bank of England’s.

JPMorgan is the biggest player among a small group of “bullion banks” that dominate the precious metals markets, and internal documents presented by prosecutors provided a glimpse of just how dominant a role the bank has played.

In 2010, for example, 40% of all transactions in the gold market were cleared by JPMorgan.

Big bonuses

JPMorgan’s top precious metals employees on the desk were remunerated handsomely, and some jurors audibly gasped when the court was told how much the defendants had earned.

Ruffo, the bank’s hedge fund salesman, was paid $10.5 million from 2008 to 2016. Smith, the top gold trader, got $9.9 million. Nowak, their boss, made the most of all: $23.7 million over the same period.

Their pay was linked to the profits they made for the bank. FBI agent Marc Troiano, citing internal JPMorgan data, told the court that the total profit allocated to Ruffo from 2008 to 2016 was $70.3 million. Smith generated about $117 million over the same period, while Nowak made the bank $186 million, including $44 million in 2016.

Key clients

Hedge funds like Moore Capital, Tudor Investment Corp and George Soros’s eponymous firm were some of the desk’s most important clients. Getting access to those clients was the main reason for retaining Ruffo after the bank’s acquisition of Bear Stearns, according to ex-trader Christian Trunz, who testified against his former bosses and referred to Ruffo as the best salesman on Wall Street. Being a top client of JPMorgan came with perks: employees at the funds could be provided with free tickets to the US Open, according to messages involving Nowak shown during the trial.

Another set of important clients were central banks, which trade gold for their reserves and are among the biggest players in the bullion market. At least ten central banks held their metal in vaults run by JPMorgan in 2010, according to documents disclosed in court.

(By Eddie Spence and Jack Farchy)

Canadian government sued by environmental groups over 20 oil and gas “sleeper” permits

Stefan Labbé - Business in Vancouver | August 1, 2022 |

Flock of Seagulls and a lone Tufted Puffin. Near Tofino, Vancouver Island, Canada.  

Two environmental groups are suing the Canadian federal government over 20 oil and gas “sleeper” exploration permits originally granted off the coast of British Columbia in the late 1960s and 1970s.


The application for judicial review, filed in a federal court on behalf of the World Wildlife Fund Canada and David Suzuki Foundation, claims the federal government has unlawfully extended the permits in violation of the Canada Petroleum Resources Act.

“The central argument that we’re advancing is that those permits are expired and the federal government has unlawfully kept them alive and on the books for more than 40 years,” said Ecojustice staff attorney Ian Miron, who is repressing the two plaintiffs.

“We certainly think that the threat of oil and gas exploration… is not an abstract one.”

Miron pointed to the Bay du Nord offshore oil project approved this year off the coast of Newfoundland and Labrador as an example of how the government is still approving major extraction projects despite its climate commitments.

The permits cover an area spreading out over 5,840 square kilometres in the Hecate Strait Glass Sponge Reefs Marine Protected Area and the Scott Islands Marine National Wildlife Area off the northwest coast of Vancouver Island.

Chevron and ExxonMobil’s oil and gas exploration permits cover 5,840 square kilometres of the Hecate Strait Glass Sponge Reefs Marine Protected Area and the Scott Islands Marine National Wildlife Area – WWF Canada

The Scott Islands attract five to 10 million migrating birds every year.

The coastal sanctuary has the highest concentration of breeding seabirds on Canada’s Pacific coast, and the islands provide habitat for 40% of all B.C.’s seabirds.

That includes several species listed as “at risk” by the federal government, including marbled murrelets, short-tailed albatross and the sooty shearwater.

Four of the Hecate Strait glass sponge reefs, meanwhile, are thought to be 9,000 years old. Before they were discovered, they were thought to be extinct worldwide, only surviving in the fossil record dating back to the late Jurassic period.

Described as “exceptionally fragile” and vulnerable to human activity, the glass sponges “play an important role in marine carbon and nitrogen processing,” according to the Ministry of Environment and Climate Change.

