The Unstoppable Growth Of Carbon Markets

By Felicity Bradstock - Aug 14, 2022

• As the race to lower emissions intensifies, the global carbon market is estimated to be worth more than $100 billion.
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• The CEO of ExxonMobil believes that carbon capture and storage technologies are the holy grail of energy markets, believing the CCS market could be worth $4 trillion by 2050.
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• As countries and international bodies become increasingly aggressive in their attempts to lower carbon emissions, the sky truly is the limit for carbon markets.

As many governments and major companies around the world make pledges for net-zero carbon emissions by 2050 or just after, the value of carbon is steadily rising. But just how big will the carbon market become and could it challenge the oil and gas industry? 

At present, carbon markets are thought to be worth above $100 billion and are continuing to grow as the green energy transition takes hold. As the value of carbon increases, this could be positive for both investors and the environment. Globally, around 42 gigatonnes of carbon dioxide are emitted each year. If we are to limit the warming of the planet to 2 degrees, we must release no more than 1,150 gigatonnes of CO2 into the atmosphere, which at the current rate of emissions would take around 25 years. In response to this estimation, many countries around the world have made ambitious promises to cut their carbon emissions significantly over the next quarter of a decade. 

Governments have established policies on carbon-cutting that have sent the market value of carbon up substantially. Just ten years ago only 21 market mechanisms were putting a price on 5 percent of carbon emissions worldwide. But this figure has since increased to 68 mechanisms on 25 percent of the world’s emissions. Many countries around the globe agreed to carbon-cutting promises following the 2015 Paris Agreement. And the COP26 climate summit in Glasgow last year encouraged even more ambitious targets. The yearly summit is expected to continue pushing climate goals further globally, as well as holding countries accountable for their greenhouse gas emissions. 

Some of the major mechanisms for carbon-cutting include the EU Emission Trading Scheme (EU ETS), the Western Climate Initiative (WCI), Regional Greenhouse Gas Initiative (RGGI), and the U.K. Emission Trading Scheme (U.K. ETS). These mechanisms account for around 5 percent of the world’s carbon emissions, valued at around $110 billion. But as other regions introduce their own mechanisms, this figure is expected to increase significantly. 

The way that the carbon market boosts its value is by increasing the quantity of carbon captured. It works by assessing the value of the world’s atmosphere and the cost of global warming. Some big players have already suggested that carbon needs to be given a high valuation to encourage companies to reduce their CO2emissions by introducing carbon capture and storage (CCS) technologies and investing in renewable energy projects to help the shift to green. 

The CEO of Exxon Mobil, Darren Woods, stated last month that he believes CCS technologies are “the holy grail” when it comes to collecting carbon, adding “if you can overcome some of those technology hurdles, get your cost down, you’ve got a technology then that can address this in a very cost-efficient way.” In fact, Exxon estimates the CCS market could be worth as much as $4 trillion by 2050. 

When it comes to the different mechanisms currently in place to regulate the carbon market, several regional schemes oversee carbon emissions trading and manage carbon allowance auctions. They also help governments set regulations on carbon so they can achieve climate targets. For example, the WCI was established in 2011 to manage greenhouse gas emissions trading programs within its jurisdiction, across the U.S. and Canada. The WCI is a non-profit organization that offers support to policymakers to produce new regulations on carbon, supported by emissions data such as their centralized market registry. 

The RGGI acts as a similar body for the eastern states of the U.S. It covers Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia, setting carbon caps and helping these states to reduce their emissions to meet local and national climate targets. RGGI has raised $4 billion to support carbon-cutting initiatives across the region. It helps to regulate the market by requiring power plants to acquire one RGGI CO2 allowance for every short tonne of CO2 they emit, with RGGI states distributing carbon allowances at quarterly auctions. Power plants may purchase these allowances as others improve their carbon practices.

In the U.K., the U.K. ETS, formed in 2021 (following Brexit) joins political powers from the UK, Scottish and Welsh, and Northern Ireland to regulate carbon emissions and protect the competitiveness of U.K. businesses. It follows the Greenhouse Gas Emissions Trading Scheme Order 2020 to enforce compliance with the UK ETS regulations.

And finally, in terms of the major mechanisms, the EU ETS is the European body that helps the E.U. to achieve its climate policy by reducing greenhouse gas emissions in a cost-effective way, focusing primarily on the carbon market. It operates in all the E.U. member states, as well as Iceland, Liechtenstein, and Norway, limiting emissions from approximately 10,000 installations across the power, manufacturing, and aviation industries. It currently oversees regulations covering around 40 percent of the region’s greenhouse gases.

As well-established mechanisms across several regions of the world are helping to increase the value of carbon through carbon-cutting regulations, supporting the implementation of climate policy, and emissions trading, the price of carbon is being driven up. As more mechanisms emerge over the coming years, covering a higher percentage of the world’s carbon emissions, the value of carbon is set to soar.

