Monday, June 27, 2022
June 27 (Reuters) - Ecuador will likely suspend oil production completely within 48 hours if road blocks and vandalising of oil wells continue, Bloomberg News reported on Sunday, citing an emailed statement from the Energy Ministry.
The former OPEC country would have to halt oil operations "due to the acts of vandalism, takeover of wells and closing of roads," the report said quoting the ministry.
Ecuador has been embroiled in mass anti-government protests since June 13 with calls for lower prices for fuel, food and other basics and has led to its oil production falling by more than half.
President Guillermo Lasso said on Sunday he would cut prices for gasoline and diesel by 10 cents a gallon, a day after the government and indigenous leaders held their first formal talks since the protests began. read more
Reporting by Deep Vakil in Bengaluru; Editing by Edmund Blair
Our Standards: The Thomson Reuters Trust Principles.
Few people are better positioned for the electric-vehicle revolution than the billionaire Julio Ponce Lerou.
He retired years ago, but the former son-in-law of late dictator Augusto Pinochet is still known in Chile as the lithium king. And Ponce has never been richer: The shareholder group he leads has seen its approximately 25% stake in SQM, the world’s No. 2 lithium miner, quintuple over the past seven years amid record profit, increasing the value of the portion he owns to $3.5 billion.
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Boric’s brand of left-wing politics is much more investor friendly than that of Salvador Allende, whose 1971 nationalization of US-owned mines led to the creation of state copper giant Codelco. But there are signs that the lithium business is about to get increasingly complicated in Chile, with authorities recently rescinding new contracts amid calls for the state to get a bigger share of the mineral windfall.
The shifting landscape for the lithium king has its roots in a wave of street protests in 2019, which led to a rewrite of a constitution born in the Pinochet era that enshrines private property, including minerals and water. Writers of a new charter want to tip the balance back toward community rights, environmental protection and state-run social services, with a greater say for indigenous groups in where and how natural resources including lithium are extracted.
Ultimately, the moves could force SQM to adopt extraction techniques that push up costs or limit production, potentially marking an end to booming profits. Ponce — Chile’s second-richest person — is the only disclosed name from the shareholder group, whose entire stake is worth more than $6 billion. Filings show his portion is equivalent to about 16% of SQM. The shares fell 3.2% in Santiago trading Thursday.
The movement is increasing scrutiny of SQM’s business model, which is based on pumping up vast amounts of brine from beneath a salt flat in northern Chile’s Atacama Desert and storing it in giant evaporation ponds for a year or more — a footprint that can be seen from space. The resulting concentrate is turned into lithium carbonate and hydroxide at nearby plants and sent off to Chinese and Korean battery makers.
As simple as it is profitable, the process uses far less fresh water, chemicals and energy than hard-rock mining. But the solar evaporation technique means billions of liters of brine are extracted and then vaporized in one of the most arid places on Earth, which some say is a threat to wildlife such as pink flamingos that inhabit its Mars-like landscape.
Radical proposals such as nationalizing the entire industry have fallen short in the constitutional process. But if the new charter opens the way for the mineral-rich brine under the Atacama to be considered a type of water — an idea the company disputes — that type of mass extraction may come under threat.
There are already calls from some communities and politicians to move to a more selective or direct process of mining that would mean far less evaporation — and probably less output and profit. Both SQM and Albemarle Corp., the only two lithium producers in Chile, are investigating such techniques, which are relatively untested commercially.
Across the developing world, the growth in EVs has created a new demand for minerals from Atacama lithium to nickel in Russia’s Siberia to cobalt in the Democratic Republic of Congo. Powering the world with less fossil fuels presents a new set of social and environmental challenges. In the short term, it’s made mineral moguls like Ponce fabulously wealthy.
But the energy transition is leaving behind the communities where the metals are extracted, says 70-year-old Sara Plaza, an indigenous resident of Peine, a village near the Atacama operations.
“Mining dried out the salt flats,” she said from her modest home, with a view to the chalky expanse and mountaintops that surround her town. “Julio Ponce has done whatever he wanted.”
Ponce’s shareholder group didn’t respond to requests for comment made through SQM.
SQM says it is reducing its brine pumping rates even as it ramps up production, through efficiencies and by focusing on lithium and less on minerals used in fertilizers. The company is also spending a lot more time and money trying to win indigenous groups’ favor, and points out that its contribution to state coffers of about 60% of earnings is among the biggest in the industry.
