Thursday, August 31, 2023

 

Scotiabank announces senior executive changes including new oversight for Tangerine

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Scotiabank announced a raft of changes in its senior executive ranks, including a new head for the group overseeing its Tangerine online banking business and a new chief human resources officer.

The moves follow the appointment of Scott Thomson, former chief executive of heavy equipment dealer Finning International Inc., as chief executive of the bank in February.

Scotiabank announced it has hired former ING executive Aris Bogdaneris as group head, digital transformation, Tangerine, marketing and analytics.

Bogdaneris will be responsible for overseeing the bank's Tangerine business, which was owned by ING before it was acquired by Scotiabank in 2012, as well as global marketing, customer insights, data and analytics and real estate.

The bank also said Barb Mason, group head and chief human resources officer (CHRO) will retire at the end of 2023. She will be replaced by RBC executive Jenny Poulos who becomes deputy CHRO, effective Oct. 2, and CHRO, effective Dec. 4.

Scotiabank said chief risk officer Phil Thomas has also been promoted to add the title of group head.

This report by The Canadian Press was first published Aug. 31, 2023.

Canada launches challenges to U.S. softwood lumber duties

Canada is launching challenges to the latest U.S. duties on softwood lumber, arguing the “unjustified” tariffs are harming a key Canadian sector and driving up housing costs in both countries.

Trade Minister Mary Ng will announce Friday that Canada is taking the fight to the U.S. Court of International Trade as well as a dispute-resolution mechanism under the United States-Mexico-Canada Agreement. 

“For years, the United States has imposed unfair, unjust and illegal duties on Canadian softwood lumber, hurting Canadian industry and creating rising housing costs in both our countries,” she said in a statement provided to Bloomberg on Thursday.

The U.S. Department of Commerce released the results of its fourth administrative review of Canadian softwood lumber exports earlier this sumer, landing on a new combined duty rate of 7.99 per cent, down slightly from 8.59 per cent previously.

American producers argue that the Canadian federal and provincial governments unfairly subsidize the lumber sector. The U.S. Lumber Coalition applauded the Commerce move last month.

In the statement to be released Friday, Ng said she has raised the issue with her U.S. counterpart Katherine Tai at every opportunity.

“Canada continues to remain ready and willing to discuss a negotiated outcome to the dispute that provides the stability and predictability the sector needs to ensure its continued growth and success.  

Canadian lumber producers are benefitting from price rises amid record wildfires: Researcher  5:44


 

B.C. premier calls on Bank of Canada to halt rate hikes

British Columbia Premier David Eby is calling on the Bank of Canada to halt further interest rate hikes, saying people are "hurting," and another rate increase next month might worsen, and not reduce, inflation.

In a letter Thursday to Bank of Canada governor Tiff Macklem, Eby urged him to consider the "human impact" of rate hikes, which the bank has employed as an anti-inflationary measure.

The Bank of Canada, an independent body, is set to make an interest rate decision next Wednesday.

"While the role of the Bank of Canada is to make decisions about monetary policy, my role as premier is to stand up for people in B.C. and ensure their voices are heard as decisions are made that impact them," said Eby's letter.

"People in B.C. are already hurting," he said. "In your role as governor, I urge you to consider the full human impact of rate increases and not further increase rates at this time."

The letter said the Bank of Canada had raised rates 10 times since March last year, with the current lending rate at five per cent, the highest in 22 years.

Eby wrote that a Statistics Canada update last month stated that the largest contributor to inflation in Canada was mortgage rates. 

"A rate increase in September is more likely than not to lead to higher mortgage rates again, directly causing further inflation," he wrote.

Sean Gordon, a Bank of Canada media relations consultant, said in a statement the bank has no comment on Eby's letter "as we are currently in the blackout period ahead of our next interest rate decision."

The Bank of Canada announces its key policy decision, the setting of interest rates, eight times a year.

Members of the bank's Governing Council observe a blackout no-comment period around the time of the decisions, says the bank's website.

Eby also wrote Thursday to Prime Minister Justin Trudeau calling for a targeted approach to fighting inflation, focusing on housing and infrastructure improvements.

