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Why miners are racing to produce one of the world’s most in-demand metals
Australian nickel is in high demand. (Rachel Pupazzoni, ABC News.)
Mining companies in Australia are racing to find the next big reserve of one of the world's most in-demand metals.
Nickel is a critical metal in batteries, and as the world keeps moving toward renewables, more batteries are needed to store energy.
In fact, there's a strong case that much more of it is needed than lithium — a commodity many people know of, because it is in the name of lithium batteries.
But there are a variety of batteries made with different metal compositions and, as Elon Musk puts it, batteries need a sprinkle of lithium compared to nickel.
"The lithium is actually 2 per cent of the cell mass," he said at a presentation in 2016.
"It's a very small amount of the cell mass and a fairly small amount of the cost, but it sounds like it's big because it's called [a] lithium-ion [battery] , but our batteries should be called nickel-graphite, because it's mostly nickel-graphite."
About 50 kilograms of nickel goes into each Tesla battery.
A report by the CSIRO shows about five times as much nickel (48,006 kilotonnes) will be needed to meet global demand by 2050 as lithium (8,990 kilotonnes).
The problem the world now faces is finding enough nickel to make all the batteries needed.
The search is on to find more nickel to meet the growing demand for the critical battery metal.(Supplied: Panoramic Resources)
Nickel lost its shine
Australia was once a world-leading producer of the shiny metal.
Such was its demand, nickel fetched as much as $US52,000 ($73,700) per tonne in 2007.
But just as prices were rising, the global financial crisis hit, sending the commodity spiralling down, to as low as about $US9,000 ($12,700) in October 2008.
Dozens of mines closed, including a brand new nickel mine opened by BHP in Ravensthorpe, in the south of Western Australia. It went under in January 2009, having operated for less than a year.
For years, BHP tried to sell its Nickel West business, but by the mid-2010s it decided to hold onto it and invest in the commodity.
Now, BHP is ramping up its nickel production and is on the hunt for more mines.
The search for nickel
Last week, BHP announced an unsolicited offer to buy nickel and copper miner Oz Minerals for $8.3 billion.
Oz Minerals advised shareholders to reject the bid, saying it was "highly opportunistic" and significantly undervalued the company.
BHP has deals to sell its nickel to three major car makers.
"I think there's a fantastic opportunity with the Tesla, the Ford and the Toyota agreements," BHP Nickel West asset president Jessica Farrell told The Business.
"I think it is a sign of a direct relationship with the miner and the car manufacturers and we're very well placed to provide sustainable nickel to the battery sector."
BHP Nickel West's Jessica Farrell wants to increase its nickel reserves so it can fulfil orders from car manufacturers.(ABC News: John Gunn)
While Ms Farrell said BHP had enough nickel to fulfil those deals, it clearly wants more.
"We have the second-largest nickel sulphide deposit globally in the Agnew-Wiluna belt, which is an incredible deposit," she said.
The Agnew-Wiluna belt is a geological strip of land rich in nickel and other commodities that stretches south, roughly through the middle of Western Australia, where other miners also operate.
"We're certainly not short of customers … in terms of what we see in the demand trajectory," she said.
"We're actively exploring globally, and we've significantly increased our own exploration spend within the portfolio of the land tenure that we have."
BHP is set to spend billions of dollars because it sees demand only rising.
"If we look out to 2030, we see a 60 per cent increase in electric vehicles and then out to 2040 we see that going up another 30 per cent, to 90 per cent," she said.
"So, we see an incredibly good trajectory for demand — and that's globally.
"We'll also see that transition locally, I think, a lot faster than we expect."
More mines needed
BHP isn't the only company expanding its nickel operations.
In June, the ink dried on a deal that saw Australian company IGO buy nickel miner Western Areas for $1.3 billion.
The deal adds another two nickel mines to IGO's portfolio: the already-in-production Forrestania mine as well as Cosmos, where mining is due to start by the end of this year.
IGO produced 24,000 tonnes of nickel metal concentrate from its Nova mine last financial year.(ABC News: Jon Kerr)
It also extends the life of its existing Nova site, where it has been mining nickel since 2017.
"Since then, it's just been delivering fantastically consistent production levels for IGO and fantastic financial returns," IGO managing director Peter Bradford told The Business.
Peter Bradford runs one of the major nickel and lithium miners in Australia.(ABC News: John Gunn)
But it is not the first time IGO has tried to add to its nickel portfolio.
In 2019 it attempted to buy Panoramic Resources, a company with a nickel mine called Savannah in the Kimberley region, in the far north-east of Western Australia.
While Mr Bradford is remaining tight-lipped on whether it will make another takeover attempt, its purchase of Western Areas does give it a 21.5 per cent stake in Panoramic.
It also has about 10,000 square kilometres of land around Panoramic's mine that it is currently searching for nickel.
"What we're exploring for is a repetition of Nova or a repetition of the Savannah mine that Panoramic have," he said.
"What we may or may not do with the 21.5 per cent interest in Panoramic will depend on the success around that exploration of assets in the Kimberley."
Panoramic's managing director, Victor Rajasooriar, told The Business he was focused on expanding operations, regardless of IGO.
"At the end of the day, they have 21 per cent of the company, they are a supportive shareholder and we can coexist," he said.
Panoramic Resources managing director Victor Rajasooriar says he's focused on delivering for shareholders, not another potential takeover by IGO.(ABC News: John Gunn)
"Our main purposes is to get this project up and running properly, ramp up to nameplate capacity, work safely and increase shareholder wealth, and they will benefit from that.
"That's what we can control, and that's what we will do."
Price play
The vast majority of nickel mined in the world doesn't go into batteries – it's used to make stainless steel.
"But certainly over time, expectations are that [electric vehicles] will become a much larger piece of the demand pie for nickel," resources division director at Macquarie Hayden Bairstow told The Business.
"It is about 15 per cent now of the global nickel demand market, if you like, for electric vehicles.
"That's certainly grown from basically nothing a few years ago, and the expectations are that it will move into the 20s and 30 per cent of the total, and beyond that over time, as the EV market gets larger and larger."
As that demand grows, so too does the price, which swung wildly at the start of 2022.
At the end of 2021, nickel was selling for roughly $US20,000 – a far cry from the pre-GFC peak, but more than double its 2008 low.
It had been increasing fairly steadily for the last few years, along with battery demand.
But as Russia invaded Ukraine the price soared, briefly to as high as $US100,000 a tonne before the London Metals Exchange halted trading and cancelled the day's transactions.
Russia is one of the biggest global suppliers of nickel and there were fears of a massive shortage, just as demand was growing.
The nickel price has once again stabilised to about $US24,000 a tonne.
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The next iron ore of mining
With prices now back rising in a more normal range and car makers pleading with miners to find more nickel, the sector is trying to expand as fast as it can.
"But nickel is very hard to find," explained David Southam, the outgoing managing director of nickel miner Mincor.
"It's a race to secure those critical minerals and the Western world has probably fallen a little bit behind [and] is now playing catch up."
David Southam stepped down as Mincor Resources managing director this month.(Supplied: Mincor Resources)
David Southam stepped down as Mincor Resources managing director this month.(Supplied: Mincor Resources)
While Mr Southam may be leaving the company (Mincor's new managing director, Gabrielle Iwanow, steps into the role later this year), he only sees growth for the sector.
"It's that fundamental shift in the supply-demand, with the demand for electric vehicle batteries, for battery storage, where nickel content gives you the longevity in the battery that means you can travel further, that has fundamentally shifted," he explained.
"It's almost like iron ore, with the Chinese infrastructure boom, that took off, and nickel is very similar."
"The price has gone up, which has enabled projects to get off the ground," he told The Business.
"With this fundamental shift in the market, if you can produce clean, green nickel, because it will be traced right through to the vehicle, you've probably got a pretty good future ahead of you."
Global Vanadium Ore Market Drivers, Trends And Restraints For 2022-2031
Originally posted on Newswires
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Tesla Big Battery In South Australia Delivers (Again), This Time On Inertia Services
Originally posted on Seeking Alpha
by Keith Williams
Summary
Tesla Lithium batteries are now validated by Australian Energy Marketing Authority for grid-scale inertia services using Tesla’s Virtual Machine Mode software.
This is a world first for inertia services on an established grid, and it represents a significant step towards exit from fossil fuel-based power.
Big lithium batteries now have an additional functionality validated (in addition to frequency regulation, short-term time shifting, etc.).
At the same time, scale-up of flow batteries is happening.
News about inertia services broadens the value of Tesla’s energy storage offerings.
Tesla (NASDAQ:TSLA) is a huge presence in the world of electrified transport, and Elon Musk seems quite serious about building production of Tesla BEVs (Battery Electric Vehicles) to 20 million annually by 2030. This is a mammoth goal since the world's largest car manufacturer currently, Toyota (TM), produced 10.5 million vehicles in 2021. Tesla's Gigafactories are moving to produce 2 million vehicles annually, so 10-12 Gigafactories need to be in operation by 2030 to achieve 20 million vehicles. Given the above, it isn't a surprise that the other side of Tesla, grid scale battery offerings, is often overlooked. Here, I describe a significant new development in the battery storage story, which heralds a major reconsideration about how batteries are going to contribute to decarbonization of global power grids. Tesla is a key part of this development, and this is why Elon Musk insists that battery storage will eventually become half of Tesla's business. When considering an investment in Tesla, this is worth keeping in mind.