The company has a new marketing campaign that highlights its contributions, and even plans to put up a sign at its Santiago headquarters for the first time to boost local visibility. All this comes as it prepares for talks to renew its mining lease with the government that expires in 2030.
“We want to tell people what we do,” said Carlos Diaz, SQM’s head of
lithium. Namely, production of a critical mineral that “helps to
decarbonize the world.”
As for Ponce, his journey to lithium king took many twists and turns.
Ponce in 1969 married Veronica Pinochet Hiriart, whom he met because their families had neighboring beach houses. Four years later, Pinochet led the bombardment of Chile’s presidential palace in the coup that brought him to power.
Ponce was working at a sawmill deep in the jungle of the Darien Gap at the time and heard about the attack from a television in Panama. Under Pinochet’s rule, his fortunes quickly began to change.
During the dictatorship, the former forestry student was named president of a state cellulose company, and helped guide its privatization. He rose to lead other companies controlled by the government and, eventually, the development agency in charge of converting state-run enterprises into private businesses, Corfo. The agency had also commissioned early research on critical minerals in the Atacama, including lithium.
Ponce stepped away from those roles in 1983 to fight allegations of illegal enrichment in the acquisition of ranch lands, of which he was acquitted. When Soquimich, as SQM is also known, sold shares in 1986, he was back in the privatizations, but this time on the buy side. He and his family members bought shares, and when Ponce became chairman in 1987, the board was still stacked with military officials. Years later, Chile’s comptroller found that parts of Soquimich were privatized for as little as a third of market value.
Maria Monckeberg, a Chilean author who is an expert on the fortunes derived from Pinochet-era privatizations, said the reforms urged by economic advisers who studied at the University of Chicago — known as the Chicago boys — opened the way for Ponce’s wealth boom.
“Thanks to the roles he had in Corfo, he detected the importance of Soquimich,” Monckeberg said of Ponce. “And he began designing the plan to own it.”
Chile was only beginning to discover lithium’s potential in the Pinochet era. A copper miner called Anaconda documented deposits when it went on a search for water resources in the Atacama desert in the 1960s, according to Monckeberg’s book. In 1969, a research institute tied to the development agency noted the location of the deposits could make for relatively cheap extraction.
The lightest metal on the periodic table, lithium was discovered in 1817 by Swedish chemist Johan August Arfwedson, and was initially used in tiny amounts to treat depression and bipolar disorder. It later became the focus of military powers interested in the hydrogen bomb, and eventually researchers found a variety of uses: waterproofing, gunpowder, heat-resistant glass, air-conditioning and electric car batteries.
“With bland consistency, white color and surprising properties, lithium opens the doors to applications of great complexity and sophistication,” said a 1986 book edited by Gustavo Lagos, a scientist at Universidad de Chile. Lithium had “an almost magical meaning, containing in it the hopes that neither copper nor even salt reached in the life of the nation.”
Ponce became chairman of SQM in 1987 and continued building up his stake. Six years later, after Chile had returned to democracy, it obtained a lease for exclusive mineral exploitation rights on 81,920 hectares (202,428 acres) in the Atacama salt flats. The company invested hundreds of millions at the site, initially with a focus on potash.
As SQM became one of Chile’s most profitable companies, Ponce fended off a 2006 takeover attempt by PotashCorp. (now Nutrien), North America’s largest potash producer, by signing a pact with Japanese trading firm Kowa. In 2018, while no longer chairman but still a large shareholder, Ponce got a deal to protect the firm’s trade secrets amid an effort by a larger Chinese competitor, Tianqi Lithium Corp., to take a stake. Ponce’s brother Eugenio remains an adviser to SQM.
He also endured scandals. He resigned from his decades-long reign as chairman in 2015 amid a probe over illicit political campaign financing, which led to a $30 million settlement with the US Securities and Exchange Commission and a fine for SQM’s then-CEO (Ponce himself was not charged). Ponce also fought allegations of market manipulation in courts, and successfully reduced a record $70 million fine — an outcome that critics saw as the sign of a system that unfairly favors elites.
Today, Ponce makes time for visits to his polo club in Santiago, horseback rides at his estate of about 5,000 hectares and even equestrian jumping during the pandemic. His children sometimes join him on rides — all four were banned from SQM management in 2018, but not from SQM holding companies, where his daughters are directors. A Panama-based trust holds SQM shares for benefit of the family. Ponce keeps family close, including his brother Gustavo, a yoga guru who has defended Julio on Chilean TV.