The letter to Trudeau said a focus on such key sectors will have long-term anti-inflationary benefits while growing the economy and improving productivity.

"There are other ways for us to achieve cost stability, but they do require diligence and co-ordination," said the premier's letter to Trudeau. "The time is overdue for such an effort," said Eby. "Ahead of September's rate decisions, I suggest a robust and targeted approach focused on the largest contributors to inflation."

Eby's letter to Macklem said "unnecessary" further interest rate increases pose a danger not just to homeowners looking to renew mortgages but to renters, students, seniors, families and small business people looking to pay bills, just as they start to recover from the COVID-19 pandemic.

Wal van Lierop, a Vancouver-based venture capitalist, said further interest rate increases will hit most Canadians and affect future growth and investment plans of businesses and governments.

"These across-the-board interest rate increases are hurting Canadians, and, in particular, the middle class and everyone below that, and it is hurting government in trying to achieve the goals that they have set for things like affordable housing and fighting climate change," he said.

Van Lierop said his company, Chrysalix Venture Capital, invests globally in industrial innovations that tackle climate change and help companies reach carbon-neutral targets.

He said he respects the Bank of Canada's independence but the time has arrived for a more modernized approach to fighting inflation.

"The Bank of Canada has no plan other than trying to achieve a traditional goal of two per cent inflation," said van Lierop. "While that was laudable in the 1980s, I think it is now up to the Bank of Canada to start to innovate and not just use the methods they have used in the past 50 years, basically a sledgehammer of all-across-the-board rate increases."

This report by The Canadian Press was first published Aug. 31, 2023.


Mortgage growth buckles under weight of rate 

hikes in Canada

The aggressive pace of interest-rate hikes is hitting mortgage books at Canada’s biggest banks, leading to slowing loan growth, longer amortization periods and a rise in impairments.

Higher borrowing costs cut into mortgage growth, with would-be homebuyers sitting on the sidelines. At the country’s five largest lenders, including Royal Bank of Canada and Toronto-Dominion Bank, residential loan growth slowed to 4 per cent in the fiscal third quarter, compared with annual growth of 9.8 per cent a year earlier.

Meanwhile, the amount of impaired loans in the five firms’ core Canadian banking businesses almost doubled from a year earlier. Stage 3 loans — an accounting category for loans in default that are less likely to be paid back — ballooned to nearly $1.3 billion (US$960 million) in the three months through July from $717 million a year earlier.

Royal Bank and Toronto-Dominion had the largest Stage 3 totals, at $302 million and $285 million, respectively, reflecting the bigger loan books at the two banking giants. Still, the figures account for a small fraction of the lenders’ overall portfolios.

Bank of Nova Scotia said it’s been deliberately slowing mortgage growth as it shifts use of capital.

 “We’re just being more disciplined with regards to customer selection at time of origination, and this is a good time to drive that standard higher here because it’s a softer, slower housing market,” Dan Rees, Scotiabank’s head of Canadian banking, said on a conference call this week. “We are also being more efficient with regards to our use of capital and using customer deselection at renewal as part of that conversation.”

The strategy has been improving Scotiabank’s net interest margin, or the difference between what a bank earns on loans and what it pays for funding, over the past two quarters, said National Bank of Canada analyst Gabriel Dechaine. Mortgage balances have declined about 2 per cent in its Canadian division since the beginning of the year, he said.

The timing of the pullback is ideal since mortgage spreads have been tight in recent quarters, Dechaine said in a note to clients, and investors may welcome lessened exposure to the residential-loan market as risks rise.

Other banks have taken different approaches to mortgage risks. Some are reaching out to borrowers who’ve hit their trigger rates — the point where they’re paying only interest, and aren’t making progress on their loan’s principal. Banks are proposing solutions such as lump-sum payments, fixed-rate mortgage options or extending the mortgage’s amortization to keep monthly payments from rising too much.

The last option has been popular with Toronto-Dominion and Royal Bank clients, boosting the share of mortgages with amortizations of more than 25 years.