Tesla's Battery Software Products
It is easy to overlook Tesla's achievements that define the company. While Tesla's cars involve innovation at every level, from whole body casting to heat pump-based temperature control, the essence of Tesla is information collection and management. Tesla has a series of software products in the area of battery storage that is just as significant as its autonomous driving technology for its BEVs. Tesla lists five software products involved with its battery technology that are of interest to customers at all levels of battery storage. These are:
1. Autobidder
This product enables power producers, utilities and capital partners to monetize battery assets. It is a real-time trading platform that is about risk management and maximising revenue.
2. Powerhub
This is a monitoring and control platform for distributed energy resources, renewable power plants and microgrids. It is about maximising operational efficiency, uptime and asset value.
3. Microgrid Controller
This software maintains grid stability and reduces operating costs for energy sources within a microgrid. It is integrated with the Powerhub platform. It incorporates load and solar forecasting.
4. Opticaster
This software is designed to maximise economic benefits and sustainability objectives for distributed energy resources.
5. Virtual Machine Mode
This software helps replace mechanical inertia for a grid, which is traditionally provided using fossil fuel based resources. The software virtually emulates mechanical inertia. This means that megapack batteries have grid-forming dynamics to provide grid strength allowing response to added and rejected loads, maintaining quality voltage at interconnection points.
Here I consider two of the Tesla software products that are relevant to grid scale batteries.
Tesla's "Autobidder"
I've covered Tesla's Autobidder technology in relation to Australian renewable energy company Genex Power's (ASX:GNX) 50 MW/100 MWh Bouldercombe battery project. This involved Tesla supplying 40 megapacks for the energy storage and the Autobidder energy trading platform. Included in the deal was long-term revenue support from Tesla.
Today Genex announced acquisition of a second and much bigger (up to 2GW) battery storage project, Bulli Creek, also in Queensland, Australia. This involves a 5-stage project, with the first stage being a massive 400 MW/ 1600 MWh big battery energy storage system.
In its release, Genex provides hints about how it will finance this project based on its previously successful Bouldercombe Battery Project. Part of that deal involved a creative partnership with Tesla. I think there is a good chance that Tesla will be successful as the provider of its battery megapacks and Autobidder software.
Tesla's "Virtual Machine Mode"
In a world first, South Australia's big Tesla battery at Hornsdale (owned by Neoen (OTC:NOSPF)) has been approved by the Australian Energy Market Operator (AEMO) to deliver grid-scale inertia services.
The Hornsdale Power Reserve in South Australia can provide up to 3 GW seconds of inertia in Virtual Machine Mode, which is ~50% of South Australia's entire inertia needs.
This is a historic key step in renewables providing grid services with no requirement for fossil fuel backup. This has obvious relevance to Tesla's emerging big battery energy storage business.
Flow Batteries
The above discussion focuses on lithium batteries because they are the technology that is increasingly being rolled out in partnership with renewables (solar PV and wind) projects. The lithium battery projects keep getting bigger and now GWh scale projects are being implemented. The actual kind of lithium batteries that are optimal for grid scale storage is an evolving story, which I'll consider elsewhere, but it is becoming clear that both NMC (Nickel, Manganese, Cobalt) and LFP (Lithium Iron Phosphate) batteries are being used.
Flow batteries represent another kind of battery technology which, while not suited to transport because the batteries are heavy, offers prospects to complement lithium batteries, which are perhaps better suited to shorter duration applications (e.g., frequency regulation, 0-4 hour storage operations). Flow batteries have the possibility of longer-term storage, and they can be completely charged/discharged on a daily basis. Flow batteries have been seen as a possible solution for many years, although the success of lithium batteries has meant that flow batteries have struggled to get scaled up and down the cost curve.
This may be changing as very recently a huge Vanadium Redox Flow Battery (VRFB) is being installed in China. This battery is based on technology developed with US flow battery company UniEnergy Technologies, even though this company was declared bankrupt last year. Chinese company Rongke Power has worked with UniEnergy over six years to build a 100MW/400MWh battery in Dalian, China. This battery was connected to the Dalian Grid in May 2022. This battery is the first stage of a project that will have a capacity of 200 MW/ 800 MWh. A second VRFB battery in China is being built by Canadian headquartered VRB Energy, whose majority shareholder is Ivanhoe Electric (IE), a mineral exploration company which has recently listed on the NYSE. This VRFB battery might have similar technology to the Rongke Power battery since both were part of a flow battery program in China.
Henry Miles' recent article mentions heavyweights Lockheed Martin (LMT) and Honeywell (HON) both with flow battery technologies, although the precise details of their flow battery chemistries are shrouded in secrecy. Both are talking about GWh scale of flow batteries.
Even if flow batteries become successful, it seems almost certain that lithium batteries will continue to have a significant place in grid level battery storage and this could become a crossover application with electric vehicles as V2G (Vehicle to the Grid) technology becomes adopted. Batteries with LFP chemistry might be more suited to V2G applications.
Conclusion
Most analysis of Tesla concerns its automotive business, no doubt because Tesla has transformed the electrification of transport, pulling just about every major manufacturer to plan to exit ICE (Internal Combustion Engine) manufacture in favour of BEV (Battery Electric Vehicle) manufacture. Since transport represents the biggest emissions sector (27%) in the US, the focus on Tesla's auto business is relevant. Emissions from energy (25%) and Industry (24%) are almost as large and so the new battery functionality reported here is a major development in the energy sector, which will facilitate exit from fossil fuels. The way that big battery projects get rewarded is evolving, but it is clear that energy storage through batteries is becoming increasingly important in the energy transition. This is not only about the batteries, and Tesla is pioneering software applications that not only enable technical features such as providing inertia services (Virtual Machine Mode) mentioned in this article, but also other aspects of commercialisation of big battery technology, such as Autobidder which is implemented in the Neoen Hornsdale facility in South Australia and will be part of the Genex Bouldercombe Battery project. These are important products that add value to the battery hardware.
Tesla is a challenge for investors to get their heads around, and most commentary focuses just on the automotive side of the business. Of 16 Seeking Alpha authors in the past 30 days, there were five buy, two sell and two strong sell recommendations, with seven authors on the fence with a hold recommendation. The 37 Wall Street analysts in the past 90 days were more bullish with 14 strong buy, seven buy as opposed to four sell and one strong sell; 11 analysts had a hold rating. I still struggle to find a good entry point, but I am clear that Tesla is a much bigger investment opportunity than just considering its BEV business.
I am not a financial advisor, but I follow closely the dramatic changes happening as energy and transport begin to become decarbonized. I hope that my commentary about Tesla helps you and your financial advisor to get a fuller picture of the overall Tesla offering as you consider investment in this space.
Vanadium flow battery M&A: SPAC ups CellCube stake to 25%, up-downstream deal in Australia
Originally posted on Energy Storage News
Mustang Energy was part of a consortium that invested in CellCube in April 2021. Image: Enerox/Cellcube.
SPAC Mustang Energy PLC is increasing its effective stake in CellCube to around 25% while a company launching a vanadium mine project in Australia has injected US$3.5 million in a new flow battery maker.
Mustang Energy increases stake in CellCube
Special purpose acquisition company (SPAC) Mustang Energy has agreed to buy a 27.4% interest in VRFB Holdings Limited from Acacia Resources for US$10.5 million, increasing its stake to 49.5% having already bought 22.1% in April 2021.
VRFB Holdings Limited is a 50% shareholder in Enerox Holding Limited, a vehicle which owns 100% of Enerox GmbH, the Austria-based vanadium flow battery company better known by its brand name CellCube.
Through the intermediary of VRFB Holdings, the transaction means Mustang Energy will effectively hold around 25% of CellCube’s parent company as does stock-quoted vanadium producer Bushveld Minerals, which owns the other 50.5% of VRFB Holdings.
The two were part of a consortium that invested in Enerox/CellCube in April last year through the VRFB Holdings Limited vehicle, reported by Energy-Storage.news at the time. The consortium in total injected US$30 million into the company to scale up its production of vanadium redox flow batteries (VRFBs) to 30MW by 2022.
Dean Gallegos, Mustang Energy managing director, said: “The opportunity to increase Mustang’s interest in Enerox represents an exciting opportunity for our stakeholders, thanks to Enerox’s research and development initiatives in the energy storage sector, and its state-of-the-art vanadium-based technology.”
CellCube has deployed 130 systems globally totalling 23MWh. Recent notable project announcements include an 8MWh microgrid project in Illinois, US, and a potentially huge rollout in South Africa with Kibo Energy, which just agreed to procure two proof of concept projects to that end.
Richmond Vanadium Technology invests in Ultra Power Systems
Richmond Vanadium Technology, a company launching a vanadium mine in Queensland, Australia, has agreed to invest up to AU$5 million (US$3.5 million) in Ultra Power Systems, a new vanadium flow battery company.
The deal also gives Richmond Vanadium Technology (RVT) the right to supply all vanadium offtake to UPS and give it a seat on UPS’ board. It is subject to RVT’s successful listing on the Australian stock market and completion of due diligence of UPS’ products.
RVT is currently completing a bankability feasibility study for the Richmond Vanadium Project, located in north Queensland where it has five Mineral Exploration Permits for potential vanadium extraction. The company is 25% held by Horizon Minerals, a mid-tier gold producer.
The pre-feasibility study was concluded based on a vanadium price of V2O5 Flake of AU$16.44/lb (US$11.48).
Ultra Power Systems says it is Western Australia’s first vanadium battery manufacturer. It is taking orders for its V40 product, a 6KW/40kWh modular solution which it says is for the ‘harshest of environmental conditions’.
