News round-up, June 14, 2023
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Chile intends to become the world's leading lithium producer
With 36% of the world's lithium reserves located in Chile, President Gabriel Boric is leading an extraction strategy, including plans for a government-owned company.
Le Monde by Flora Genoux(Buenos Aires (Argentina), Published today at 3:00 pm (Paris)Is Donald Trump Scared?
At the former President’s indictment in Miami on Tuesday, it was impossible to say whether his fate was more likely to be a return to the White House—or prison.
The New Yorker by Eric Lach, June 13, 2023Peak in global oil demand ‘in sight before end of decade’
International Energy Agency says demand will grow by 2.4m barrels a day in 2023 to record 102.3m
The Guardian by Alex Lawson and agencies, Wed 14 Jun 2023Stock Market to Fed: You Haven’t Done Enough
Bullish stocks, low bond yields and recovering housing market suggest interest rates aren’t that restrictive
WSJ by Greg Ip, June 14, 2023Shell’s New Strategy Avoids the Toughest Questions
The European energy major promises stable oil and gas production this decade, but higher hurdles for investments in lower-carbon alternatives
WSJ By Carol Ryan, June 14, 2023 
The AES Corporation President Andrés Gluski, Dominican Republic Minister of Industry and Commerce Victor Bisonó, and Rolando González-Bunster, CEO of InterEnergy Group, spoke at the Latin American Cities Conferences panel on "Facilitating Sustainable Investment in Strategic Sectors" on April 12 in Santo Domingo, Dominican Republic.How can strategic investment achieve both economic growth and social progress?… What is the role of renewable energy and battery storage in achieving the goals of the low-carbon economy?…
Image: Germán & CoCooperate with objective and ethical thinking…
Image credit:The brine basins and processing areas of a lithium mine owned by the Chilean company SQM (Sociedad Quimica Minera), in the Atacama Desert, Calama, Chile, September 12, 2022. MARTIN BERNETTI / AFP / Editing by Germán & CoChile intends to become the world's leading lithium producer
With 36% of the world's lithium reserves located in Chile, President Gabriel Boric is leading an extraction strategy, including plans for a government-owned company.
Le Monde by Flora Genoux(Buenos Aires (Argentina), Published today at 3:00 pm (Paris)The brine basins and processing areas of a lithium mine owned by the Chilean company SQM (Sociedad Quimica Minera), in the Atacama Desert, Calama, Chile, September 12, 2022. MARTIN BERNETTI / AFP
The announcement had been a long time coming. In a televised speech on Thursday, April 20, Chilean President Gabriel Boric outlined his "national lithium strategy," fulfilling a promise made during his campaign. The plan is part of an initiative to redistribute profits from the mining sector, one of the pillars of the Chilean economy. "No more mining for the few," vowed Boric, who assumed office in March 2022.
The lithium strategy "means more wealth so that Chile can finance new schools, hospitals, police stations, in short, a more dignified life for everyone," Boric continued. The project's cornerstone involves the creation of a "national lithium company" – the precise outline of which has yet to be determined – that will "participate in the entire production cycle of the mineral," according to the president. The idea is not to nationalize existing private companies but to set up a public-private partnership with mining stakeholders.
However, in order for the new structure to come to fruition, it remains subject to approval by Congress (where the government does not have a majority), via a bill due to be presented at the end of 2023. In the meantime, the government-owned copper company Codelco has already taken charge of launching the national participation in lithium extraction, by forging partnerships with private companies.
Taxation and energy sovereignty
Codelco, along with Enami (the national mining company), will be awarded exploration and exploitation contracts. Currently, two private companies – the US company Albemarle and the Chilean company SQM – are operating in the lithium salt flats of Atacama (1,500 km north of Santiago), where the metal is already being extracted in Chile. Their concessions expire in 2043 and 2030 respectively.
With the new policy, Boric intends to follow in the footsteps of Salvador Allende, the former socialist Chilean president (1970-1973) who nationalized the copper mines in 1971, calling the natural resource "Chile's wage." According to the authorities, Chile holds 36% of the world's lithium reserves, right in the heart of the "golden triangle" created by Argentina and Bolivia (together accounting for two-thirds of reserves, according to the French National Centre for Scientific Research).
