Institutional Investors Double Down On Oil Despite Divestment Pledges

By City A.M - Apr 16, 2024, 

• Institutional investors have increased their shareholding in oil giants, while the smallest have been more likely to divest.
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• The largest shareholders have offset any trend towards divestment.
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• Oil giants continue to invest heavily in fossil fuels, with BP's capital expenditure on low carbon energy at only 3% and Shell's at 9%.

The campaign for institutional investors to divest from oil giants like BP and Shell hasn’t made any progress due to the way index providers dominate the market, a new study has found.

Only 60 institutional investors worldwide have sold all of their shares in BP and Shell, representing about three per cent and four per cent of their shareholders, a paper published earlier this year by David Whyte of Queen Mary University of London has revealed.

These shares have all been promptly bought up by massive asset managers like Blackrock and Vanguard, who have risen to popularity through their market-tracking index funds.

With Shell currently the largest company listed in the UK, and BP number five, tracking the index has meant buying more and more of their shares, and the passive giants have been happy to do so.

Since 2015, Blackrock has increased its shareholding in BP by 3.2 percent, with Vanguard at 1.8 percent. The same rise is true for Shell, with the two asset managers buying 1.8 percent and 1.6 percent more stock, respectively.

Tracking shareholders between 2015 and 2022, Whyte found that the largest institutions had actually increased their shareholding in the oil giants, while the smallest have been more likely to divest.

Indeed, although 47 per cent of BP shareholders and 54 per cent of Shell shareholders have reduced their stakes over the years, net share ownership overall has risen significantly in both companies.

Overall, the top 20 oil giant shareholders have increased their shares by three-quarters of a billion in BP and half a billion in Shell.

“Any trend towards divestment amongst the shareholders who have reduced their shareholding is being offset by the largest shareholders,” said Whyte.

Even the investors who cut their stake in Shell and BP are probably not doing it for ESG reasons, as over a quarter of the 20 investors who made the most significant reductions in shareholdings in the companies actually increased their overall fossil fuel investment.

Campaigners have been pushing for the largest institutional investors to divest their stakes in fossil fuel companies, with Greta Thunberg withdrawing from the Edinburgh Book Festival last year due to its sponsorship by Baillie Gifford, which invests in fossil fuel companies.

BP’s capital expenditure on low-carbon energy, such as solar and wind, is currently only three percent of its total investment, while Shell’s is nine percent. All other investment was spent on fossil fuels and high carbon energy sources

“Shareholder movements in BP and Shell are not applying the pressure necessary to cease oil and gas development,” Whyte concluded.

By CityAM

 

Standard Chartered Says Peak Oil Demand Is Not Imminent

By Alex Kimani - Apr 17, 2024

• Whereas the short-term oil price outlook appears murky, leading oil agencies remain largely bullish about the long-term outlook.
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• Interestingly, over the medium-and long-term, only the IEA sees global oil demand peaking before 2030.
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• Standard Chartered has predicted global oil demand will hit 110.2 mb/d in 2030 and increase further to 113.5 mb/d in 2035.

The oil price rally has lately lost some steam, with WTI for May delivery and June Brent futures slipping more than 5% since Friday after the Energy Information Administration (EIA) released bearish weekly data that triggered demand concerns. According to the EIA, crude inventories rose 5.84 mb w/w and oil product inventories rose 6.57 mb; however, the builds relative to the five-year average were modest, at just 0.11mb for crude oil and 1.24mb for products. U.S. commercial inventories now stand 16.47mb below the five-year average, with crude inventories at Cushing 7.35 mb below the five-year average. The EIA also estimates U.S. crude oil output clocked in at 13.1 mb/d for a fifth consecutive week, 0.8 mb/d higher y/y but 0.2 mb/d lower than December 2023 production.

Whereas the short-term oil price outlook appears murky, leading oil agencies remain largely bullish about the long-term outlook. Last week, the International Energy Agency (IEA) published its latest monthly Oil Market Report (OMR), including its first detailed 2025 forecast. The Paris-based energy watchdog predicted that global oil demand in 2025 demand will be 1.147 mb/d higher than 2024 levels, higher than the 1.0 mb/d estimate it had released in June 2023. Other leading agencies have predicted even higher demand growth in 2025: the EIA forecast is 1.351 mb/d, Standard Chartered’s forecast is 1.444 mb/d while the OPEC Secretariat has predicted a 1.847 mb/d increase in demand.Related: World Oil Demand Jumped To 5-Year Seasonal High in February

Interestingly, over the medium-and long-term, only the IEA sees global oil demand peaking before 2030, even in its most optimistic forecast (high growth). However, the IEA says an oil demand peak doesn't necessarily mean a rapid plunge in fossil fuel consumption is imminent, adding that  it will probably be followed by “an undulating plateau lasting for many years.”

 The EIA is the most bullish on long-term oil demand, and has predicted a demand peak will come in 2050 while the OPEC Secretariat sees it coming five years earlier. Meanwhile, Standard Chartered has predicted global oil demand will hit 110.2 mb/d in 2030 and increase further to 113.5 mb/d in 2035. However, the commodity experts have not projected a demand peak beyond the end of their modeling horizon in 2035. According to StanChart, a structural long-term peak is very unlikely within 10 years despite a high probability of cyclical downturns over the period. StanChart has argued that the current gulf between demand views creates significant investment uncertainty which that’s likely to force longer-term prices higher.

In other words, the energy agencies appear to agree that an oil demand peak is nowhere on the horizon.

Source: Standard Chartered Research

Traders Still Betting On The Energy Sector

The energy sector has been a standout performer in the current year, managing a 15.8% return in the year-to-date, the second highest amongst 11 U.S. market sectors. However, the sector has slipped nearly 5% over the past week with Wall Street experts warning that oil prices sit in a precarious position, which could lead to price swings as geopolitical tensions continue to escalate all throughout the Middle East.