Horizon Minerals investee Richmond Vanadium Technology plunges $5 million into Ultra Power Systems; secures vanadium offtake deal
Originally posted on Proactive Investors
by Phoebe Shields
Richmond Vanadium Technology MD Shaun Ren said the partnership would contribute to the company's aim of "establishing a significant mine to metal to battery corridor right here in Australia".
Left to right; Brad Appleyard, Ultra chair and CEO, Jon Price, Horizon managing director and RVT non-executive director, Dr Shaun Ren, RVT managing director and Brendon Grylls, RVT chair.
Horizon Minerals Ltd (ASX:HRZ) investee Richmond Vanadium Technology (RVT) has signed a binding term sheet agreement to invest up to $5 million in Ultra Power Systems (UPS) – an Australian-based vanadium redox flow battery (VRFB) manufacturer – and obtain the rights to supply all vanadium offtake to UPS, subject to cost, quality and timing.
Horizon Minerals holds a 25% interest in Richmond Vanadium Technology, which owns a 1.8-billion-tonne vanadium resource in the form of the Richmond Vanadium Project in Queensland.
RVT will subscribe for 20 million UPS shares at $0.25 per share, subject to the successful listing and IPO of Richmond Vanadium and completion of due diligence on UPS systems.
UPS has developed its own VRFB system, the Ultra V40 battery module, and a standalone power station which integrates solar and wind turbines into a mobile, scalable power generation system designed for off-grid applications.
Building a mine to metal to battery corridor
“As Richmond Vanadium continues to advance its world class Richmond Vanadium Project in north Queensland, having a partner like Ultra who is already successfully developing VRFBs contributes to our aim of establishing a significant mine to metal to battery corridor right here in Australia,” Richmond Vanadium Technology managing director Shaun Ren said.
While the steel industry has traditionally been the largest consumer of vanadium, Vanitec – a not-for-profit international global member organisation focused on vanadium use – has stated the material is increasingly being used in VRFBs.
Analysis by independent market intelligence and advisory firm Guidehouse Insights has revealed the global annual deployment of VRFBs is expected to reach 32.8 giga-watthours per year by 2031, a compounding annual growth rate (CAGR) of 41% over the period.
This forecast would equate to between 127,500 and 173,800 tons of new vanadium demand per year by 2031, more than twice the vanadium currently produced annually.
“We are taking the next step in creating a strategic partnership, the additional funding will facilitate the acceleration of Ultra’s development and planned modular electrolyte production,” Ultra Power Systems chair and CEO Brad Appleyard said.
“We look forward to working together as this new industry grows exponentially.”
Two simple charts show why green energy is all about mining
Originally posted on Mining [Dot] Com
by Frik Els
Image: JACLOU-DL, Pixabay
Lots of ink has been spilled on the green energy transition on these pages.
In 2019 MINING.COM called Greta Thunberg and Alexandria Ocasio-Cortez mining’s unlikely heroines as they were saying that the “exponential expansion of global mining is the dirty little secret – and glaring blind spot – of Green New Deal evangelists and zero-carbon climate warriors.”
Fast forward three years, and there’s still little or no acknowledgement from climate crisis actors for the need for rapidly growing metal and mineral extraction. The nescience of climateers when it comes to mining remains striking and helps explain the applause for Secretary General António Guterres at the opening of the COP26 summit for these words:
“It is time to say enough! […] enough of burning and drilling and mining our way deeper. We are digging our own graves.”
Fitch Ratings: Metals, Mining Faces Diverse Impact from Energy Transition May 2022
A recent report by Fitch Ratings assessing the risks of climate change to various sectors featured two graphs that vividly illustrates just how central metals and mining is to decarbonization.
The latest UN Forecast Policy Scenario anticipates a substantial increase in electricity generation from renewables – comprising hydro, wind and solar – across all regions.
Renewables are set to be the largest source of power globally by 2050, at 73% of the total compared to 25% in 2020. Wind and solar will increase their share of global renewables generation to 85% by 2050 from 34% in 2020.
Couple this with the metal intensity of renewable energy resources and it is clear that even if the installation of renewable energy capacity falls far short of expectations, the impact on metals and mining would be immense.
Fitch Ratings: Metals, Mining Faces Diverse Impact from Energy Transition May 2022
First phase of 800MWh world biggest flow battery commissioned in China
Originally posted on Energy Storage News
by Andy Colthorpe
Detail of cell stacks at the completed demonstration system at VRB Energy’s project in Hubei Province. Image: VRB Energy.
Commissioning has taken place of a 100MW/400MWh vanadium redox flow battery (VRFB) energy storage system in Dalian, China.
The biggest project of its type in the world today, the VRFB project’s planning, design and construction has taken six years. It was connected to the Dalian grid in late May, according to a report this week by the China Energy Storage Alliance (CNESA) industry group.
The system is in Dalian City’s Shahekou District, which is in Liaoning Province in northeastern China. It will contribute to lowering the peak load on the grid in Dalian City and could even play a role at provincial level, improving power supply and the capability to connect new generation sources like renewable energy to the grid.
VRFB developer and manufacturer Rongke Power supplied the battery technology. The company is a spin-off from the Dalian Institute of Chemical Physics of the Chinese Academy of Sciences and the institute has overseen the project through doctoral supervisor and head of its energy storage department Li Xianfeng.
Rongke Power had been cited to be working with US-headquartered flow battery technology company UniEnergy Technologies on the project previously, but that company’s Chapter 11 bankruptcy was widely reported late last year and even its website now appears to be offline.
An update on the project’s progress which was issued in June by the trade group Zhongguancun Energy Storage Industry Alliance from Beijing said the VRFB technology was developed by the Dalian Institute of Chemical Physics team.
Together, the academics have worked with Rongke Power on almost 40 commercial demonstration flow battery projects already, the alliance said, including projects both in China and overseas, such as a 10MW/50MWh system which was the world’s biggest when completed in 2013 and a 10MW/40MWh project at a wind farm.
Previously, the biggest flow battery installation in the world was a 15MW/60MWh system deployed in 2015 in northern Japan by Sumitomo Electric. Sumitomo Electric brought online a second, 51MWh large-scale system in April this year, which again would still rank among the world’s biggest for a technology which is regarded highly for its technical capabilities but has so far largely been unable to scale up.
However, the Dalian project is, as well as being a demonstration project and part of a wave of large-scale VRFBs China is looking to deploy, only at its first phase of construction. A second phase will bring it up to 200MW/800MWh.
Scale of China VRFB projects dwarf anything else in the world so far
It was the first project to be approved under a national programme to build large-scale flow battery demonstrations around China back in 2016 as the country’s government launched an energy storage policy strategy. It is thought that various factors including unexpected volatility in the price of vanadium and demand for the metal in other industries like construction had slowed the programme somewhat according to sources Energy-Storage.news had spoken to previously.
Elsewhere, in China’s Hubei Province, another (very) large-scale VRFB is being built in phases that was approved through the same programme. Canada-headquartered VRB Energy is constructing that 100MW/500MWh facility, with a ceremony held to signal the start of construction in August last year for an initial 100MWh phase.
VRB Energy and its local partners had already built a successful 3MW/12MWh demonstration project in Hubei and a VRFB factory with 1,000MWh annual production capacity could be built at the site at a later date too.
The Hubei project’s cost for 500MWh of VRFB, along with a combined 1GW of solar PV and wind generation from which it will charge, was cited as around US$1.44 billion.
The first phase of Rongke Power’s Dalian project meanwhile was given as RMB1.9 billion (US$298 million) in CNESA’s announcement, equivalent to RMB4.75/Wh (US$0.7/Wh).
Although not on the scale individually of either Chinese project, some megawatt-scale flow battery projects have been completed, announced or begun construction in recent months around the world.
In the UK, the world’s largest battery storage system to hybridise lithium-ion and vanadium flow went officially into commercial operation this summer, pairing 50MW/50MWh of lithium with a 2MW/5MWh VRFB system.
The flow battery company behind that project, Invinity Systems, is also supplying Australia’s first grid-scale flow battery storage, a 2MW/8MWh system co-located with a 6MWp solar PV plant in South Australia. Invinity will also supply a 2.8MW/8.4MWh battery storage system at a demonstration project in Alberta, Canada.
At the larger end of the scale, California non-profit energy supplier Central Coast Community Energy (CCCE) picked three VRFB projects as part of a procurement of resources to come online by 2026, ranging from 6MW/18MWh to 16MW/128MWh and totalling 226MWh.
One thing limiting the size and scale of flow batteries today is access to vanadium pentoxide, which is used in their electrolytes. While vanadium itself is abundant in both its raw primary form and as a secondary byproduct of steel production, not many facilities to process it into electrolyte exist.
This has led some flow battery companies like Austria’s CellCube and others to focus on the commercial and industrial (C&I) and microgrid segment of the energy storage market, at least for the time being.
Energy-Storage.news’ publisher Solar Media will host the 1st Energy Storage Summit Asia, 11-12 July 2023in Singapore. The event will help give clarity on this nascent, yet quickly growing market, bringing together a community of credible independent generators, policymakers, banks, funds, off-takers and technology providers. For more information, go to the website.
Saudi Focus on Minerals Needed in Power Transition, EVs
Originally posted on Asharq Al-Awsat
Riyadh - Fatehalrahman Youssef
Saudi Arabia pushes to intensify mining investments amid focus on minerals with future demand (Asharq Al-Awsat)
Saudi Vice-Minister for Mining Affairs Khalid Al-Mudaifer has predicted a fourfold increase in the demand for minerals used in clean energy technologies and electric vehicles by 2040.
