Climate Change Is Melting Russia’s Permafrost—and Challenging Its Oil Economy
Across Russia, the thawing of earth thought to be forever frozen cracks buildings, infrastructure; ‘It’s all on the line.’
YAKUTSK, Russia—Thawing earth once thought to be permanently frozen is springing to life and threatening a crucial chunk of Russia’s economy.
The melting of the thick layer of the earth known as permafrost is a result of climate change, according to scientists and Russia government research. Two-thirds of the country sits on such soil, including much of its oil and gas infrastructure. Since 1976, Russia’s average temperature has risen 0.92 degrees Fahrenheit per decade, or 2½ times faster than the global pace, government data shows.
Mines and plants are experiencing increasing corrosion leaks and cracks, stemming in large part from defrosting ground. In the pipeline industry, braces and other mechanisms, previously anchored into permafrost, often corrode, twist and bend when the earth below changes, according to ecologists and other researchers. Companies are pouring millions of dollars into reinforcing buildings, monitoring soil temperatures and installing high-tech cooling systems.
The phenomenon was a contributor to the largest ever spill in the polar Arctic in spring 2020, when damage to a diesel fuel storage tank in remote Siberia caused 20,000 tons of fuel to leak.
After the spill, Russian President Vladimir Putin declared a national state of emergency and the country’s Prosecutor General ordered regional prosecutors to inspect all hazardous facilities built on permafrost. Russia’s Investigative Committee, the nation’s main investigations agency, later blamed the incident on negligence and poor maintenance. Officials at the Norilsk Nickel mining company that operates the installation—along with some government scientists and elected officials—said thawing permafrost caused the failure of posts supporting the basement where the storage tank laid.
“In the near past, everybody believed that permafrost would have an impact on infrastructure by the end of the century. Now we know we don’t have much time,” said Vladimir Romanovsky, professor of geophysics at the University of Alaska Fairbanks. “Oil, gas, villages—it’s all on the line.”
Russian economic officials and scientists estimate that thawing permafrost could affect more than a fifth of Russian infrastructure. The economy stands to lose more than $68 billion by 2050, a government minister said in May. The government says that 40% of buildings and infrastructure facilities in permafrost-covered areas have already been damaged.
Aging Russian buildings and equipment, much dating to the Cold War, don’t help matters. “We must be prepared for this,” said Mr. Putin during a nationwide address in June. Last month, he ordered the creation of a national permafrost monitoring system to analyze data from 140 stations.
In Yakutsk, capital of the Northeast region of Yakutia, residents describe water pipes that regularly burst, creating fissures and holes in buildings. Roads buckle as moisture seeps in from below, leading to cracks in the asphalt. Trains run at slower speeds because of deformed tracks, local engineers said. Flooding was behind the resettlement of at least one waterlogged village from the basin of the remote Kolyma River.
Across the countryside, the effect of permafrost is plain to see. Thawing ice has transformed farmland into swamps and rivers swell in springtime with up to 30% more runoff compared with the 1980s, local scientists said. In villages, locals who previously stored meat and other perishables in cellars dug deep into the ground now must use ordinary deep freezers because of waterlogged subsoil.
For funerals, residents for centuries had to dig to approximately 5 feet underground, and then burn wood to heat the soil to suitable softness required to bury the dead. These days, there is no need for the second step, said local ecologist Valentina Dmitriyeva.
Business challenge
Permafrost, so named because it is a permanently frozen thick layer under the earth’s surface, consists of soil, rock or sediment that usually remains below freezing for more than two years. It can be found near dry land and under the ocean floor, anywhere from an inch to several miles beneath the surface. It is most common in historically frigid places such as Russia, the Alps and China’s mountainous regions.
The softening of the soil is both a result of global warming, and emits gases that contribute to it, according to the U.S. Environment Protection Agency. As permafrost thaws, the remains of plants and other organic material decompose, releasing methane and carbon dioxide into the atmosphere, the EPA says, exacerbating the matter.
In some areas, thawing ground can give way to craters. Scientists say the likely reason is the steady buildup of underground gases able to burst through soft upper permafrost layers.
In Alaska, the top layer of permafrost at the northern sensor site of Deadhorse has warmed by 1.5 degrees Fahrenheit per decade since the late 1970s, according to U.S. statistics. Foundations of Alaskan homes have been unsettled while highways and railroad tracks require repair due to cracking, heaving and sinking. Canada’s northern Arctic has experienced damage to homes, roads, indigenous cultural sites and the marine environment.
For some of Russia’s biggest businesses, adjustments for permafrost are already under way.