In the third quarter, 43 per cent of Royal Bank’s Canadian residential loans had amortization periods exceeding 25 years, up from 40 per cent a year earlier and 26 per cent in January 2022, before the Bank of Canada began its rate hikes. At Toronto-Dominion, the share of over-25-year amortizations rose to 48 per cent from 35 per cent a year earlier, and at Canadian Imperial Bank of Commerce the portion grew to 47 per cent from 43 per cent.  

Perhaps more concerning for CIBC is the $37 billion of Canadian mortgages on its books that are set to renew in 12 months, $7 billion of which are variable. As borrowing costs rise, variable-rate mortgages are impacted, with the bank offering to extend amortizations to borrowers who need it until renewal, CIBC said in an investor presentation Thursday. Once a mortgage is renewed, it reverts back to its original term schedule, which may require additional payments.

“Proactive outreach included a number of programs and initiatives throughout the year to help our clients through a rising rate environment,” CIBC said in the presentation.

The Bank of Canada began its recent rate-hiking campaign in March 2022, raising its trend-setting policy rate from 0.25 per cent to, most recently, 5 per cent, the highest in 22 years. Canadian lenders raised the prime rates they charge Canadian consumers in tandem, leading to the highest mortgage costs in years.


David Dodge: Canada 'not going back' to pre-pandemic interest rates

AND THE TRUTH SHALL SET YE FREE

Canada is not likely to return to interest rates between one and two per cent, according to a former Bank of Canada governor who also believes rate cuts will not come until late next year –at the earliest.

David Dodge, a senior advisor at Bennett Jones and former governor of the Bank of Canada, told BNN Bloomberg that Canadians should expect interest rates to “come down a bit” around the end of 2024 or early 2025.

But even when the central bank eventually lowers its benchmark rate from the current five per cent, Dodge said he thinks it will remain above levels seen in previous decades. He predicted rates will hover at around 3.5 per cent.

“We're not going back to the (around) two per cent interest rate at the Bank of Canada that we enjoyed in the 10 years leading up to COVID-19,” he said in a television interview. “And we’re certainly not going back to the one or one and a half per cent that we had as recently as 2021.”

Dodge spoke ahead of a scheduled Sept. 6 interest rate decision from the central bank, and a day before Statistics Canada’s scheduled release of second-quarter gross domestic product figures. With that key economic data still to come, Dodge said the economy appears to be still generating excess demand. 


POST-COVID ECONOMIC REALITY

According to Dodge, some economists and the broader market have an overly optimistic view of where interest rates and the real rate of interest will settle. He said the “basic assumption that a lot of people make is that we’re going back to pre-COVID-19 times,” when the real rate of interest was near zero. 

“That's just wrong,” he said. “It will not be the case again, there are all sorts of factors that are going to push up pressures on inflation going forward, which means the central banks are going to have to be tighter than they were in the pre-COVID-19 period.” 

FEDERAL IMPACTS: DEBT SERVICING COSTS

If interest rates end up staying higher for a longer period of time than some anticipate, Dodge said the federal government will be impacted by higher debt servicing costs.

He said the latest federal budget made the assumption that debt service costs for the government would be roughly nine per cent of revenues – but by his estimation, the figure will be closer to 11 per cent or higher.

“They’re going have to plan a for higher debt service costs than (Finance Minister Chrystia Freeland) planed in her budget,” he said. “That means that there's going to be less room for government to do other things.” 

 

Savannah Port Expansion Continues with Arrival of Massive Container Cranes

Savannah container cranes
USCG enforced a temporary safety zone as four massive cranes arrived in the Port of Savannah (GPA)

PUBLISHED AUG 25, 2023 8:12 PM BY THE MARITIME EXECUTIVE

 

The expansion of the container handling capacity at the Port of Savannah, Georgia continues with the arrival of the second batch of massive container cranes which are part of the Georgia Ports Authority’s $1.9 billion infrastructure improvement plan. The massive cranes arrived aboard a heavy lift ship after a three-month trip from Asia and were so large the U.S. Coast Guard enforced a temporary safety zone in the Savannah River on August 24.