Al-Mudaifer stressed that the Kingdom of Saudi Arabia is focused on benefiting from the knowledge and experience of developed mining regions.
The vice-minister noted that net consumption of minerals like graphite, cobalt, vanadium, and nickel will exceed demand by two-thirds by 2050.
Moreover, current supplies of copper, lithium and platinum are insufficient to meet future needs. Al-Mudaifer projected a 30%- 40% supply gap for those minerals.
He explained that the new mining strategy in the Kingdom launched more than 40 initiatives designed to improve the general climate for mining and attract the investment required for the success of this new industry.
According to Al-Mudaifer, Saudi Arabia is focused on developing sustainable integrated value chains, which are enabled by creating an investment environment based on simple licensing and sustainability processes.
Additionally, Al-Mudaifer mentioned the benefits of devoting financial and human resources to bring about a rapid transformation in the mining sector in Saudi Arabia.
Al-Mudaifer noted that the mining investment system in the Kingdom provides a clear regulatory environment, as well as a transparent digital process for requests for licenses and approvals.
He added that the Kingdom’s efforts to create one of the best mining investment climates in the world has led to a 27% year-on-year growth in Saudi mining revenues in 2021.
“We have made great progress creating one of the most favorable mining investment climates in the world, resulting in a 27% year-on-year growth in mining revenues in 2021, totaling more than $8-billion in foreign direct investment attracted by the Ministry,” Al-Mudaifer told Mining Weekly.
Moreover, a recent survey reveals the enthusiasm expressed by mining industry investors regarding the opportunities in Saudi Arabia, with nearly 80% of those surveyed considering investing in the sector. This relative optimism, Al-Mudaifer said, speaks to the success of the Saudi Arabian mining sector transformation.
Vanadium set for “disruptive” demand growth as battery energy storage boom gains momentum: Vanitec
Originally posted on Vanitec
by Dr Yu Li
According to an independent analysis by market intelligence and advisory firm, Guidehouse Insights, global annual deployments of vanadium redox flow batteries (VRFBs) are expected to reach approximately 32.8 GWh per annum by 2031. This represents a compound annual growth rate (CAGR) of 41% over the forecasted period.
The VRFB deployment forecast by Guidehouse Insights would equate to between 127,500 and 173,800 tons of new vanadium demand per year by 2031, according to Vanitec calculations based off Guidehouse’s projection. That would be more than twice as much vanadium as is currently produced annually today.
In a report on the metals required for clean energy commissioned by Eurometaux – Europe’s metals association – VRFBs were identified as one of the alternative energy storage technologies that may grow in importance and might reach penetration rates of 20% of the market. These findings point towards significant vanadium demand increases equivalent to +110% of current demand, and echo Guidehouse Insights’ demand forecast.
Vanitec, the not-for-profit international global member organisation whose objective it is to promote the use of vanadium-bearing materials, says that while vanadium is mainly used within the steel industry, vanadium is increasingly being recognised for its use in VRFBs. These long duration batteries can store large amounts of electrical energy produced by solar and wind power generators on a daily basis as a means to drive the deep decarbonization of electric power systems.
Vanadium has therefore been classified as a critical raw material by several countries around the world. The European Commission identified and formally registered vanadium on the 2017 list of Critical Raw Materials for the European Union, while the United States, Canada and Australia have also listed vanadium as critical to supporting their economies.
As power grids across the world continue to replace fossil fuel power plants with large scale renewable energy solutions, long-duration energy storage is critical to ensuring reliable grid operation. VRFBs assist by smoothing out peaks and deficits in power demand, thereby maintaining a consistent and uninterrupted flow of electricity to the grid.
Vanitec CEO John Hilbert says renewable energy has become one of the most talked-about topics in recent times. “Solar and wind power are fantastic sources of low-carbon energy. However, renewable energy is a variable power source that poses a key challenge in the global effort to displace fossil fuels with renewable energy generation. Energy storage solutions like VRFBs are essential in enabling the energy transition to a carbon neutral world, as they provide stationary, utility-scale and long-duration energy storage with low maintenance costs, safe operation, and little environmental impact.”
The VRFB market is poised for steeper growth in the coming years, especially as demand for long-duration storage capabilities increases, but also owing to the technology’s durability and safety. Other advantages of VRFBs include:
Application: Stores large amounts of variable renewable energy to be used at other times of the day, when the electricity is demanded.
Durability: Minimal capacity degradation resulting in significantly longer cycle lifetimes than Li-ion battery technology. VRFBs could be fully discharged multiple times each day without impacting the longevity of the system.
Reusability: Liquid electrolytes used in VRFBs can be reused in another battery after the rest of the battery components have worn down. This improves the battery’s economics and sustainability.
Safety: Flow batteries use aqueous electrolytes, which are largely composed of water and inherently non-flammable. VRFBs do not present the same explosion or fire risks that Li-ion systems do.
“VRFBs are also supported by existing industries in their scale up. Many vanadium industry stakeholders see VRFBs as a major source of new demand for the metal that has traditionally been used in steel alloys,” states Mikhail Nikomarov, Chairman of the Vanitec Energy Storage Committee (ESC) and CEO of Bushveld Energy.
VRFBs are a proven and rapidly growing commercial-scale technology that can store energy from renewable sources and provide on-demand, round-the-clock, carbon-free power.
Rising flow battery demand ‘will drive global vanadium production to double by 2031’
Originally posted on Energy Storage News
by Andy Colthorpe
Cell stacks at a large-scale VRFB demonstration plant in Hubei, China. Image: VRB Energy.
The vanadium redox flow battery (VRFB) industry is poised for significant growth in the coming years, equal to nearly 33GWh a year of deployments by 2030, according to new forecasting.
Vanadium industry trade group Vanitec has commissioned Guidehouse Insights to undertake independent analysis of the VRFB energy storage sector. These have been collected in a white paper, “Vanadium redox flow batteries: Identifying opportunities and enablers”.
The research and market intelligence firm found that while lithium-ion dominates global energy storage deployments today by market share, various attributes of VRFBs make them a promising option in tandem with existing chemistries.
Advantages include the long lifespan and durability of VRFBs, their low operating costs, non-flammable design and a low environmental impact, both in manufacturing and in operation. Meanwhile, they can meet the needs of developers that require long-duration energy storage and can be operated with minimal maintenance for a 20-year lifespan, Guidehouse said.
Major R&D efforts have been made into the technology invented at the University of New South Wales in Australia, by both private and public companies and institutions since patents began expiring in the early 2000s.
Guidehouse noted however that despite the progress and attractive features of VRFBs, commercial challenges that have prevented them from take-off persist.
VRFBs have a higher capital cost than lithium-ion battery energy storage system (BESS) technology but can offer a lower cost of ownership and levelised cost of energy storage over their lifetime. Yet this detail is often missed when procurement decisions are made.
There is also what the analysts described as an over-reliance on lithium in the market today, but if VRFB manufacturing and deployment can scale up, continuous growth in the industry could be unlocked.
Forecasted CAGR of VRFB deployments worldwide. Image: Vanitec / Guidehouse Insights.
Forecasting a healthy growth trajectory for VRFBs
The white paper picked up on a couple of major projects that it said was evidence of growing interest in flow batteries internationally.
These were a 800MWh project in China by Rongke Power/UniEnergy that is scheduled to come online this year and a 200MWh project in South Australia which is in development through manufacturer CellCube, while the biggest VRFB installation in the world today is a 15MW/60MWh system brought online in northern Japan by maker Sumitomo Electric a few years ago.
Revenues from VRFB project deployments are expected to be worth about US$850 million this year and projected to rise to US$7.76 billion by 2031.
That means annual global deployments of an estimated 32.8GWh per year by that later year and a compound annual growth rate of 41% in the market over this decade.
In terms of regions, Guidehouse expects Asia-Pacific to lead installation figures, with Western Europe and North America the other top global regions. Asia-Pacific deployments are predicted to reach about 14.5GWh annually, Western Europe about 9.3GWh and North America about 5.8GWh according to the white paper.
Vanadium is currently used in a number of industries, with the biggest share today being as an additive that can greatly strengthen steel alloys used in construction with even just a small amount of vanadium added.
As we noted in an article last year for the journal PV Tech Power, there are however only three primary vanadium producers in the world, with the majority of vanadium coming from secondary sources as a byproduct of steel production.
That said, there are efforts ongoing to create bigger resources of vanadium feedstock, not least of all in Australia where financial support has been extended to companies looking to extract vanadium from the ground and turn it into electrolyte.
Guidehouse Insights forecasts that the growth of VRFBs will be such that by 2031, between 127,500 and 173,800 tonnes of new vanadium demand will be created, equivalent to double the demand for the metal today.
The electrolyte constitutes around 30% to 50% of the total system cost of a VRFB energy storage project, which Guidehouse noted is the highest percentage cost for a key mineral in any type of battery. However, the batteries could be capable of 10,000 to 20,000 cycles during their lifetime without requiring rest periods or experiencing capacity degradation, which raises their operational availability versus an average of around 3,000 cycles for Li-ion batteries.
The paper does acknowledge some of the technology’s downsides, albeit whilst pointing out that the industry is working to address those, such as: lower round-trip efficiency (flow batteries average 70% to 85%, versus 90% to 95% for Li-ion), lower energy density and therefore larger footprint and the most pressing barrier, the need to “substantially reduce costs,” in light of the technology’s vulnerability to spikes in the price of vanadium and high capital cost.