Alrosa, one of the world’s largest diamond producers, has 82% of its reserves in permafrost areas, according to Morgan Stanley. The company says it has added “freezing columns” to its mines; the columns connect to refrigeration stations on the surface and shoot coolant dozens of feet beneath the ground to firm up the earth.
Alrosa has what it calls a Permafrost Surveillance Unit in Siberia to monitor the soil temperature in 4,800 wells. Another miner, PAO Severstal, says it is building structures on stilts, to better adapt to shifting ground.
For oil-and-gas companies, permafrost interferes with both the extraction of resources and subsequent transport.
Around 90% of the gas production of state-controlled energy giant PAO Gazprom is located in permafrost-covered provinces, according to Morgan Stanley. At its Bovanenkovskoye field, a vast facility in Northern Russia that Gazprom hopes will last for another century, the company has installed 1,000 vapor-liquid cooling units, a system of underground pipes to circulate a refrigerant compound and ensure the ground stays frozen.
Alexander Sobul, a professional diver and underwater repairman for pipeline infrastructure in Yakutia for four decades, said he’s noticed increased cracking and deformation during his dives. He blames the loosening of previously-dense soil surrounding pipelines. “The welding doesn’t hold up,” Mr. Sobul says.
Morgan Stanley researchers say melting permafrost and related infrastructure degradation could harm Russia’s credit profile. The oil-and-gas sector contributes as much as one-fifth of the nation’s gross domestic product, while fuel and energy products make up the majority of Russia’s exports.
“You can see that the companies take it very seriously,” said Willem Visser, a credit analyst at asset manager T. Rowe Price. Mr. Visser has added metrics of permafrost risk to his analyses of Russian energy companies.
‘The building was shaking’
The effects are particularly acute in Yakutia, the vast northeast Russia area of 1.2 million-square miles, five times the size of France. Yakutia’s capital of Yakutsk is the coldest constantly inhabited city in the world; temperatures fall to below 40 degrees Fahrenheit for at least three months each year. The region this summer made headlines for out-of-control wildfires which further thawed the soil, scientists say.
Commodity extraction is a key part of the Yakutia economy. The $55 billion Power of Siberia pipeline, a strategically crucial project that delivers Russian natural gas to China, largely carries gas found in Yakutia fields.
When the first crack appeared in the ceiling of her weatherworn Yakutsk apartment, Larisa Tikhonova paid it little mind.
Shortly after, the cracks multiplied, spreading across newly formed crevices on the wall of her 1950s-era kitchen. Later, a stench rose from standing water under the four-story building. Ms. Tikhonova and her neighbors called emergency services, and even sued the government of this city of 300,000 in remote northeast Siberia, but no help came. She has been waiting for 11 years.
Other locals say they too are accustomed to hearing groans or pops as buildings lean and walls crack. Fewer than three dozen of Yakutsk’s 2,000 concrete apartment buildings were deemed safe when tested roughly 10 years ago, the ecologist Ms. Dmitriyeva said, and few repairs have been made since.
Segments of the city’s buildings collapsed in 2010, 2011, 2015 and last year.
On a walk earlier this year through Avtodorozhnaya Street, a quiet residential neighborhood, local construction engineer Eduard Romanov surveyed corrosion nibbling at the foundation of a two-story apartment building. In summer 2020, the building was marked as uninhabitable by local officials after a foot-wide fissure appeared on the front facade while residents were still inside.
Security guard Eduard Kirillin was among them, sitting at his computer drinking tea in the apartment his parents owned, when he heard a loud cracking sound. Worried the roof had caved in, Mr. Kirillin ran into the street with other neighbors, only to discover the side of the building splitting apart.
“I remember earlier seeing water pipes leaking under the building,” Mr. Kirillin said. “It was always wet under there. And the night before the accident, it was as though the building was shaking,” he said.
One month after the incident, residents were allowed to return to salvage belongings. Mr. Kirillin, said his parents were compensated the equivalent of around $42,600 by the local government. The building was demolished this summer.
Houses in Yakutsk could once safely be built on piles sunk 26 feet into frozen ground, Mr. Romanov said. Nowadays, they must be dug in at almost 40 feet.
Roughly 3 miles away on Lenina Street, in a corner apartment two floors above Ms. Tikhonova, Viktor Polyanichko’s parents are surrounded by deterioration. Their apartment, Mr. Polyanichko said, “has big cracks everywhere. The doorway is skewed. And my parents say they can hear the beams cracking above.”
Neither Mr. Polyanichko nor other residents could assign certain blame. The State Building and Housing Supervision Authority of Yakutia estimates that 99 percent of cracks in homes can be traced to poor building maintenance. “The most important thing is management,” said Vlad Permyakov, the agency’s first deputy head.
