How Investors Are Capitalizing on AI’s Insatiable Appetite for Energy

By Irina Slav - Aug 05, 2024

• AI data centers' rising electricity demand prompts investors to buy power utility stocks, anticipating generational demand growth.
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• Power utilities stand to benefit from the AI boom as they secure reliable electricity for consumers amid increasing demand.
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• Utility stocks offer relatively cheap exposure to the AI revolution, making them attractive to investors seeking diversification.

About a month ago, Google admitted in its annual sustainability report that its emissions had climbed by nearly 50% over the five years since 2019. The reason: data centers and artificial intelligence.

Microsoft has also seen a massive increase in its electricity consumption—it has doubled since 2020, driven by Big Tech’s AI race. Its emissions, like Google’s, also rose substantially, by 42%. But investors are watching the consumption trend and buying power utility stock. Those may be the next market darlings.

Inflows into utility funds in the United States are on the rise, adding $1.7 billion over just the two months of May and June this year, the Financial Times reported this month, citing Morningstar data. This was the highest amount of new inflows into utility funds in almost two years, the report noted. July could see fresh additions of $1.1 billion into the segment, the FT cited State Street as predicting. Utilities are hot.

Per Morningstar data again, many utility funds return double digits over a year, ranging from around 10% to over 20% for a few particularly strong performers. For context, ESG funds, for instance, are almost all the single-digit return territory, with one recently even slipping into a loss. Top Big Tech funds, on the other hand, are returning around 20% and more. Electricity is hot.

It’s also about to get hotter because no Big Tech major has signaled intentions to change their plans for artificial intelligence, which essentially comes down to a single word: growth at all costs, emissions and all. And this means that the predictions about electricity demand surging are most likely going to come true.

Back in May, Goldman Sachs forecasted that AI would drive a 160% increase in electricity demand from data centers. “At present, data centers worldwide consume 1-2% of overall power, but this percentage will likely rise to 3-4% by the end of the decade,” the bank’s analysts said. “In the US and Europe, this increased demand will help drive the kind of electricity growth that hasn’t been seen in a generation.”

No wonder investors are flocking to power utilities since those would be at the forefront of that generational demand surge. Google and Microsoft alone are already consuming more electricity than 100 countries, and not all small ones, at that. Their combined total was 48 TWh, or 24 TWh each. Both are promising to source more of those terawatt-hours from wind and solar sources, but both are failing because of the nature of wind and solar. However, utilities, whose job is to secure reliable electricity to consumers large and small, regardless of source, are thriving on the stock market.

Buying utility stocks is also a way to gain relatively cheap exposure to the whole artificial intelligence boom, according to the FT report. “Investors are looking past the Mag 7 names and waiting for the next shoe to drop,” BlackRock’s head of thematic and active ETFs, Jay Jacobs, told the publication. Indeed, Magnificent 7 stocks are expensive because the whole AI hype is already built into them, while power utilities, which are the one factor that is turning the hype into an actual revolution, are still cheap.

The change that is beginning to take shape in the electricity sector is indeed significant. As Goldman Sachs pointed out in its May report on AI and power demand, this demand in the United States has been flat for years. That’s despite a growing population and growing consumption of electricity. The reason for the flat growth: efficiencies.

These efficiencies, however, have limits, and with AI, they seem to have reached these limits, at least for the time being. AI computing simply needs a lot more energy than plain computing, plain and simple. This power has to come from somewhere and the companies that take care of that are the power utilities. It is the simplest equation for investors.

There are drawbacks, of course, and the biggest is that utilities would need to pour significant sums of money into grid upgrades to ensure supply meets demand. Total investments could come in at $50 billion as estimated by Goldman Sachs. The Biden admin has allocated $65 billion for grid upgrades and expansion, but these have yet to start pouring into grid operators’ bank accounts—and the upgrades and expansion will take time, a lot of time.

The way things stand, the balance between demand for electricity, driven higher by AI data centers, and supply, getting increasingly unreliable as more wind and solar join the grid, is going to be precarious for the observable future. Electricity is going to get more expensive, as already suggested by PJM’s latest power auction, which saw prices 800% higher than last year’s edition. The company’s CEO noted that this confirmed a tightening supply/demand balance. But what it also confirmed is that the rush into power utility stocks may be just beginning.

By Irina Slav for Oilprice.com

Startup brings fresh approach to US nuclear deployment

02 August 2024

The Nuclear Company aims to redefine how large-scale nuclear infrastructure projects are delivered in the USA using proven, licensed technology in a fleet-scale model - and is taking to the road in a campaign bus to build support for its vision.

The Nuclear Frontier bus arrived in Knoxville, Tennessee on 30 July (Image: The Nuclear Company/X)

The company, which emerged from "stealth mode" in July, says its mission is "to address surging energy demand driven by AI (artificial intelligence) data computing, onshoring manufacturing, and the electrification of everything." Global electricity demand is projected to increase nearly 30% by 2030, and nuclear can provide the reliable, around-the-clock, zero-carbon power required to meet it. But the biggest challenge facing the industry is that one-off nuclear projects almost always are over budget and behind schedule, the company said.

The Nuclear Company's fleet-scale model combines using proven, licensed technology and a design-once, build-many approach, developing coalitions across communities, regulators and financial stakeholders to catalyse rapid development. It will do this by developing standardised processes and scheduling in order to sequence work and minimise delays, including moving construction expertise from one site to the next immediately to improve efficiency.