The white paper can be viewed on Vanitec’s website here.
EV industry moving in right direction to close gap with internal combustion engines – report
Electric cars on parade. (Image by Dept of Energy Solar Decathlon, Flickr).
Although there is still a way to go for electric vehicles to close the performance, safety, and cost gap with internal combustion engines, a recent report by IDTechEx says some specific moves by the EV industry are steps in the right direction.
According to the report’s author, Luke Gear, one major positive trend is the increased electrification of a variety of sectors, not just automotive.
“A decade ago, IDTechEx’s 2011 report ‘bullishly’ predicted 1.5 million battery-electric car sales by 2021 – this turned out to be an underestimate by over half, as China, the US, and Europe all grew their markets last year,” Gear points out. “The sheer volumes and successes of electric vehicles in the automotive market are driving down costs, creating opportunities for many other mobility sectors.”
Boats and ships are among those experiencing an electrification boom, with electric ferry deliveries having grown to ~80MWh yearly as battery pack costs fell below $600 per kWh, energy densities improved and thermal management innovations vastly increased safety.
In the author’s view, similar drivers are pushing forward investment into electric air-taxis, as American Airlines, Virgin Atlantic, United Airlines, UPS and Avolon have all placed pre-orders.
“Electrification is not so much unstoppable as inevitable and will continue to play a dominant role in the decarbonization of mobility,” the report reads.
When it comes to batteries, the market analyst forecasts that lithium-based batteries will continue to be the great enabler for electrification, particularly if the industry expands its efforts to increase the sustainability of raw materials and supply chains whilst ensuring there is still enough supply to meet the growing demand.
“Later in the decade, a move beyond li-ion towards the holy grail of solid-state and lithium-metal batteries is critical for a step-change in safety and performance, and to open the door to new applications such as electric long-haul aircraft,” the report states.
Motors and powertrains
For Gear, another move that is expected to gain traction in the coming years is the utilization of magnet-free and even copper-free motor solutions as automakers start adopting several technologies to balance performance, sustainability, market demand, and cost.
The expert explains that due to their high performance and superior efficiency, permanent magnet motors are the default technology for traction applications and their market has naturally grown with the runaway success of electric cars. However, magnets make end-of-life recycling difficult, and raise concerns regarding price volatility and sustainable mining practices, with most material mined and sourced in China.
“Long-term reliance solely on permanent magnet machines is looking increasingly unsustainable, with warning signs starting to show in high neodymium prices – the primary ingredient of rare earth magnets.”
On a similar note, it is likely that more and more automakers will switch to wide bandgap power electronics, especially silicon carbide MOSFET devices.
IDTechEx data predict roughly half the electric car market switching to these efficient devices by 2030, thus enabling efficient high voltage powertrains.
“Early in 2022, Mercedes showcased the Vision EQXX concept capable of 1000km. While there is a lot of technology behind this concept, including solar bodywork, design (drag factor), silicon anode batteries, and axial flux motors, a key enabler is the 900V platform – something only practical with silicon carbide,” the dossier states.
Key safety features
Finally, increased attention to safety features is expected to be key in the years to come, particularly when it comes to the thermal management of electric motors and power electronics.
“Permanent magnet motors require a specific operating temperature to avoid damage. Additionally, allowing the copper coils in a motor to get too hot can lead to reduced efficiency or damage to the winding insulation,” Gear writes.
“The silicon carbide transition in power electronics is also presenting a host of package-level thermal challenges to deal with the increased junction temperatures including wire bonding, die-attach, and substrate technologies.”
In the battery realm, the analyst highlights the fact that battery chemistry is evolving with higher nickel cathodes being adopted, LFP batteries making a resurgence and more attention being paid to solid-state batteries.
“These changes have a profound impact on the requirements around thermal management and materials in EV batteries,” Gear points out. “Outside the cell, we see OEMs transitioning towards cell-to-pack designs with announcements from Tesla, Stellantis, BYD, VW and more. This fundamental change in battery pack structure leads to changes in how thermal strategies and materials are incorporated, including thermal interface materials, coolant channels and fire protection.”
David Rosenberg: Junior mining and exploration boom needed to push EVs over the top
The transition to electric vehicles will require huge investments into mining for the key resources that go into batteries
David Rosenberg
Petro Canada's electric vehicle charging station is shown on display at the Canadian International Auto Show in Toronto. PHOTO BY THE CANADIAN PRESS/CHRISTOPHER KATSAROV FILES
By David Rosenberg and Ellen Cooper
Electric vehicles are quickly becoming mainstream as government subsidies, company investments and consumer demand speed up the transition away from internal combustion engines.
But with the world electrifying, will we have enough natural resources to meet this surging demand? The answer is yes, though investments in extraction and processing will need to be ramped up and there are important environmental, social and corporate governance (ESG) considerations that will need to be addressed to make the shift sustainable.
Given current policy scenarios, the International Energy Agency (IEA) estimates the global stock of EV cars will surge to 125 million in 2030 from around 10 million in 2020. Under a sustainable development scenario (where the world reaches net-zero emissions by 2070), this figure could be more than 200 million units. This is still nowhere close to replacing the 1.3 billion vehicles on the road currently, but the future of transportation may involve more public transit and far fewer individual cars than what we see these days. Internal combustion engine (ICE) vehicles will be with us for several decades more, likely not phased out until mid-century.
The transition to EVs will require huge investments into mining for the key resources that go into batteries, namely lithium, cobalt, manganese, copper and nickel. Indeed, the IEA estimates a six-fold increase in minerals will be required by 2040 to meet net-zero targets under the Paris Agreement. This includes a 40x increase in demand for lithium, a 20-25x increase for cobalt and nickel, and a doubling in copper demand.
Whether the world has enough reserves to meet this demand is a bit of a misleading question. Reserves go up as exploration expands, prices go up (making more difficult reserves economical to exploit), technologies improve and regulations change. These kinds of “peak EV resource” predictions are reminiscent of the calls throughout the past half-century for “peak oil.” Remember, new technologies (for example, fracking in the United States and horizontal drilling techniques) unlocked reserves that were previously not economical. Nowadays, when we discuss “peak oil,” the fear isn’t that we run out of reserves, but that some reserves will become stranded assets as we transition to the electric economy.
That said, there is a simmering concern that mining companies have not made the required investments to address growing demand needs. The global mining industry will need to more than double its annual capex expenditures — from around US$80 billion annually to US$180 billion — to meet the net-zero target by 2050, according to Bank of America Global Research. And there continues to be a heavy reliance on countries such as China (rare earths) and the Democratic Republic of Congo (cobalt) where environmental and governance standards are lax. ESG concerns such as child labor, using coal to power mining activities and poor reporting standards in many key mining jurisdictions will need to be addressed and threaten production.
If the U.S. and other western countries hope to secure supplies of many of the key commodities required for the energy transition ahead, they will need to rely on friendlier partners such as Australia, Chile, India and Brazil that have significant reserves of rare earths, lithium and cobalt. This is yet another argument for closer ties with India. The country is home to six per cent of global rare earth deposits, but its production is an underwhelming 1.4 per cent, meaning there are opportunities to engage in resource diplomacy with the country in an effort to counter China and Russia’s commodity dominance.
Strengthening supply is critical. We have all become abundantly aware of how disruptive supply chains can become when they experience major shocks.
Given the concern around supply chains, some of this development will be done closer to home. The U.S., for example, released its National Blueprint for Lithium Batteries in June, which included five goals for the domestic lithium-ion battery supply chain, and the No. 1 goal was securing access to raw materials domestically (where possible). Part of that also means investing in research and development to find ways to decrease demand for cobalt and nickel. Innovations in EV battery technology to remove cobalt are underway, which could shift the composition of resource demand over time. Other key goals are to support U.S.-based materials processing, develop a manufacturing sector able to produce electrodes and cells, and, finally, enable mass recycling of EV battery cells (the European Union has already put in place recycling standards in this regard).
Ultimately, as governments globally invest in better charging infrastructure and the world reaches a critical mass of adoption, ICE-age vehicles will be phased out at an increasing rate, meaning mining will have to keep up to match demand. This means a junior mining and exploration boom is coming, with bullish implications for mining and infrastructure stocks and supercycle EV commodities such as lithium, manganese, cobalt and nickel.
David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. Ellen Cooper is a senior economist there. You can sign up for a free, one-month trial on Rosenberg’s website .
The raw-materials challenge: How the metals and mining sector will be at the core of enabling the energy transition
As the world gears up for net zero, demand for raw materials is set to soar. The energy transition presents unique challenges for metals and mining companies, which will need to innovate and rebuild their growth agenda.
The transition to a net-zero economy will be metal-intensive. As the move toward cleaner technologies progresses, the metals and mining sector will be put to the test: it will need to provide the vast quantities of raw materials required for the energy transition. Because metals and mining is a long lead-time, highly capital-intensive sector, price fly-ups and bottlenecks will be unavoidable as demand outstrips supply and price volatility creates uncertainty around the large up-front capital investments needed for production. Supply, demand, and pricing interplays will emerge across different commodities, leading to feedback loops followed by a combination of technology shifts, demand destruction, and materials substitution. Metals and mining companies will be expected to grow faster—and more cleanly—than ever before. At the same time, end-user sectors will need to factor potential resource constraints into technology development and growth plans.