Thankfully, traders are still betting on the energy sector.

Last week, U.S. fund assets (exchange-traded funds and conventional funds) recorded $29.7B in net outflows--in large part to money market funds--marking the third week in four that money flowed from the space. Money market funds recorded $35.3B in net outflows, equity funds lost $1B, commodities funds gave back $207M, and mixed-assets funds observed outflows of $168M.

Interestingly, two funds that recorded the most significant amount of capital inflows on the week were the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) at $2.8B and the Energy Select Sector SPDR Fund (NYSEARCA:XLE) at $756M.

Oil and gas stocks also remain among the least shorted. Last month, average short interest across energy stocks in the S&P 500 index increased 14 basis points to 2.56% of shares floating at the end of the month. APA Corp. (NYSE:APA) was the most-shorted energy stock, with 22.1 million shares sold short as of March 31, or just 5.98% of the shares float. EQT (NYSE:EQT) was the second most shorted energy stock at 5.85% of shares float, while Occidental Petroleum (NYSE:OXY) and  Valero (NYSE:VLO) were in third and fourth place with  5.58% and 3.35%, of their floats sold short, respectively

In comparison, medical services company IMAC Holdings Inc. is the most shorted stock in the S&P 500 with nearly 95% of its float sold short.

By Alex Kimani for Oilprice.com

Traders are already gaming the new Russian metal sanctions

Bloomberg News | April 17, 2024 | 

London Metal Exchange. (Image by HM Treasury, Flickr.)

It took less than a day after the UK and US banned future sales of Russian aluminum, copper and nickel on the London Metal Exchange before traders had zeroed in on a way to make money off the convoluted new rules.


The opportunity lies in massive piles of Russian metal already sitting in the exchange’s global warehouse network. And the LME might not like what they’ve got planned.

The bottom line of the sanctions is simple: no Russian material produced after April 12 may be delivered onto the LME. The idea is that the restriction will drive down demand and prices for Russian supplies, but its miners can still sell to non-US and -UK buyers outside of the LME, where the vast majority of the global trade in metals happens anyway. Prices initially spiked on the news, but quickly fell back in a sign that markets aren’t expecting major disruptions.

Now, as the dust settles, the growing buzz in the metals world is how the new rules, combined with a series of quirks in the LME’s contract structure and global warehouse system, have thrown up an opportunity for a complex but lucrative trade. Multiple traders and brokers have described the play in conversations this week, while LME chief executive officer Matthew Chamberlain fielded questions about it in a call with market participants on Sunday.

For the metals world, it’s the latest episode in a rich history of traders seeking to exploit loopholes to profit from giant stocks of aluminum on the LME, which can generate hundreds of millions of dollars a year in storage and handling fees.


The sanctions, and the way that the LME has decided to implement them, have created a new multi-tiered market of metal categories, with varying restrictions attached to each. While the exchange can no longer accept delivery of “new” Russian supplies, the UK has actually relaxed earlier rules to allow UK buyers to accept Russian metal that was already in the LME system when the rules were announced.

This category of metal — the LME calls it “Type 1” — is what many in the market are now focusing on.

The growing percentage of Russian stocks in LME warehouses has been a controversial subject since the invasion of Ukraine, and the share had increased further in recent months — to more than 90% for aluminum — after UK buyers were blocked in December from taking delivery of Russian metal, making the supplies even less attractive for everyone else.

But UK nationals and companies are only allowed to accept Russian supplies that were already in the the LME system before April 13 — the permission doesn’t extend to any metal registered after that date, or “Type 2.”

Crucially: once Type 1 metal leaves the system, it loses its special status. If it’s re-registered, it becomes categorized as Type 2, and faces the same restrictions. (At its discretion, the LME will allow traders to withdraw cargoes and move them to different warehouses while preserving the Type 1 status, but only in narrow circumstances)


So, here’s the play:

First, traders are rushing to withdraw the large volumes of (Type 1) Russian metal already stored on the LME.

Then, after selling it (now, as Type 2) back on to the LME, they can cut a deal with the warehouse to share the rent from future owners. For warehouses, the rent share deals are a way to incentivize traders to deliver to their facilities, rather than a competitor’s.

The trade is complicated, but the idea is a simple one: they’re ultimately betting that the metal could sit there for months on end if UK nationals can’t withdraw it, and many western industrial consumers don’t want it. Previously the metal might have been attractive to buyers in China, but in the coming months that market is likely to be stuffed with newly produced Russian metal.

And for every day the metal sits there, the trader receives a sliver of the warehouse’s profit on it.

Potential evidence that traders are mobilizing can be seen in a sharp rise in the prices that they’re paying to obtain spot metal. Aluminum contracts expiring in one day reached a $14 premium to those maturing a day later on Tuesday, in a condition known as backwardation that signals buyers are rushing to secure spot supplies. The spread was trading at a discount before the measures were announced, and it was the busiest day of trading in the spread since June 2021.

The spread between April and May contracts also closed in a large backwardation on Monday. Several people involved in the LME aluminum market who asked not to be identified said that the sharp moves in the spreads reflected traders looking to secure tonnages for these so-called rent-share deals.

On Tuesday, nearly $200 million worth of aluminum was ordered for withdrawal from LME warehouses, signaling that the trade is now well underway. Another $16 million was requested on Wednesday.

While the deals could be lucrative for the traders if they’re right that no one will want to touch the metal, they could prove problematic for the LME. Since the invasion of Ukraine, it’s faced criticism that it risked becoming a dumping ground for Russian aluminum, but it’s avoided blocking Russian deliveries unilaterally on the grounds that consumers have still been showing an appetite for the increasingly large volumes of Russian stock that have been delivered on to the exchange.