"The Nuclear Company is working towards solving America's surging energy demand by redefining how large-scale, nuclear infrastructure projects are delivered," said Chief Development Officer Juliann Edwards. "We recognise the challenges facing our industry, where one-off nuclear projects historically go over budget and run behind schedule. Our unique approach integrates proven technology with unparalleled collaboration among diverse organisations, ensuring that fleet-scale projects are executed on-time and on-budget. The time is now given a sea change in public opinion that’s overwhelmingly supportive of nuclear power, recent bipartisan legislative action, and our business model that drives down upfront costs."

Early investors in the company include investment firm CIV, True Ventures, Wonder Ventures, Goldcrest Capital, and MCJ Collective.

Nulcear Frontier

The Nuclear Frontier bus tour began on 23 July in Pittsburgh at the annual conference held by US Women in Nuclear - Edwards is chair of the organisation. With stops in six states and Washington DC, the tour aims to engage with government and industry leaders, as well as skilled tradespeople who will rebuild America’s nuclear leadership. "The Nuclear Company’s consortium of utilities and independent power producers, hyperscalers, nuclear technology suppliers, and private equity help mitigate risk and make nuclear power an attractive investment," the company said.

Joe Klecha has recently been announced as the company's chief nuclear officer.

Researched and written by World Nuclear News

The Start of De-Dollarization: China’s Move Away From the USD

By Michael Kern - Aug 06, 2024

• 
  
  
• The Chinese renminbi (RMB) is growing in popularity in payments both domestically and globally. 
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• In 2023 the Renmibi overtook the US Dollar in China's cross-border payments and receipts.
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• As of March 2024, over half (52.9%) of Chinese payments were settled in RMB while 42.8% were settled in USD.

The global financial landscape is undergoing a subtle yet significant transformation. At the heart of this change is the concept of "de-dollarization" – the gradual reduction of the US dollar's dominance in international trade and finance. While this process has been simmering for years, it has gained momentum recently, fueled by China's increasing use of its own currency, the yuan (or renminbi), for cross-border transactions.

This shift away from the dollar, while gradual, has the potential to reshape the global economic order. A less dollar-centric world could mean a redistribution of power, influence, and economic leverage. It could also lead to increased volatility and uncertainty in financial markets. As China continues to assert its economic might, the rise of the yuan represents a significant challenge to the established order.

In this article, we will delve into the factors driving China's de-dollarization efforts, the impact on the global currency landscape, and the potential implications for the future of international trade and finance. We will explore the rise of the yuan, the strategic considerations behind China's actions, and the challenges and opportunities that lie ahead.

The De-Dollarization of China’s Cross-Border Transactions

Historically, China, like many other nations, has relied heavily on the US dollar for its international trade and financial transactions. However, this dependence has been waning in recent years as China actively promotes the use of its own currency.

In 2010, less than 1% of China's cross-border payments were settled in yuan, compared to a staggering 83% in US dollars. Fast forward to March 2023, and a pivotal moment occurred: the yuan overtook the dollar for the first time. By March 2024, over half (52.9%) of Chinese payments were settled in yuan, marking a remarkable doubling of its share in just five years.

This dramatic shift can be attributed to several factors. Firstly, there is a growing willingness among foreign businesses to trade in yuan, as they seek to diversify their currency holdings and reduce their exposure to the dollar. Secondly, several countries, including Brazil and Argentina, have begun to accept yuan settlements for trade, further bolstering its international use.

The Chinese government and its central bank, the People's Bank of China (PBOC), have played a crucial role in driving this trend. They have implemented policies to facilitate the use of the yuan in cross-border trade and investment, including establishing offshore yuan clearing centers and expanding the network of bilateral currency swap agreements.

The Rise and Retreat of the Yuan

The rise of the yuan in international trade has been marked by several significant milestones. In 2016, the yuan was included in the International Monetary Fund's (IMF) Special Drawing Rights (SDR) basket, a reserve asset used by member countries. This move recognized the yuan's growing importance in the global economy and paved the way for its wider adoption.

However, the path toward a globalized yuan has not been without setbacks. In 2015-2016, China faced a speculative attack on its currency, triggered by concerns about the country's economic slowdown and capital outflows. This forced the PBOC to intervene to stabilize the yuan, highlighting the challenges of managing a currency with increasing global exposure.

Shifting Priorities and Capital Controls

The 2016 crisis prompted a reassessment of China's de-dollarization strategy. While the initial ambition was to achieve full-scale de-dollarization and expand the Belt and Road Initiative (BRI), a massive infrastructure investment project, the focus shifted towards a more cautious approach.

China began prioritizing the development of yuan-denominated trade settlement systems, allowing businesses to bypass the dollar in their transactions. The government also tightened capital controls to prevent excessive outflows and maintain financial stability. These measures, while effective in protecting the economy, also limited the yuan's global reach.

The Weaponization of the U.S. Dollar

The US dollar's dominance in international trade has long been a source of both power and vulnerability for the United States. It has allowed the US to impose economic sanctions on other countries by restricting their access to the global dollar-based financial system.

This "weaponization" of the dollar has raised concerns among many countries, particularly those that are at odds with US foreign policy. As a result, there has been a growing interest in finding alternatives to the dollar, with China's yuan emerging as a potential contender.

Most Popular Currencies in Foreign Exchange (FX) Transactions

Despite the yuan's rise, the US dollar remains the undisputed king of the foreign exchange market. According to the Bank for International Settlements, in 2022, it accounted for 88.5% of all FX transactions, followed by the euro (30.5%) and the Japanese yen (16.7%). Interestingly, the dollar's share has actually grown by 1.5% since 2010, while the euro and yen have seen their shares decline.

The renminbi, while still a relatively small player with a 7% share, has been the fastest-growing currency in the FX market over the past decade. This suggests that it is gradually gaining acceptance as a viable alternative to the dollar, especially in trade with China and its partners.