Local ecologists and scientists, as well as engineers such as Mr. Romanov, said thawing ground was a major factor. “Building basements is very difficult,” said Valery Lepov, director of research-focused Larionov Institute of the Physical-Technical Problems of the North. “We can do this only in some places where there is not a lot of thawing.”
In summer 2020, seams burst on a local fuel tank connected to an electrical power station in the remote Yakutia village of Argakhtakh. Some five tons of diesel fuel flooded into the surrounding soil and a nearby river.
The district prosecutor investigated the spill and determined that it resulted from the failure of district officials to promptly detect that the fuel storage tank showed signs of erosion, a telltale sign of thawing permafrost.
Carmakers order enough chips for record rebound in global production
Europe’s largest semiconductor company Infineon says orders equate to demand for 120m cars a year
Carmakers are ordering enough semiconductors to build a record amount of vehicles when supply constraints ease, Europe’s largest chipmaker Infineon said on Tuesday.
“If you look at the current demand . . . in the auto industry where we have an excellent transparency to cars manufactured, the current orders look more like 110m to 120m cars [per year],” chief executive Reinhard Ploss told the Financial Times.
The previous record was reached in 2018, when 95m cars and vans were delivered to customers, according to Moody’s.
Since then, the global car market has shrunk, after being hit by an economic slowdown, the pandemic and the semiconductor supply crisis in quick succession.
The current shortage of crucial components, which has led to plants being shut around the world, could lead overall car production to slump to 77m in 2021, according to AlixPartners, almost 8m fewer units than it forecast before the bottlenecks took hold.
But Ploss said ordering patterns suggested carmakers might be looking to make up for lost production time in the coming months.
“There are many bits and pieces from which we can read the total market,” he said, singling out components such as microcontrollers, which are made for specific models and easy to track.
“If these numbers we see are representative, then the total ordering behaviour would represent a car demand between 110m and 120m.”
The Bavarian executive stopped short of suggesting that auto customers were stockpiling to prevent further shortages, but warned it was “very difficult to assess” whether this demand would be sustained once the semiconductor crisis eased.
“A significant portion [of the orders] is a catch-up and a certain portion is really added demand by buyers,” he said.
Separately on Tuesday, Infineon said it expected revenues for the 2022 fiscal year to rise by a “mid-teens percentage”, assuming exchange rates remained stable, with a “further margin uplift”.
The German group also announced it would invest a total of €2.4bn during the year, predominantly in updating equipment, up from a total of €1.6bn in 2021.
The former Siemens company last month opened Europe’s newest semiconductor plant in Villach, Austria, which will produce power chips primarily for auto customers.
While it was “very likely” that there would be a “phase of strong growth in semiconductors”, Ploss warned that the industry “will definitely not stay on the growth momentum we see today, which is, I think, driven by some specialist topic[s]”.
The auto industry accounts for about 8 per cent of the total semiconductor market, but more than 40 per cent of Infineon’s revenues.
Facebook Senate hearing
- Facebook engagement ratings can lead children to dangerous topics.
- Many of Facebook's internal research reports show negative harm on kids.
- Facebook didn't set out to make a destructive platform.
- No one is holding CEO Mark Zuckerberg accountable.
- Facebook changed election safeguards after election because they wanted growth back.
Gapping down
In reaction to earnings/guidance:
- CMTL -14.7% (also promotes COO Michael Porcelain to CEO)
Other news:
- UPH -31.8% (prices offering of 23 mln shares of common stock at $1.75 per share)
- KLDO -7.4% (announces new data in support of KB295 for treatment of ulcerative colitis)
- SNDX -5.4% (CFO to reisgn)
- GLPG -1.9% (presents new data from SELECTION Phase 3 program)
- CALM -1.3% (announces strategic investment in new egg products manufacturing co)
- PCAR -1.2% (says chip shortage reduced its truck deliveries in Q3 by 7000)
- MGPI -0.9% (stock offering; also files mixed securities shelf offering) .