As such, the country dreams of becoming the world's leading producer. Currently, Chile accounts for 34% of global production, outpaced by Australia. By 2022, lithium production will account for 3% of Chile's gross domestic product (GDP).
More coveted than ever, lithium is at a critical juncture. It's an essential metal for the batteries used in portable devices and in the manufacture of electric vehicles, which are increasingly encouraged by climate change adaptation policies. Demand for lithium is set to multiply by five to seven times between now and 2035, according to projections released on Tuesday, May 30, by the Chilean Copper Commission.
Consequently, the price of lithium has exploded. Between December 2020 and 2022, the price of lithium carbonate rose by 680% according to the Chilean government, making its tax and exploitation a major issue for tax revenues and sovereignty over natural resources.
The creation of a national lithium company "is a policy that seems quite legitimate," said Quentin Deforge, a political scientist, and researcher specializing in strategic minerals at the Free University of Brussels. "The energy transition is reshuffling the cards and allowing southern countries to gain a more favorable balance of power," he added. "If the Chilean strategy works, it could become a model."
New extraction methods
Although shares in SQM and Albemarle plummeted in the wake of the president's announcement, they recovered their value soon after. Above all, the companies have expressed a willingness to engage in dialogue. On Monday, June 5, French mining group Eramet announced the opening of an office in Santiago, "to support [its] future technical and commercial operations in Chile." According to Deforge, it's proof that "companies need lithium at any price and are absolutely willing to accept the new conditions" in Chile.
However, the specifics of the national lithium company have yet to be defined. "There's currently room for negotiation in Congress," said Emilio Castillo, an economist at the University of Chile. "Will the public company distribute contracts? Will it define the progressivity of taxes? The government presents it as a management company, but we can assume that the opposition will try to limit its action." In the meantime, a participatory phase focused on communities living in areas near mining operations is due to begin at the end of June.
In addition, the announced strategy includes "the use of new lithium extraction technologies that minimize the impact on brine basin ecosystems," along with research into these specific landscapes to learn more about how they function. Data gathering on the fragile brine basins "will take time and go beyond the current presidential term [until 2026]," warned Telye Yurisch, a researcher with the environmental protection foundation Terram.
The most critical issue is the high water demand involved in lithium extraction, due to the requirements of the evaporation process and the extensive use of fresh water in dilution, especially since these operations occur in a desert area in a water-stressed country. Yurisch added that "today, there is no commercial production anywhere in the world that uses the direct extraction method," which consumes less water.
Less than a month after the announcement of the lithium strategy, on Wednesday, May 17, Congress passed a tax amendment adding an increase for large copper mining operations, of which Chile is the world's leading producer. The government aims to finance its social policies by reviving the bill first proposed in 2018. The new tax system will start operating in 2024.
The government plans to reap $1.3 billion (€1.16 billion, or 0.45% of GDP) in tax revenue, a third of which will be redistributed to the regions. The law's approval is a major victory for the government, which nevertheless plans to pursue its tax reform project – originally intended to finance half its policies – which was rejected in March.
Seaboard: pioneers in power generation in the country…
…“More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.
Image: by Germán & CoIs Donald Trump Scared?
At the former President’s indictment in Miami on Tuesday, it was impossible to say whether his fate was more likely to be a return to the White House—or prison.
The New Yorker by Eric Lach, June 13, 2023For long stretches during former President Donald Trump’s arraignment in Miami on Tuesday afternoon, the only sounds in the courtroom were the creaks of the wooden benches in the spectators’ gallery and the hum of the air-conditioning system. Trump, wearing a dark suit, sat between his two lawyers, Todd Blanche and Chris Kise. From time to time, he leaned to his right to whisper to Blanche. Blanche would cover his mouth as he replied, pressing his face into Trump’s shoulder, practically snuggling.
Every American should be afforded the opportunity to observe Trump sitting silently for an hour. As it was, a half-dozen members of the public and a few dozen representatives of the press had their names drawn out of a hat by the clerk of the U.S. District Court for the Southern District of Florida. In April, at Trump’s arraignment in Manhattan on thirty-four counts of falsifying business records, the former President said fewer than a dozen words. On Tuesday, facing federal charges—including willful retention of national-security defense information and conspiracy to obstruct justice—Trump said absolutely nothing. His lawyers did the talking for him. “Your honor, we most certainly enter a plea of not guilty,” Blanche said, a few minutes into the proceeding.
