Author Archives: prosperitysaskatchewan

Kenny Shields’ passing

Many of you are not aware of my second career path – artist management – which I have not done for 4 years.  I was privileged to work with Kenny Shields and Streetheart; Kenny passed away recently – he will be missed as a great person, artist, friend, father and husband.

5-years ago today, this photo was taken at the Travelodge in Saskatoon.  It was of a supper with the artists I was working with at the time; Kenny Shields/Streetheart, Jully Black, and Donny Parenteau.  See also http://www.ericandersonmanagement.com

Supper Kenny Jully and Donny

​How Canada blew its chance for a multibillion-dollar LNG industry

​How Canada blew its chance for a multibillion-dollar LNG industry

B.C. natural gas producers who can’t move gas to the West Coast could be supplying LNG producers on the U.S. Gulf Coast

By Nelson Bennett

July 25, 2017, 1:50 p.m.

http://www.jwnenergy.com/article/2017/7/how-canada-blew-its-chance-multibillion-dollar-lng-industry/

lng in trinidad

The prospects for a West Coast LNG industry appear to be growing dimmer by the day, confirmed this week by Petronas with the announcement it will not proceed with the Pacific NorthWest LNG project.

That’s one of 18 proposed LNG project for the West Coast, with just one—the small-scale Woodfibre LNG project—reaching a final investment decision.

Canadian projects have been beaten to market by Cheniere Energy in the U.S.

If B.C. gas ends up being exported to foreign markets, it might not be from the West Coast, but from the Gulf Coast. Cheniere, which has a three-train LNG terminal in production on the Sabine Pass River in Louisiana, and four more trains under construction, has already inked a contract with at least one natural gas producer on the Alberta side of the Montney region and is said to be actively courting producers in B.C.

“We’re very happy to get as many molecules from Canada as we can logistically supply to our two facilities at Sabine and at Corpus [Christi],” Cheniere executive vice-president and chief commercial officer Anatol Feygin recently told Bloomberg.

Pat Ward, president and CEO of Painted Pony Energy, notes that U.S. companies are already buying natural gas from Canadian producers at $2.50 per million British thermal units (MMBtu) and selling it to Mexico for $3.50 per MMBtu.

“They’re basically buying cheap Canadian gas and selling it to the Mexicans,” said Ward, whose company is invested exclusively in the Montney of northeastern B.C.

The Montney, which straddles B.C. and Alberta, is considered by some to be the most prolific and lowest-cost shale oil and gas play in North America. Some producers invested there in the hope of seeing new markets in Asia open up via West Coast LNG plants. Others are there for the liquids—condensate, propane and oil—with the dry gas being sold almost as a byproduct.

Getting gas to the West Coast would require new pipelines, at a cost of roughly $7 billion each. Petronas’ two-train LNG plant in Prince Rupert would cost roughly $11 billion. Generally, a two-train LNG project and pipeline like those proposed by Shell and Petronas would have a capital cost of $35 billion to $40 billion.

So while the gas is inexpensive to produce in B.C., it would be costly to move it to the West Coast, whereas there is already an extensive pipeline network in North America that would allow B.C. gas to flow into the U.S. system and to the Gulf Coast to feed Cheniere’s rapidly expanding LNG terminals.

“I guarantee you I can land that AECO gas in the Gulf Coast cheaper than they can move that AECO gas to the West Coast,” Feygin boasted at a recent conference in Houston, according to a brief by Stream Asset Management. (AECO, an acronym for Alberta Energy Co., represents the Canadian benchmark price.)

In a report released last week, the National Energy Board (NEB) acknowledged that Canada is a latecomer. Despite the country’s vast reservoirs of cheap gas, the NEB acknowledges that Canadian LNG projects face major hurdles such as high capital costs, eroded margins from low LNG prices and competition from the U.S. and other rival producers.

“Certainly the economics are tight for projects in Canada,” said NEB market analyst Colette Craig. “The U.S., they’re able to convert those brownfield projects—those regasification projects—to LNG export projects, so that has given them a fair bit of an advantage, whereas Canadian projects are all greenfield projects.”

The B.C. advantage for producing LNG includes abundant, low-cost natural gas, short shipping routes to Asia and a cold climate, which reduces the cost of chilling gas into liquid form.

The U.S. advantage includes existing LNG import terminals that were easily converted to export terminals, an existing North American gas pipeline system, a more competitive tax system for LNG producers and a competitor—Canada—that suffered self-inflicted regulatory paralysis.

While Canada dithered, America pivoted, and now B.C. gas producers may face the same problem Alberta oil producers face: an inability to move their gas to markets outside of the U.S.

