6) China announces it has enough coal reserves to last another five decades (and it’s going to use them, no doubt)
Bloomberg, 21 September 2022
1) Jacob Rees-Mogg lifts fracking ban and says we must tolerate tremors ‘in the national interest’
The Daily Telegraph, 22 September 2022
Jacob Rees-Mogg has scrapped the ban on fracking as he said tremors in Britain’s countryside should be tolerated in the “national interest”
The Business Secretary said “much has changed” since the Conservatives introduced the moratorium on fracking in 2019, including the energy crisis caused by war in Ukraine.
He said the country will need to “explore all avenues available to us” as he also confirmed plans to issue a wave of new oil and gas licences in the North Sea.
Mr Rees-Mogg said: “While HM Government will always try to limit disturbance to those living and working near to sites, tolerating a higher degree of risk and disturbance appears to us to be in the national interest given the circumstances described above.
“With this in mind, it is important that the policy relating to shale gas extraction reflects this.”
The fracking ban was prompted in part by a 2.9 magnitude tremor at a site in Lancashire, and a subsequent investigation which found that it was not possible to accurately predict the probability or magnitude of earthquakes.
But Mr Rees-Mogg said more data could be collected by allowing shale gas drilling and using the wells to better understand the risk of earthquakes.
The decision to allow fracking is likely to be unpopular with many Tory MPs, including those that represent constituencies where it took place prior to 2019.
Opponents of fracking have circulated a list of Conservatives who have spoken out against it in the past.
It contains seven Cabinet ministers, including Kwasi Kwarteng, the Chancellor of the Exchequer, who said in March that new fracking sites would take up to a decade to produce gas and would “come at a high cost for communities and our precious countryside”.
Ministers hope that the reversal will spark a boom in production of shale gas that could help power Britain for decades to come.
The move means that fracking can resume in areas where extraction companies can secure planning and environmental permission.
Mr Rees-Mogg said: “In light of Putin’s illegal invasion of Ukraine and weaponisation of energy, strengthening our energy security is an absolute priority, and – as the Prime Minister said – we are going to ensure the UK is a net energy exporter by 2040.
“To get there we will need to explore all avenues available to us through solar, wind, oil and gas production – so it’s right that we’ve lifted the pause to realise any potential sources of domestic gas.”
Liz Truss, the Prime Minister, wants the UK to become a net energy exporter by 2040 amid renewed focus on energy security after Russia’s cuts to gas supplies to Europe pushed inflation to levels not seen for decades.
Fracking involves pumping sand and water deep underground to release gas trapped between rocks. It is widely used in the US and elsewhere but was in its infancy in the UK, with only three test wells drilled, when it was banned.
Mr Kwarteng in April asked the British Geological Survey to conduct a review into the evidence around earthquake risk, which has also been published today.
It finds that earthquake forecasting “remains a scientific challenge for the geoscience community” and that the structural geology of the Bowland Basin, the focus of frackers’ activity, is complex.
Mr Rees-Mogg says he will also review the level of seismic activity allowed at fracking sites. The industry has argued current thresholds are unfair and hold back the industry.
The new North Sea licensing round is the first since 2020. More than 100 new licences will be up for grabs.
Neither fracking nor the new licensing round is expected to make an immediate impact on soaring gas prices, as new North Sea fields take time to develop and the scale fracking will reach is unclear.
Sceptics argue the UK is too crowded for the fracking industry to really take off, given the number of wells needed.
The Government said it was also scaling up lower carbon energy such as wind power and nuclear, but that “there will continue to be ongoing demand for oil and gas over the coming years during this transition.”
It added: “Making the most of our own domestic resources under the North Sea will make us less dependent on foreign imports.”
2) Government discussing plans to designate shale gas sites as nationally significant infrastructure projects
The Guardian, 22 September 2022
Liz Truss is considering designating fracking sites as nationally important infrastructure, potentially cutting out local communities and breaking a leadership election promise, the Guardian can reveal.