“It’s not easy to be in his position,” Gustavo said of his brother in text reply to Bloomberg.
But a constitutional rewrite represents a challenge that could be harder for Ponce to resolve than his previous court battles.
Cristina Dorador, one of the members of Chile’s constitutional
convention, says the current charter fails to recognize the Atacama salt
flats as ecosystems that are affected when large volumes of brine are
pumped for lithium extraction. A scientist, she has published studies on
the dwindling flamingo presence at lagoons in the vicinity of lithium
SQM says those studies fail to consider the impact of tourism on the migratory birds, adding that while lithium production is up, brine pumping rates are down and food conditions haven’t changed. Monitoring systems show flamingo populations have remained stable over time, SQM said, adding that it welcomes scientific efforts to better understand the relationships between mining and the environment.
Dorador said the promise of addressing climate change by supplying the materials needed for a shift to renewable energies has enriched miners like SQM, but few EV consumers are aware of the new types of environmental problems that the transition is creating.
“If we are going to do any exploitation then it needs to be done using the latest in technology and ensure that the consequences are minimal,” she said. “There has to be a national decision.”
Joe Lowry, founder of advisory Global Lithium LLC, said SQM needs to address environmental concerns, but at these heights — with a lithium shortage propping up prices near record highs — it’s not a “major hurdle,” at least financially. Even a constitutional rewrite is unlikely to upend forces that are working in Ponce’s favor, he said.
“The new government certainly will not want to stop the massive royalty income,” he said.
(By Blake Schmidt and James Attwood)
Friday, June 24, 2022
Brazil’s former president was laughing at me. I was sitting opposite 76-year-old Luiz Inácio Lula da Silva , in an overly air-conditioned studio in São Paulo this March, interviewing him for a story on Brazil’s October elections , for which he is leading the polls. I had just asked Lula if he would be interested in signing up to a bold climate pledge made by Gustavo Petro —then the leftist front runner in Colombia’s 2022 presidential race and, as of this week, the nation’s president-elect. As part of his campaign, Petro vowed to immediately stop issuing new permits for oil exploration—a big deal in a country where oil makes up 40% of exports, and 12% of government income . Petro also called on Lula, who could become his most important regional ally, to join him . So, would he?
“Look, Petro has the right to propose whatever he wants,” Lula said, smiling and shaking his head as if we were discussing an eccentric old friend. “But, in the case of Brazil, this is not for real. In the case of the world, it’s not for real.”
For Colombia, it just got a lot realer. Petro, a one-time leftist guerrilla, won 50.47% of the vote in Sunday’s second round vote, narrowly defeating a populist businessman who took 47.27%. After he assumes office on Aug. 7, the president-elect will stop issuing new oil permits on day one. He will then try to establish a 12 year deadline for already-approved exploration to wind down, which would likely require legislative approval. Petro’s advisors say oil produced under those existing contracts is enough to satisfy domestic consumption—if exports are cut—for “at minimum” 23 years if needed. Long before the oil runs out, the government says it will scale up renewable energy infrastructure enough to replace fossil fuels.
How radical is Petro’s plan on oil exploration?
For critics, Petro’s oil policy amounts to “economic suicide.” Many warn his plan to boost agriculture and tourism won’t be enough to make up for lost oil export earnings, potentially leaving a big hole in public finances. Analysts have predicted a significant devaluation of the peso against the dollar as a result of falling investor confidence in Colombia. And oil industry groups claim production could fall too quickly to sustain Colombian demand until alternative fuels are available, forcing the country to rely on imports.
A version of this story first appeared in the Climate is Everything newsletter. To sign up, click here .
Such concerns are voiced by politicians and fossil fuel advocates all over the world, and they have created a global stalemate on oil: almost all of the world’s top 33 oil producers have pledged under the Paris Agreement to try to limit global warming to an average of 1.5°C over the preindustrial era. But none have set timelines to end oil production that align with that goal, according to scientists. To have even a 50:50 shot of achieving the 1.5°C target, according to a March report by the International Institute of Sustainable Development (IISD), rich countries need to stop producing oil and gas by 2034, and countries in Colombia’s middle income-bracket must do so by 2043. In climate terms, Petro’s two-decade production phase-out is not ambitious—it’s just about acceptable.