De-Dollarization or Yuanization? The Future of Global Trade

While the complete de-dollarization of the global economy seems unlikely in the near future, the rise of the yuan is undeniably a significant trend. As China continues to expand its economic influence, the yuan is likely to play an increasingly important role in international trade and finance.

The Chinese government is actively promoting the use of the yuan in cross-border transactions, and it is steadily building the infrastructure needed to support this goal. This includes establishing yuan clearing banks in major financial centers, expanding the network of currency swap agreements, and developing new financial products denominated in yuan.

However, the path to yuanization is not without challenges. China's strict capital controls, while necessary for maintaining financial stability, also limit the yuan's international appeal. Additionally, the yuan's value is still tightly managed by the PBOC, which raises concerns about its long-term stability and predictability.

Despite these challenges, the yuan's rise is a trend that cannot be ignored. It represents a fundamental shift in the global financial landscape, one that could have far-reaching implications for the future of trade, investment, and geopolitical power.

By Michael Kern for Oilprice.com

How Venezuela's Election Unrest Will Impact Global Oil Markets

By Alex Kimani - Aug 06, 2024

• Venezuelan President Nicolás Maduro has been declared the winner of a controversial presidential election, sparking widespread protests and international condemnation.

• Despite the re-election of Maduro, the United States has maintained sanctions on Venezuela's state-owned oil company, PDVSA, with limited exceptions for certain transactions.

• Venezuela's oil industry continues to face significant challenges, including underinvestment, mismanagement, and a lack of skilled workers, hindering the country's economic recovery.

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Last week, Venezuela’s sitting President Nicolás Maduro was declared the winner of the country’s presidential vote, plunging the country into widespread protests amid glaring election irregularities. The 61-year-old Maduro beat the elderly opposition candidate, 74-year-old Mr González Urrutia, despite exit polls showing the latter garnering 65% of the vote. The relatively unknown González was selected as a last-minute stand-in for opposition powerhouse Maria Corina Machado, who was blocked by the Maduro-controlled Supreme Tribunal of Justice from running for any office for 15 years. The charismatic 56-year-old former lawmaker swept the opposition’s October primary with more than 90% of the Unitary Platform, a coalition of Venezuela’s main opposition parties. Machado initially picked a college professor as her substitute on the ballot, but her choice was rejected after the ruling party-loyal National Electoral Council also barred her from registering.

Not surprisingly, the opposition has claimed fraud, with the U.S. and EU foreign policy chiefs and various regional neighbors expressing disapproval. As you might expect, Mr Maduro’s authoritarian allies in Russia, China, Iran, and Cuba have wasted no time congratulating him.

That said, Maduro’s latest power grab is unlikely to affect global Oil & Gas markets in any material way. Last month, The United States Office of Foreign Assets Control (OFAC) eased some sanctions on Venezuela but retained sanctions on Venezuela’s state-owned oil company, PDVSA. OFAC issued a new license allowing certain transactions related to the export or re-export of liquefied petroleum gas (LPG) to Venezuela until July 8, 2025.  However, transactions with Petróleos de Venezuela, S.A., the Venezuelan state-owned oil and natural gas company in which PdVSA has a 50 percent or greater interest, remain prohibited under the sanctions imposed by various executive orders. The previous general license permitted transactions related to oil or gas sector operations in Venezuela but expired on April 18. The United States holds that Venezuela President Nicolas Maduro and his representatives have failed to fully meet the obligations outlined in the electoral roadmap signed with the opposition in Barbados in October 2023.

The United States is now considering fresh sanctions on Venezuela following Sunday's disputed presidential election. However, U.S. officials are not currently considering any changes to Chevron Corp.’s (NYSE:CVX) license or to other individual authorizations. Chevron's license has become a flagship mechanism to recover debt by exporting Venezuelan crude, a model that is copied by other companies with operations in the country. Chevron has ramped up deliveries of Venezuelan crude to the United States since early 2023; however, its ~200,000 bpd of heavy crude arriving into the U.S. represents less than 1% of the more than 20 million barrels of crude processed by U.S. refineries every day. According to Reuters, widespread post-election protests have so far not affected Venezuela’s oil flows. Previously, PdVSA instructed joint ventures and its own operational areas to work with reduced staff and an increased level of security due to the electoral process, which typically requires the mobilization of the military. However, the company has relaxed the order in recent days, with most  PdVSA executives and staff working normal shifts. According to Reuters, Venezuela’s crude production averaged 922,000 barrels per day in June.

Venezuela's crude oil production averaged 884,000 barrels per day (bpd) in the current year, good for a 15%Y/Y increase above the same period of 2023. However, current production remains well below the 3.2 million bpd peak in 1997 before late President Hugo Chavez took office. Venezuela has lost about two-thirds of its crude production capacity over the past decade thanks to a lack of investment, exodus of skilled workers, mismanagement and corruption at PdVSA. The same problems have plagued the country's gas industry, which remains severely underdeveloped. After peaking at 1.12 trillion cubic feet (Tcf) in 2001, Venezuela's natural gas production halved to 563 billion cubic feet (Bcf). The country's gas output - which is now half of what it was in 2016 - is not enough to meet domestic demand despite Venezuela having the largest reserves in Latin America. Venezuela’s gas producers have now restored to flaring, or burning off, a large portion of production. Venezuela has 196 trillion cubic feet in proved reserves compared to 432 trillion cubic feet by the United States, despite the Latin American country having less than a tenth of the population of its much larger counterpart.