“It’s unfortunate, because we’re stuck with the same problem we have with oil – we can’t get our product to an international market, and that’s what LNG is all about,” Ward said. “As a country, we’re killing ourselves. The disappointing part is Canada started down the LNG track at the same time [as the U.S.]. It’s very frustrating.”

Ward said the federal government squandered an opportunity by taking too long to approve Petronas’ Pacific NorthWest LNG project. Jihad Traya, manager of natural gas consulting for Solomon Associates, said the BC Liberal government blew it by creating a new LNG tax before the industry had even developed.

“The B.C. government was a rent-seeking agent at the most crucial time, when these investment decisions needed to be made,” he said. “So they created a lot of fiscal uncertainty.”

The companies that proposed LNG plants in B.C. have deferred making final investment decisions, and now face a new provincial government that may well put additional regulatory hurdles in the way. The Woodfibre LNG project in Squamish is the only LNG project in B.C. that is moving forward to construction.

There is a glut of LNG on the world market, which has pushed prices down to about US$7 per MMBtu. Developers would need prices to be at US$10 per MMBtu to sanction a multibillion-dollar LNG project, Traya said.

While B.C. missed the first window of opportunity to lock up long-term LNG contracts, a second window is expected to open around 2024—possibly earlier—when new supplies balance out with growing global demand. That means any major investments in new LNG projects would need to happen by about 2019 or 2020.

The International Energy Agency recently projected that global gas demand will grow by 1.6% per year for the next five years, with China accounting for 40% of the increase. The Chinese government has announced a new target to increase natural gas consumption for power generation. Gas currently accounts for 6% of the country’s power generation; China plans to raise that to 10% by 2020.

But growing Asian demand could be served by producers in Australia and Qatar. Qatar recently announced plans to boost its LNG production by 30%.

Assuming the new BC NDP government co-operates in the development of an LNG industry, it would need to sit down with producers and renegotiate the tax regime put in place by the Liberals, Traya said.

He said the new Cheniere plant in the U.S. has changed the conversation, because LNG developers can now point to American competitors who enjoy a more favourable business environment.

“They’ll have a tax advantage and they’ll also have an infrastructure advantage,” Traya said. “All the [smaller infrastructure] and the piping is already there. The fiscal certainty conversation is going to be predicated on what’s happening at Cheniere.”

Asked if he thought an NDP government would be willing to scrap the Liberal LNG tax system and give the industry a better deal, Traya said: “They have no choice. They have zero choice. That’s just the market condition they’re in.”

David Austin, a lawyer specializing in energy at Clark Wilson LLP, disagrees with Traya. He thinks Canada still has advantages over U.S. LNG producers, and he points out that the LNG tax the Liberals put in place is only charged on profits once the capital investments are paid for. In fact, he thinks it’s possible the government might not collect any LNG tax revenue at all.

“It all depends on the inputs for the calculation of the tax,” he said. “Until you know what those inputs are, it’s premature to conclude that any tax would ever be payable.”

 

 

 

BHP to grow potash business to size of iron ore — report

BHP to grow potash business to size of iron ore — report

Cecilia Jamasmie

Jun. 5, 2017, 11:14 AM

Mining.com

jansen-shaft

BHP expects to complete the first phase for its massive Jansen potash mine by 2023.(Image courtesy of BHP)

BHP (ASX, NYSE:BHP) (LON:BLT), the world’s largest mining company by market capitalization, is considering to grow its potash business to the size of its iron ore division, but only under “certain circumstances.”

Speaking to Japanese newspaper The Nikkei, chief executive Andrew Mackenzie said that as part of the company’s recently announced restructuring, BHP expects to reinvest what it gets for its US shale gas assets into potash.

BHP is currently developing its Jansen potash mine in Canada, which would be the company’s biggest single investment ever.

The results of this strategy, however, won’t be immediate, he warned: “It’s taken us 50 years to create today’s iron ore business. It will be another 50 years to create a potash equivalent. So you have to start somewhere,” Mackenzie said.

And that starting place seems to be Canada’s Saskatchewan province, where the world’s third largest iron miner is currently building its massive Jansen potash mine.

To date, BHP has committed a total investment of $3.8 billion to move Jansen into production. From that total, $2.6 billion have been set aside for surface construction and the sinking of shafts, though analysts predict the total cost will be close to $14 billion.

Mackenzie said last month it was looking at a phased expansion of Jansen, which is projected to produce 8 million tonnes of potash a year or nearly 15% of the world’s total.

He added the company could seek approval from the board for such expansion as early as June 2018, with production beginning in 2023.

Prices for the crop fertilizer ingredient, however, are not favourable — they are still hovering around $230 a tonne, less than half what they were only five years ago.