In political terms, though, Petro’s goal is radical. “This would be absolutely head and shoulders above what other countries are doing,” says Kevin Anderson, a scientist at Manchester University’s Tyndall Center for Climate Change Research, who led the IISD study. Norway is still offering dozens of new oil exploration licenses to companies each year and the U.K. is planning a fresh round of oil and gas contracts, even as their governments profess to be climate leaders, Anderson says. “These are both incredibly wealthy countries and would remain incredibly wealthy [without oil and gas production]. But they are demonstrating an almost complete disregard for climate science.” Petro’s oil policy, he adds, “is the sort of leadership we need on climate change and there’s very, very little of it around.”
No one wants to be the first to give up their oil earnings: of the tiny handful of countries that have put a moratorium on oil exploration in recent years, Belize is the only one where oil contributed more than 1% of GDP. And leaders don’t want to be accused of risking their countries’ energy security—a fear heightened by Russia-E.U. tensions over natural gas since the outbreak of the Ukraine war. “Angela Merkel decided to close all [of Germany’s] nuclear power plants. And today, Europe depends on Russia for energy, ” Brazil’s Lula told me. He has pledged to invest in new domestic oil refinery infrastructure as a way to shield Brazilians from global price shocks.
A vision for the future
Given that global context, how did Petro manage to get a majority of Colombians to back his anti-oil platform? According to Claudia Navas, a Bogotá-based analyst for consultancy Control Risks, Petro didn’t present his oil plan as a stand-alone climate policy, and, on its own, it probably wasn’t a decisive factor for most voters. Rather, the oil phase-out is part of a comprehensive “vision for change” in Colombia, which appealed to working class people who have been excluded from Colombia’s previous economic development, Navas says. After his victory, Petro urged fellow progressives in Latin America “to stop thinking that a future of social justice and wealth redistribution could be built on a foundation of high oil, coal, and gas prices.”
It also helps that Petro could point to renewables as a major opportunity for Colombia. The country already produces almost 70% of its electricity from hydropower, and its varied climates give it above-average potential for both wind and solar , in addition to green hydrogen production. Together, those sources could allow Colombia to export clean energy, rather than oil, in the future.
In Barrancabermeja, a northern oil town with a strong leftist tradition , residents appear to have trusted that Petro’s plans won’t leave them jobless, voting overwhelmingly for him . As he congratulated the president-elect, the town’s mayor expressed hope that the area would not lose its “energy capital” status. “We hope that your energy transition proposal will open job opportunities for the industry that has historically sustained Barrancabermeja and the country’s economy.”
None of this is to say that fears for Colombia’s economy are unfounded. In the coming months and years, Petro will need to match his lofty rhetoric with a concrete plan for expanding low-carbon industries to replace fossil energy and revenues, in towns like Barrancabermeja and nationally. Petro’s performance will weigh heavily on leaders in other oil producing nations like Brazil. “The implementation will determine if Petro’s policy generates greater fear in the region about the energy transition,” Navas says, “or pushes people towards it.”
Thursday, June 23, 2022
Swiss National Bank. Stock image.
Switzerland imported gold from Russia for the first time since the invasion of Ukraine, showing the industry’s stance toward the nation’s precious metals may be softening.
More than 3 tons of gold was shipped to Switzerland from Russia in May, according to data from the Swiss Federal Customs Administration. That’s the first shipment between the countries since February.
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While that was viewed as a de facto ban on fresh Russian gold from the London market, one of the world’s biggest, the rules don’t prohibit Russian metal from being processed by other refiners. Switzerland is home to four major gold refineries, which together handle two-thirds of the world’s gold.
Almost all of the gold was registered by customs as being for refining or other processing, indicating one of the country’s refineries took it. The four largest — MKS PAMP SA, Metalor Technologies SA, Argor-Heraeus SA and Valcambi SA — said they did not take the metal.
In March, at least two major gold refineries refused to remelt Russian bars even though market rules permit them to do so. Others, such Argor-Heraeus, said they would accept products refined in Russia prior to 2022, so long as there were documents proving that the gold had not been exported from Russia after beginning of the war, and that accepting them would not benefit Russia, a Russian person or entity anywhere in the world.
Some buyers remain wary of Russian precious metals, including bars minted prior to the war which are still tradeable in western markets. In palladium, it’s created a persistent dislocation between spot prices in London and futures in New York, due to the greater risk of receiving ingots from Russia in the latter.
Switzerland has been importing small quantities of palladium from Russia — the world’s biggest miner of the metal — since April.
(By Eddie Spence)