During her campaign to be the Conservative party leader, Truss said new sites would only go ahead with local consent. However, those familiar with discussions in the Department for Business, Energy and Industrial Strategy (BEIS), led by Jacob Rees-Mogg, say there have been discussions about pushing through sites without local approval by designating them as nationally significant infrastructure projects (NSIPs).
This means they would bypass normal local planning requirements. The designations usually apply to infrastructure such as roads, airports and energy sites.
In parliament on Thursday, Rees-Mogg refused to commit to letting local communities blacklist fracking projects, instead telling MPs that people nearby would be “compensated”.
The Green MP, Caroline Lucas, said on Twitter: “Rees-Mogg squirming as so many of us, including his own backbenchers, challenge him on pledge PM gave that fracking will only happen where there is community consent – and is now endeavouring to pretend that compensation is the same as consent. It is not.”
In 2018, there was widespread opposition when the government consulted on the possibility of making shale gas projects NSIPs. It ended up shelving the plans, writing: “It is our view that, while the UK shale gas industry remains at an early exploratory stage, including the production phase into the … NSIP regime would be premature.”
3) Jacob Rees-Mogg right to say Putin backed anti-fracking campaigns
Guido Fakes, 22 September 2022
Already Labour MPs are up in arms over Jacob Rees-Mogg’s claim just now that some of the opposition to fracking has been funded by the Kremlin. According to Ed Miliband, it’s an “absolutely outrageous slur” that’s “shameful and disgraceful“.
Opposition backbenchers could barely believe their ears either. If it’s so shameful and disgraceful, perhaps they should direct their outrage at Anders Fogh Rasmussen, the respected former chief of NATO…
Here’s what Rasmussen said as far back as 2014 when the former Prime Minister of Denmark was NATO secretary-general:
“I have met allies who can report that Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called non-governmental organisations – environmental organisations working against shale gas – to maintain European dependence on imported Russian gas.”
Inevitably Rees-Mogg’s comments will fill plenty of column inches in the very same newspaper over the next few days. Presumably they’ll be just as furious with Rasmussen…
4) Back to black: Britain extends the life of its coal power plants
Bloomberg, 13 September 2022
Uniper SE’s British coal plant will extend the life of a unit that was set to shut down this year as the country seeks to secure energy supplies ahead of winter.
Ratcliffe-1, which has a 500-megawatt capacity, was due to close at the end of September. Now, Uniper will keep it online for another two years, the company said in a notice posted to the European Energy Exchange AG.
Chancellor of the Exchequer Kwasi Kwarteng, who was previously the business secretary, had asked coal-fired power producers to delay phasing out their units as Europe faces a shortage of natural gas. Using coal means less gas is needed to produce power.
Uniper follows Electricite de France SA and Drax Group Plc in keeping coal capacity in the UK online beyond scheduled closure dates. EDF will keep open a unit of its West Burton plant — also originally scheduled to close in September — until March 2023. Drax, which now focuses on biomass-fired generation, has announced the same decision for its last two coal units.
5) Back to black: South Korea turns to coal to meet energy needs
Bloomberg, 21 September 2022
South Korean utilities straining under the pressure of pricey gas are turning to cheaper coal to meet surging electricity demand during a power crunch.
Companies haven’t been curbing coal power generation since July, ignoring voluntary limits put in place by the government last year, according to people familiar with the matter, who asked not to be identified because the information isn’t public.
Coal power is seeing a global resurgence because of the energy crisis in the wake of Russia’s invasion of Ukraine. As prices for liquefied natural gas soar and competition heats up for supplies of the chilled fuel, coal is looking more attractive to nations like South Korea, the third-largest importer of LNG. The country is also pushing a shift toward nuclear energy.
“Ramping up coal and nuclear power is an obvious option for the government,” said Kim Namyll, a senior researcher at the Korea Energy Economics Institute. “Looking for alternative energy sources that are cheaper than gas should be considered by the government given the massive cost pressure” on utilities.