Besides, BHP’s iron ore business brings in about $9 billion a year, which doesn’t look like an easy target to match by any other division, particularly by potash, given current prices.

But the company is looking long-term and has repeatedly stated it believes rising demand for fertilizer in growing nations, particularly China and India, will lead to a long-term price increase for the commodity.

 

Mosaic joins chorus calling BHP’s Jansen potash mine plan unwise

Mosaic joins chorus calling BHP’s Jansen potash mine plan unwise

Cecilia Jamasmie

Mining.com

July 24, 2017

BHP Jansen headframe

BHP expects to complete the first phase for its massive Jansen potash mine by 2023. (Image courtesy of Shermco Industries Canada.)

Mosaic (NYSE:MOS), the world’s largest producer of finished phosphate products, became the latest potash sector actor to cast a doubt on BHP’s recently announced plans to speed up the development of a giant potash mine in Canada.

The US miner said Monday that for BHP to spend another $4.7 billion, prices for the fertilizer ingredient would have to at least double from currents levels or the investment would simply not make any sense, The Australian reports.

“I think it is a less than high probability at this stage (but) you can never say what people will do,” Mosaic chief executive Joc O’Rourke said according to the paper.

His view is in line with BHP’s activist investor Elliott, which last week attacked the company’s decision to grow its potash business to the size of its iron ore division, mainly by moving Jansen into production.

BHP has committed so far a total of $3.8 billion for Jansen, but board needs to approve another $4.7 billion investment to move mine into production.

Sydney-based Deutsche Bank AG analyst Paul Young also questioned BHP’s bet on potash, telling Bloomberg earlier this month that Jansen was “highly contentious topic and project.” He noted the market has continued to be severely challenged, adding it may not improve for at least five years, as there is plenty of spare capacity in the industry.

While BHP board will decide whether to build the mine only next month, the world’s largest miner has been paving the way for it. So far, BHP has committed a total investment of $3.8 billion for the potash project. From that total, $2.6 billion have been set aside for ongoing surface construction and the sinking of shafts.

Chief executive Andrew Mackenzie said in May the company was looking at a phased expansion of Jansen, which is projected to produce 8 million tonnes of potash a year or nearly 15% of the world’s total.

Mackenzie added the company could seek approval from the board for such expansion as early as June 2018, with production beginning in 2023.

BHP claims investing in potash is thinking ahead, and it has repeatedly stated it believes rising demand for fertilizer in growing nations, particularly China and India, will lead to a long-term price increase for the commodity.

“The basic rationale for rising potash consumption is quite simple,” wrote last week BHP’s potash specialist Paul Burnside. “Not only is the total population continuing to grow, but at least three billion people are expected to join the global middle class by 2030.”

Prices for the crop fertilizer ingredient, however, are not favourable — they are still hovering around $230 a tonne, less than half what they were only five years ago.

 

 

To save the planet, we must ignore anti-nuclear ideologues

To save the planet, we must ignore anti-nuclear ideologues

KONRAD YAKABUSKI

The Globe and Mail

Published Thursday, Jul. 20, 2017 5:01PM EDT

Last updated Thursday, Jul. 20, 2017 5:44PM EDT

 

There might be a way for the world to meet its carbon-reduction targets that does not involve building more nuclear power plants. The problem is, no one has come up with one. Until that happens, politicians need to get real about nuclear energy’s essential role in saving the planet.

Unfortunately, most of them still have their heads stuck in their solar panels.

The latest greener-than-thou politician to make the perfect the enemy of the good is France’s awkwardly titled Minister for the Ecological and Inclusive Transition, Nicolas Hulot. This month, Mr. Hulot announced the shutdown of as many as 17 of France’s 58 nuclear reactors over the next eight years as part of President Emmanuel Macron’s promise to cut his country’s reliance on nuclear-generated electricity to 50 per cent from 75 per cent by 2025.

Mr. Hulot says he has “absolute faith” in renewable power sources, mainly wind and solar energy, to fill the gap. But as Germany shows, closing emissions-free nuclear power plants, more often than not, leads to burning more fossil fuels to produce power. That’s because wind and solar remain intermittent power sources, while nuclear, coal and natural gas plants can run full-steam 24/7.

In a report last month, the International Energy Agency said “premature closure of operational nuclear power plants remains a major threat to meeting targets,” set under the 2015 Paris climate agreement, to prevent global temperatures from rising more than two degrees above preindustrial levels by the end of the century.

But don’t try telling that to Mr. Hulot. A former star television journalist tapped by Mr. Macron to boost his credibility with environmentalists, Mr. Hulot is France’s version of David Suzuki. In 2012, he sought the presidential nomination for France’s anti-nuclear Green Party. He appears unmoved by expert warnings that France will pay a heavy environmental and economic price if he sticks to his nuclear-reduction plan.