The National News

It’s hard to see a meaningful revival of Venezuela’s energy industry under another Maduro government. Falling oil production has had a severely adverse effect on the economy with GDP currently a third of what it was a decade ago. As Robin M Mills, chief executive of Qamar Energy, and author of The Myth of the Oil Crisis, has observed, we are more likely to see ‘‘…the combination of repression, continuing backing from the military and remaining loyal “Chavistas”, some Russian assistance, a tepid response from leftist Latin American democracies, and distribution of dwindling petrodollars, keeps Mr Maduro in power. Blaming sanctions and Washington’s meddling provides easy excuses for the country’s dysfunction.’’

By Alex Kimani for Oilprice.com

Green Hydrogen: What It Is, Why It Matters, and Who Is Producing It

By Michael Kern - Aug 06, 2024

• Green hydrogen is a clean and sustainable source of energy that can help reduce carbon emissions in various industries.
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• The production of green hydrogen involves using renewable sources such as solar, wind, or hydropower to electrolyze water and separate hydrogen from oxygen.
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• While the technology for green hydrogen production is still developing, it has the potential to revolutionize the energy industry and play a significant role in achieving global sustainability goals.
• 
  
• 
  

The world is rapidly transitioning towards renewable energy sources in order to reduce carbon emissions and combat climate change. And one of the most promising technologies in 2024 is green hydrogen, which has the potential to revolutionize the energy industry.

What is Green Hydrogen?

Hydrogen is an abundant element found in water, natural gas, and other organic compounds. It can be used as a fuel source or as an energy carrier in various applications such as transportation, heating, and electricity generation.

Green hydrogen is produced through electrolysis, which involves splitting water molecules into hydrogen and oxygen using electricity from renewable sources such as solar or wind power. The resulting hydrogen gas is then compressed and stored for use as a clean energy source.

Unlike traditional hydrogen production methods, which rely on fossil fuels like coal or natural gas, green hydrogen production emits no greenhouse gases and has zero carbon footprint.

Why is Green Hydrogen Important?

Here are a few reasons why green hydrogen is so important in the energy transition: 

Renewable Energy Storage

One of the major challenges faced by renewable energy sources like solar or wind power is their intermittency. They generate electricity only when there is sufficient sunlight or wind, making it difficult to provide reliable 24/7 power supply.

Green hydrogen offers a solution to this problem by acting as a storage medium for excess renewable energy generated during peak periods. This stored hydrogen can then be used later during periods of low renewable energy output to generate electricity on demand.

Decarbonization of Heavy Industries

Heavy industries like steel manufacturing, cement production, and chemical processing are difficult to decarbonize due to their high reliance on fossil fuels. However, green hydrogen can replace these fossil fuels as an alternative feedstock for these industries without compromising their productivity.

For example, using green hydrogen instead of coal in steel manufacturing significantly reduces carbon emissions while maintaining the same quality as steel products.

Clean Transportation

Transportation accounts for a significant portion of global greenhouse gas emissions due to its reliance on fossil fuels like gasoline and diesel. Green hydrogen-powered vehicles offer a cleaner alternative with zero tailpipe emissions.

Moreover, unlike electric vehicles, which require long charging times and limited range due to battery constraints, green hydrogen-powered vehicles can refuel quickly and have longer driving ranges similar to traditional gasoline-powered cars.

Energy Independence

Green hydrogen production does not rely on imported oil or natural gas resources from other countries, making it an attractive option for countries seeking greater energy independence while reducing their carbon footprint at the same time. There is no doubt that green hydrogen will transform geopolitics. 

Job Creation

The growth of green hydrogen technology will create new job opportunities across various sectors including engineering, manufacturing, construction, research & development among others.

Challenges Facing Green Hydrogen Adoption

While green hydrogen holds great promise for a sustainable future, it still faces several challenges that need to be addressed before widespread adoption can take place:

1. High Production Costs: Currently, electrolysis technology used for green hydrogen production remains expensive compared to traditional fossil fuel-based methods.
2. Limited Infrastructure: In order for green hydrogen-powered transportation or industrial processes to become widespread, there needs to be significant investment in infrastructure such as refueling stations or pipeline networks.
3. Efficiency Losses: During the electrolysis process, energy losses occur, leading to lower overall efficiency compared with traditional fossil fuel-based technologies.
4. Safety Concerns: Hydrogen gas has explosive properties if not handled properly, leading some people to question its safety, especially regarding transport & storage.
5. Limited Supply Chain: The current supply chain for green hydrogen remains limited, meaning that scaling up production may prove challenging until more suppliers enter the market.

Green Hydrogen represents one of the most promising solutions for achieving a sustainable future powered by renewable energies free from harmful greenhouse gas emissions. The technology provides numerous benefits, including reliable renewable storage options, cleaner transportation alternatives, and decarbonizing heavy industries. However, given its high cost, limited infrastructure & supply chains, along with safety concerns need further attention before we see widespread adoption across various sectors globally.

Top 10 Countries Leading the Green Hydrogen Charge

The global green hydrogen race is heating up, with countries around the world recognizing its potential to revolutionize the energy landscape. While China currently leads the pack, the distribution of green hydrogen production is far from concentrated. Let's take a closer look at the top 10 countries with the most green hydrogen capacity that's operational, under construction, or has secured financing, according to the International Energy Agency:

1. China: As the world's largest hydrogen producer and consumer, China is making significant strides in green hydrogen. Although most of its current hydrogen is fossil-fuel based, ambitious plans are underway to decarbonize sectors like steel and chemicals through green hydrogen production.

2. Saudi Arabia: Home to the world's largest green hydrogen project currently under construction, Saudi Arabia is poised to become a major player in this field. The ambitious facility aims to produce over 200 kilotonnes of green hydrogen annually, dwarfing the capacity of existing plants.

3. Sweden: With its largest electrolyzer facility opened last year, Sweden is positioning itself as a leader in green hydrogen production. The country's commitment to renewable energy and technological innovation is driving its efforts in this space.

