Energy & Resources
At the pump
More reserves cuts for Shell
Mineral Resource of the Month: Rare Earths

At the pump

Gasoline prices at the pump are at their highest non-adjusted level ever this spring — with a national average of $1.78 per gallon of regular gasoline on April 5 — and are projected to continue rising through the summer, according to the Energy Information Administration (EIA). Although consumers are aware that the cost to fill the tank is higher, they might find it difficult to understand the reasons why. That’s because opinions vary on the exact cause of the high prices. Ultimately, however, the current price hike is driven by economics rather than geology, says Ed Porter, a senior analyst with the American Petroleum Institute (API).

State and federal taxes and the cost of crude oil on the world market comprise the bulk of the consumer’s expense for a gallon of gas, followed by refining costs, transportation costs, and other marketing and business costs. But the fundamentals of supply and demand rule the current price sway. With crude oil supply low and demand rising, crude oil prices are rising too.

The supply of crude oil on the world market is low because of production quotas set by the Organization of Petroleum Exporting Countries (OPEC) and political unrest in Venezuela, Nigeria and the Middle East; the inventory of gasoline in refineries is low because imports are down sharply; and the demand in the United States and around the world is increasing with strengthening economies. Together, these factors have raised the price of crude oil. And when the cost of crude goes up, so does the cost of gasoline, says Rayola Dougher, an API senior policy analyst. The price of crude oil accounts for between 38 and 46 percent of the price of a gallon of gasoline.

Crude prices rose $8 per barrel from December 2003 to March 2004. According to API statistics for March, refiners paid $36 to $38 per barrel of crude oil, within pennies of last year’s high preceding the war in Iraq; however, the price is $8 to $16 higher than the price at which OPEC tries to keep the market, Dougher says. And EIA predicts the price of crude will stay above $30 for the near future, with continuing political unrest driving uncertainty in the marketplace and rising demand.

The key point is that the high prices reflect the supply of crude oil from the global market, not oil reserves from the planet, says John Wood, director of the reserves and production division at EIA. “Crude oil reserves are quite adequate to supply all the gasoline we need,” he says.

The problem, Porter says, is that there is not enough oil on the market to support global needs. In late March, OPEC, which pumps about one-third of the world’s oil, decided to further restrict daily crude output by 1 million barrels per day, for a total production of 23.5 million barrels per day. That decision could raise prices even higher, Porter says; however, individual countries in OPEC have not always kept to the output quotas and have taken advantage of the higher prices by selling more and thus lowering crude prices slightly.

Irrespective of price, global demand keeps rising, Wood says. Across Asia, imports grew solidly last year — in China alone, crude imports grew 30 percent. Gasoline demand in the United States increased 4.3 percent from last year owing to the growing economy, a cold winter and SUV sales growth of 18 percent, according to API. The United States imports more than 62 percent of the crude oil the nation consumes, with the highest amounts imported from Mexico, Canada, Saudi Arabia and Venezuela. And while the total product supplied is 0.6 percent higher than last year, supply growth is simply not keeping up with increased demand.

One good question, Wood says, is whether or not the rise in prices at the pump will lead to more oil exploration. He speculates that the American public may call for more domestic exploration if it thought higher prices were here to stay. And in this election year, the public sentiment could take on extra significance, Wood says, but he is still skeptical that anything will change. Porter adds that higher pump prices in the past haven’t led to more stateside exploration or public support for it.

Although the short-term issue is inventory supply rather than the actual supply of oil in the ground, Porter says, reserve supply is going to be an issue for the long term. “There’s no question that over the next 20 years, we’ll have to find new sources for oil and gas, and other energy sources,” he says.

In the meantime, consumers are left to pay higher prices at the pump or figure out how to use less gas. Still, analysts point out that while gas prices are higher than ever before, when adjusted for inflation, the true price of gasoline at the pump has fallen more than 40 percent from its peak of $2.77 per gallon in 1981.

Megan Sever

Next month, read about the role refineries and taxes play in the recent gas price hike.

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More reserves cuts for Shell

Based on an ongoing independent audit of its reserves, Royal Dutch/Shell downgraded 250 million barrels of oil equivalent from proved reserves to less certain reserve categories in March. The decision follows on the heels of a massive 3.9-billion-barrel reserve cut in January (Geotimes, March 2004). Furthermore, the company decided not to book 220 million barrels it had earlier decided to book as proved reserves.

The U.S. Securities and Exchange Commission is conducting a formal investigation into Shell’s reserves accounting and could bring civil charges. The U.S. Department of Justice, a regulator in the United Kingdom and two regulators in the Netherlands are also investigating the company and could bring civil or criminal charges. Also, Shell employees have filed a class-action lawsuit against the company for the resulting drop in share value, which affected their retirement funds.

In the wake of the reserves reclassification, Shell’s CEO, CFO and head of exploration and production have all been replaced.


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Mineral Resource of the Month: Rare Earths

James B. Hedrick, rare-earth commodity specialist for the U.S. Geological Survey, has prepared the following information on the rare earths, which have been used commercially since the 1880s.