France has long been at the forefront of nuclear research and its nuclear industry, led by state-owned Areva and Électricité de France, is a global leader. But just as some Canadian ideologues want to shut down the oil sands, France’s green ideologues want to shut the country’s reactors.

This promises to be hugely expensive and, ironically, make it much harder for France to meet its greenhouse gas reduction targets under the Paris climate agreement. Wind and solar are unreliable power sources, so “we are obligated to have something else to take over” from nuclear, French climate scientist François-Marie Bréon told Agence France-Presse following Mr. Hulot’s announcement. That “something else” is inevitably fossil-fuel-generated electricity.

The French paradox is being repeated across Europe, where Germany, Spain, Belgium and Switzerland have committed to phasing out nuclear power. This will not only prevent the closing of the continent’s coal plants, it will also increase Europe’s dependence on Russian natural gas, making Vladimir Putin even more powerful than he is now.

In the United States, nuclear power is up against not only opposition from environmentalists but also against fierce lobbying by the powerful American Petroleum Institute. Without a carbon tax, cheap natural gas has hurt the competitiveness of existing nuclear plants. The API, which represents natural-gas producers, seeks to quash the financial incentives that some states provide to enable existing nuclear plants to stay open. Wind and solar power are heavily subsidized. So, the reasoning goes, why shouldn’t emissions-free nuclear power plants be similarly rewarded?

Keeping existing nuclear power plants open is only half the battle. The world needs more nuclear. China and India are adding nuclear power capacity but not fast enough to replace plants being closed in the developed world. Even Britain’s Hinkley nuclear station, set to open in 2026, won’t make up for British capacity reductions before then.

The IEA projects that nuclear capacity additions of 20 gigawatts annually are needed to meet the Paris accord targets by the year 2100, but the world is far off the mark. Nuclear “retirements due to phase-out policies in some countries, long-term operation limitations in others, or loss of competitiveness against other technologies” mean that as much as 50 GW of nuclear capacity could be lost by 2025 alone. Politicians who cave to the anti-nuclear lobby are deluding themselves or misleading voters when they insist wind and solar can make up the difference.

“Increasing nuclear capacity deployment could help bridge the [two-degree scenario] gap and fulfill the recognized potential of nuclear energy to contribute significantly to global decarbonization,” the IEA report said. It called for “clear and consistent policy support for existing and new capacity, including clean-energy incentive schemes for development of nuclear alongside other clean forms of energy.”

Vous écoutez, Monsieur Hulot?

 

 

 

BHP’s “Feeding the World: the case for potash” parts 1 and 2

Feeding the World: the case for potash (part 1)

17 July 2017

http://www.bhp.com/media-and-insights/prospects/2017/07/feeding-the-world-the-case-for-potash

We think demand for potash could double by the late 2040s, by which point it could be a US$50 billion market. That’s one of the reasons why we’re investing counter-cyclically to give ourselves the option to add it to our diversified portfolio of commodities through the construction of the Jansen project in Saskatchewan.

As an essential nutrient for plant growth, potash is a vital link in the global food supply chain. And the demands on that supply chain are intensifying; while cultivated land area will remain almost static, the global population will be close to 10 billion by 2050. Not only will there be more mouths to feed but also rising calorific intake comprised of more varied diets, both of which increase the strains on finite land supply. Between now and the middle of the century, food demand will grow by 50% and sustainable increases in crop yields will be crucial if we are to continue to feed the world. Advances in farming practices, farmer education and new seed varieties will all help to optimise yields in the future. But as the quantity of production grows, so too does the amount of potassium removed by harvesting – and the sustainable, targeted use of potash fertilisers will be critical in replenishing our soils.

Mineral fertilisers are used to provide plants with potassium (K)1, one of the three essential macronutrients they need to thrive, along with nitrogen and phosphorus. Potassium has no substitute in plant nutrition and deficiency reduces resistance to drought, pests and diseases. Potassium deficient crops have poorly developed root systems and weak stalks. Not only does potassium help to improve yield, it is also known as the ‘quality’ nutrient as it affects factors such as the size, shape, colour and vigour of the seed, grain or fruit.

Potassium nutrient can be supplied to crops through the application of mineral fertilisers, organic manures and crop residues, or from the native mineral content of the soil. Potassium chloride, which is the most common type of potassium fertiliser, is often referred to as potash (which is also a generic term for all potassium compounds and potassium-bearing materials).