By Felicity Bradstock for Oilprice.com

How Iran Is Sidestepping Sanctions Using Crypto

By ZeroHedge - Aug 14, 2022, 

• Iran just made its first import order registration using cryptocurrency.
• This week's $10 million import order is just the beginning, as Iran works to sidestep sanctions and pursue trade with other U.S.-targeted economies. 
• "By the end of September, the use of cryptocurrencies and smart contracts will be widely used in foreign trade with target countries,” said Alireza Peyman-Pak, the head of Iran's Ministry of Industry, Mine and Trade.

In a groundbreaking development, Iran has made its first-ever import arrangement using cryptocurrency, according to Iran's Tasnim News Agency.

“This week, the first official import order registration worth $10 million was successfully completed using cryptocurrency," said Alireza Peyman-Pak, the head of Iran's Ministry of Industry, Mine and Trade. He didn't provide any other details about the transaction, such as which cryptocurrency was used or where the imports were coming from.  This week's $10 million import order is just the beginning, as Iran works to sidestep sanctions and pursue trade with other U.S.-targeted economies. "By the end of September, the use of cryptocurrencies and smart contracts will be widely used in foreign trade with target countries,” said Peyman-Pak. 

As the United States and Western allies continue to impose sanctions on Iran and other out-of-favor countries, there's a lot of work underway to create new, non-dollar-denominated means of conducting trade. 

Last month, Iranian economic minister Ehsan Khandouzi announced that the U.S. dollar had been officially replaced by the ruble in Iran's trade with Russia, and that work is underway to replace the dollar in business with China, Turkey and India. Russia and Iran are also engineering an alternative to the SWIFT payments messaging service, which is used throughout global trade but is frequently used as a sanctions weapon -- by blocking access to it.  

In a 2021 report, blockchain analytics firm Elliptic estimated that 4.5% of all bitcoin mining in the world was happening in Iran. Iran instituted a licensing regime for cryptocurrency miners in 2019. It requires registration, the payment of a modest surcharge for electricity, and that all mined bitcoins must be sold to Iran's central bank.  

News of Iran's crypto-denominated import transaction comes as the European Union has presented Iran and the United States with a "final" proposal for reviving the 2015 Iran nuclear deal that President Trump reneged on despite Iran's compliance.

In fits and starts, negotiations over returning to the nuclear deal have stretched over 17 months. At stake for the Iranians: Relief from economy-choking sanctions.

Related: Why Solar Power Is Failing Amid Record-Breaking Heat

Iran has withdrawn two demands: That the U.S. remove Iran's Islamic Revolutionary Guard Corps (IRGC) from the list of sanctioned terrorist organizations, and that President Biden guarantee that a future president won't renege on the revived deal as Trump did -- and could conceivably do again himself.

Iran has, however, added a new demand: That the International Atomic Energy Agency drop an investigation into unexplained uranium found at multiple Iranian research sites. The discoveries were facilitated by Israel's 2018 theft of Iranian documents about its nuclear program. 

Of course, one can't rule out the possibility that Israel forged some of the documents and deposited the uranium traces itself. The Mossad has repeatedly demonstrated its ability to operate inside Iran with ease, and it wouldn't be the first time Israel seemingly manufactured "Iranian" documents to manipulate U.S. officials, journalists and public opinion.  

With the European Union proposal widely viewed as the last chance for the nuclear deal's revival -- and as Iran contemplates the possibility that the 2024 election could lead to a Republican president reneging again -- it's understandable that Iran is hedging its bets by aggressively pursuing non-dollar trade avenues. 

By Zerohedge.com

Big Oil Looks To Capitalize On The $1 Trillion Offshore Wind Boom

By Tsvetana Paraskova - Aug 13, 2022, 

• European oil majors are scrambling to ramp up investment in renewable energy.
• Big Oil is increasingly eyeing opportunities in the booming offshore wind market.
• Oil companies can use their offshore expertise and deep pockets to carve out their own piece of the $1 trillion pie.

European oil majors are boosting investment in renewable energy sources as they aim to become net-zero energy companies by 2050 and slash carbon emissions. And there is one renewable energy sector where Big Oil has a lot to offer and a lot to gain—offshore wind.   Oil and gas majors can use their offshore expertise and deep pockets to finance and develop offshore wind farms in an industry estimated to attract nearly $1 trillion over the next decade.    

Offshore wind opportunities will help Big Oil gain a more prominent role in low-carbon energy, help them reduce operational emissions from offshore oil and gas fields powered by renewable electricity, and advance projects for producing green hydrogen via electrolysis using renewable sources, including offshore wind. 

Investments in offshore wind could come with handsome rewards for the majors. Offshore wind can deliver 25% higher unit operating cash margins in comparison to new field oil and gas projects, according to a new metric and analysis developed by Wood Mackenzie. 