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This article is a collaborative effort by Marcelo Azevedo, Magdalena Baczynska, Patricia Bingoto, Greg Callaway, Ken Hoffman, and Oliver Ramsbottom, representing views from McKinsey’s Metals & Mining Practice.
By the end of the November 2021 United Nations Climate Change Conference (COP26), it became clear that momentum had shifted. Climate commitments made in Glasgow have entrenched the net-zero target of reducing global carbon emissions (aimed at preventing the planet from warming by more than 1.5°C) as a core principle for business. At the same time, another reality became apparent: net-zero commitments are outpacing the formation of supply chains, market mechanisms, financing models, and other solutions and structures needed to smooth the world’s decarbonization pathway. Even as debate continues over whether the conference achieved enough, it is evident that the coming decade will be decisive for decarbonizing the economy. While every sector in the global economy faces common pressures—such as stakeholder and investor demands to decarbonize their own operations—metals and mining companies have been presented with a special challenge of their own: supplying the critical inputs needed to drive the massive technological transition ahead.
Raw materials will be at the center of decarbonization efforts and electrification of the economy as we move from fossil fuels to wind and solar power generation, battery- and fuel-cell-based electric vehicles (EVs), and hydrogen production. Just as there are several possible trajectories through which the global economy can achieve its target of limiting warming to 1.5°C, there are corresponding technology mixes involving different raw-materials combinations that bring their own respective implications. No matter which decarbonization pathway we follow, there will be fundamental demand shifts—and these will change the metals and mining sector as we know it, creating new sources of value while shrinking others.
Requirements for additional supply will come not only from relatively large-volume raw materials—for example, copper for electrification and nickel for battery EVs, which are expected to see significant demand growth beyond their current applications—but also from relatively niche commodities, such as lithium and cobalt for batteries, tellurium for solar panels, and neodymium for the permanent magnets used both in wind power generation and EVs (Exhibit 1). Some commodities—most notably, steel—will also play an enabling role across technologies requiring additional infrastructure.
Exhibit 1
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Rare-earth metals’ existing global reserves (in aggregate across different metals) are believed to be 120 million metric tons of rare-earth-oxide (REO) equivalent, representing 500 years equivalent of the global estimated production of 240,000 metric tons in 2020.1 However, when looking closer, a number of factors stand out. First, these elements occur in relatively low concentrations; therefore, identifying and bringing assets to production would likely come with higher investment needs and lead times. Second, specific elements (for example, neodymium), which are critical for the transition, occur at very different proportions within those deposits. This makes the availability and economics of specific metals much more nuanced than a superficial analysis can reveal. Third, there is a significant geographical concentration of known reserves: 40 percent of REO-equivalent reserves are estimated to be in China. Therefore, additional geological exploration would be needed to identify other economically viable deposits in specific geographies. Finally, in addition to the availability of raw materials, processing and separation of the specific elements is crucial. To date, most of the processing and separation capacity, as well as the technical capabilities, are also concentrated in China. Energy transition will therefore require a regional redistribution of processing capacity and reorganization of supply chains.
The required pace of transition means that the availability of certain raw materials will need to be scaled up within a relatively short time scale—and, in certain cases, at volumes ten times or more than the current market size—to prevent shortages and keep new-technology costs competitive (see sidebar “Rare-earth metals”).
Economic growth, technology development, and material intensity as drivers of demand growth
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Tellurium, a relatively niche metal used in certain types of solar panels, has a global mine production of approximately 500 metric tons.1 A tellurium-only mine does not exist, as it is exclusively produced in small quantities as a by-product of the smelting and refining of other metals (more than 90 percent of tellurium is produced from anode slimes collected from electrolytic copper refining2 ). As such, while demand growth driven by solar capacity may be prodigious, growth in supply is expected to be capped at the growth rates of metals such as copper. Even though copper demand is also expected to experience significant growth due to the energy transition, its mine supply is unlikely to expand at the rates that solar-panel production needs in a net-zero-transition scenario.
Road-transport and power-generation are examples of sectors that are relatively advanced with respect to their technological readiness to reduce greenhouse-gas (GHG) emissions. But building a low-carbon economy and reducing the emissions intensity within these sectors will be materials-intensive (Exhibit 2). For example, generating one terawatt-hour1 of electricity from solar and wind could consume, respectively, 300 percent and 200 percent more metals2 than generating the same number of terawatt-hours from a gas-fired power plant, on a copper-equivalent basis,3 while still drastically reducing the emissions intensity of the sector—even when accounting for the emissions related to the materials production.4 (See sidebar “Mine supply and solar-panel production” for more on how supply of an essential raw material is currently limited.) Similarly, producing battery or fuel-cell EVs will be more materials-intensive than building an internal combustion engine (ICE) vehicle.
Exhibit 2
When building new power-generation capacity or producing new vehicles, factors other than material intensity also influence each technology’s carbon footprint.5 First, there are the emissions derived from use of the technology throughout its life cycle (such as the burning of fossil fuels in power generation, or the use of electricity in running a battery EV). Second, the emission intensity of each technology will depend, to a certain extent, on the choice of material (for example, steel versus aluminum in the case of vehicles). Third, even when using the same material, choice of supplier can make a significant difference, since the carbon footprint of the same commodity can vary greatly depending on its origin. Finally, each sector will have its own specificities. In the case of power generation, renewable capacity has lower capacity factors than fossil-fuel-based capacity. As such, more generation capacity and, hence, more metals are needed to generate the same amount of electricity. In the case of road transport, the average mileage of different powertrains could also play a role (for example, if battery EVs and fuel-cell EVs were to be driven for longer distances over their lifetimes compared with ICEs).
How quickly can supply react?
Looking ahead, under a scenario in which materials are required at steadily growing levels to meet evolving needs but markets fail to adapt to varying technology mixes6 and materials intensities over time, hypothetical shortages of raw materials would emerge—as demand is expected to grow significantly faster than supply. Under the scenario presented in Exhibit 3, lithium mine supply, for example, would need to grow by around a factor of seven versus today’s required growth. Meanwhile, metals with smaller mine supply (such as tellurium) would need to show even faster growth—as such, these are the main candidates for required substitution and technological innovation. Other metals, such as copper and nickel, would also need to see accelerated supply growth compared with what has been observed in the past. While the required growth in such metals may seem less ambitious, this should be considered relative to the significantly larger-scale industries surrounding them, as well as the significant capital required, increasingly challenging geological conditions (such as smaller deposits and lower grades), long lead times, and growing processing complexity involved. For copper and nickel alone, we estimate that meeting demand growth of the order of magnitude shown in Exhibit 3 would require $250 billion to $350 billion cumulative capital expenditures by 2030, both to grow and replace depletion of existing capacity. Despite a relatively large pipeline of projects to scale up supply in some of these commodities, and efforts to reduce the capital and operating costs associated with a number of them (such as direct lithium extraction), the task at hand is not trivial. In fact, in the scenario presented in Exhibit 3, we could see copper and nickel demand exceeding supply by five to eight million and 700,000 to one million metric tons, respectively. As such, incentives for new supply growth will be necessary.
Exhibit 3
Price incentives
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Nickel, which is used in battery production, is widely available in the earth’s crust. However, it is subject to a number of commodity-specific factors. First, while battery-suitable nickel (that is, class 1 nickel) can be produced from the various deposit types (sulfides, laterites), relatively long lead times of ten years or more from discovery to feasibility, construction, and ramp-up, along with the high capital intensity of greenfield assets, could lead to short-term deficits. Second, nickel is a relatively established market, but it is primarily used in stainless-steel production (around two-thirds of the global nickel supply was used in stainless-steel production in 2020). The fast growth in nickel demand from batteries, therefore, may potentially lead to a fly-up in prices and require large-scale substitution and technological innovation to rebalance the market—either in batteries themselves, forcing a move to different battery chemistries, or in established markets such as stainless steel, driving a shift in stainless-steel-series production, or both—unless capacity starts to rise quickly, combined with conversion of lower-grade class 2 nickel into class 1 nickel.
Thus, while there may not necessarily be physical resource scarcity for some of these raw materials in the earth’s crust, and acknowledging that recycled materials will play an increasingly important role in decarbonization in the future, the trajectory toward materials availability will not be a linear one. We expect materials shortages, price fly-ups, and, given the inability of supply to react quickly, the need for technological innovation and substitution of certain metals (possibly at the expense of performance and cost of the end-use application). While raw-materials needs will grow exponentially for certain metals, lead times for large-scale new greenfield assets are long (seven to ten years) and will require significant capital investment before actual demand and price incentives are seen. At the same time, with increasingly complex (and largely lower-quality) deposits needed, miners will require significant incentive (for example, consistent copper prices of more than $8,000 to $10,000 per metric ton and nickel prices of more than $18,000 per metric ton) before large capital decisions are made (see sidebar “Nickel and battery production”). Without slack in the system (such as strategic stockpiles and overcapacity), the industry will not be able to absorb short-term (less than five to seven years) exponential growth. As seen, for example, with past reduction of cobalt intensity in batteries, a combination of technological development on the supply side and large-scale substitution and technological development on the demand side will occur. Substitution in noncritical applications will take place and new extraction and processing technologies will emerge. An individual sector’s ability to rapidly ramp up supply, as well as other factors such as continued technological development and performance, available material alternatives and carbon-footprint implications for end-use applications, to name a few, could all impact the extent of substitution for individual commodities. Hence, we see commodities such as tellurium, with its small volumes and by-product nature, likely requiring substitution, while lithium, despite the fast expected growth, perhaps not as much, given the relatively large pipeline of projects and continued development of new production technologies.