In implementing the new UK sanctions, the exchange said it will be monitoring inflows and outflows to assess whether that remains the case — and traders appear to be making a bet that it won’t.

“The LME continues to monitor the market closely and remains ready to take further action should that be required, including in relation to adverse market behaviours as a result of the introduction of the recent sanctions,” a spokesperson for the exchange said in response to questions.

Whack-a-mole

Rent-share deals have become popular on the LME in recent years, particularly as the exchange introduced whack-a-mole regulations to clamp down on other lucrative and sometimes controversial ploys that traders have come up with to make money from its global warehousing network.

Most famously, during the financial crisis banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. and traders like Glencore Plc bought up huge volumes of surplus aluminum and stashed it in warehouses they owned. As demand started to recover, consumers reacted with fury as they realized it would take years to get hold of the mountains of metal the banks and traders were sitting on.

While loose supply conditions persisted in the aluminum market, another popular trade was to withdraw metal from the LME and store it much more cheaply elsewhere, capturing a spread between depressed spot prices and higher-priced futures. Typically traders held the metal in off-exchange warehouses — or private sections of LME sheds — but sometimes they even stashed it in fields.

(By Mark Burton, Archie Hunter and Jack Farchy)

Transit Trade Growth Complicates Pollution Problem in Caucasus

By Eurasianet - Apr 17, 2024

• The South Caucasus region, including Georgia, Armenia, and Azerbaijan, aims to develop international trade corridors.
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• Air pollution is a significant concern in the region, with high concentrations of inhalable particles.
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• Stricter regulations, green building materials, and increased electric vehicle use are potential solutions to address pollution challenges.
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Georgia, Armenia, and Azerbaijan intend to spend millions of dollars in the coming years developing international trade corridors in the South Caucasus. While such investment may boost prosperity, it is likely to exacerbate a pernicious environmental and health challenge: air pollution.

A lack of environmental regulation of industry – along with the explosive growth of automobiles – since the Soviet Union’s collapse means that many cities in the Caucasus are often engulfed in smog. The expansion of trade that regional leaders envision threatens to intensify a pollution conundrum: present efforts to improve air quality offer reason for hope that pollution can be contained, but the expansion of transit corridors threatens to undermine progress.

A recent report on global air quality showed that pollution, as measured by the level of air-borne harmful particles, known as PM2.5, is a cause for concern in the Caucasus, though conditions are not as bad as in Central Asia. Of the 134 countries and territories evaluated, Armenia ranked 31st in terms of having the highest levels of harmful particles in the air. Azerbaijan ranked 52nd and Georgia 62nd, according to the report.

“If we don’t do anything, it’s logical that it will grow faster,” said Erekle Shubitidze, a researcher at TbilisiState University’s International School of Economics, referring to the number of inhalable particles in Georgia’s air.

High concentrations of air pollution cause tangible harm – about 6.5 million deaths per year, according to a study conducted by The Lancet. The South Caucasus sits around the middle of the pack when compared to other countries’ air pollution levels. But that makes the issue no less deadly.

Take a walk along Tbilisi’s Rustaveli Avenue, and you are likely to smell one of the causes: car exhaust. Some days, the sun glows meekly through a pale haze. Conditions are worse in Yerevan and Baku, according to the air-quality report published by IQAir, an environmental technology company. 

While Georgia may be better off in pollution levels than its regional neighbors, the country struggles in comparison with levels in the European Union, which a significant majority of Georgians aspire to join. In 2018, a World Bank report on Georgia estimated ambient and indoor air pollution led to 4,000 deaths. The problem is acute in Tbilisi, where smog is trapped by mountains on all sides. The government – under pressure from watchdog groups – introduced numerous improvements in recent years. There were expanded monitoring efforts, fines for excessive car emissions, and a push to adopt electric vehicles.

While the recently implemented measures have shown progress in containing harmful emissions, new pollution stress points are appearing. For example, the government has revived plans for a new Black Sea port, and a 30-mile stretch of road built by Chinese firms is nearing completion. These are part of major years-long schemes to turn the country into a trade conduit between China and Europe. Moving forward with these plans will entail more construction projects, and, ultimately, more cargo-laden trucks on roads.

Stricter regulation is needed to maintain progress in containing pollution, Shubitidze told Eurasianet. Adopting green building materials and increasing electric vehicle use would go a long way toward addressing the environmental challenges, he added.

That is something that could work across the region. In Yerevan, the nature of pollution is both different and the same. Like Tbilisi, extensive and congested road traffic and construction are the main generators of harmful emissions, but resource extraction also plays a role. Small quarries dot the outskirts of the city where workers mine for basalt and gypsum.

“It’s a very dusty city because of the mining, because of poor soil management practices,” said Alen Amirkhanian, director of the Acopian Center for the Environment at the American University of Armenia.

“Part of the problem is also that there aren’t a lot of monitoring stations and the monitoring stations are outdated [in Armenia],” Amirkhanian added.

Armenia’s capital sees the highest rates of air pollution in the region. Yerevan was the 780th most polluted city in the world between 2017 and 2023, according to IQAir, ranking ahead of both Baku, Azerbaijan (1279), and Tbilisi (1658). 

As with Georgia, Armenia has ambitions to significantly boost its role in East-West commerce. A government plan dubbed the Crossroads of Peace aims to transform Armenia into a trade hub, a key feature of which would be an inland port and free trade zone near the city of Gyumri.

Experts are finding that the scope of pollution hazards in Azerbaijan is harder to get a handle on than other states in the Caucasus. Azerbaijani government agencies, for instance, have been slow to submit data to UN officials on sources of harmful emissions. The United Nations Economic Commission for Europe is pushing the country to determine its major sources of air pollution under the Convention on Long-Range Transboundary Air Pollution. The body said that, since 2019, “Azerbaijan has not submitted any emission inventories, a basic requirement under the Convention.”