Analyst comments:
- ACI -3.8% (downgraded to Underperform from Market Perform at BMO Capital Markets)
- AVIR -3.3% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
- COMM -2.3% (downgraded to Neutral from Outperform at Credit Suisse)
- EQIX -2% (downgraded to Neutral from Outperform at Credit Suisse)
- COLM -1.3% (downgraded to Neutral from Buy at BofA Securities )
- DLR -1.1% (downgraded to Neutral from Outperform at Credit Suisse)
Gapping up
In reaction to earnings/guidance:
- NAPA +6%, PEP +1%
Other news:
- TISI +13.3% (awarded multi-year contract from Chevron)
- AGFY +12.9% (acquires Precision Extraction Solutions and Cascade Sciences for $50 mln in cash and stock)
- NOTV +10.4% (to acquire Plato BioPharma for $15 mln)
- VIEW +8.3% (View's Smart Windows have been installed at the Memphis International Airport)
- UBX +6.8% (announces 12-week data from its ongoing Phase 1 safety study of UBX1325)
- RYAM +4.4% (to increase prices for Cellulose Specialties products)
- SB +2.9% (enters into new period time charter for a duration of 3 years)
- CPE +2.7% (reports Q3 production exceeded guidance; raises FY21 outlook)
- CRMD +1.5% (CEO retires)
- XENE +1.4% (commences $250 mln common share offering; also files mixed securities shelf offering)
- GMTX +1.3% (announces a corporate restructuring)
- FB +1.2% (Facebook apps all go down simultaneously, according to NYT)
- LULU +1.1% (approves $500 mln increase to stock repurchase authorization)
Analyst comments:
- BE +3.5% (upgraded to Strong Buy from Outperform at Raymond James)
- AOS +2% (upgraded to Outperform from Neutral at Robert W. Baird)
- CWEN +2% (upgraded to Outperform from In-line at Evercore ISI)
- CMA +1.7% (upgraded to Outperform from Underperform at Wolfe Research)
Cotton Prices Surge to Highest Level in a Decade
China buys up U.S. supplies of crop, even as Trump-era import ban limits use of Chinese-grown fiber
Cotton futures are trading at their highest price in about a decade, with growing Chinese demand being met in part by rising U.S. exports to China, a curiosity of Trump-era trade-war policies.
Most-active U.S. cotton futures trading on the Intercontinental Exchange ICE -0.61% closed Monday up 0.4% at $1.05 a pound, keeping prices at their highest level since September 2011. Prices have risen 18% higher over the past 10 sessions. Higher clothing prices could eventually follow.
Prices for other raw materials, such as lumber, have surged this year, because of high demand and supply-chain kinks that have kept goods from getting to customers who want them. Prices for other U.S. crops, such as corn and wheat, have jumped this year amid drought conditions in the U.S. and abroad. Cotton shows the sometimes-unexpected effects that trade policy can have on prices.
Last year, President Donald Trump banned U.S. imports of clothing and other products made of cotton from the Xinjiang region, China’s largest cotton-producing area. The administration said at the time that there was evidence that the products were made with forced labor by the Uyghur ethnic group.
U.S. companies still can import cotton products made in China if the cotton itself is from somewhere else. So China is importing cotton—much of it from the U. S.—to make goods and ship them back.
China’s appetite for cotton imports is, in part, being fulfilled by cotton produced in the U.S. According to the U.S. Department of Agriculture, the pace of U.S. export sales of cotton to China since the start of the new marketing year on Aug. 1 is 83% higher than this time last year.
“If you cannot use Xinjiang cotton, you have to import a lot more cotton and yarn,” said Peter Egli, the director of risk management for Plexus Cotton Ltd.
Mr. Egli added that China also was filling its cotton needs from other significant exporting countries, such as India.
In a policy address Monday, U.S. Trade Representative Katherine Tai said the U.S. planned to start a new round of trade talks with China while maintaining tariffs on Chinese imports.
According to the most recent outlook from the USDA, consumption of cotton in China in the current marketing year is expected to be 41 million bales, the equivalent of roughly 8.9 million metric tons. That is up 24% over the past two marketing years, driven in part by a post-pandemic surge in demand for consumer goods.
Fund traders have increased their bullish bets, according to the Commodity Futures Trading Commission, as U.S. farmers begin to harvest their crops. The USDA reports that the cotton harvest nationwide is 13% complete, and the crops being harvested are looking good—with 62% of them in good or excellent condition, versus 40% at this time last year.
“Conditions are good right now, so the harvest should stay good,” said Jack Scoville, an analyst with the Price Futures Group.
“China has become more active in the world market,” he said, adding that the U.S. can offer the volume and quality of cotton that China wants.
Yet, China’s robust demand for cotton and other raw materials could peter out. Power outages have swept through Chinese provinces, with the government sometimes forcing factories to shut down to save energy. The National Bureau of Statistics in Beijing reported Thursday that the country’s manufacturing activity contracted in September, ending an 18-month expansion streak.
“Power rationing will constrain industrial activity until demand weakens enough to bring the domestic electricity market back into equilibrium,” said Julian Evans-Pritchard, senior China economist with Capital Economics, in a note last week.