How market balance is achieved
Despite the potential for shortages, as discussed above, supply will always equal demand. As sectors and countries decarbonize, each individual commodity market will face specific supply-and-demand balances. The resulting picture will not mirror any specific forecasted commodity demand, including the scenario outlined in Exhibit 3, but what we will see is a constant feedback loop between supply, demand, and prices. We believe that commodities facing an upside in demand from the energy transition will follow one of three trajectories, as demand accelerates (Exhibit 4):
Supply responds to prices. As demand accelerates and prices react, the industry is able to bring in new supply (for example, lithium) relatively quickly. In such cases, the technological transition follows the “expected” growth, where the commodity does not become a structural bottleneck, even if there is short-term volatility.
Demand accelerates, prices react strongly, and materials substitution kicks in. The industry is unable to bring in new supply fast enough and technological innovation leads to materials substitution within that application (for instance, cobalt after a price spike). In such cases, performance of the technology deployed may be compromised, with implications for overall needs, for example, lithium iron phosphate (LFP) batteries being less energy dense than NMC7 batteries.
Demand accelerates, prices react strongly, and technology substitution kicks in. In this case, rather than materials substitution within the application, the end-user sector is forced to shift its technology mix. In such a scenario, a different bottleneck may emerge. For example, non-tellurium-based solar panels may have lower performance, which may lead to a shift toward more wind-generated power, adding pressure on neodymium.
Exhibit 4
We have observed the second trajectory within the battery sector, where there are three very distinct phases in the feedback loop. Initially, batteries with a relatively high cobalt content were common. As adoption began to accelerate, and cobalt prices reached $100,000 per metric ton in 2018, batteries with cathodes containing more nickel started gaining share. This substitution was in the end seen as a win–win result for the industry, leading to lower battery costs and higher energy density.
Subsequently, as high-nickel-containing batteries started becoming more common, the industry began to realize the scale of the task ahead: a large growth in class 1 nickel demand in an industry that has faced capital-expenditure overruns, delays, and in several cases, failure to reach design capacity. Nickel prices also started going up as consumers tried to secure supply.
Today, battery producers and OEMs speak about optionality, with a tiered approach to battery technology. LFP batteries have started gaining share again, while high-manganese-content batteries are also expected to be developed. Manganese is a compelling alternative, as its global production of approximately 20 million metric tons8 is four to five times greater than nickel production and 140 times greater than cobalt production. Meanwhile, manganese reserves of 1.3 billion metric tons are 16 times greater than reserves of nickel and 140 times greater than reserves of cobalt.9
This cycle is likely to keep evolving, as battery technology moves ahead, adoption accelerates, and possible new bottlenecks arise. And as other sectors make the energy transition, individual commodity sectors’ ability to ramp up quickly will be put to the test. With power generation, a similar cycle could follow, for example, with tellurium and silver potentially becoming a bottleneck for production of solar panels; with neodymium and praseodymium, for the rare-earth-based permanent magnets used in wind power generation; and potentially even with the extra uranium needed for additional nuclear-generation capacity.
Implications for producers and end-user sectors
The energy transition will force every sector of the economy to adapt, each with its own specific challenges.
As the raw-materials supplier to the economy, the mining sector will need to grow at an unprecedented pace in order to enable the required technological shifts. The sector will be expected to move at a faster pace, despite its traditional reputation as a long lead-time, highly capital-intensive industry. As metals will undoubtedly play a crucial role in keeping the planet within a 1.5°C warming scenario, producers of metals commodities will need to undertake the following:
(Re)build a growth agenda. In the context of shifting commodity value pools and rebalancing portfolios, the mining sector has underinvested for several years—an issue accentuated in 2020 by the COVID-19 pandemic. With the expected demand growth ahead, miners will need to rebuild their growth portfolios. This can take multiple forms, from grass-roots exploration to selective M&A and creating exposure to recycling. The sector’s financial health has improved significantly since 2015, with lowering debt-to-equity ratios and significant cash generation, although balance-sheet health will remain a key priority for most boards and executive teams, given the sectors’ cyclicality.
Innovate for productivity and decarbonization of operations. Technological innovation will be an important lever both to enable debottlenecking and growth (for example, advanced analytics in mining and processing) and to facilitate reduction of the carbon footprint in operations (for example, fleet electrification, water management).
Embed themselves into supply chains. Due to both the specific requirements of a number of decarbonizing technologies and the strict emission-footprint-reduction targets from end-user sectors, a number of metals will become less commoditized. Just as procurement by end-user sectors will change, so will the marketing and sales of metals. Understanding customers’ product specifications and requirements and partnering with consumers will be key, as will capturing quality and green premiums in the context of tightening supply–demand balances. In addition to placing volume on the market, this lever will help to manage downstream Scope 3 emissions from raw-material producers.
At the same time, consumers of raw materials will need to factor potential resource constraints into technology development and growth plans. The following solutions are on the table for consideration:
Adapt technology rollout plans. In response to raw-materials price volatility and supply constraints, companies will need to identify and distinguish between hard and soft constraints around technology rollout—and then engineer raw materials that may be difficult or expensive to source.
Send clear demand signals and secure raw-material supply. Clearly signaling growth, technology mix, and material needs will be an important mechanism to enable raw-material suppliers to approve large capital investments. This will take place (and is already doing so) in multiple forms: from off-take agreements with producers and partnerships with raw-materials suppliers to equity ownership of raw-material production. Irrespective of the strategy used, companies along the supply chain, such as cathode-active material producers, EV OEMs, and battery producers, will need to secure raw materials to enable aggressive growth plans, while also decarbonizing their own supply chains.
ABOUT THE AUTHOR(S)
Marcelo Azevedo is an associate partner in McKinsey’s London office, Magdalena Baczynska is a research science analyst in the Wroclaw office, Patricia Bingoto is a senior knowledge expert in the Zurich office, Greg Callaway is a consultant in the Johannesburg office, Ken Hoffman is a senior expert in the New York office, and Oliver Ramsbottom is a partner in the Hong Kong office.
The authors wish to thank Jochen Berbner, Nicolò Campagnol, Julian Conzade, Stephan Görner, Michael Guggenheimer, Benoît Petre, Humayun Tai, and Michel Van Hoey for their contributions to this article.
Rushing headlong into electrification, the West is replacing one energy master with another
The United States and its allies, such as Canada, the UK, the European Union, Australia, Japan and South Korea, face a dilemma when it comes to the global electrification of the transportation system and the switch from fossil fuels to cleaner forms of energy.
On the one hand, we want everything to be clean, green and non-polluting, with COP26-inspired goals of achieving net zero carbon emissions by 2050; and several countries aiming to close the chapter on fossil-fuel-powered vehicles, including the United States which is seeking to make half of the country’s auto fleet electric by 2030.
Yet many of these same countries are continuing to go flat-out in their production of oil and natural gas — considered a bridge fuel between fossil fuels and renewables, wrongly imo, for environmental reasons — a/ because they want to be energy-independent; and b/ because they have to. Germany is a good example of a country that tried to switch too soon to renewable energy, retiring its nuclear and coal power plants, only to find that the wind and sun didn’t produce enough electricity. Germany is now having to rely on Russian natural gas and the burning of lignite coal to keep the lights on and homes/ businesses heated throughout the winter.
We all remember (well those that are old enough do) the long gas station lineups of the 1970s during the OPEC oil embargo. At that time, the US was almost 100% dependent on Saudi Arabia and other Gulf states for its crude oil.
Well times have changed and the US is supposedly energy-independent — in September 2019 the United States exported 89,000 barrels per day more petroleum (crude oil and petroleum products) than it imported, the first month this happened since monthly records began in 1973.
Now the materials required for a modern economy are those needed for electrification and decarbonization — metals like lithium, graphite, nickel and cobalt for EV batteries; copper for wiring, motors and charging stations, as well as renewable energy systems; silver for solar cells, and rare earths like neodymium for wind turbines.
The problem is, getting to 100% renewables, if that is even possible (I’d say more like 40%, if we’re lucky) will require more metals than are currently available in the world’s mines. Shortages are forecasted by 2030 for cobalt, copper, lithium, natural graphite, nickel and rare earths. Moreover, getting those minerals in the amounts demanded means going to some environmentally unfriendly places, including Indonesia for sulfide nickel, the DRC for cobalt, and China for rare earths.
The irony is, the rush to “go green” carries with it the simple fact that the mining of this stuff is anything but. Yet because Western countries like Canada and the US haven’t bothered to develop their own mine to electric vehicle, or mine to renewable energy plant supply chains, they are dependent on imports. EVs and solar/wind sound green, but how green are they when the materials are being imported from places like Indonesia, which allows tailings to be dumped into the sea, and the extremely polluting HPAL method of separating laterite nickel into the end product used in batteries?
It all comes down to security of supply. Western countries don’t have it, because they haven’t bothered to mine, or refine, domestically and continue to rely on imports especially from China but also South Africa and Russia.
And we can’t forget fossil fuel dependency because many countries cannot, and will not, build the infrastructure needed to decarbonize/ electrify.
They will continue to require huge amounts of coal, oil and natural gas. Even Europe, supposedly on the leading edge of “green”, relies heavily on Russian gas, as we shall see below. Japan, which has no natural resources of its own, in 2020 imported the majority of its oil from Saudi Arabia. And Australia, despite being a mining powerhouse (coal, iron ore), will by 2030 be 100% reliant on imported petroleum, due to the ongoing closure of its refineries.