It is a problem that stands to get worse as the government invests in developing road and rail infrastructure to facilitate North-South trade between Russia and Iran.

Like Georgia, Azerbaijan and Armenia have been grappling with how to stymie the worst pollution-related side effects of these new trade corridors. But Amirkhanian, the environmentalist, noted that, at least in Armenia, the emergence of new pollution emitters seems to outpace policy solutions. “Even if you change your stock of automobiles to newer automobiles, now you have twice [as many] automobiles,” he said. “So you still have an issue. It doesn’t go away.”

By Brawley Benson via Eurasianet.org

This is The Death Knell For Iraqi Kurdistan’s Independence

By Simon Watkins - Apr 15, 2024, 

The Federal Government of Iraq ordered the speeding up of crucial repairs to its own oil export pipeline into Turkey.

The embargo on oil exports from the KRG remains in place.

From the moment the oil export embargo was imposed on Iraqi Kurdistan on 25 March of 2023, the objective for Baghdad was always to end the region’s semi-autonomous status.



The Federal Government of Iraq (FGI) centred in Baghdad several weeks ago ordered the speeding up of crucial repairs to its own oil export pipeline into Turkey while keeping its embargo on oil exports from the semi-autonomous Kurdistan Region of Iraqi (KRI) based in Erbil in place, a senior source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com last week. According to a subsequent statement from Iraqi’s Deputy Oil Minister for Upstream Affairs, Basim Mohammed, the pipeline is likely to be operational and ready to restart flows by the end of this month. As repeatedly highlighted by OilPrice.com, from the moment the oil export embargo was imposed on Iraqi Kurdistan on 25 March of 2023, the objective for Baghdad was always to end the region’s semi-autonomous status, which meant destroying all its financial independence, which meant stopping all independent oil sales. As far as foreign oil companies working in Iraqi Kurdistan are concerned, a senior European Union (E.U.) energy security source exclusively told OilPrice.com recently: “Baghdad […] is not concerned whether all [of them] operating there just leave.”

There are several reasons for this view from Baghdad, according to the Iraqi oil and E.U. security sources. Financially, to begin with, the benefits to the FGI in Baghdad of the Kurdistan Region of Iraq are negligible, if not actually negative. “The deal between Baghdad and Erbil for budget payments to be made [from the FGI] in exchange for oil [from the KRI] was intended to provide a benefit for both sides, but it never worked properly, so continuing to allow the Kurds [the KRI] to keep selling oil independently does not benefit Baghdad one dinar,” said the Iraqi source. More specifically, the deal was made in November 2014, and involved the KRI exporting up to 550,000 barrels per day (bpd) of oil from its own fields and Kirkuk via the FGI’s State Organization for Marketing of Oil (SOMO). In return, Baghdad would send 17 percent of the federal budget after sovereign expenses (around US$500 million at that time) per month in budget payments to the Kurds. Even before Russia effectively took control of the KRI’s oil sector in late 2017 through three key deals, as analysed in depth in my new book on the new global oil market order, neither the FGI or the KRI fully lived up to their commitments. After Russia took control, disagreements between the two sides increased, with Moscow looking to create for itself the role of mediator so it could gain further traction for oil and gas developments in southern Iraq as well. “Without the deal working, Baghdad was losing out on billions of dollars a year in revenue from oil sales done independently by the Kurds, so why would it continue to put up with this?” said the Iraq oil source last week.

Legally speaking as well, Baghdad thinks there is no reason why it should, as it believes Kurdistan’s oil exports are illegal and the international oil companies (IOCs) working in the region are complicit in breaking the law. This is founded on its interpretation of the Iraq Constitution, adopted by referendum in 2005. In this, it is clearly stated under Article 111 that oil and gas is under the ownership of all the people of Iraq in all the regions and governorates. Consequently, Baghdad argues, all IOCs that have not so far submitted contracts originally drawn up with the government of the Kurdistan region of Iraq (KRG) for them to be revised now by the Iraq Oil Ministry – so that they can revised in accordance with the Iraq Constitution – have no right to use independent Kurdish routes to export the oil they produce. The KRG, however, believes it has authority under Articles 112 and 115 of the Constitution to manage oil and gas in the Kurdistan Region extracted from fields that were not in production in 2005. “Again, for Baghdad it’s irrelevant whether the IOCs working in the Kurdish region stay or go, as it [the Federal Government] doesn’t benefit at all,” said the Iraq oil source. “If they [the IOCs in Iraqi Kurdistan] want to keep working there then they can apply for updated contracts here [in Baghdad] but if not they can go, as there are plenty of other oil companies that can replace them, and work well with the [Oil] Ministry,” he added.

Politically as well, Baghdad believes there are no benefits at all from having a semi-autonomous Kurdish state in its north. For a start, there remains the constant threat that it might push again for full independence, for which it voted 92 percent in favour in the independence referendum on 25 September 2017, as also analysed in depth in my new book on the new global oil market order. For key Iraqi regional sponsor Iran, and for Turkey and Syria, rising Kurdish independence movements would also pose a distinct threat to the existing regimes, given the size of these populations in these countries. Iran’s Kurdish population is around 9 percent of its total, Syria’s 10 percent, and Turkey’s about 18 percent. Baghdad’s true view of this was shown in the quick and brutal clampdown on the KRI after the massive 2017 vote in favour of full independence. For its superpower sponsor of China, the fractious would-be breakaway Kurdistan Region of Iraq with strong former ties to the U.S. makes the administration of Iraq’s massive oil and gas sector much more difficult. China has been building up its influence in southern Iraq, through multiple deals done in the oil and gas sector that have then been leveraged into bigger infrastructure deals across the south. The apotheosis of Beijing’s vision for Iraq is all-encompassing ‘Iraq-China Framework Agreement’ of 2021. This in turn, was an extension in scale and scope of the ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil. The same political concern applies for Russia, even with its strong position in the KRI’s oil sector, which would likely be continued anyway if Baghdad is successful in destroying the region’s remaining independence.