4. United States: The Inflation Reduction Act of 2022, with its generous clean hydrogen subsidies, has sparked a wave of investment in green hydrogen production in the US. The country's vast renewable energy resources and technological expertise position it for rapid growth in this sector.

5. United Kingdom: Supported by its own set of clean hydrogen incentives, the UK is actively promoting green hydrogen adoption across various sectors. With a focus on both production and utilization, the UK is establishing itself as a frontrunner in the green hydrogen revolution.

6. Germany: Recognizing green hydrogen's potential to decarbonize heavy industries, Germany has committed significant funding to research, development, and infrastructure. The country's strong industrial base and commitment to sustainability make it a key player in the global green hydrogen landscape.

7. Vietnam: With its abundant solar and wind resources, Vietnam is emerging as a potential hub for green hydrogen production in Southeast Asia. The country is actively attracting investment and developing projects to harness its renewable energy potential for green hydrogen.

8. Australia: Boasting vast land areas and abundant solar and wind resources, Australia is well-positioned for large-scale green hydrogen production. The country has several projects in development, aiming to become a major exporter of this clean energy source.

9. Oman: With its strategic location and favorable conditions for renewable energy generation, Oman is exploring green hydrogen as a key component of its energy diversification strategy. The country has launched several initiatives to develop green hydrogen production and infrastructure.

10. France: As a member of the European Union, France is actively participating in the bloc's ambitious green hydrogen targets. The country is investing in infrastructure and research to integrate green hydrogen into its energy mix and industrial processes.

While the world currently produces a modest amount of green hydrogen, the pipeline of projects under construction and in development promises a significant increase in capacity by 2030. The race to lead the green hydrogen revolution is well underway, with far-reaching implications for the global energy landscape and the fight against climate change.

FAQ

What is green hydrogen and how does it work?

Green hydrogen is a type of hydrogen that is produced by splitting water into hydrogen and oxygen using renewable electricity. This process, known as electrolysis, uses an electric current to separate the water molecules into its two components. The resulting hydrogen can then be used for various applications, such as fuel cells and transportation.

The benefits of green hydrogen are numerous. It has zero emissions, meaning it does not contribute to global warming or air pollution. Additionally, it is a renewable energy source that can be used to power homes and businesses without relying on fossil fuels. Finally, green hydrogen can be stored for long periods, making it an ideal energy source when other sources may not be available.

What is green hydrogen made from?

Green hydrogen is made from water, which is split into two components – hydrogen and oxygen – using an electrolyzer powered by renewable energy sources such as wind, solar, or hydropower. The electrolysis process involves passing an electric current through water, which causes the molecules to break apart and the hydrogen molecules to bond with each other, forming hydrogen gas.

This process is commonly referred to as "water splitting," and the resulting hydrogen gas can then be used as fuel for a wide range of applications, from power generation to transportation. Unlike traditional methods of hydrogen production, which rely on fossil fuels, green hydrogen production does not generate greenhouse gas emissions, making it a clean and renewable energy source.

Why is green hydrogen the future?

Unlike traditional hydrogen production methods, which rely on fossil fuels, green hydrogen is produced by using renewable energy sources such as wind, solar, and hydropower. This makes it an ideal solution for our society's transition to a cleaner, low-carbon energy future.

Green hydrogen can be used for a wide variety of applications across many industries, including fuel cell vehicles, power grids, and chemical manufacturing, among others. Its versatility makes it an attractive alternative to traditional energy sources and allows for the development of innovative new technologies.

Is green hydrogen a good investment?

Investing in green hydrogen can be a good long-term strategy for people who wish to support renewable energy, promote sustainability, and potentially earn a return on their investment. However, like any investment, it involves risks and uncertainties that should be carefully considered.

One of the biggest factors to consider is the current cost of green hydrogen production, which is still relatively high compared to traditional hydrogen production methods. Despite this, many experts predict that the cost of green hydrogen will continue to fall as the technology becomes more efficient. Some countries, such as Germany and Australia, are already investing heavily in expanding their green hydrogen infrastructure, indicating strong support for this technology and could drive demand in the coming years.

By Michael Kern for Oilprice.com

Graphite One taking a leading role in loosening China’s tight grip on the US graphite market





2024.05.29

North American graphite producers got a boost earlier this month, with President Biden announcing that US tariffs on imports of Chinese electric vehicles and battery parts will increase significantly.

The tariff on EVs from China will quadruple from 25% to 100%, while for Chinese EV batteries and battery parts, including graphite used in the battery anode, it will rise to 25%.

The move is the result of a review of tariffs first put in place by President Trump in 2018. Industries in the government’s crosshairs include electric vehicles, batteries and solar cells. It also follows Biden’s call last month to hike tariffs on Chinese steel and aluminum.

In total, the new levies are expected to affect $18 billion worth of Chinese imports.

Bloomberg notes that President Xi Jinping’s strategy of ramping up manufacturing to arrest an economic slowdown at home has triggered alarm abroad. US and European Union leaders have scolded Beijing over state support that they say has fueled a deluge of cheap exports that threaten jobs in their markets.

The Inflation Reduction Act aims to grant incentives to companies that source their battery materials within the US and outside of China.

Passed by the Biden administration in 2022, the IRA provides US consumers tax credits of up to $7,500 per electric vehicle, provided the parts or materials are sourced from the United States, or from countries with which the US has a free trade agreement. This includes graphite, lithium, cobalt and other critical minerals.

As well as offering consumer incentives, the IRA subsidizes up to 30% of manufacturing costs related to battery cell assembly and battery pack production, helping to encourage carmakers and battery suppliers to invest in US-based supply chains.