“In a nutshell, these two ecosystems support a thriving biodiversity but also contribute to thriving culture and livelihoods for the communities along the coast,” said Miron.

Miron said the environmental groups are taking the matter the court as a last resort after questions to the federal government and the two companies that hold the permits — Chevron Canada and ExxonMobil Canada — “fell on deaf ears.”

“We do think there is some urgency to taking these permits off the books,” said the attorney. “Our clients believe that the mere existence of these permits in these protected areas is actually hampering efforts to fully protect and manage the areas.”

Glacier Media reached out to the Ministry of Natural Resources and ExxonMobil Canada, but neither responded to a request for comment by the time of publication.

A spokesperson for Chevron Canada declined to comment, citing pending litigation.

If the defendants choose to fight the application for judicial review, a case could reach a federal court within a year, says Miron.

(This article first appeared in Business in Vancouver)

Not enough women: miners meet in Australia under a cloud after sexism report

Reuters | August 2, 2022 

Eight-month independent review of Rio Tinto’s workplace culture uncovered shocking reality. 

Global investor and economist Dambisa Moyo this week became the first woman ever to deliver the keynote speech at the mining industry’s annual conference in Western Australia, a boost for the sector as it faces scrutiny over perceived sexism.


Yet while Moyo had top billing, she is one of only five women out of 71 speakers due to address this year’s event in Kalgoorlie-Boulder, a fact that has not gone down well with some delegates.

“There are more speakers who have the name Peter, Mark, and James than there are women at the whole event,” Fortescue Metals Group Chief Executive Elizabeth Gaines, who addressed the conference on Tuesday, told Reuters.

A bombshell report published in June by the state government of Western Australia, home to the bulk of the country’s iron ore industry, detailed cases of “horrifying” behavior against women and criticized mining firms including BHP and Rio Tinto for overlooking criminal behavior.

“If you had asked me at the start of my professional career whether I thought I would still be talking about gender diversity in 2022, I would have thought that we would be living it by now,” Gaines said in her conference speech.

“Unfortunately, the reality is that we are still having the same conversations about equality that we had 30, 20, and 10 years ago,” added Gaines, who was forced to appear at the event virtually after her flight was canceled due to bad weather.

In February Rio Tinto published its own report which found that nearly 30% of women employed by the global mining giant had experienced sexual harassment at work, with 21 women reporting actual or attempted rape or sexual assault.

The mining conference is the first major industry event that international visitors and regional executives have been able to attend since the pandemic began, with a record of over 2600 delegates in attendance.

Jessica Farrell, asset president at BHP Nickel West and another speaker at the conference, also criticized the lack of female participation at the event.

“The onus for that is on both the conference itself, but also on the members,” she told Reuters.

Farrell gave evidence on behalf of BHP in the West Australia parliamentary inquiry into sexual harassment in the industry.

“You look at the information there and it’s just simply got to stop. And we are the ones that can make that change,” she said.

“We want our industry to be one where all people can come together and feel safe and respected at all times, and perform at their very best.”

BHP said its senior leadership team is balanced, and over the past year the percentage of women reporting to the executive has grown to 38% from 25%. Since 2016, the company has increased the number of women working at BHP from 17% to 32%.

Australia accounts for about half of the world’s iron ore exports, and women have long complained of sexual harassment in mining camps and offices.

The recent findings led top miners to set diversity targets, regulate alcohol consumption in camps, and increase safety checks at camps and sites.

But the sector’s Australian workforce of 150,000 is still predominantly – five-sixths – male, a gender mix that’s little improved since the industry’s beginnings over a century ago.

Top miners last month identified labor shortages in Australia as one of the key reasons affecting production and revenue.

There’s intense demand for people with skills in statistics, analytics, robotics and artificial intelligence, Gaines said.

“Which is why it’s more important than ever that we equip the workforce of the future for these types of jobs and attract the best and the brightest minds from across the diversity of our population,” she said.

(By Praveen Menon; Editing by Susan Fenton)