Designed by Konecranes of Finland, the all-electric cranes arrived on the 519-foot vessel BigLift Barentsz. The Netherlands-flagged heavy load carrier is off-loading two cranes standing 306 feet tall with a reach 24 containers wide that will be installed at Berth 1 at the Garden City Terminal to complete the rehabilitation project for the large ship berth. The two new cranes are in addition to four of the largest ship-to-shore cranes in North America that arrived at the berth in February. The first batch of cranes and the expanded berth returned to operation in July adding 1.5 million TEU in annual berth capacity.

Two slightly smaller cranes, standing 295 feet in height that also arrived on the ship yesterday will be installed on the upriver end of the terminal at berth 9. They will have a reach 22 containers wide. These two cranes along with the other two that arrived yesterday will complete installation and assembly and are expected to be in service in December.

 

The first batch of cranes arrived in February and have already contributed to a 25 percent capacity increase (USCG)

 

The addition of the new cranes comes as Savannah continues to see increasing demand and growth in its volume. July while down from the record of a year ago, still saw a 17 percent month-over-month increase in the number of boxes moved. The GPA highlights that it has had a compound annual growth rate over the last four years of 3.7 percent.

The GPA ordered a total of eight new giant ship-to-shore cranes. They have already increased annual berth capacity by 25 percent and extended the port’s ability to serve vessels capable of carrying more than 16,000 TEU. The port has also agreed to spend $170 million on 55 hybrid-engine rubber-tired gantry cranes as it continues the expansion and modernization of the port. Those cranes will also contribute to reducing emissions from the port operations. 

At the end of 2022, GPA announced a two-phase project to expand Savannah’s container capacity. It includes relocating breakbulk cargo operations to Brunswick, Georgia along with the ro-ro vehicle operations.  When completed in 2026, the plan calls for an additional 3 million TEU capacity at the Port of Savannah. 

 WWIII BEGINS IN THE SOUTH CHINA SEA

US and Palau Strengthen Maritime Security Responding to Chinese Incursions

USCG fishing inspection
New agreement with Palau expands the USCG's long-standing efforts in the Pacific targeting illegal fishing and as a deterrent to Chinese incursions (USCG file photo)

PUBLISHED AUG 29, 2023 6:31 PM BY THE MARITIME EXECUTIVE

 

The United States has signed an expanded bilateral law enforcement agreement with the small Pacific nation of Palau located in the western Pacific east of the Philippines. This latest agreement which follows similar U.S. diplomatic moves in the region is seen as another step in the U.S.-China chess game for influence in the region and in response to Palau’s support of the U.S. while highlighting what it said were recent “unwanted activities” by China.

The U.S. has had a strong relationship with the Republic of Palau which is comprised of approximately 340 islands, islets, and atolls. The U.S. was assigned by the United Nations administrative authority to the region after World War II and for more than two decades has had the Compact of Free Association, which was enhanced last spring. 

U.S. officials highlighted today that they signed a new agreement with Palau on August 23 designed to strengthen maritime security and stewardship in the Pacific. They called the agreement a “regional milestone,” which enables the U.S. Coast Guard to enforce regulations at sea in Palau's exclusive economic zone (EEZ). Under the terms, the U.S. Coast Guard is permitted to undertake boarding and security efforts on behalf of Palau without a Palauan officer present.

"The United States and the Republic of Palau share common interests and values supporting a free and open Indo-Pacific," said U.S. Embassy Koror's Chargé d'Affaires, Andrew McLean. “This agreement will help us meet our security commitments in Palau by increasing maritime domain awareness and preventing IUU Fishing within Palau's EEZ.”

Officially, the focus of the agreement is to protect against Illegal, Unreported, and Unregulated fishing, while Palau’s President Surangel Whipps, Jr., noted that he hopes it will also “deter uninvited vessels from conducting questionable maneuvers within our waters.”

Earlier this year, Whipps called out the United States highlighting under the long-standing agreements the U.S. is responsible for his country’s security. He told reporters that Chinese boats have made at least three “uninvited” entries into Palau’s territorial waters in the last two years. He has accused China of conducting “surveying activities” while the scope of China’s illegal fishing activities is well known.