South Korea has been trying to reduce its coal consumption as part of its decarbonization plan, which led former President Moon Jae-in to permanently shut at least 10 plants since 2017. Under a program that began in 2019, state-run power generators must curb coal use in the winter months from December to March. Voluntary reduction during the remaining months began last year.
Korea Electric Power Corp., which is grappling with record losses on the back of surging energy costs, has requested that the voluntary cap be eased. The request was one of the proposals to improve Kepco’s finances in a plan submitted to the government, according to an internal document seen by Bloomberg. While the limit is voluntary, companies are still expected to curb their use of coal.
6) China announces it has enough coal reserves to last another five decades (and it’s going to use them, no doubt)
Bloomberg, 21 September 2022
China has enough coal for the next five decades and sufficient oil to last at least 18 years at current rates of production, according to the Ministry of Natural Resources.
The latest annual tally of reserves released on Wednesday shows an endowment of fossil fuels that stretches well beyond China’s 2030 deadline to peak its carbon emissions. In the case of coal, the worst fuel for global heating, there’s enough in the ground to take China past even its 2060 ambition to achieve carbon neutrality.
China consumes over 4 billion tons of coal a year, most of it domestically mined with imports making up less than a tenth of its needs. In 2021 its reserves stood at around 208 billion tons, 28% more than the prior year’s level, while the outlay on exploration rose 10% to 1.3 billion yuan ($184 million), according to the ministry.
For oil, reserves edged up 2.8% to 3.7 billion tons, which would theoretically be enough to get the nation’s drillers through most of the next two decades, assuming stable output of about 200 million tons a year. Natural gas reserves were a touch higher at 6,339 billion cubic meters, enough for the next three decades.
However, China still relies on imports for most of its oil and much of its gas. Investment in exploration over the year rose 13% to 80 billion yuan, with breakthroughs made in finding new reserves in Sichuan, Xinjiang and Inner Mongolia, as well as the Bohai Bay, the report said.
7) High natural gas prices push European manufacturers to shift to the U.S.
The Wall Street Journal, 21 September 2022
AMSTERDAM — A big winner from the energy crisis in Europe: the U.S. economy.
Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.
As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what some economists warn could be a new era of deindustrialization, Washington has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, executives say, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.
“It’s a no-brainer to go and do that in the United States,” said Ahmed El-Hoshy, chief executive of Amsterdam-based chemical firm OCI NV, which this month announced an expansion of an ammonia plant in Texas.
While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, analysts say, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by Washington on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.
Danish jewelry company Pandora A/S and German auto maker Volkswagen AG announced U.S. expansions earlier this year. Last week, The Wall Street Journal reported Tesla Inc. is pausing its plans to make battery cells in Germany as it looks at qualifying for tax credits under the Inflation Reduction Act signed by President Biden in August.
Europe remains a desirable market for advanced manufacturing and boasts a skilled industrial workforce, analysts and investors say. With pent-up demand from the pandemic, many companies that have seen exploding energy prices in recent months have passed them on to customers. The question is how long the higher natural-gas prices will last.
Some economists have warned that natural-gas producers from Canada to the U.S. and Qatar may struggle to fully replace Russia as a supplier for Europe in the medium term. If so, the continent could face high prices, at least for gas, well into 2024, threatening to make the scarring on Europe’s manufacturing sector permanent.
“I think we’ll muddle through two winters,” said Stefan Borgas, chief executive of RHI Magnesita NV. If the continent can’t find cheaper gas or ramp up renewable energy, he added, “companies will start to look elsewhere.”
The Austrian business, which makes materials used by firms such as steelmakers to withstand intense heat, is spending about 8 million euros, equivalent to about $8 million, on its European plants so certain processes run on alternative fuel such as coal or oil. It is also storing natural gas in a rented underground facility formerly owned by Kremlin-controlled Gazprom and seized by the Austrian government.