More than 90% of the global demand for potash comes from agriculture and around 55Mt of potassium chloride is applied as fertiliser annually. That is equivalent to 6kg per tonne of crop production, 40kg per hectare of harvested land or 7kg for each person on the planet.

The basic rationale for rising potash consumption is quite simple. Not only is the total population continuing to grow, but at least three billion people are expected to join the global middle class by 2030. That has implications for people’s diets. Average calorie intake is increasing and so is the share of those calories coming from animal products2, sugar and vegetable oils – foodstuffs that have higher demands on crop production. As a result, food demand is rising faster than population, and crop production is rising faster than food demand. The finite supply of cultivated land area cannot keep up with that demand. In 2000, arable land per capita was 2,500 square metres – about half the size of a football field. Since then it has fallen to 2,100 square metres and is projected to shrink further to 1,900 square metres by 20303. As a result, the demands of food supply must be met through higher yields from existing arable land, putting more strain on our soils. All this points to steady long-term growth in global crop production and this growth will have to be achieved through the sustainable intensification of agriculture and the optimisation of crop yields.

Arable land per capita is likely to fall by almost one quarter between 2000 and 2030, while demand for food will increase by one half.

There are a number of complexities involved in translating the expected requirement for crop production into demand for potash. Greater application of nutrients in the form of mineral and chemical fertilisers, of which potassium chloride is one, will be a key means of achieving the necessary yields – but there are others, including the use of precision agriculture to minimise nutrient losses, efforts to improve the recycling of nutrients from animal manures and crop residues, and development of hardier seed varieties.

The amount of potash fertiliser required will also depend on which crops are grown and where – because potassium uptake varies between crops and different soils have different levels of native potassium. That native potassium is a crucial factor – unlike nitrogen and phosphate, potassium is not readily leached out of soils and farmers can reduce the amount of potash fertiliser they apply by “mining” the soil. That can happen in the short-term, if the economics of buying potash are unattractive, but sometimes over longer periods if the soil is naturally rich in nutrients.

But native potassium is not inexhaustible. Quantifying aggregate soil potassium availability across whole countries is extremely difficult, but it is believed that in many parts of the world potassium is being removed faster than it is being replenished. Higher yields and multiple-cropping practices risk further depletion of soil potassium. This provides considerable upside to future potassium demand if native potassium is pushed to critical levels, increasing the share of supply that must come from external sources, particularly potash fertiliser.

… in many parts of the world, potassium is being removed from the soil faster than it is being replenished.

Potash demand sits at the intersection of inexorable mega trends ranging across demographics, economics, diet and the environment. For the producer of any commodity, such an intersection is exactly where you want to be. But demand is only half the story. In the next episode, we will focus on the supply side of the potash market.

  1. The element was first isolated in 1807 by Sir Humphrey Davy. The chemical symbol for the element, K, derives from ‘kalium’, the Latin version of the Arabic word for alkali.

    2. Livestock is fed on a variety of materials, including cultivated crops and open grazing, with implications for land use and crop production.

    3. Source: United Nations The 2012 Revision of World Agriculture Towards 2030/2050.

 

Feeding the World: the case for potash (part 2)

24 July 2017

From  http://www.bhp.com/media-and-insights/prospects/2017/07/feeding-the-world-the-case-for-potash-2

While safely driving productivity gains and executing low-risk, high-return latent capacity projects is the core of what we do, we must also develop options for the future to grow shareholder value over the long-term. We have an option in Canada to develop a potash mine that could support attractive shareholder returns over decades. We’re excited to have this option in our portfolio, and there are many ways we can realise value from it. Above all else, we would only proceed if it passed our strict investment hurdles and was in the best interests of our shareholders.

In the first episode of our potash series, we concluded that the combination of population growth, changing diets and the need for cultivated soils to support higher and higher crop yields indicates a long-term trend of steady demand growth for many decades – an attractive prospect for any commodity producer. But demand is only half the story. In this second episode, we focus on the supply side of the potash market.

Potash minerals are extracted from underground deposits or from natural brines and then processed into potash fertilisers. Over 70% of global potassium chloride capacity is based on conventional underground mining. The remainder comes from solution mining and the processing of natural brines.

The natural occurrences of potash suitable for fertiliser production are geographically quite scarce, but there are a number of very large deposits. Over 60% of potassium chloride production today comes from the Prairie Evaporite in Saskatchewan, the Verkhnekamskoye deposit in Russia’s Urals region and the Starobin deposit in southern Belarus.

In the 156 years since the world’s first potash mine opened in Staẞfurt, Germany, in 1861, the industry has faced excess capacity on multiple occasions, just as it does today. The opening of the Canadian basin in the 1960s and 1970s produced one such period, as did the collapse of the USSR in the 1990s, with output from Russia and Belarus being re-directed to the international market.