The dilemma facing the US government is it wants to create a US-centered electric vehicle supply, but by imposing restrictions on China, which dominates the mining and processing of most metals needed for vehicle electrification, it is making things a lot tougher for EV- and battery-makers to source the raw materials, because the rest of the world doesn’t mine enough of them, process them into usable materials, and manufacture the necessary components.

On April 26, the Biden administration gave electric-vehicle makers a two-year extension to shore up sources of graphite and other critical minerals considered difficult to trace to their origin.

Starting in 2025, plug-in cars containing critical minerals from companies controlled by US foes, including China, will be ineligible for up to $7,500 in tax credits.

But automakers will have until 2027 to curb the use of materials from so-called “foreign entities of concern” (FEOCs), provided they submit plans to comply with the rules after the two-year transition.

Critics of the tariff increases say that while they will protect US jobs, they will do nothing to alleviate the obstacle to higher rates of EV adoption in the United States (and Canada): high sticker prices.

According to Reuters, automakers say that without access to low-cost batteries and battery materials made in China, EVs will be too expensive for consumers.

(According to the Kelley Blue Book, the average price of a new EV is more than $65,000, compared to $48,000 for gas-powered cars. Restricting foreign mineral inputs like graphite, and assembling cars in North America, could make them even more costly.)

This in turn may imperil the Biden administration’s clean energy agenda. The government wants half of all new vehicles sold in the US in 2030 zero emissions. It has also set a goal of 500,000 charging stations.

Moreover, the cost of Biden’s plan to keep Chinese electric vehicles out of the States is being borne by US taxpayers.

“Electric vehicles (EVs) may be the most subsidized product in America. Federal taxpayers shell out $7,500 every time a new eligible electric vehicle is purchased (usually by wealthy buyers). State and local taxpayers chip in an additional $1,500 for each EV purchase,” writes

David Williams, president of the Taxpayers Protection Alliance. He argues, “It’s time for President Biden and lawmakers to ditch protectionism and finally end EV subsidies.”

Still, there is an argument to be made that without government help, US automakers and battery manufacturers will be pushed out by China, which owns both the EV market and the battery supply chain.

China’s dominance

The International Energy Agency (IEA) estimates that two-thirds of global battery cell production is in China, while the United States accounts for only about 10%.

A BBVA Research report suggests China’s dominance is in part due to a national strategy that prioritizes the development and adoption of EVs. The Chinese government has implemented policy initiatives to support the production and purchase of EVs, such as tax exemptions, subsidies, and investments in charging infrastructure. Additionally, foreign automakers, such as Tesla, have been allowed to build up their factories in China. (BBVA Research)

In line with BBVA’s report, China Briefing reports the country has more than 600,000 NEV (“new energy vehicle”)-related enterprises, with major industry players including BYD Auto, Tesla China, SAIC-GM-Wuling, Aion, and Changan Automobile.

Source: Visual Capitalist



The briefing also says China holds a dominant position in the EV supply chain, with over three-quarters of the world’s battery production capacity. The country houses more than half the world’s processing and refining capacity for graphite, lithium and cobalt. It boasts 70% of the global production capacity for cathodes and 85% for anodes.

Moreover, China’s EV manufacturing industry has a 20% cost advantage over US and European markets. This is due to government policies that support the EV industry, including subsidies and tax incentives, at the national and regional levels.

Graphite

China is by far the biggest graphite producer at about 80% of global production. It also controls almost all graphite processing, establishing itself as a dominant player in every stage of the supply chain.

After China, the next leading graphite producers are Mozambique, Brazil, Madagascar, Canada and India. The US currently produces no graphite, and therefore must rely solely on imports to satisfy domestic demand.

Source: USGS

Heavy reliance on Chinese graphite mine supply. Source: Kearney



In October, Beijing said it will require export permits for some graphite products — retaliation against the United States and the European Union for widened curbs on Chinese companies’ access to semiconductors.

China initially imposed export controls on gallium and germanium, two critical inputs for semiconductors and renewable energy, then moved on to graphite.

Under the new graphite restrictions, which took effect December 1, 2023, exporters must apply for permits to ship two types of graphite: synthetic graphite, and natural flake graphite and its products.

A recent article in Barron’s notes that the relaxed sourcing rules (the above-mentioned two-year extension) will allow US automakers to keep sourcing Chinese graphite until 2027, and their vehicles will continue to be eligible for tax credits, as long as they can explain how they plan to comply with the Inflation Reduction Act rules after 2027.

But author Cullen Hendrix, a senior fellow at the Peterson Institute for International Economics, and fellow at the Payne Institute for Public Policy at the Colorado School of Mines, says the rules will make developing a long-term strategy for diversifying supply chains more difficult. That’s because the IRA incentivizes companies to source from the US or from countries that have a US free-trade agreement.

The problem is that there are few countries outside China that produce graphite, pushing companies to deal with “fringe producers” such as Mozambique.

Hendrix notes there is currently only one non-Chinese, IRA-compliant producer, Australia’s Syrah Resources, which has an off-take agreement with Tesla to ship graphite from its mine in Mozambique to a processing facility in Louisiana.

The African mine has its own set of challenges, though. As Hendrix states,

The Balama mine is located in Cabo Delgado, where troops from Mozambique, Rwanda, and a coalition of regional states are fighting a vicious insurgency being waged by the local Islamic State franchise. In June 2022, roadside attacks by those militants led Syrah to temporarily suspend logistics and personnel movements at the mine, though mining and processing activities were unaffected, according to Reuters.

Operations were temporarily suspended again, and staff evacuated in November due to nearby violence. Though the insurgency is on its heels, this state of affairs doesn’t exactly scream security of supply.