Mr. Borgas is bullish on steel demand in the U.S., where incentives have also brightened the green-energy outlook. Manufacturers like RHI Magnesita see hydrogen as key to replacing fossil fuels and reducing emissions in plants across Europe, the U.S. and elsewhere. Promised spending on such projects by Washington is expected to boost the production of hydrogen and eventually lower its price.
“We are increasing our investments [in the U.S.] also in order to stay with all of our partners who are investing,” he said. “We are very, very positive on the U.S.”
Luxembourg-based ArcelorMittal SA, which this month said it would cut production at two German plants, reported better-than-expected performance by an investment this year in a Texas facility that makes hot briquetted iron, a raw material for steel production. In a July earnings call, Chief Executive Aditya Mittal attributed the facility’s value in part to being in a “region that offers highly competitive energy and, ultimately, competitive hydrogen.”
“I would just add that we also own 100% of future expansion in that facility,” Mr. Mittal said.
Many companies remain cautious about changing their strategies because of the difficulty of building projects such as aluminum smelters, which can cost billions and take years to complete.
“It remains to be seen whether this will be a structural change or one of a temporary nature,” said a spokeswoman for German chemical giant BASF, one of Europe’s largest buyers of natural gas, which has cut production in Belgian and German plants.
OCI, which has slashed its European ammonia output, has instead ramped up imports to its facility at the Dutch port of Rotterdam. To facilitate such shipments, OCI is expanding its Beaumont, Texas, plant with an investment valued in the “high hundreds of millions” of dollars, said Mr. El-Hoshy, the chief executive.
At the new facility, OCI will make ammonia derived from so-called blue hydrogen, which relies on natural gas, and then capture carbon dioxide given off by the process. Mr. El-Hoshy said the Inflation Reduction Act made the deal more appealing by offering credits for storing such emissions.
“That, coupled with what’s happening with Russia, are two reasons to say, well, maybe over time you don’t need to consume natural gas [in Europe] and produce the product,” he said.
European manufacturers may struggle to stay competitive without the lower energy prices or green incentives currently offered in the U.S., said Svein Tore Holsether, chief executive of Norwegian fertilizer giant Yara International ASA.
“Some industries, as a result of that, will permanently relocate,” he said.
8) Europe’s deepening energy crisis pushes bill to $500 Billion
Bloomberg, 21 September 2022
The bill for Europe’s energy crisis is nearing 500 billion euros ($496 billion) as governments rush to soften the blow of soaring prices, according to the Bruegel think-tank.
The European Union’s 27 member states have so far earmarked 314 billion euros to cushion the impact of the energy crunch on consumers and businesses, while the U.K. has allocated 178 billion euros, Bruegel’s updated estimates showed on Wednesday.
The growing fiscal burden — EU spending accounts for 1.7% of the bloc’s gross domestic product — comes as European nations grapple with accelerating inflation and a bleak economic outlook. EU ministers are negotiating an emergency plan that will transfer windfall energy company profits to vulnerable households and firms. The deal, expected to be reached on Sept. 30, also includes a power price cap and a target to reduce electricity demand as Moscow squeezes gas flows to the region.
“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” said Simone Tagliapietra, researcher at Brussels-based Bruegel. “This number is set to increase as energy prices remain elevated. This is clearly not sustainable from a public finance perspective.”
While Bruegel’s estimates include measures such as lower value added tax rates on electricity, subsidies for heating and measures to keep some energy companies afloat, they do not fully reflect the scale of liquidity support across Europe. In Germany, the government will nationalize Uniper SE, a plan that involves injecting 8 billion euros ($8 billion) into the company and buying the majority stake held by Finnish utility Fortum Oyj.
The rising costs of the energy crisis threaten to deepen economic divergencies among EU member states, according to Tagliapietra.
“This level of intervention also entails a risk of fragmentation across Europe: governments with more fiscal space will inevitably better manage the energy crisis by outcompeting their neighbors for limited energy resources over winter months,” he said. “It is thus important to design policies that can ensure fiscal sustainability and coordinate them — notably among EU countries.”