That this remains a core aim of the Federal Government of Iraq was underlined on 3 August last year when Iraq Prime Minister, Mohammed Al-Sudani, stated that the new unified oil law – run, in every way that matters, out of Baghdad - will govern all oil and gas production and investments in both Iraq and its autonomous Kurdistan region and will constitute “a strong factor for Iraq’s unity”. The completion of the ongoing repairs to Baghdad’s own oil export pipeline to Turkey - bypassing any input from the Iraqi Kurdish region at all – clearly signals that the endgame is in sight for it. Baghdad’s 600-mile pipeline was the original Iraq-Turkey Pipeline, running from Kirkuk in Iraq’s north to Ceyhan in Turkey, before it was closed in 2014 after repeated attacks by various militant groups in the region, including Islamic State. It consisted of two pipes, with a nameplate capacity of 1.6 million bpd combined (1.1 million bpd for the 46-inch diameter pipe, and 0.5 million bpd for the 40-inch one). It was only after it was closed that the Iraq Kurdistan regional government oversaw the construction of a new single side pipeline, from the Taq Taq field through Khurmala, which runs into the Kirkuk-Ceyhan pipeline in the border town of Fishkhabur. “With the Kurds cut out of the new pipeline and their own pipeline shut down, the new oil law can move forward, unifying the country’s oil sector as originally intended,” concluded the Iraq oil source.

By Simon Watkins for Oilprice.com

China Tightens Hold on Iraq's Oil with Al-Faw Refinery Nearing Completion

By Simon Watkins - Apr 18, 2024,

PowerChina and Norinco International are the guiding forces behind the development of the Al-Faw Refinery in South Iraq.

China is finishing the Al-Faw refinery perfectly in time to allow it to complete its strategically vital oil project in the critical Iraqi energy hub of Nasiriyah.

Other elements of China’s expansion strategy continue unabated, fusing both commercial advances and military ones across southern Iraq .



Back in early 2018 when rumours were rife that then-U.S. President Donald Trump was going to unilaterally withdraw his country from the ‘nuclear deal’ with Iran, China moved to position itself to occupy the vacuum that would be left in Iran and Iraq, at the very heart of the Middle East. Beijing knew that Iran continued to wield enormous influence over neighbouring Iraq, and that both together were the biggest oil and gas prize in the entire region, in addition to being at the vanguard of the Shia strand of Islam. In Iran’s case, China picked up the pace of negotiations for its all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’ concluded later, as first revealed anywhere in the world in my 3 September 2019 article on the subject and analysed in full in my new book on the new global oil market order.

In Iraq’s case, it did the same for the foundation stone ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil. This later became broadened and deepened in the equally all-encompassing ‘Iraq-China Framework Agreement’ of 2021. The announcement last week by the General Company for Ports in Iraq (GCPI) that a consortium of Chinese companies has nearly completed the 300,000-barrels-per-day (bpd) oil refinery at Iraq’s key Faw Port is in line with China’s eventual vision for Iraq as one part of a giant Mesopotamian client state including Iran as well.

Although no details were given by the GCPI as to which Chinese companies are involved in the Al-Faw refinery, in the port city of Basra, a source close to Iraq’s Oil Ministry exclusively told OilPrice.com last week that PowerChina and Norinco International are still the guiding forces behind the development. This makes sense, as these two firms signed the original contract in January 2018 to build the refinery at Al-Faw, which together with its 300,000-bpd capacity would also have a petrochemical plant attached to the development. It also perfectly aligns with Beijing’s broad modus operandi in its expansion strategy across the Middle East to combine commercial ventures with a military presence, as alongside its petroleum and mineral resources exploration and development activities, Norinco is one of China’s foremost defence contractors. One of Norinco’s key oil subsidiaries is Zhenhua Oil, which was the company that on 2 January 2021 made a multi-billion-dollar deal with Iraq’s Federal Government in Baghdad to prepay for four million barrels every month for five years to be delivered to China by Iraq’s State Organization for Marketing of Oil (SOMO). As analysed in depth in my new book on the new global oil market order, it was exactly the same strategy to take over Iraq’s oil industry in the south as Russia had successfully used to take over the industry in the semi-autonomous northern region of Iraqi Kurdistan in 2017. So obviously extraordinarily dangerous to U.S. interests in the Middle East and elsewhere was this deal that Washington eventually succeeded in forcing the Iraqis to suspend it.Related: World Oil Demand Jumped To 5-Year Seasonal High in February