Speaking of supply, deficits are expected to kick in by 2025 as new graphite mines fail to keep up with surging demand from automakers.

According to a Benchmark Mineral Intelligence (BMI) analysis, graphite demand is likely to grow by a factor of eight by 2030 over 2020 levels (4.2 metric tons over a supply of 3.0), and 25 times by 2040. That translates into a predicted supply shortfall of 30% for graphite, compared to 11% for lithium (2.4 over 2.1), 26% for nickel (1.5 over 1.1), and 6% for cobalt (0.32 over 0.30).

EV demand will absorb all graphite output at this rate. Source: Kearney


By then, the world’s graphite supplies will not even be able to cover demand for EVs, let alone all end-use sectors, BMI projections showed.

BMI has said as many as 97 average-sized graphite mines need to come online by 2035 to meet global demand. That’s about eight new mines a year — a daunting challenge considering the time it takes to develop graphite deposits into mines.

Fortunately, the current US government has recognized the problem and is making funds available to US graphite producers. Stockhouse recently reported that mining projects focused on extracting critical minerals like graphite, lithium, and cobalt are eligible for federal loan guarantees worth $72 billion.

Also, a 25% tariff will be applied to Chinese natural graphite imports starting in 2026. The fact that the $7,500 Clean Vehicle Credit is not available to “foreign entities of concern” including Iran, Russia, North Korea, and China, which produces 70% of the world’s graphite, while only 2% of global mine production of EV battery minerals like graphite, cobalt and nickel came from the US and its free-trade-agreement partners in 2023, shows the urgency of the need to develop more home-grown graphite.

Graphite One (TSXV:GPH, OTCQX:GPHOF)

This is good news for companies like Graphite One (TSXV:GPH, OTCQX:GPHOF), which is addressing the domestic graphite shortfall by not only developing a graphite mine in Alaska, but building the first links of a domestic (North American) graphite supply chain.

To be eligible for the loan guarantee, a project must be energy-related and located within the United States. Graphite One ticks all the boxes for this kind of support. The company has already received two major grants from the US Department of Defense.

Last July, the DoD awarded GPH with a technology investment grant of up to $37.5 million under Title III of the Defense Production Act.

Graphite One Awarded $37.5 Million Department of Defense Grant Under the Defense Production Act


The company subsequently entered into a one-year $5 million loan agreement with Taiga Mining Company, its largest shareholder. On December 27, 2023, the company settled the loan and accrued interest when Taiga exercised its option to acquire a 1% NSR. The settlement of the loan leaves the company debt-free.

Graphite is included on a list of 23 critical metals the US Geological Survey has deemed critical to the economy and national security.

Graphite One’s Graphite Creek mine is situated along the northern flank of the Kigluaik Mountains, Alaska, spanning 18 kilometers.

Graphite Creek in early 2021 was given High-Priority Infrastructure Project (HPIP) status by the Federal Permitting Improvement Steering Committee (FPISC). The HPIP designation allows Graphite One to list on the US government’s Federal Permitting Dashboard, which ensures that the various federal permitting agencies coordinate their reviews of projects as a means of streamlining the approval process.

In other words, having HPIP means that Graphite Creek will likely be fast-tracked to production.

The USGS has cited Graphite Creek as the country’s largest known graphite deposit, and “among the largest in the world.”




On March 13, 2023, Graphite One updated its resource estimate, which showed an increase of 15.5% in measured and indicated tonnage with a corresponding increase of 13.1% in contained tonnes of graphite.

Measured and indicated resources now stand at 37.6 million tonnes at 5.14% graphite, with an inferred resource of 243.7 million tonnes at 5.07% graphite.




According to the PFS, the mine is expected to produce, on average, 51,813 tonnes of graphite concentrate per year during its projected 23-year mine life.

The company itself is anticipated to produce about 75,000 tonnes of products a year, of which 49,600 tonnes would be anode materials, 7,400 tonnes purified graphite products and 18,000 tonnes unpurified graphite products.

In October, Graphite One announced the completion of the 2023 drill program along with a selection of assay results. With the infusion of DoD funds, G1’s program quadrupled the scope of 2022’s, with 57 holes completed for a total of 8,736 meters — the largest drill program in Graphite One’s history. Of the 57 holes, five were geotechnical and the remaining 52 all intersected visual graphite mineralization and continued to demonstrate exceptional consistency of a shallow, high-grade graphite deposit that remains open both to the east and west of the existing mineral resource estimate.

Subject to financing, Graphite One plans to invest $435 million to build a graphite anode manufacturing plant in Trumbull County, Ohio, between Cleveland and Pittsburgh.

Through its subsidiary, Graphite One Alaska, the Vancouver-based company has selected Ohio’s Voltage Valley as the site for a graphite anode manufacturing plant by entering into a 50-year land-lease agreement on 85 acres. The deal also contains a right to terminate the lease and an option to purchase the property once known as the Warren Depot, part of the National Defense Stockpile infrastructure, until the brownfield site was processed through the Ohio EPA Voluntary Action program a decade ago, certifying that the land does not need further cleanup.

Graphite One plans to start construction within the next three years, as part of the company’s strategy to become the first vertically integrated producer to serve the US EV battery market. Its supply chain strategy involves mining, manufacturing and recycling, all done domestically.




The Ohio facility represents the second link in Graphite One’s advanced graphite materials supply chain; the first link is Graphite One’s Graphite Creek mine in Alaska, which is currently working toward completion of its feasibility study in the fourth quarter of 2024, on an accelerated timetable, with the $37.5 million Defense Production Act grant provided in July 2023.

