Industrial Minerals Inside Edge – 7 December 2012

By Mike O'Driscoll
Published: Friday, 07 December 2012

Fracking for UK shale gas likely; graphite remains exciting but reality checks abound

Welcome to approximately 60 seconds of reading Mike O’Driscoll’s take on this week’s news highlights in the industrial minerals world.

UK fracking at last

This has been on the cards all year. The shale gale is set to sweep the UK. A number of reports on fracking for shale gas in the UK had been sanctioned by the government as it ruminated over how to finalise the UK’s future energy strategy. They pretty much OK’d the practice within strictly enforced regulations, but the government had the final say. Now we know.

The UK government’s Chancellor of the Exchequer, George Osborne, in one fell swoop both dismayed environmentalists and encouraged gas exploration drillers during his Autumn Statement delivered on 5 December.

Osborne signalled the UK’s intent to ratchet up its future reliance on natural gas, and in particular, shale gas, with a new Gas Generation Strategy involving the setting up of an Office for Unconventional Gas and Oil.

Also aired were potential tax breaks for those working in shale gas exploration in order to incentivise development, although little detail was revealed.

The news was welcomed by various parties, not least Cuadrilla Resources, the only licensed UK fracking company, whose operations were suspended last year pending the government’s decision on shale gas development.

The Geological Society of London was hot off the mark with its views within hours of Osborne’s statement and warned that it was important to demonstrate carbon capture and storage (CCS) on a commercial scale urgently and to ensure its widespread and rapid implementation - a neat potential market sideline for industrial minerals.

A formal go-ahead on UK gas development is expected next week, but the move sees the UK follow Poland’s lead in developing shale gas resources, expected to come to fruition in 2015, as the government there has also structured a favourable tax regime for developers.

And guess who just recently won a contract to explore for shale gas in east-central Poland? – step forward Cuadrilla Resources, who — clearly irked by the halt in its UK activity — simply went where its development impetus was welcome. No doubt Osborne hopes all will be forgiven and others will follow in Cuadrilla’s UK footsteps.

In North America, gas developers appear to take a more combative approach. US natural gas producer Lone Pine Resources is planning to sue the Canadian government over Quebec’s fracking ban, claiming compensation for lost value of reserves.

Elsewhere in Europe, France and Bulgaria may well have banned fracking for now, but it won’t be surprising if these decisions are revisited sooner than later and overturned. Certainly, any country dependent on Russian gas supply will be itching to evaluate potential alternatives on their own territory. It all goes to show just how geopolitical the shale gas phenomenon is becoming.

Mineralwise, the news will no doubt have UK silica sand producers checking their material against API specifications. Indeed, how timely for Lochaline Quartz Sand Ltd to re-open its Lochaline silica sand mine on the west coast of Scotland.

Graphite marathon

London this week was host to two important mineral events: Mines & Money and IM’s 2nd Graphite Conference. And anyone striving to touch all the bases over a hectic four days of meetings, presentations, and networking would have been sagely nodding to Stephen Riddle, President of Asbury Graphite Mills Inc., US, as he described the business as a “marathon” during his keynote paper.

The graphite space is overloaded with junior developers, many of which were popping up at Mines & Money, along with fluorspar and fertiliser mineral prospects – a timely reminder to investors that world mineral demand is not all about the shiny metallic stuff.

Chris Berry, Founder at House Mountain Partners LLC, US, in his presentation “Investor focus: is graphite still the one to watch?” hit the nail on the head regarding the fundamental principle of industrial minerals’ market demand – “demographics is our destiny”. Yes, it’s all about populations and the development of their world.

Sure, low production costs are key, but while the near term outlook may look bleak, Berry is rightly convinced that the future quality of life sought after in developing regions should secure long term demand for industrial minerals such as graphite in a range of end products, particularly those related to domestic and industrial energy provision.

At the same time there were the usual warnings of having seen it all before with lithium, rare earths, and uranium – investor excitement, price rises, followed by price crashes.

There was also a neat reality check from Dr Emma Kendrick, Research Supervisor at Sharp Laboratories of Europe Ltd, regarding the type of graphite most suitable for Li-ion batteries in stationary energy storage applications.

Dr Kendrick’s observation that round or “potato” shaped graphite grains are far more preferable to flat and platelet grains, owing to better penetration of the lithium electrolyte within the battery, was met with not a few blinks among the audience. A salutary reminder to all developers to check out just what type and grade of graphite you have in your reserves, and crucially, how to correctly process the material for market specifications.

The overall consensus was that while more graphite supply is required, only a very few new producers will come on stream over the next few years, and that there are different types of graphite deposits, which may or may not be suitable for the new and emerging applications.

As with last year’s Graphite Conference, the clash was evident between the established graphite players with their more conservative market outlook and the new players heavily focused on the emerging markets.

Clearly there has to be a balance. While everyone wants the new markets to prosper, despite the gloom of 2012, the “boring” markets of steel refractories and foundry castings will continue to dominate graphite demand, and even grow.

Heck, even the fracking frenzy in the US has helped fill the coffers of the likes of Superior Graphite and Asbury Graphite Mills, as they develop graphite grades for lost circulation and lubrication applications in oil and gas drilling – one of the smaller volume but traditional markets for graphite.

In the refractories space, Russian magnesia and refractories giant Magnezit Group confirmed its commitment to developing its own 40,000 tpa graphite source, located in Russia’s Far East just across the border from the Chinese graphite-rich province of Heilongjiang.

The move also continues the trend of the large refractory groups becoming more vertically integrated; expect others to follow the likes of Magnezit, RHI, and Magnesita Refratários.

Mike O’Driscoll is Global Head of Research and Consultant Editor at Industrial Minerals, previously he was Editor of IM 1995-2012.; T: +44 (0) 20 7827 6441

For the latest trends and developments in oilfield mineral supply and demand don’t miss Oilfield Minerals Outlook: Middle East, 21-23 January 2013, Dubai.

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