This said, other elements of China’s expansion strategy continue unabated, fusing both commercial advances and military ones across southern Iraq. If this strategy sounds familiar, it is precisely the one used by Great Britain in its expansion in the Far East through the East India Company – of which, Chinese President Xi Jinping is a tremendous admirer. After a suitable period had elapsed after the suspension of the omni-toxic Zhenhua Oil prepayment deal, Baghdad approved three potentially far-reaching new infrastructure deals that heavily involved China in the heartland of Iraq. One was for nearly IQD1 trillion (US$700 million) of infrastructure projects in the city of Al-Zubair in the southern Iraq oil hub of Basra. Judging from comments made by the city’s Governor at the time, Abbas Al-Saadi, China’s heavy involvement in Phase 2 of the projects was part of the 2019 ‘Oil for Reconstruction and Investment’ agreement. Another deal was for Chinese companies to build a civilian airport to replace the military base in the capital of the southern oil rich Dhi Qar governorate. The Dhi Qar region includes two of Iraq’s potentially biggest oil fields – Gharraf and Nassiriya – and China said that it intended to complete the airport by the end of 2024. This airport project, it announced, would include the construction of multiple cargo buildings and roads linking the airport to the city’s town centre and separately to other key oil areas in southern Iraq. In the later discussions involved in the 2021 ‘Iraq-China Framework Agreement’, a senior source who works closely with Iraq’s Oil Ministry exclusively told OilPrice.com, it was decided that the airport could be expanded later to be a dual-use civilian and military airport. The military component would be usable by China without first having to consult with whatever Iraqi government was in power at the time, as also analysed in full in my new book on the new global oil market order. The final of the three deals involved Chinese companies building out Al-Sadr City, located near Baghdad, at a cost of between US$7-8 billion, also within the framework of the 2019 ‘oil-for-reconstruction and investment’ agreement.

In this mould, China is finishing the Al-Faw refinery perfectly in time to allow it to complete its strategically vital oil project in the critical Iraqi energy hub of Nasiriyah, at the heart of the some of the country’s biggest oil and gas fields and close to Faw Port’s main export terminal in Basra. According to the Iraq Ministry of Planning, the China Petroleum Pipeline Engineering Company (CPPEC)-led project will act as a storage hub and supply conduit for 3.0-3.5 million barrels of crude oil that will then either go for export out of Basra Port or will be transported to the Al-Faw refinery and through pipelines to other refineries and power plants in central and northern Iraq. It will also act as a logistical command centre for all of China’s extensive oil and gas projects in Iraq and for the build-out of multiple non-oil projects connected to the ‘Iraq-China Framework Agreement’. CPECC is also the very same firm that was awarded a US$308 million engineering, procurement, construction and commissioning contract for the huge Gharraf oilfield. A separate engineering and construction project for Gharraf was also awarded by Baghdad to China’s Zhongman Petroleum and Natural Gas Group. Back in 2015, Zhongman was also awarded a US$526.6 million drilling deal for Iraq’s supergiant West Qurna 2 oilfield. Further emboldened by the effective withdrawal of the U.S. from Iraq at the end of its combat mission in December 2021, the beginning of this year saw PetroChina take over the lead developer role at the neighbouring supergiant West Qurna 1 oilfield from the U.S.’s ExxonMobil. This was followed just a week later by the awarding of a major build-own-operate-transfer contract to a subsidiary of PetroChina to develop the Nahr bin Umar onshore gas field.

Once the Al-Faw refinery has been completed, China will be looking at options for the long-stalled US$11-billion Nebras Petrochemical Project (NPP), following the exit of British supermajor Shell from it in February, according to the Iraq source last week. Although Russia’s Lukoil put together a development proposal for the project before Shell agreed the original memorandum of understanding back in 2012, Beijing now thinks it might be a good fit for its other activities in southern Iraq, particularly as it expands its gas presence as well in the country. China is unlikely to have any issue with Iraq’s ‘commission’ payments – as Western companies have had - although in Nebras’s case these may end up totalling US$4 billion or more. In addition, it remains one of the world’s biggest buyers of ethylene, intended to be one of the major products from Nebras, and developing a world-class petrochemicals sector in Iraq would also give it first rights over other key petrochemicals it needs.

By Simon Watkins for Oilprice.com

Could The U.S. Become Lithium Independent?

By Alex Kimani - Apr 15, 2024

• The McDermitt Caldera, a volcanic crater on the Nevada-Oregon border, houses 20 to 40 million metric tons of lithium deposits.
• 
  
• Last month, the DoE announced a conditional loan of $2.26 billion to Lithium America’s Thacker Pass project in Nevada to be used for the construction of the company’s on-site refining facility.
• 
  
• Despite having some of the world’s biggest lithium resources, the United States currently has limited capabilities to extract, refine, and produce domestically sourced lithium.

Last year, the U.S. made major lithium breakthroughs with the potential to make the country self-sufficient in the critical battery metal for decades. In September, a group of scientists funded by Lithium Americas Corporation (NYSE:LAC) reported that the McDermitt Caldera, a volcanic crater on the Nevada-Oregon border, houses 20 to 40 million metric tons of lithium deposits. For perspective, that volume is nearly double the 23 million metric tonnes found in Bolivia. 

In December, the U.S. Department of Energy announced that it had confirmed that a massive lithium deposit tucked underneath California’s Salton Sea has a resource of more than 3,400 kilotons of lithium--enough to support over 375 million batteries for electric vehicles. Both estimates dwarf the 14 million metric tonnes of lithium resource the U.S. Geological Survey has so far managed to map.

Well, the Biden administration appears to be wasting no time trying to achieve the American dream of energy independence. After a dozen years of engineering, permitting and financing, Australia's Controlled Thermal Resources has finally begun construction of their Salton Sea lithium mine and geothermal power plant. The project will initially produce 25,000 metric tons of lithium hydroxide per year and potentially up to 175,000 metric tons once completed. The plant will also generate 350 megawatts of round-the-clock geothermal power--the DoE estimates that Salton Sea’s  Known Geothermal Resource Area (KGRA) has about 2,950 megawatts (MW) of geothermal electricity generation capacity.

Meanwhile, last month, the DoE announced a conditional loan of $2.26 billion to Lithium America’s Thacker Pass project in Nevada to be used for the construction of the company’s on-site refining facility. 

According to the company, the illite-bearing Miocene lacustrine sediments at Thacker Pass contain extremely high lithium grades (up to ~1 weight % of Li), more than double the whole-rock concentration of lithium in smectite-rich claystones in the caldera and other known claystone lithium resources globally (<0.4 weight % of Li). 

