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Analysis: Decree adds to doubts about Mexican lithium industry’s future



Analysis: Decree adds to doubts about Mexican lithium industry's future
© Reuters. FILE PHOTO: Mexico’s President Andres Manuel Lopez Obrador waves during an event to sign a decree for the nationalization of lithium, in Bacadehuachi, state of Sonora, Mexico February 18, 2023. Mexico’s Presidency/Handout via REUTERS


By Carolina Pulice

MEXICO CITY (Reuters) – The Mexican government’s latest move to tighten control over its potentially lucrative lithium reserves fails to resolve the puzzle of how it can lure needed private industry expertise while keeping most profits for state coffers.

Last Saturday, President Andres Manuel Lopez Obrador signed his latest presidential decree on lithium, establishing a more than 900-square-mile (235,000 hectare) lithium mining zone in northern Sonora state, stating that existing concessions within it “remain safe.”

But the order also declared “no mining activity can be carried out related to lithium” within this area.

The decree could pave the way for Mexico’s newly-created state-run company to get exclusive rights to exploit local reserves of the white metal, coveted by rechargeable battery makers across the globe, sector experts and analysts said.

“It’s counterintuitive to declare (lithium) as reserved for the state, but that the concessions already granted will be respected,” said Fernando Quesada, a lawyer with extensive experience working on extractive projects in Mexico.

He added that the new decree could mean the government may use its power of expropriation as a tool to force negotiations with companies that already have concessions in the zone, like Chinese lithium miner and battery maker Ganfeng, which controls Mexico’s most advanced lithium project.

Last year, Lopez Obrador’s allies in Congress enacted a sweeping lithium nationalization aiming to ensure that Mexico can profit from surging demand for the ultra-light metal, which is needed to power future fleets of electric vehicles.

Since he took office in late 2018, Lopez Obrador has rejected new private investment in oil and gas, including even joint venture partnerships between state-owned Pemex and would-be private producers. He may view lithium the same way, with some experts describing the politics of the metal as echo of his broader state-centric approach regarding commodities deemed strategic.

Armando Alatorre, a geologist and lithium expert, said the latest decree could lead to further changes for existing concessions, and he argued that establishing a new legal mining area superimposed over existing mining concessions is a recipe for confusion.

“It creates a lot of uncertainty for investors,” he said.

Neither Lopez Obrador’s office or Mexico’s economy ministry, which was part of the decree, responded to a request for comment.

Created last August, state-run LitioMx will likely launch further exploration efforts in the new mining zone, BTG Pactual analysts said in a research note. But they said it remains unclear if those efforts will be carried out alone or in partnership with private players.

“It is reasonable to expect that the locations just defined may be awarded to LitioMx,” according to the research note.

Studies suggest Mexico may hold some 1.7 million tonnes of lithium, but those deposits are mostly trapped in clay-based soils.

To date, no commercial-scale lithium extraction from clay soils has been deployed, meaning the Mexican deposits will likely require new technology, extra investment and perhaps on-site processing plants.

BTG Pactual stressed that LitioMx lacks the necessary “capacity, technology, or mining know-how.”

Such plants would require a significant spending commitment given their complexity, said energy and mining analyst Ramses Pech.

He emphasized the need to minimize political risks associated with the government’s latest decree, if Mexican lithium has any hope of transforming its raw potential into a thriving industry with a long-term horizon.

“They have to give you certainty that the reserves they’re granting, that you’ll be able to keep exploiting them for years to come,” he said.

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French climate investments to drive up national debt burden – think-tank




French climate investments to drive up national debt burden - think-tank
© Reuters. FILE PHOTO: French President Emmanuel Macron visits Institut Curie laboratory ahead of announcements on biomedical research in Saint-Cloud, France, May 16, 2023. REUTERS/Benoit Tessier/Pool

PARIS (Reuters) – Investments that France needs to finance its transition to a low-carbon economy are set to add 25 percentage points to its debt burden by 2040, a report from the government-funded France Strategie think-tank said on Monday.

France will need to make additional annual investments of about 67 billion euros ($74 billion) – more than 2% of economic output – by 2030 to meet its objectives for reducing its dependence on fossil fuels, France Strategie calculated.

The think-tank, which is part of the prime minister’s office, said the financial effort would weigh heavily on public finances partly because the investments imply lower potential growth, which would cut tax revenues.