The latter episode resulted in a lengthy period of minimal investment through the 1990s and early 2000s, which eventually led to the market tightening and contributed to a bull run in potash prices from 2003 to 2008. The end of this run coincided with what has become known as the “Global Food Price Crisis” of 2007-08. Somewhat overshadowed by the Global Financial Crisis that soon followed, the 2007-08 period highlighted what can happen when strong demand emerges after a sustained period of weak investment in new capacity.

Potash producers responded to this boom with major investments in capacity expansion. In the 10 years to 2016, the industry added nearly 27 million tonnes of annual “nameplate” capacity, but sales volumes did not rise to the same degree1. Moreover, while the period of brownfield expansion may now be coming to an end, greenfield supply will also come on-stream over the next five years. That indicates that over-capacity in the industry, which has already contributed to potash prices slipping to their lowest levels in a decade, is likely to get worse before it gets better. That will put further pressure on higher-cost incumbents and some of the industry structures that have evolved over time.

Although the near-term outlook may be sombre, we expect to see the peak of over-supply occurring within the next few years. Positive underlying demand fundamentals, assisted by affordable pricing, should see consumption catch up to capacity in the 2020s. The exact timing of the market returning to balance is uncertain. It will depend upon a multitude of factors on both the demand and supply side, including the capacity utilisation rates of existing operations. As the market progressively balances we expect prices to improve and the need for additional greenfield supply to re-appear. The potash market is one where patience will be rewarded.

We do not anticipate that a “pinch-point” like the one that contributed to a major spike in prices in the mid-2000s will emerge. What would have to happen to get there again? Well, a lot of the new capacity in the pipeline would need to fail to reach production – either for economic or technical reasons – and at the same time demand in large markets, like India and China, would need to outstrip our expectations.

Alternatively, what would have to happen to keep prices around their current levels in the long-run? First of all, huge improvements in productivity would be required to substantially lower the projected costs of adding the new supply that is required to balance the market. Secondly, the exchange rates of the countries that house the major producing basins – the Canadian dollar and the rubles of Russia and Belarus – would have to remain at their currently weakened levels. In the case of Russia, that would require oil and gas prices to remain depressed, and sanctions on the rest of the economy to remain in place for the long term. As we have argued here before, the fundamentals of the oil market make that unlikely. And if energy prices were to rise, then the Canadian dollar is also likely to make gains. Thirdly, uneconomic capacity would have to stay in the market well beyond the traditional “stickiness” seen during commodity price downturns. In our minds, that combination of factors – huge industry wide productivity gains, bottom-of-cycle exchange rates and the presence of excess capacity ad infinitum – are most unlikely to persist individually, let alone co-occur indefinitely. In other words, it may take some time for potash prices to recover, but today’s prices are not sustainable given the need for the industry to grow with demand over the long-term2.

  1. Source: CRU. “Nameplate” capacity, also known as “installed” capacity, is the annualised production of a mine based on the maximum daily rate. For supply forecasting, it must be discounted for ‘imperfect’ factors, discretionary or otherwise.

Divisive $13 Billion Potash Plan to Test BHP’s New Chairman

Divisive $13 Billion Potash Plan to Test BHP’s New Chairman

By  David Stringer

https://www.bloomberg.com/news/articles/2017-07-16/divisive-13-billion-potash-plan-to-test-bhp-s-incoming-chairman

July 16, 2017, 5:29 PM CST July 17, 2017, 2:30 AM CST

  • Calls to ditch Canada project add to debate over oil unit
  • MacKenzie holding talks with investors before taking up role

BHP Billiton Ltd.’s plan to enter the potash market with a contentious $13 billion project in Canada is adding to challenges facing the incoming chairman of the world biggest mining company.

Ken MacKenzie, a 53-year-old board member who takes up the role in September, currently is on a global tour to meet investors in the wake of an activist campaign in recent months spearheaded by Elliott Management Corp. Issues of concern for some shareholders include the producer’s U.S. onshore oil and gas assets and its plans to accelerate the Jansen potash venture.

Proceeding with Jansen risks a “severe strategic misstep,” according to Sanford C. Bernstein Ltd. analyst Paul Gait, as the new supply would risk depressing prices by delaying to about 2036 the ability of the potash market to work through overcapacity. Paul Singer’s Elliott went public in April with a campaign seeking asset sales and a corporate overhaul, claiming management decisions have eroded as much as $40 billion in value.

“Potash is going to be a big, big decision and I get the feeling most people in the market are fairly cautious,” said Andy Forster, senior investment officer at Argo Investments Ltd., which manages more than A$5 billion ($3.9 billion) and holds BHP’s Sydney-listed shares. Investors are looking to MacKenzie to show he’ll be “more disciplined in the capital-allocation process,” he said.