The scientists have hypothesized that the unique lithium enrichment of illite at Thacker Pass resulted from secondary lithium- and fluorine-bearing hydrothermal alteration of primary neoformed smectite-bearing sediments, a phenomenon previously unknown. LAC plans to begin lithium production on the Thacker Pass project in 2026. 

"If they can extract the lithium in a very low energy intensive way, or in a process that does not consume much acid, then this can be economically very significant. The U.S. would have its own supply of lithium and industries would be less scared about supply shortages, "Belgian geologist Anouk Borst has told Chemistry World.

Federal investments by the Biden administration are supercharging America’s domestic lithium supply chain. Last year, Albemarle Corp. (NYSE:ALB) received $150 million to build a new processing plant in Kings Mountain. American Battery Technology Company (NASDAQ:ABAT), Applied Materials (NASDAQ:AMAT) and Cirba Solutions have received a combined $2.8 billion doled out by the administration to support 21 new, retrofitted and expanded?commercial-scale lithium processing and battery recycling facilities.

Bad News For Lithium Bulls

Source: Trading Economics

Despite having some of the world’s biggest lithium resources, the United States currently has limited capabilities to extract, refine, and produce domestically sourced lithium, typically importing nearly half of the lithium it consumes. However, the country could soon become self-sufficient in lithium, thanks to a rapidly-developing technology: direct lithium extraction (DLE).

DLE technologies are capable of extracting up to 90% of lithium in brine, much higher than ~50% extraction rates using conventional ponds. Another major benefit: they are capable of harvesting the metal in a matter of days compared to upwards of one year required to extract lithium carbonate from conventional evaporation ponds and open-pit mines. Direct lithium extraction also comes with an added ESG/sustainability bonus because they are able to recycle their fresh water and limit the use of hydrochloric acid.

Fastmarkets has forecasted that commercial-scale DLE projects could start coming online as soon as 2025 and could supply 13% of global lithium demand by 2030. 

Unfortunately for lithium bulls, a flurry of new mines coming online as well as novel extraction technologies are likely to put lithium prices under extreme pressure. Goldman Sachs has forecast that lithium carbonate supply will grow at a brisk 33% annual clip, outpacing lithium demand which is expected to grow at 25% p.a. 

“Our analysis suggests that DLE will widen, rather than steepen, the lithium brine cost curve with an average project likely sitting in the second or third cost quartile. With resulting additional lithium supply we also see risk that DLE implementation could extend the size and duration of lithium market surpluses/reduce deficits vs. our base case SD balance (without a pull forward of demand with new supply), where ~20-40% of LatAm brine projects implementing DLE (recovery from ~50% to ~80%) could add ~70-140ktpa LCE from 2028+, increasing GSe global raw supply by 8%,’’ according to Morgan Stanley.

Lithium carbonate in China is currently quoted at CNY 112,000 ($15,480) per tonne, struggling to stage a significant rebound since plunging to under CNY 100,000 ($13,820) earlier this year, a two-and-a-half-year low, thanks to a lithium oversupply and sluggish EV demand. EV sales in China in Q1 2024 increased 14.7% Y/Y, slowing from 20.8% in 2023 and well under the triple-digit growth rates commonly seen in late 2022. Experts have warned that the lithium market could remain oversupplied until 2027.

By Alex Kimani for Oilprice.com

Nouveau Monde Graphite breaks ground at Bécancour battery material plant in Quebec

By Amanda Stutt April 16, 2024

Onsite work begins for Quebec concentrator plant. Credit: Nouveau Monde Graphite

When Nouveau Monde Graphite (NYSE: NMG; TSXV: NOU) kicked off construction this month at the site of its planned concentrator plant in Quebec, it was another significant step forward in what is shaping up to be the most advanced graphite cirularity project in North America.

Nouveau Monde Graphite (NGM) last month inked multi-year offtake agreements with General Motors (NYSE: GM) and Panasonic Holdings, with both companies also pledging to invest more in the Canadian miner to help it produce high-quality graphite for the North American market.

China rattled that market when it announced late last year it will require export permits for some graphite products in another bid to control critical mineral supply in response to challenges over its global manufacturing dominance.

China is the world’s top graphite producer and exporter. It also refines more than 90% of the world’s graphite into the material that is used in virtually all electric vehicle (EV) battery anodes.

There is only one graphite mine currently of significance in North America, Lac des Iles mine in Quebec, which is becoming depleted.

While there is a need for 200,000 tonnes of graphite to meet demand, the reality is, the current U.S. supply capability is zero.

NMG aims to raise US$1.2 billion to build its whole project, which it is advancing in three phases, with US$725 million coming from debt and US$475 million from equity. Its goal is to become North America’s first fully integrated source of natural graphite active anode material, which accounts for about half of an EV battery.

Phase one is the Matawinie mine in Saint-Michel-des-Saints, about 160 km north of Montreal, already in operation, with planned production of 103,000 t/y of graphite concentrate over 25 years. Phase two is the Bécancour battery materials plant, with planned production of 43,000 t/y of active anode material.

Aerial view, Matawinie mine in Quebec. Credit: Nouveau Monde Graphite

Phase three is the Uatnan mine and concentrator, with contemplated production of 500,000 t/y of graphite concentrate over 24 years. NMG last year released a preliminary economic assessment (PEA) on the project, at the time a JV with Mason Resources.

Uatnan, also known as the Lac Gueret project, was ranked the third largest graphite project in the world in 2023.

The company acquired the asset 100% in January this year, NMG CEO Éric Desaulniers told MINING.co, adding that 100% of the graphite produced will stay in the US and Canada.