As if classified as a top-secret project, the rare earths have been shrouded in secrecy. The principal ore mineral of the group, bastnäsite, rarely appears in the leading mineralogy texts. The long names of the rare-earth elements and some unusual arrangements of letters, many Scandinavian in origin, may have intimidated even those skilled in phonics. Somewhat obscurely labeled, the rare earths are neither rare nor earths (the historical term for oxides). They are a relatively abundant group of metallic elements that occur in nature as nonmetallic compounds and have hundreds of commercial applications.

Somewhat obscurely labeled, the rare earths are neither rare nor earths.

The rare earths are defined as a group of 17 elements, comprised of scandium, yttrium and the lanthanides. The similar radii and oxidation states of the rare earths allows liberal substitution of the rare earths for one another into the crystal lattice sites of minerals. This substitution accounts for their wide dispersion in Earth’s crust and the characteristic occurrence as a group of elements within more than 100 minerals. The principal ores of the rare earths are bastnäsite, ion-adsorption lateritic clays, loparite, monazite and xenotime.

Commercial development of the rare earths started with the invention of the incandescent lamp mantle by Auer von Welsbach around 1884. Rare-earth production in Scandinavia was prompted by this invention, which initially was made with the oxides of lanthanum, yttrium and zirconium.

World production of rare earths was estimated at 98,200 metric tons of equivalent rare-earth oxides in 2002. China was by far the largest producer, with 90 percent of the world’s total. Lesser amounts came from India, Kazakhstan, Kyrgyzstan, Malaysia, Russia, Ukraine and the United States.

In 2003, there was no rare-earth mine production (lanthanides, yttrium and scandium) in the United States. However, the United States has remained a supplier of bastnäsite concentrates and rare-earth compounds that were previously processed by Molycorp, Inc., a subsidiary of Unocal Corp. Molycorp last mined and processed bastnäsite in 2002 at its Mountain Pass, Calif., mine and was maintaining the operation on standby. Industrial rare-earth products and concentrates are available from Molycorp’s stocks.

In 2002, the approximate distribution of rare earths by use was as follows: glass polishing and ceramics, 30 percent; petroleum refining catalysts, 28 percent; metallurgical additives and alloys, 19 percent; automotive catalytic converters, 14 percent; permanent magnets, 3 percent; rare-earth phosphors for lighting, televisions, computer monitors, radar and X-ray intensifying film, 3 percent; and miscellaneous, 3 percent. In 2002, yttrium consumption was estimated to have decreased to 334 metric tons from 473 metric tons in 2001.

The estimated use of yttrium, based on imports, was primarily in lamp and cathode-ray tube phosphors, followed by lasers and electronics, and ceramics and oxygen sensors. Scandium was used primarily in lightweight, high-strength, aluminum alloys for sports and camping equipment, including baseball and softball bats, bicycle frames, lacrosse stick handles and tent poles. Small amounts of scandium metal or compounds were used in specialty lighting, analytical standards and as target materials in X-ray analysis.

Rare earth principal ores

The principal ores of the rare earths are bastnäsite, ion-adsorption lateritic clays, loparite, monazite and xenotime. Several of the ores occur in unique geologic settings whereas others are found in similar occurrences worldwide.

Monazite was the principal ore of the rare-earth elements and thorium. Since the 1880s and 1890s it has been the source of elements to make incandescent lamp mantles and lighter flint alloys, the earliest commercial applications. Monazite ore is recovered mostly from heavy-mineral sand sedimentary deposits. Early high-cost production in the 1880s was from Sweden and Norway; with lower cost alluvial placer sand production from North Carolina beginning in 1893. Brazilian littoral deposits having higher grades began production in 1895 and India started production in 1911. Monazite's high thorium content has limited its use since the 1990s.

Bastnäsite is the principal ore produced in the world and is enriched in the cerium, lanthanum, praseodymium, neodymium and europium. Bastnäsite was first commercially recovered from the igneous carbonatite at Mountain Pass, Calif., in 1952, primarily for cerium to be used in glass polishing. Europium abundance in the ore allowed for a true red-color phosphor for color televisions in the 1960s. Since 1985, bastnäsite production in China increased dramatically and continued to increase and dominate the market from the 1990s to the present.

The mineral xenotime, was the principal ore of yttrium and the other heavy rare-earth elements. Yttrium was used in phosphors, and combined with zirconium to make high-temperature, high-strength structural ceramics. It also was used in synthesized crystals for lasers. Xenotime is produced from alluvial heavy-mineral sands deposits mined for tin, titanium, and zirconium minerals.

Ion-adsorption lateritic clays from southern China replaced xenotime as the principal source of yttrium and the other heavy rare-earth elements in the 1990s. These intensely weathered clays have rare-earth ions adsorbed into the clay mineral structure.

Loparite is a complex oxide mineral mined in Russia from an alkaline massif. Commercially produced since 1951, loparite occurs in association with alkaline rocks of magmatic origin. It is also known to occur in carbonatites. Loparite has a perovskite structure with coupled substitutions, polymorphism, defect chemistry and a tendency to become metamict.

Visit the USGS Minerals Division online for more on rare earths.

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