BHP declined to comment on talks with investors on the Jansen project. Potash demand could double by the late 2040s to develop into a $50 billion market, Paul Burnside, BHP’s principal, potash analysis, said Monday in a blog post on the company’s website.

The producer could seek board approval as early as June next year to begin a $4.7 billion first phase of production at Jansen from as early as 2023, Chief Executive Officer Andrew Mackenzie said in a May speech to a conference in Barcelona. The company previously had approved spending of about $3.8 billion on developing the asset in Saskatchewan.

“It’s a highly contentious topic and project,” Sydney-based Deutsche Bank AG analyst Paul Young said by phone. “The market is severely challenged, may not improve for at least five years and there’s a lot of spare capacity in the industry.”

BMP potash forecast July 2017

BHP advanced 0.2 percent A$25.17 in Sydney trading Monday. The company should seek to sell or mothball the Jansen project, which the bank estimates requires total capital expenditure of $12.8 billion, Deutsche analysts said in a July 6 report.

Melbourne-based BHP has faced widening criticism of its performance in recent months, as investors including AMP Capital and Schroders Plc have joined Elliott in calling for changes or a review of parts of its portfolio. Sydney-based Tribeca Global Natural Resources Fund has proposed replacing five or six members of the producer’s 11-person board.

Developing Jansen, BHP argues, would add potash, a fertilizer, as a fifth key material alongside coal, copper, iron ore and petroleum, allowing the company to tap rising demand fueled by Asia’s expanding middle class, changing global diets and constraints on the world’s arable land. The commodity would diversify the company’s portfolio as demand is tied to population growth, rather than steel-intensive urbanization, BHP said in a May presentation.

“Potash demand sits at the intersection of inexorable mega trends ranging across demographics, economics, diet and the environment,” BHP’s Burnside said in the post to the company’s website. “For the producer of any commodity, such an intersection is exactly where you want to be.”

Adding 4 million tons a year of supply from Jansen would be “worrisome” with modest demand growth unlikely to be sufficient to absorb about 8 millions tons of capacity already scheduled to be added in the next few years by existing suppliers, according to BMO Capital Markets. The potash market has the worst supply and demand dynamic among crop nutrients with a persistent 20 percent to 25 percent surplus, BMO said in a May report.

Canpotex signs China potash supply contracts at higher price

JULY 21, 2017 / 9:23 AM

REUTERS

Canpotex signs China potash supply contracts at higher price

 

WINNIPEG, Manitoba (Reuters) – Canpotex Ltd, the offshore sales agency for North America’s biggest producers of potash fertilizer, said on Friday that it signed supply contracts with Chinese customers for shipments of 1.4 million tonnes through 2017.

Canpotex, owned by Potash Corp of Saskatchewan (POT.TO), Mosaic Co (MOS.N) and Agrium Inc (AGU.TO), said the deals represent a price increase of $11 per tonne from last year’s agreement.

Reporting by Rod Nickel in Winnipeg, Manitoba

BHP to speed up Jansen development as potash demand to double by 2040

BHP to speed up Jansen development as potash demand to double by 2040

Cecilia Jamasmie

Jul. 17, 2017, 3:46 AM

Mining.com

BHP Jansen headframe

BHP expects to complete the first phase for its massive Jansen potash mine by 2023. (Image courtesy of Shermco Industries Canada.)

 

While BHP’s (ASX, NYSE:BHP) (LON:BLT) new chairman doesn’t assume the role until September, pressure is already mounting on Ken Mackenzie, who supports plans to grow the firm’s potash business to the size of its iron ore division.

The world’s largest mining company by market capitalization restated Monday its intentions to entering the crop nutrient market by accelerating its almost $13 billion Jansen project in Canada’s Saskatchewan.

“Potash demand sits at the intersection of inexorable mega trends ranging across demographics, economics, diet and the environment. For the producer of any commodity, such an intersection is exactly where you want to be.” — BHP’s Paul Burnside.

BHP believes demand for potash could double by the late 2040s, by which point it would be a $50 billion market. “That’s one of the reasons why we’re investing counter-cyclically to give ourselves the option to add it to our diversified portfolio of commodities,” said Paul Burnside, potash principal at BHP, in a blog post on the company’s website.

The Melbourne, Australia-based miner had already said in May it could seek board approval for the Jansen mine as early as June next year, which would allow it to begin a $4.7 billion first phase of production as early as 2023.

To date, BHP has committed a total investment of $3.8 billion to move Jansen into production. From that total, $2.6 billion have been set aside for surface construction and the sinking of shafts, though analysts predict the total cost will be close to $14 billion.