There had been speculation before the hearing that Trump wouldn’t be formally arraigned on Tuesday. Two of the lawyers who had been handling the case left his legal team last week, after the indictment against him was unsealed. Since the case will be tried in Florida, Trump needed a lawyer admitted to the bar in the state. But who would take such a case, with such a client, and at the last minute? Representing Trump right now means accepting a nonzero chance of ending up in legal trouble oneself. Federal prosecutors, led by the special counsel Jack Smith, built their indictment against Trump in part using notes kept by one of Trump’s own lawyers, M. Evan Corcoran, who will now likely be called as a witness in the case. But there was Kise, a veteran Florida lawyer with deep ties to the state Republican Party, sitting to Trump’s left. There always seems to be someone in a red hat or blue suit ready to step in for Trump, no matter the fate of the last guy.
Arraignments are usually considered perfunctory affairs, particularly in cases against wealthy defendants who can afford bond and stay out of pretrial detention. But nothing about the criminal prosecution of a former President is perfunctory. As was the case in April in Manhattan, Trump’s arraignment on Tuesday involved extensive discussion of Trump’s extraordinary circumstances. Prosecutors allege that Trump kept classified national-security documents in sloppily stored banker’s boxes at Mar-a-Lago, his private club in Palm Beach, and at his golf club in Bedminster, New Jersey, and that he engaged in a series of deceptions and scheming maneuvers when asked to return them. While discussing whether the judge presiding over the arraignment, Jonathan Goodman, would prohibit Trump from contacting witnesses in the case, Blanche argued that such a rule would be impossible for Trump to abide by, since the case involved so many elements of Trump’s life: his staff, his security detail, his clubs.
Trump’s co-defendant in the case is Waltine Nauta, a former White House military valet who has continued to work for Trump since the former President left office. The government says that Nauta was the other member of Trump’s conspiracy to keep the classified documents. Nauta was sitting at the defense table to Blanche’s right, his shiny bald head a contrast with Trump’s shiny blond head. Goodman said it was his understanding that Nauta was with Trump “on a daily or nearly daily basis.” Nauta’s presence meant that Trump had some familiar company in the courtroom. As was the case in Manhattan, no member of Trump’s family attended the hearing in Miami. There has been much talk about what kind of venue Florida will be for a Trump trial, and whether a jury here will be friendlier to the former President than one in New York. Calls had gone out for Trump supporters to protest the proceeding on Tuesday. But, for much of the morning, Trump fans were rivalled in number by the feral chickens that live on the grass outside the Wilkie D. Ferguson, Jr., Courthouse.
Eventually, the judge, the prosecutors, and Trump’s lawyers hashed out a plan wherein Trump agreed not to discuss the facts of the case directly with anyone whom prosecutors put on a list of potential witnesses. Otherwise, the prosecutors seemed to go out of their way to demonstrate that they did not want the case to restrict Trump in any way. He was not asked to surrender his passport. He was not asked to check in with pretrial services. He did not have to put up bail. Trump is running for President, after all. After about forty-five minutes, the hearing was over. Trump stood as the judge exited, and then he turned to look at the gallery for a moment before walking out through a side door. His head was set low on his shoulders. He was grimacing.
From the courthouse, Trump made what the Miami Herald called “strategic detour” to Versailles, a Cuban restaurant in Little Havana where his supporters had gathered. “Are you ready? Food for everyone!” he said, before a pastor and a rabbi who were on hand took a moment to pray for him. Then Trump headed for the airport, to fly to Bedminster, one of the scenes of the alleged crime, and the site of a fund-raiser he planned to attend in the evening. On Wednesday, Trump will be seventy-seven years old. He might end up President again, or he may face a terminal prison sentence. It remains impossible to say which is more likely.