During the signing ceremony, President Whipps said, "Presence is deterrence. This agreement significantly strengthens presence and enforcement options to counter illicit maritime activity in Palau’s EEZ.”

The agreement with Palau follows a similar agreement the U.S. entered into with the Federated States of Micronesia in October 2022 which also permits the USCG to conduct boardings and activities in the country’s waters. The U.S. in May 2023 also entered into a new agreement with Papua New Guinea and recently undertook its first joint maritime operations with the country. Over the past few weeks, the USCG sent three cutters, USCGC Frederick Hatch, USCGC Myrtle Hazard, and USCGC Oliver Henry, into the region, conducting four patrols over 44 days and conducting seven boardings.

The U.S. has moved to expand its agreements after in the summer of 2022 it was turned away by the Solomon Islands, which is seen as moving to support China. A U.S. Coast Guard cutter requested permission for a pre-planned visit and resupply stop in the Solomon Islands, but the government did not respond and grant the permission. The government of the Solomon Islands later said it intended to close its ports to all foreign naval ships.

The USCG highlights that the U.S. has a total of 12 bilateral maritime law enforcement agreements with Pacific Island countries. The U.S. has been actively supporting the Philippines in its recent interactions with the Chinese, including the recent resupply mission at Second Thomas Shoal. The Coast Guard also annually undertakes exercises and patrols in the region. In addition to enforcement activities, it is seen as an effort to display the flag and deter further Chinese incursions across the region. 

 

Corsica Ferry Experiences a Birth and a Death in One Crossing

Rescue swimmer
A rescue swimmer helps steady a litter carrying a pregnant woman for a medevac from the ferry Mega Andrea (SIS 2b)

PUBLISHED AUG 29, 2023 7:14 PM BY THE MARITIME EXECUTIVE

 

On Monday, local firefighters on Corsica were called out twice in one night to meet the same ferry - first for a birth, then for a death. 

At about 2200 hours, firefighters were called to evacuate a woman who was about to give birth aboard the Corsica Ferries vessel Mega Andrea. The expecting mother was seven months pregnant, and the baby would be premature and in need of extra care. The weather was too rough for the ferry to enter port, and it was operating in a holding pattern off the harbor entrance. 

Corsica's fire service dispatched a helicopter with a doctor and two rescue swimmers on board, and they made preparations to hoist the woman aboard. Despite severe weather, the medevac was successful.

Ideally, the service would have liked to deliver the patient directly to the Bastia hospital, but the weather was so bad that this was not possible. Instead, she was brought to the Poretta airport, where EMS personnel met the helicopter to conduct a transfer. The mother was transported to the hospital, and the baby was successfully delivered - though it was still in need of medical attention. On Tuesday, the rescue service dispatched another helicopter to the hospital to fly the infant to Nice for advanced care.  

This evolution ended well, but the night was not over for the passengers and crew of the Mega Andrea. At 0100, three hours after the medevac, the ferry was unloading at Bastia. A car that had just driven off the ship went off the pier and into the water in front of the ferry terminal. Security guards from the seaport jumped into the water in an effort to save the car's passengers, and they pulled three from the vehicle alive. The survivors had swallowed saltwater but were otherwise unharmed.

A fourth individual, an older man, did not escape and went down with the car in 30 feet of water. Firefighters arrived on scene shortly after, and they attempted to rescue the last occupant of the vehicle. Divers reached the car and retrieved the man's body at about 0210 hours.

An investigation into the cause of the car accident is under way. In the meantime, the port has called in a psychological support unit to care for employees who may have been affected by the casualty. 

 

Uncertainty Over HMM Sale After Banks Only Receive Four Bids

HMM containership
First round of bidding for the government's stake in HMM ended on Monday (file photo)

PUBLISHED AUG 22, 2023 2:33 PM BY THE MARITIME EXECUTIVE

 

Uncertainty emerged in South Korea over the fate of HMM and the next steps the state-run banks might take after the first round of bidding only received three domestic proposals plus an offer from Germany’s Hapag-Lloyd. The stock market in South Korea responded on Tuesday by driving the price of the shipping line’s shares down by more than four percent as speculation mounted on the news that Korea’s largest corporations were not participating in the process.