Prices for the crop fertilizer ingredient, however, are not favourable — they are still hovering around $230 a tonne, less than half what they were only five years ago.

Besides, BHP’s iron ore business brings in about $9 billion a year, which doesn’t look like an easy target to match by any other division, particularly by potash, given current prices.

But the company is looking long-term and has repeatedly stated it believes rising demand for fertilizer in growing nations, particularly China and India, will lead to a long-term price increase for the commodity.

“The basic rationale for rising potash consumption is quite simple,” wrote Burnside. “Not only is the total population continuing to grow, but at least three billion people are expected to join the global middle class by 2030.”

He also threw in some persuasive numbers:

More than 90% of the global demand for potash comes from agriculture and around 55 million tonnes of potassium chloride is applied as fertilizer annually. That is equivalent to 6kg per tonne of crop production, 40kg per hectare of harvested land or 7kg for each person on the planet.

Experts are not so sure. Sydney-based Deutsche Bank AG analyst Paul Young told BloombergMonday that BHP’s bet on potash was a “highly contentious topic and project.” He noted the market continues to be severely challenged, adding it may not improve for at least five years, as there is plenty of spare capacity in the industry.

Earlier this month, Bernstein analyst Paul Gait told FT.com that any wide-ranging portfolio review should conclude that BHP needs to divest its oil unit and walk away from Jansen.

“[The exit from the potash project] would be done via a trade sale to any of the incumbent potash producers whose existing mining and commercial operations allow synergies, which mean that Jansen would be worth more in their hands than in BHP’s,” Gait said.

Jansen is projected to produce 8 million tonnes of potash a year or nearly 15% of the world’s total. According to Deutsche Bank analysts, moving the project into full production would require a total capital expenditure of $12.8 billion, but it would make of potash BHP’s fifth key pillar of growth, alongside coal, copper, iron ore and oil.

 

 

 

Husky Energy investing in carbon capture pilot plant at Sask. heavy oil

Husky Energy investing in carbon capture pilot plant at Sask. heavy oil

ALEX MACPHERSON, SASKATOON STARPHOENIX, SASKATOON STARPHOENIX  07.13.2017

 Husky edam east steam operations

Steam operations have started at the Edam East project near Lloydminster, the first of three new heavy-oil thermal projects in the province.

 

Husky Energy Inc. is increasing its investment in carbon capture and storage technology, which it hopes will make its expanding heavy oil operations in Saskatchewan more environmentally friendly.

The Calgary-based company has been operating a tiny CCS plant developed by Inventys Inc., a clean energy company headquartered in Burnaby, B.C., at its Pikes Peak South operation northwest of Maidstone for six months. Earlier this month, it invested millions of dollars in the B.C. company with the aim of developing a much larger plant at the site.

“We are moving ahead with a 30 tonnes per day pilot project. … We believe this technology has the potential to reduce the cost of carbon capture, compared to existing technologies, and could turn Lloyd thermal production into a lower carbon source of energy,” and Alberta more environmentally-friendly, Husky spokeswoman Kim Guttormson said in an email.

Carbon dioxide captured by the new project will be used alongside carbon dioxide recovered from other facilities for “enhanced oil recovery” operations in the region, Guttormson said. The process makes other types of oil wells more efficient, she added.

The new plant at Pikes Peak South is expected to be commissioned in the fourth quarter of 2018. Inventys CEO Claude Letourneau said it will have the footprint of two flatbed trailers, cost about $20 million and use the company’s second-generation CCS technology, which improves efficiency by absorbing the carbon dioxide into a solvent rather than a solid.

The increased efficiency, Letourneau continued, is expected to lead to significant cost savings. The capital cost of existing CCS technology is between $60 and $90 per tonne, but Inventys is aiming to cut that to about $30 per tonne — which the oil industry requires before it can start adopting CCS on a wide scale.

Last December, Husky’s board of directors approved three new $350 million steam-assisted heavy oil plants in Saskatchewan. The company, which has boosted its reliance on the facilities to 40 per cent from about eight per cent of total production, has many more projects “in the wings,” according to its former CEO.

That represents a major opportunity not just for Inventys — which wants to build 10 plants capable of capturing between 200 and 600 tonnes per day for Husky — but for an entire industry that is “looking for a solution,” Letourneau said. Husky’s investment, he continued, is a “clear sign” that energy companies are getting serious about addressing carbon capture.

Guttormson would not say how much the company has or is planning to invest in CCS technology, but Letourneau said its commitment is around 80 per cent of the $10 million it raised to support the pilot project in Saskatchewan.

 

 

 

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