Image credit: The International Energy Agency expects economic headwinds to reduce oil growth to 860,000 bpd next year. Photograph: Nick Oxford/Reuters/ Editing by Germán & CoPeak in global oil demand ‘in sight before end of decade’
International Energy Agency says demand will grow by 2.4m barrels a day in 2023 to record 102.3m
The Guardian by Alex Lawson and agencies, Wed 14 Jun 2023The worldwide peak in demand for oil is “in sight” and could come before the end of this decade, the global energy watchdog has said.
The International Energy Agency said the bounceback in oil demand that followed the easing of Covid restrictions was likely to end this year and growth would slow from next year.
A potential worsening in the global economy and the long-term transition to cleaner energy sources are expected to hurt demand.
The IEA’s executive director, Fatih Birol, said: “The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance.”
Global oil demand would grow by 2.4m barrels per day (bpd) in 2023 to a record 102.3m, the IEA said in its monthly report on Wednesday.
However, the Paris-based agency expects economic headwinds to reduce growth to 860,000 bpd next year, and increasing use of electric vehicles to help to reduce that to 400,000 bpd in 2028 for overall demand of 105.7m.
“The slowdown has been hastened by Russia’s invasion of Ukraine amid heightened energy security concerns and by governments’ post-Covid recovery spending plans, with more than $2tn mobilised for clean energy investments by 2030,” the IEA said.
Demand for oil from combustible fossil fuels, excluding biofuels, petrochemical feedstocks and other non-energy uses, was likely to peak at 81.6m bpd in 2028, it added.
“Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition,” Birol said.
Shell told investors it had ditched plans to cut oil production each year for the rest of the decade as it focused on fossil fuels under its new chief executive, Wael Sawan.
Energy prices soared last year after Russia, a large exporter of fossil fuels, invaded Ukraine and cut deliveries of natural gas to Europe.
Western powers imposed bans and price caps on Russian oil exports in efforts to drain a significant source of cash for Moscow’s war effort.
Oil and gas prices have fallen in recent months. However, British households’ energy bills remain about double what they were before the beginning of the energy crisis in 2021.
The energy price cap in Great Britain will fall to £2,074 for an average household from July, from the £2,500-a-year level set by the government’s energy price guarantee, which subsidises bills.
Last month a report by the IEA showed that clean energy investment was on track to reach $1.7tn (£1.4tn) this year as investors turned to renewables, electric vehicles, nuclear power, grids, storage and other low-carbon technologies.
The agency said Russia’s invasion of Ukraine, and the volatility the war injected into commodity markets, had encouraged greater investment in clean energy.
Joe Biden’s $369bn Inflation Reduction Act package of climate subsidies has also enticed investor capital into low-carbon projects in the US, and put pressure on the UK and elsewhere in Europe to respond with greater support for green energy on this side of the Atlantic.
Image by Germán & CoStock Market to Fed: You Haven’t Done Enough
Bullish stocks, low bond yields and recovering housing market suggest interest rates aren’t that restrictive
WSJ by Greg Ip, June 14, 2023Federal Reserve officials plan to take a break from raising interest rates Wednesday because they think monetary policy is already plenty tight.
To which the markets say: no, it ain’t.
The Fed’s mission has been to get interest rates high enough to slash inflation from its current 4% to 5% range to 2%, even if that means pushing the economy into recession and unemployment higher. If the Fed had succeeded, you probably wouldn’t be seeing these things: stocks entering a new bull market, a rebounding housing market or long-term Treasury yields well below the inflation rate.
In other words, the premise behind the Fed’s pause is suspect. Yes, interest rates are up a full 5 percentage points since early 2022, the steepest pace of increases since the 1980s. Despite that, monetary policy simply isn’t very tight, and that explains why the economy remains stronger and inflation is more stubborn than Fed officials expected—and why their job is still not done.
Likewise, the Reserve Bank of Australia and Bank of Canada had both raised rates rapidly, then paused to await an economic slowdown and lower inflation. Neither happened, and both resumed raising rates in recent weeks.
Monetary policy appears tight because the Fed has raised the nominal federal-funds rate so much—from near zero to a range between 5% and 5.25%. But it’s the real (inflation-adjusted), not nominal, interest rate that matters for the economy, and that has risen much less because inflation is higher than in previous cycles.