Subject to financing and other contingent events, the plant will manufacture synthetic graphite until a source of natural graphite becomes available from the company’s Graphite Creek mine, located near Nome, Alaska, according to the March 20 news release.

Graphite One’s activities should be considered a bolt-on to what is already happening in northwestern Alaska with respect to the building of the first deepwater port in the US Arctic region.

The U.S. Army Corps of Engineers and Alaska’s Department of Transportation have chosen two sites for a deepwater port facility: Nome and Port Clarence. Nome has received $600 million in government grants and appears to be well on its way to doubling the size of its existing port to accommodate the world’s largest commercial and military vessels. Work is expected to start this year.

Developing America’s largest graphite deposit coincides with major port expansion at critical juncture of the Bering Strait – Richard Mills

CEO Anthony Huston recently traveled to Washington, DC to meet with President Joe Biden. The meeting was between the President and a select group of executives invited to the White House to discuss investment and job creation.

Hours before the event, Biden signed an executive order establishing a 25% tariff on Chinese imports, including graphite.

The White House tariff statement noted that “Concentration of critical minerals mining and refining capacity in China leaves our supply chains vulnerable and our national security and clean energy goals at risk.”

“I was honored to represent everyone at Graphite One in the meeting with President Biden,” Huston said in the May 15 news release. “We appreciate his support for the renewable energy transition and G1 is excited to continue pushing forward to create a secure 100% U.S.-based supply chain for natural and synthetic graphite. The White House meeting underscores that projects like Graphite One’s are important in so many ways — from industrial investment and job creation to the renewable energy transition, technology development and national security.”

Graphite and Critical Mineral Mining Boosted by $72B Fund

Click here for a link to the public broadcast, and here for the White House tariff statement.

Graphite One CEO and President, Anthony Huston, Invited by President Biden to White House Investment and Job Creation Session; White House Sets 25% Tariff on Chinese Graphite

In other Graphite One news, the company said it completed the initial planning sessions earlier this month at the Ohio site chosen for its battery anode active material production plant, and continues to progress its two Department of Defense grant projects.

A week prior to Huston’s participation in the White House jobs and investment forum, Graphite One senior management took part in a Defense Logistics Agency (DLA) visit to G1 project partner Vorbeck Materials’ facilities in Maryland. The DLA site visit took place at the half-way point in the $4.7 million DLA-funded project to develop a graphite and graphene-based foam fire suppressant as an alternative to Perfluoroalkyl and Perfluoroalkyl Substances (PFAS) fire-suppressant materials, as required by US law.

In its May 2024 project review session with the DoD project team overseeing Graphite One’s $37.5 million Defense Production Act Title III grant to accelerate completion of G1’s anticipated National Instrument 43-101 feasibility study (FS), Graphite One senior management outlined plan for the 2024 field season at Graphite Creek. Work remains on schedule to complete the FS as planned by December 2024 subject to financing. “As we near completion of the FS, we can now say that DoD’s support has cut about two years off of our initial feasibility study timeline,” said Huston.

The Slowdown in US Electric Vehicle Sales Looks More Like a Blip

“For every sign of an EV slowdown, another suggests an adolescent industry on the verge of its next growth spurt. In fact, for most automakers, even the first quarter was a blockbuster. Six of the 10 biggest EV makers in the US saw sales grow at a scorching pace compared to a year ago — up anywhere from 56% at Hyundai-Kia to 86% at Ford. A sampling of April sales similarly came in hot.” Tom Randall, Bloomberg

Conclusion

Graphite One has received strong support from the US government for developing its “made in America” graphite supply chain anchored by Graphite Creek, the largest graphite deposit in the country and one of the biggest in the world. Two DoD grants have been awarded, one for $37.5 million, the other for $4.7 million.

In addition, G1 qualifies for federal loan guarantees worth $72 billion.

The company has already received and settled a $5m loan from its largest shareholder, Taiga Mining. The Bering Straits Native Corporation has pledged its support for the project including a $2 million investment with an option to increase that to $10.4 million.

The project isn’t near a salmon fishery and it has the backing of local communities such as Nome, which has a long history of resource extraction.

The company has help from the highest political offices in Alaska — the governor, both senators and Alaska’s single House member. They clearly see an investment to increase domestic capabilities for graphite as money well spent.

Graphite One could supply a significant portion of the amount of graphite demanded by the United States, currently.

Consider: In 2023, the US imported 83,000 tonnes of natural graphite, of which 89% was flake and high-purity, suitable for electric vehicles.

Based on the prefeasibility study, the Graphite Creek mine is anticipated to produce, on average, 51,813 tonnes of graphite concentrate per year during its projected 23-year mine life.

We see Graphite One taking a leading role in loosening China’s tight grip on the US graphite market by mining feedstock from its Graphite Creek project in Alaska and shipping it, either through Nome or Port Clarence, to its planned graphite anode manufacturing plant in Voltage Valley, Ohio.

The new 25% tariff on Chinese graphite imports will help G1 to develop a home-grown graphite supply chain. Automakers have until 2027 to figure out how they will source graphite outside of China. After that, EVs with graphite and other battery components originating in China or other foreign entities of concern will no longer be eligible for subsidies, making them more expensive.

Graphite is essential to an electric car; it is the largest component in batteries by weight, with no known substitutes. While EV sales have recently slowed, that is expected to be temporary.

The International Energy Agency estimates that US sales of fully electric vehicles will soar to 2.5 million in 2025, from 1.1 million last year, Bloomberg reported on Tuesday.

Graphite One Inc.
TSXV:GPH, OTCQX:GPHOF
2024.05.28 share price: Cdn$0.89
Shares Outstanding: 129.0m
Market cap: Cdn$122.4M
GPH website

Richard (Rick) Mills
aheadoftheherd.com