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🌎 Is The IRA Going Global?

After this week’s updates, the massive Inflation Reduction Act (IRA) subsidy pool might benefit more foreign players.

The IRA was touted as an exclusive tool to strengthen the US’ renewables supply chain at its release. In many ways, the legislation’s incentives are already working. 

Several EV manufacturers are breaking ground on new North American facilities. Other industries are following similar patterns. This week, Norway’s fertilizer giant, Yara, and Canada’s pipeline firm, Enbridge, announced a new $2.9 billion blue ammonia production plant in Texas, citing the carbon tax benefits in the IRA as a catalyst for action. 

But the IRA’s incentives have received a lot of heat from international parties. The EU, Japan, and South Korea haven’t been quiet about their fears that the IRA would destabilize global progress in renewables. 

In response, the parameters restricting IRA benefits to the US seem to be relaxing. 

On Tuesday, Japan and the White House signed a trade deal to grant IRA eligibility to Japanese battery mineral suppliers. The EU already met with US officials to negotiate a similar deal. 

The IRA’s terms are evolving, too. 

In the US, Friday’s update for EV tax credits adds some fluidity to the definition of what makes a battery. The Treasury’s proposed guidance for batteries classifies the metal powders in electrodes as “critical minerals” instead of “battery components.” 

The former requires fewer restrictions to earn IRA funds, yet critical minerals make up more of each battery’s value. With this clarification, EV manufacturers can source these metals from the 20 countries that hold formal trade agreements with the US. 

US firms and lawmakers are concerned this proposition will diminish investments in American infrastructure and bolster growth in established operations in other countries.

Starting April 17th, automakers will need to produce or assemble 50% of battery components in the US to qualify for a $3,750 tax credit and obtain 40% of the value of critical minerals from the US or a free trade partner for the remaining $3,750. 

🚢 Russia Finds Solace In India

This week, Russia’s Energy Minister, Nikolai Shulginov, said the country successfully redirected its crude exports away from sanctions-enforcing countries.

Europe used to be its biggest purchaser. Who’s stepping in to fill the gap?

The Middle East, Latin America, and Africa are all growing importers, but Asia’s thirst for oil has bolstered Russia’s efforts more than any other region. 

Last month, over 50% of Russia’s Urals seaborne cargoes went to India, a 22x YOY increase that puts the country at the top of Russia’s list of buyers. China is expected to be a close second with record-high March seaborne imports as well. 

Quick Shots:

🔪 Surprise OPEC+ Cuts

Earlier today, OPEC+ members announced surprise oil output cuts of ~1.16 million barrels per day, adding to the 2 million bpd of cuts announced by members last fall. The latest reduction will take effect from May to the end of 2023. 

The announcement segments production cuts by country, with Saudi Arabia dropping the most at 500,000 bpd. Iraq will reduce by 211,000, UAE by 144,000, Kuwait by 128,000, Oman by 40,000, and Kazakhstan by 78,000. Russia says it plans to extend its existing 500,000 bpd cut until the end of the year as well. 

Including Russia’s February announcement, the total volume of OPEC+ production cuts will amount to ~3.66 million bpd, approximately 3.7% of global demand. 

🪫 China’s Lithium Floor?

According to a Reuters report, ten of China’s top lithium producers agreed to a price floor of $36,380 per metric ton of lithium carbonate, a key raw material for batteries.

Demand for lithium carbonate plummeted in the previous four months as Asia’s EV sales slowed to a snail’s pace. Since November, prices for the raw battery mineral dropped over 60%, and producers still can’t offload stocks quickly enough. 

Lithium purchasers don’t appear too concerned about the price floor, saying the tool is only robust if every producer commits. Eventually, they argue, producers will have no choice but to sell below the floor. 

🔥 EU Extends Gas Price Cap To All Hubs

The European Commission’s gas price cap mechanism passed in December will expand to all EU trading hubs in May. 

The initial system triggered a price cap if gas prices exceeded 180 euros/megawatt hour for three days on the Dutch Title Transfer Facility (TTF) hub’s front-month contract and the TTF price was 35 euros/MWh higher than an LNG reference price. 

The EU wants to prevent distorted derivative markets by applying the price cap to Europe’s remaining hubs. 

🏭 India Long On Coal

On Friday, the world’s largest coal miner, Coal India, said they’re expected to exceed production targets with over 703 million metric tons for the year, a 13% YOY increase.

The company supplies ~80% of India’s coal output, but the firm acknowledged the need to boost production again to meet India’s growing coal demand. It plans to ramp up production to 1 billion metric tons by March 2026.

Like we discussed last week, the consequences of 2022’s skyrocketing gas prices are still unfolding. Coal might produce more emissions, but utility companies can predictably use the fuel to keep grids operational.