Korea Development Bank and Korean Ocean Business Corporation were believed to favor one of Korea’s large conglomerates as the buyer for HMM. Leading up to the bidding process, the banks had said they would be looking for a company with sufficient capital and management ability that could help continue the growth of HMM and contribute to the country’s role in the industry. Despite the downturn in the shipping market, the banks said their financial advisory committee had said it would be possible to proceed with the sale to privatize HMM.

Reports in the Korean media are that the largest corporations such as Hyundai and POSCO did not participate in the first round which closed on Monday. In addition, SM Line which had announced it would be a bidder did not submit an offer after reviewing the prospectus. The company had said in prior interviews despite already purchasing shares of HMM on the market it would only bid up to approximately $3 billion. Consumer goods exporter, Global Sae-A, also declined to submit a proposal after registering for the bidding.

The three bids from domestic companies came from Harim, a domestic food company that is a large investor in Pan Ocean, South Korea’s largest dry bulk shipping company. Dongwon, another food producer that also has investments in logistics and port operations with the Dongwon Pusan Container Terminal submitted a proposal as did LX, a trading company involved in semiconductors, building materials, and logistics.

One of the issues is the size of the transaction. The banks hold both shares and convertible bonds and warrants. Depending on the final agreement, the conversion could drive the value of the HMM sale to between $3.9 and $4.85 billion. KDB had indicated it would convert most of the bonds but still hold a smaller position, with reports in the media saying the bank was also rumored to be seeking to limit HMM’s ability to issue dividends after the sale.

Harim Group reportedly formed a partnership with private equity investors JKL Partners, but according to the media reports none of the companies have sufficient funds to complete the proposed transaction. All the companies are smaller than the $18 billion market valuation of HMM, raising speculation that they would have to heavily leverage the transaction with debt or acquisition financing. Some speculation has been that they might seek to do it as a leveraged buyout using HMM’s cash. This could present challenges to HMM which is proceeding with its growth strategy including orders for new containerships and a new class of heavy lift vessels as well as acquiring a secondhand tanker.

The Korean banks are thought not to favor selling HMM internationally although Hapag entered a bid and has the financial strength to proceed with the transaction. Some speculation is that one of the Korean bidders might partner with Hapag as an investor for the acquisition.

The process called for the qualified bidders to undertake a due diligence and submit final proposals. A preferred bidder was to be selected for final negotiations. KDB and KOBC however had said if no qualified bidder emerged, they could amend or cancel the sale. Speculation is that the banks might suspend the process after the first round citing the market conditions in the shipping industry.

 

"Multiple" Offshore Oil Workers Medevaced Due to Severe Heat Wave

BSEE image of a rig in the Gulf of Mexico
File image courtesy BSEE

PUBLISHED AUG 23, 2023 4:57 PM BY THE MARITIME EXECUTIVE

 

A severe heat wave across the U.S. Gulf Coast has created a new hazard for offshore oil and gas workers, according to the U.S. Bureau of Safety and Environmental Enforcement (BSEE). Water temperatures along the Texas and Louisiana coastlines are approaching 90 degrees, and the heat index has risen as high as 110 degrees Fahrenheit in some areas. 

These conditions are common in the Persian Gulf offshore oil industry, but are less often found on the U.S. Gulf Coast, and the industry's safety regulator says that it will have to adapt to higher temperatures. In "multiple recent instances," workers in the U.S. offshore oil patch have been so affected by the heat that they had to be evacuated to shore for medical evaluation, according to BSEE. 

In one case, a platform operator noticed a contractor was experiencing dehydration symptoms. The individual was given fluids and told to rest, and he was later transported to shore for further evaluation. In another, an onsite medic observed that an employee was showing signs of severe heat exhaustion. The employee was treated with IV fluids on board. After consulting with doctors on shore, the individual was medevaced by helicopter to a local emergency room for further care.

Extreme heat has not only affected the U.S. Gulf. July 2023 was the hottest month on record worldwide, according to the World Meteorological Organization, and average global ocean surface temperatures hit a new record in early August.