“Mason planned it for 50,000 tonnes per annum for 24 years and now [with] the PEA we've shown, 500,000 tonnes for 24 years, the same block model, same resource, but we're just mining it 10 times faster, 10 times bigger,” Desaulniers said in an interview.

With ground work started at the concentrator for phase three, Desaulniers said the concentrate will be sent as a finished product for Panasonic to use at their planned battery factory in Kansas.

Panasonic also has a plant in Nevada with Tesla, and GM’s U.S. plants in Ohio and Michigan are under construction, with a fourth plant planned in Tennessee, Desaulniers said.

NMG is also working on plans to recycle battery material.

“At this point we don't have any agreements to take back the product to make the full circularity, but that's something we're working on and we're fairly advanced on, on the R&D side,” Desaulniers said.

“Now that we have the optics, we know exactly what each customer wants and they have made a first investment, [with] a second investment in a few months,” he said.

“We have a lot of financial institutions lined up to do the debt and the equity alongside the off takers and then 30 months of construction, and mid 2027 we will be starting to ship product to those customers,” he said.

“We have the two most advanced and largest graphite deposits because we really believe in the full vertical integration.”

Avalon begins PEA for Thunder Bay lithium conversion facility

Preliminary Economic Assessment (PEA)

By Marilyn Scales April 16, 2024 

Avalon is working on a PEA to produce both lithium hydroxide and lithium carbonate for customers in Ontario. 

Credit: Avalon Advanced Materials

Avalon Advanced Materials (TSX: AVL; OTCQB: AVLNF) announced that it has engaged DRA Americas, a 100% owned subsidiary of DRA Global to begin a preliminary economic assessment (PEA) for a lithium hydroxide conversion facility in Thunder Bay, Ont.

The project will be administered under Avalon's wholly owned subsidiary Lake Superior Lithium. The PEA will consider feed sourcing of high-grade lithium concentrates from various sources.

The lithium conversion facility will feature the environmentally friendly Metso lithium conversion technology. This study will include lithium concentrate reagent receiving and storage, processing, and site infrastructure as well as shipping/handling of product and byproduct off site.

The Metso lithium conversion technology is being deployed globally with two currently under construction and expected to be operational from 2025. The Metso innovative technology is an acid-free lithium conversion approach that eliminates the use of hazardous reagents and produces a byproduct that is a mixture of sand and limestone. The byproduct material can be used in the production of construction materials.

In June of 2023, Avalon purchased "a crown jewel" brownfield industrial site in the heart of Thunder Bay. The 100% owned site covers 155-ha and has direct access to all infrastructure needs including access to 80 to 100 MW of electrical power, natural gas, town water and sewer, rail and two on site rail spurs, road access near the Trans Canada Highway, and an open water port on the shore of Lake Superior.

The proposed production level of the facility would be based on similarly designed units and is anticipated to be in the order of 30,000 t/y lithium hydroxide (LiOH) production with an operating life of over 20 years. The facility would be designed to produce both lithium hydroxide and lithium carbonate to address demand.

Avalon CEO Scott Monteith is pleased to see the PEA kick off. "The forecasted battery manufacturing capacity is expected to increase over the coming years as world EV and battery utilization becomes more mainstream. The decision to pursue production of battery grade lithium hydroxide and lithium carbonate is driven by continued strength in lithium battery demand and North American supply chain needs for high quality product produced in North America."

Avalon and its joint venture partner SCR-Sibelco NV is developing its Separation Rapids lithium deposit near Kenora, Ont., while also continuing to advance the Snowbank lithium and Lilypad lithium-cesium projects. The company is also working to develop its Nechalacho rare earths and zirconium project located in the Northwest Territories. This deposit contains critical minerals for use in advanced technologies in the communications and defense industries among other sectors.

Visit www.AvalonAM.com for more information.

Codelco CEO vows to pursue community buy-in over lithium expansion

Reuters | April 16, 2024 | 

CEO Ruben Alvarado and Codelco workers. (Image by Codelco, Facebook).

Chile’s state-run miner Codelco has made progress in negotiating with local communities over lithium mining and will keep working to win their support, chief executive Ruben Alvarado said on Tuesday, a day after several groups in the Atacama salt flat broke off talks.


The world’s top copper producer has been in dialogue with indigenous groups on the details of a new, state-mandated joint venture in the Atacama salt flat with Chile’s SQM, one of two lithium miners in the country.

However, the four largest indigenous groups in the area on Monday said they were pulling out of those talks, citing dissatisfaction with Codelco and SQM, as well as a difference of opinion with other indigenous groups.

Asked about the move, Alvarado told reporters at the CRU World Copper Conference that he recognized the complexity of the negotiations, which he said touched on historical issues.

Many indigenous communities have long decried a lack of investment from the mining industry and said they have felt sidelined by the government.

The government last year promised to host a dialogue with the Atacama Indigenous Council, aiming to reach a consensus over lithium mining in the salt flat.

“We are making progress in that and we are not going to stop working on all kinds of collaboration strategies with the communities,” Alvarado said, following a panel discussion alongside other top copper industry executives in which he emphasized Codelco’s commitment to social issues.

“This case will not be the exception.”


Codelco’s relationship with local communities is being put to the test as Chile, the No. 2 lithium producer, aims to impose more state control over the metal needed for batteries used to power the world’s growing electric vehicle fleet.

In an interview with Reuters on Monday, Codelco chairman Maximo Pacheco said he had visited the Atacama salt flat in recent weeks to speak directly with local communities, who he said were concerned over the water supply in the area.

The groups that broke off talks also took part in December in a protest over the Codelco-SQM deal, saying they felt they were not taken into account in the negotiations. They staged a blockade of one of the roads in the Atacama salt flat, snarling traffic and forcing SQM to halt operations.

(By Daina Beth Solomon and Fabian Cambero; Editing by Josie Kao)