“Even the lowest offshore wind portfolio average operating cash margin is above the upstream average. And the renewable technology’s margins trump deepwater – Big Oil’s highest margin asset class,” Akif Chaudhry, Principal Analyst, Corporate Research at WoodMac, wrote in an analysis this week.

“Our new cash margin metric – operating cash flow per gigajoule equivalent (GJe) – goes beyond traditional comparisons. And it reveals that offshore wind comes up trumps,” Chaudhry added. 

Offshore wind is expected to be a pillar of the energy transition and attract almost $1 trillion over the next decade, with offshore wind capacity jumping tenfold by 2030, from 34 GW in 2020 to 330 GW by 2030, WoodMac said in a report earlier this year. 

Offshore wind technology is proven, and investors have confidence in it, the energy consultancy said in May. Moreover, Europe’s strategy to cut off its dependence on Russian energy could further accelerate offshore wind development. 

“Similarly, competitively priced offshore wind is likely to play an important role in powering electrolysers to produce hydrogen, so some of its growth will be tied to the scaling up of the green hydrogen industry,” WoodMac said. 

More and more companies have been bidding in offshore wind lease rounds and auctions, and European oil majors are participating en masse. 

The first commercial offshore wind tender in 2010 attracted just one bidder. Earlier this year, the ScotWind Leasing offshore Scotland saw bids from more than 60 companies, and all European majors bid and won acreage in the leasing round. 

Shell, BP, Equinor, and TotalEnergies are all betting on developing offshore wind in Europe, the U.S., and Asia and say the sector is a priority area of growth for them. 

BP, with an ambition to be a leading provider of offshore wind energy, plans to develop offshore wind across two leases in the UK’s Irish Sea, with a generating capacity of 3 GW, while in the U.S., it is developing 4.4 GW projects offshore New York and Massachusetts. Shell has more than 4.3 GW of capacity in operation and under construction, and 16.7 GW in the funnel of potential projects (gross capacity) across North America, Europe, the UK, and Asia. Equinor wants to be a global offshore wind energy major and have an installed net capacity of 12-16 GW by 2030, two-thirds of which will be within offshore wind. TotalEnergies has 6 GW of offshore wind projects under development and construction, of which 2 GW are planned to go into production by 2025.

Related: White House Rethinks China Tariffs Amid Taiwan Turmoil

The majors are looking to boost offshore wind development not only to provide electricity to households, but also to electrify offshore oil and gas platforms and produce green hydrogen.  

For example, Equinor is studying possible options for building a floating 1-GW offshore wind farm in the Troll area, with the potential start-up in 2027, which could provide much of the electricity needed to run the offshore fields Troll and Oseberg through an onshore connection point. At the same time, Shell has just announced it will start building Europe’s largest renewable hydrogen plant in the port of Rotterdam, which will use renewable power for the electrolyzer from the offshore wind farm Hollandse Kust (noord), partly owned by Shell. 

Overall, Europe’s Big Oil is well positioned to take advantage of the growing offshore wind industry, analysts say. 

“After years of managing volatility in oil and gas, the Majors are equipped to get the balance between risk and return right. And they are flush with deep pockets of cash to take advantage of the huge upcoming opportunities,” WoodMac’s Chaudhry said. 

By Tsvetana Paraskova for Oilprice.com

Australian Oil Major Stuns Market With Approval Of Alaska Oil Project

By Charles Kennedy - Aug 17, 2022, 

Santos Energy has announced the final investment decision on the Pikka oil project in Alaska, which the Australian company expects to produce 80,000 bpd beginning in 2026.

The first phase of the development at the North Slope deposit will cost $2.6 billion, of which Santos’ share would be $1.3 billion, the company also said. The Australian energy major is partnering with Spain’s Repsol on the project.

“Global oil and gas markets are seeing increased volatility and countries are looking to diversify their supply sources away from Russia, which according to the International Energy Agency, currently produces 18 per cent of the world’s gas and 12 per cent of its oil,” Santos Energy chief executive Kevin Gallagher said.

“Low-carbon oil projects like Pikka Phase 1 respond to new demand for OECD supply and are critical for global and United States energy security, that has been highlighted since the Russian invasion of Ukraine,” he added.

Gallagher noted that Santos has committed to net-zero Scope 1 and Scope 2 emissions—those from a company’s own operations and those from the operations of its suppliers—and that Pikka will be a net-zero project.

Even so, the shares of Santos fell after the announcement, Reuters reported, as the decision surprised traders. The stock decline came despite forecast-beating profits reported for the first half of the year. Santos booked a net profit of $1.27 billion for the period, up from $317 million a year ago.

Reuters noted that analysts had expected Santos to pull out of the Alaska project and sell its 51-percent stake rather than develop it.

The Australian company will probably fund the Pikka project development with proceeds from the planned sale of 5 percent in the PNG LNG project in Papua New Guinea, according to analysts. Santos expects to pocket $1.5 billion from that sale’s LNG gains prominence among investors thanks to higher demand from Europe.

By Charles Kennedy for Oilprice.com