The level of real rates depends on the inflation rate used. Based on the 5.3% increase in consumer prices excluding food and energy in the past 12 months, the real rate is around zero. Using inflation-protected Treasury bond yields, Benson Durham, an analyst at Piper Sandler, estimates that the real rate is now about 1.4%. Unlike nominal rates, the real rate has risen less than in 1994 and 2004, though more than in 1999 and 2016, he calculates. “Not much to write home about,” he says.
The Fed considers a real rate of 0.5% neutral, meaning it neither stimulates nor slows economic activity. Anything above that is seen as restrictive enough to nudge unemployment higher and inflation lower. That said, a real rate of 1.4% isn’t that restrictive. The real rate was higher before every previous recession at least since 1960.
Typically, when the Fed raises short-term rates, stock prices fall, and long-term bond yields and the dollar rise. It’s this tightening of financial conditions more broadly, not the rise in short-term rates alone, that slows the economy. That’s what happened for the first six months of Fed tightening in more or less textbook fashion.
Image: Shell wants to expand its natural-gas business and keep oil flows steady for the rest of the decade. PHOTO: YUI MOK/ZUMA PRESS/Editing by Germán & CoShell’s New Strategy Avoids the Toughest Questions
The European energy major promises stable oil and gas production this decade, but higher hurdles for investments in lower-carbon alternatives
WSJ By Carol Ryan, June 14, 2023 Attacked on all sides, Europe’s energy bosses have a new pitch: They won’t cut fossil fuels until global demand falls. For investors, the strategy promises plenty of cash, but also questions.
On Wednesday, Shell SHEL 1.68%increase; green up pointing triangle released fresh targets at its investor day in New York, where Chief Executive Wael Sawan set out detailed goals for the company he took the helm of earlier this year. Among the new plans are additional cash for shareholders, steady fossil fuel production and a higher profit hurdle for clean-energy investments to get the green light.
Shell will distribute up to 40% of its cash flows to investors, an increase from up to 30% previously. This will happen “through the cycle,” according to the company’s statement, perhaps an assurance that there won’t be a repeat of Shell’s 2020 dividend cut. Cost efficiencies and lower capital spending will help fund the higher payouts. Despite the new handouts, Shell’s shares were up a muted 1% in early trading.
As long as demand for fossil fuels continues to grow, Shell will meet it. The company wants to expand its natural-gas business and keep oil flows steady for the rest of the decade. It previously planned to reduce oil production by 1% to 2% a year, though Shell says it has already met this target by selling assets. Rival BP made a similar shift earlier in February. Shell will also be more selective about investing in alternative sources of energy such as wind and solar, where returns have been disappointing.
Europe’s top oil companies clearly don’t want to jump the gun with the shift to cleaner energy. Shell’s Sawan thinks that cutting oil and gas production while global demand for fossil fuels is still growing is “unhealthy.” Similarly, TotalEnergies boss Patrick Pouyanné said during a recent interview with Columbia Energy Exchange that the company’s oil production “will begin to decline when we see the decline of demand.”
The case for not starving the world of oil and gas before an alternative energy system is in place is valid. Consumers and businesses don’t need a repeat of last year’s energy shortages and record-high prices. But the lion’s share of oil companies’ investment budgets is still being pumped into fossil fuels rather than alternatives. One risk for investors is that when the tipping point comes, oil companies won’t be as well prepared for the energy transition—or harsher regulations—as they should be.
The International Energy Agency thinks peak oil is on the way this decade. For now, there is no obvious candidate to replace oil and gas, or at least none that is as profitable. For example, BP is targeting returns on investment of up to 8% for renewable energy such as wind and solar, which is less than half what fossil fuel projects typically deliver. Biofuels are more promising, as are green hydrogen and carbon capture and storage, but these are still small markets.
European energy companies are trying to balance competing demands. Their valuations trade at a big discount to American oil giants Exxon Mobil and Chevron as investors reward companies that stick with fossil fuels. But shareholders don’t want too much investment in new oil exploration and prefer cash to be handed back instead. Shell, BP and TotalEnergies are also under pressure from ESG-minded European investors to address climate change.
Big Oil’s “over to you” message to society lets companies slow their bets on the energy transition for now. But it doesn’t add up to a convincing long-term plan.