9) US banks threaten to leave Mark Carney’s green alliance over legal risks
Financial Times, 21 September 2022
Wall Street banks including JPMorgan, Morgan Stanley and Bank of America have threatened to leave Mark Carney’s financial alliance to tackle climate change because they fear being sued over increasingly stringent decarbonisation commitments.
In tense meetings in recent months, some of the most significant members of the Glasgow Financial Alliance for Net Zero have said they feel blindsided by tougher UN climate criteria and are worried about the legal risks of participation, according to several people involved in internal discussions.
“I am close to taking us out of these global green commitments — I’m not going to allow third parties to create legal liabilities for us and our shareholders. It is immoral and irresponsible,” one senior executive at a US bank said. “What if we get it wrong, make a mistake or someone lies? Then the bank can be sued, that is an unacceptable risk.”
“We spent one hour in our last call discussing [US banks quitting]. It was extremely tense,” one of the people involved in recent Gfanz bank talks said.
European banks including Santander have also expressed misgivings.
The potential loss of some of the world’s biggest and most influential banks would be a serious blow for Carney’s Gfanz group, which was formed last year and took centre stage at the COP26 climate talks in Glasgow in November.
More than 450 finance companies accounting for $130tn of assets have joined Gfanz, which is co-led by the Canadian ex-Bank of England governor and current Brookfield Asset Management executive.
The banks’ biggest concern is over strict targets on phasing out coal, oil and gas introduced over the summer by the UN’s Race to Zero campaign, a UN-led net zero standard-setting body that accredits pledges made by Carney’s alliance.
The body will soon be able to take action against financial companies for failing to hit targets, which could lead to them being kicked out of Gfanz, the FT reported last month.
Banks’ legal departments are particularly anxious about tougher US Securities and Exchange Commission rules around climate-risk disclosures and commitments proposed by SEC chair Gary Gensler in February.
The SEC will soon require formal disclosures in annual reports about governance, risk-management and strategy with respect to climate change. Companies will also have to disclose and be held accountable for any targets or commitments made, with detailed plans on how to achieve them.
A European bank executive said that “there is no way we are joining any new ESG groups, we don’t control them” and echoed their US counterpart’s fears about lawsuits due to the SEC’s renewed focus on ESG and emissions reporting.
Bankers say that the proposed SEC rules could add hundreds of pages to annual reports and require a small army of extra accountants and lawyers to produce and vet the data, which they contend is not yet reliable or properly codified.
Gfanz has faced pushback from lenders since its inception. Banks successfully resisted committing to the most explicit road map for cutting greenhouse gas emissions to net zero by 2050, refusing to end financing of all new oil, gas and coal exploration projects immediately.
Bankers complain that the demands placed on them are not supported by equally robust government action on climate change, nor does the technology exist that hitting some of the net zero targets will rely on.
They also point out the lack of Gfanz members from China, Russia and India — three of the world’s top carbon-emitting countries.
Of the 116 banks that have signed up to the Net Zero Banking Alliance (NZBA), the Gfanz banking subsidiary, none are from China or India, while Sovcombank is the only Russian lender. By comparison, Liechtenstein has three members.
Bank of America, JPMorgan, Morgan Stanley, Santander, Race to Zero and the UN Environment Programme Finance Initiative, which helps run the NZBA, declined to comment. The SEC and Gfanz did not respond to requests for comment.
US banks have also come under pressure from domestic politicians, notably in the Republican party, over their sustainability commitments. Red states such as Texas and West Virginia have been openly hostile to financial institutions that they feel do not offer enough support to the fossil fuel industry.
“There are a lot of banks looking at this and saying there will be a Republican Congress next year, so we’re going to have to be accountable for that,” said one person involved in the NZBA discussions. “It’s true that a global alliance without American banks, that’s a failure.”