As a result, the debt burden would rise by 10 percentage points by 2030 and 25 percentage points by 2040, which France Strategie suggested might need to be financed in part by a temporary tax on wealthy households.

President Emmanuel Macron’s government has hoped to chip away in the coming years at France’s national debt, which currently stands at slightly more that 111% of gross domestic product after surging during the COVID crisis.

The report said the financial burden of investing in Europe’s energy transition also posed a risk in terms of international economic competition, as other major economies such as the United States and China were less concerned about budgetary constraints.

About 100 experts in French and European research groups as well as public French institutions participated in the report, which was led by economist Jean Pisani-Ferry, who previously helped Macron draft his economic programme.

($1 = 0.9084 euros)

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Crude oil largely flat; Caution ahead of debt ceiling meeting




Crude oil largely flat; Caution ahead of debt ceiling meeting
© Reuters — Oil prices traded largely unchanged Monday, with traders cautious ahead of the resumption of U.S. debt ceiling negotiations while supply concerns add support. 

By 09:30 ET (13:30 GMT), futures traded 0.1% lower at $71.59 a barrel, while the contract fell 0.1% to $75.52 a barrel.

U.S. President Joe Biden and Republican House Speaker Kevin McCarthy are set to meet later this session to try and agree on a deal to raise the more than $31 trillion debt ceiling.

Concerns that a failure to come up with an acceptable compromise have weighed heavily on the market over the recent weeks, as this would result in the U.S. defaulting on its debt obligations, likely plunging the global economy into recession.

The U.S. Treasury has warned that the government could run out of money to pay its bills as soon as June 1.

That said, both crude benchmarks managed to post gains last week, ending four straight weeks of heavy declines, helped by the U.S. starting to refill its Strategic Petroleum Reserve as well as the supply disruptions in Canada, due to early wildfires in the crude-rich Alberta province. 

Additionally, the latest data from showed the U.S. oil rig count fell by 11 over the last week, to its lowest count since June 2022.

“A slowdown in U.S. drilling activity is a concern for the oil market, which is expected to see a sizable deficit over the second half of the year,” said analysts at ING, in a note. 

“Producers appear to be responding to the weaker price environment, rather than expectations for a tighter market later in the year.”

This brings the Organization of Petroleum Exporting Countries and allies, known as OPEC+, firmly into focus, with its next meeting in early July. 

The cartel surprised the market with an output cut at the last meeting, which came into effect at the start of this month. However, this has done little to support crude prices, implying the members may be looking at a further reduction in production.

The fact U.S. producers are not increasing in number will be good news for OPEC+, ING added, “as it suggests that they will be able to continue supporting prices without the risk of losing market share to U.S. producers.”

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California grid operator signs off on $7.3 billion of power lines




California grid operator signs off on $7.3 billion of power lines
© Reuters. FILE PHOTO: A woman jogs by power lines, as California’s grid operator urged the state’s 40 million people to ratchet down the use of electricity in homes and businesses as a wave of extreme heat settled over much of the state, in Mountain View, Californi

(Reuters) – California’s electric grid operator has approved a plan expected to cost $7.3 billion for 45 new power transmission projects over the next decade and made it easier for new power plants in high-priority areas to connect to the grid.

The projects will support the development of more than 40 gigawatts (GW) of new generation resources, the California Independent System Operator (CAISO) said on Thursday.

“With electrification increasing in other sectors of the economy, most notably transportation and the building industry, even more new power will be required in the years ahead,” the CAISO said.

The vast majority of the transmission projects will be built in California, with some in neighboring Arizona, it said.

The power lines recommended by CAISO’s 2022-2023 Transmission Plan will allow the state’s grid to add more than 17 GW of solar resources, 8 GW of wind generation, 1 GW of geothermal development, and battery storage projects.

CAISO will prioritize connecting power plants to the grid in specific geographical zones identified by its plan where developing new power lines and plants “make the most economic and operational sense.”

The grid operator also approved proposed reforms to account for “increasing levels of net load forecast uncertainty between day-ahead and real-time markets … as the generation fleet evolves towards a cleaner, but more variable, resource mix.”

It projected that its transmission plan next year could include the need to add 70 GW of new power to the grid by 2033, rising to 120 GW as the state seeks to meet its goal of a carbon-free power system by 2045.

Power supply in the U.S. West is vulnerable to extreme heat as it relies on regional energy transfers to meet demand at peak or when solar output is diminished, the North American Electric Reliability Corp (NERC) said in its summer outlook on Wednesday.

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