An emerging El Nino pattern in the Pacific is a major contributor, along with other natural factors. Average temperature increases due to climate change have also raised the baseline and increased the odds of large scale heatwaves like the one recently experienced in Texas, per the World Weather Attribution Project, a partnership between researchers at Imperial College London and The Royal Netherlands Meteorological Institute.

"Maximum heat like in July 2023 would have been virtually impossible to occur in the US/Mexico region and Southern Europe if humans had not warmed the planet by burning fossil fuels," concluded WWA in a recent assessment.

Warming conditions will likely accelerate over the next year as the current El Nino event gains strength, and more records may be ahead - including the first-ever crossing of the 1.5 degree C temperature increase threshold targeted by the Paris Agreement. 

"It is very likely that one of the next five years will actually be the warmest on record and a 66 percent chance — and more likely than not — that we will temporarily exceed 1.5 degrees of pre-industrial value," said Chris Hewitt, director of climate services for the WMO, speaking recently to VOA. 

Elevated temperatures may affect offshore oil producers in the U.S. Gulf of Mexico, and BSEE advises operators to manage the effects of high heat on their workforce as they continue to extract oil and gas. There will be plenty of work activity to monitor: Offshore GOM E&P is expanding at a healthy rate, and oil output is expected to rise through 2027, according to the most recent forecast from the Bureau of Ocean Energy Management. 

 

Despite Sanctions, Russia's Arctic LNG 2 On Track for Startup in 2023

The first gravity based structure and liquefaction train of the Arctic LNG 2 plant arrives in the Gulf of Ob, August 2023 (Novatek)
The first gravity based structure and liquefaction train of the Arctic LNG 2 plant arrives in the Gulf of Ob, August 2023 (Novatek)

PUBLISHED AUG 21, 2023 5:17 PM BY THE MARITIME EXECUTIVE

 

Despite sanctions related to the invasion of Ukraine, Russia's Arctic LNG 2 project is on track to go live at the end of this year, according to Chinese state oil and gas company CNOOC. The first liquefaction train arrived at its destination in the Gulf of Ob last week and is already in commissioning. 

The giant LNG project initially relied on Western technology providers like Technip and Siemens, but these firms had to back out due to sanctions last year, taking their extensive experience in sophisticated energy projects with them. The first train was about 90 percent complete when they departed in 2022, but developer Novatek has been able to get the first liquefaction plant finished with the substitution of Chinese suppliers. 

China has a significant investment in Arctic LNG 2, both as a financial backer and as a future customer. CNOOC holds a 10 percent share, and CNPC holds an additional 10 percent. France's TotalEnergies and Japan's Mitsui hold another 10 percent each. 

The massive plant was built atop a concrete gravity-based structure (GBS), which was floated from Murmansk to the Arctic port of Sabetta in July and intentionally sunk onto a prepared permanent site last week. Commissioning is under way for the first plant now, and the two additional plants are under construction. 

Image courtesy Novatek

According to Novatek executive Maxim Mikhalev, the second train's GBS has been finished and topsides are under construction at the firm's yard in Murmansk. Overall completion was at about 80 percent as of late April, putting train two on track for delivery to the Gydan Peninsula in 2024. The shoreside infrastructure at the port of Ultrenneye is nearly fully complete, the company says. 

Some Ukrainian leaders have called for full Western sanctions on Russian LNG projects. Western secondary sanctions - that is, measures targeting all participants in a sanctioned activity, regardless of nationality - would help cut into Russian state revenues, according to Ukraine Parliament member Andrii Zhupanin. So far, Ukraine's allies have refrained from using secondary sanctions, which can have serious unintended side effects on markets and neutral nations.  

"Secondary sanctions are necessary to compensate for an obvious weakness of existing primary provisions that preclude U.S. and EU companies from participating in Russian LNG infrastructure buildout, which is implicitly inviting Chinese companies to take their place," Zhupanin argued in a recent op-ed. "The introduction of secondary sanctions on Russia’s LNG sector in full swing, in particular, to force a full stop of the Arctic LNG-2 project, is the obvious necessary step that the EU and the US must implement to uphold [their] stated security and climate policies."