Our addiction to oil means that hybrid vehicles, obviously requiring gasoline, are expected to continue outpacing full electrics for years.
When it comes to energy, we have in effect replaced one master, Saudi Arabia which ruled the global oil markets for decades, with China, which “owns” the EV supply chain. And despite eco-dreams of killing off fossil fuels, they remain very much in the picture, with Russia lording power over European gas imports, for example, and Japan and Canada continuing to rely heavily on Middle Eastern oil.
Even if we wanted to reduce our dependence on these countries, the mining industry faces significant local opposition to mineral exploration, mining, processing and smelting. Ironically, the greens who require all these minerals, to go electric, are the same people opposing their extraction.
Carmakers plugging in
It all starts with demand.
Global automakers have latched onto the electrification trend and are going great guns to deliver new models to a reticent public getting keener on plug-ins.
While Tesla dominated the early days of electric vehicles, Elon Musk’s baby is in the cross-hairs of Volkswagen and Toyota, who are reportedly planning on spending $170 billion to knock Tesla off its perch.
“When the two biggest car companies in the world decide to go all-in on electric, then there’s no longer a question of speculation — the mainstream is going electric,” Bloomberg quoted Andy Palmer, the former chief of Aston Martin and ex-Nissan Motor Co. executive, in a recent story.
In early December, VW CEO Herbert Diess announced $100 billion will be going into EV and software development over the next decade. The iconic German company already has the Audi e-tron and the Porsche Taycan, and last year came out with two new offerings, the ID.3 hatchback and ID.4, an SUV. The MEB platform underpins 27 EV models Volkswagen sported at the end of 2021. The number of factories they will be built in has been increased from five to eight, including VW’s US assembly plant in Chattanooga, Tennessee.
Facing criticism for being late to the space, Toyota has stepped up its EV game. (while the Japanese company is known for its trail-brazing Prius hybrid, Toyota’s first mass-market global EV isn’t set to debut until the middle of this year)
Of the $70 billion Toyota is dedicating to electrification by the end of this decade, half will go to fully electric models, Bloomberg reports. The carmaker plans to sell 3.5 million EVs a year by 2030, almost double its earlier target.
A couple of months ago Akio Toyoda, grandson of the company’s founder, made headlines for introducing a Corolla Sport H2 Concept vehicle with a hydrogen-fueled engine. Following a spin around a racetrack, Toyoda announced plans to come out with 30 new EV models within the next eight years.
This week GM unveiled its new electric Chevrolet Silverado pickup, as buzz grows for the truck’s future rival, the Ford F-150 Lightning, set to go on sale this spring.
Top dog Tesla, meanwhile, is aware of the competition nipping at its heels. Last year the California-based firm nearly doubled its production, delivering over 936,000 vehicles. $188 billion is being plowed into its Shanghai plant to take production beyond its 450,000 units a year capacity, with Tesla’s two new assembly plants, one in Germany and one in Austin, TX, gearing up to start making Model Ys, Bloomberg reports.
All the big carmakers all try to out-do one another in bringing out new electric-vehicle models, yet arguably, they are getting ahead of themselves. There are still major obstacles to greater EV penetration, the main ones being sticker shock, limited range, charging station availability, and charge times. While it might make sense for urban dwellers to run EVs to and from work and charge them at home, residents living in rural areas or in cold winter climates may find electrics inappropriate, even dangerous, say if they are caught in a traffic jam in freezing temperatures.
Then there is the problem of raw materials supply — being able to find the minerals and metals needed, and to mine them responsibly and sustainably.
The EV “revolution” has also glossed over a very important point: going green comes with a cost — energy security.
We tackle each of these topics in turn.
We don’t have the metals
The adage “if it can’t be grown it must be mined” serves as a reminder that electric vehicles, transitional energy, and a green economy start with metals. The supply chain for batteries, wind turbines, solar panels, electric motors, transmission lines, 5G — everything that is needed for a green economy — starts with metals and mining.
The fossil-fueled based transportation system needs to be electrified, and the switch must be made from oil, gas, and coal-powered power plants to those which run on solar, wind and thorium-produced nuclear energy. If we have any hope of cleaning up the planet, before the point of no return, a massive decarbonization needs to take place.
Commodities consultancy Wood Mackenzie said an investment of over $1 trillion will be required in key energy transition metals over the next 15 years, just to meet the growing needs of decarbonization.
Transportation makes up 28% of global emissions, so transitioning from gas-powered cars and trucks to plug-in vehicles is an important part of the plan to wean ourselves off fossil fuels.
Kozak and O’Keefe forecast EVs will make up about 15% of new car sales by 2025, doubling to 30%, or 30 million EVs, by 2030.
A green infrastructure and transportation spending push will mean a lot more metals will need to be mined, including lithium, nickel, and graphite for EV batteries; copper for electric vehicle wiring and renewable energy projects; silver for solar panels; rare earths for permanent magnets that go into EV motors and wind turbines; and silver/ tin for the hundreds of millions of solder points necessary in making the new electrified economy a reality.
In fact, battery/ energy metals demand is moving at such a break-neck speed, that supply will be extremely challenged to keep up. Without a major push by producers and junior miners to find and develop new mineral deposits, glaring supply deficits are going to beset the industry for some time.
According to a report by UBS, a deficit in nickel will come into play this year, for rare earths in 2022, for cobalt in 2023, and in 2024, for lithium and natural graphite.
Moreover, the Swiss investment bank predicts large deficits by 2030 for each of these metals: 170,000 tonnes for cobalt, equal to 42% of the cobalt market; 10.9 million tonnes of copper (about half of current global mined production), representing 31% of the market; 2.1Mt for lithium (50% market share); 3.7Mt for natural graphite and 2.2Mt for nickel (both 37%); and 48,000 tonnes for rare earths, equivalent to 47% of the market.
In a thought experiment, we at AOTH crunched the numbers for what it would take to get to 100% renewables. The amount of raw materials required is “off the charts”.
Wind and solar energy do not happen without mining, and they take unbelievable amounts of metals. Just replacing the current amount of energy demanded by coal and natural gas, let alone inevitably higher figures in future, with solar and wind, we calculated it would take over 60,000 solar farms and more than 120,000 wind farms. In all it’s about a 450% increase in renewables.
Ain’t gonna happen, folks. We will run out of metals long before we reach that level of renewable energy capacity. In fact we would be surprised if we even make it to 40%. Without a concerted and global push to mine more, the prices of the required metals will keep climbing, crimping demand for them.
We already know that we don’t have enough copper for more than a 30% market penetration by electric vehicles. For solar power we are talking about finding 16 times the current annual production of aluminum, and 23 times the current global output of copper. Up to six times the current production levels of nickel, dysprosium and tellurium are expected to be required for building clean-tech machinery.
Even if the mining industry could identify and produce this amount of metals to meet the world’s goal of 100% decarbonization, the supply shortages guaranteed to hit the markets for each would make them prohibitively expensive. It’s just supply and demand.
Something nobody in the clean-tech, green-energy space likes to talk about is the “dark side of green”. This can be seen as a hidden cost of electrification/ decarbonization.
In Indonesia, nickel is produced from laterite ores using the environmentally damaging HPAL technique. The advantage of HPAL is its ability to process low-grade nickel laterite ores, to recover nickel and cobalt. However, HPAL employs sulfuric acid, and it comes with the cost, environmental impact and hassle of disposing the magnesium sulfate effluent waste. The Indonesian government only recently banned the practice of dumping tailings into the ocean for new smelting operations, and it isn’t yet a permanent ban.
Chinese nickel pig iron producers in Indonesia now are looking to make nickel matte, from which to turn laterite nickel into battery-grade nickel for EVs. The process however is highly energy-intensive and polluting, as well as far more costly than a nickel sulfide operation (up to $5,000 per tonne more). According to consultancy Wood Mackenzie, the extra pyrometallurgical step required to make battery-grade nickel from matte will add to the energy intensity of nickel pig iron (NPI) production, which is already the highest in the nickel industry. We are talking 40 to 90 tonnes of CO2 equivalent per tonne of nickel for NPI, versus under 40 CO2e/t for HPAL and less than 10 CO2e/t for traditional nickel sulfide processing.
What’s the point of making supposedly “green” battery components when the refining process is so dirty?
The mining industry may have achieved progress in recent years regarding environmental, social and governance (ESG), the new corporate buzz word, but in parts of the (mostly) developing world, the industry is still sporting a black eye.
Mining practices in the Democratic Republic of Congo (DRC) have elevated the issue of “conflict minerals” to the public consciousness, with stories of armed groups operating cobalt mines dependent on child labor, as well as in Guinea, where riots have broken out over bauxite mining.
Rare earths mining and processing in China, the extraction and refining of laterite nickel in Indonesia, and cobalt mining in the Congo, are three good examples of the disconnect between the rhetoric being delivered lately regarding the so-called new green economy, and reality.
In many respects the widely touted transition from fossil fuels to renewable energies, and the global electrification of the transportation system, are not clean, green, renewable or sustainable.
Ok. Enough about the mounting costs of electrification/ decarbonization and the pending shortages of metals.
There is a more immediate problem that decarbonization has brought about, and that is high electricity costs.
The cost of electrification/ decarbonization
To put it bluntly, ridding the planet of fossil fuel-generated power — coal, oil, and natural gas — is untenable. Not only are solar and wind inappropriate for base-load power, because their energy is intermittent, and must be stored in massive quantities, using battery technology that is still in development, they don’t have anywhere near the energy intensity provided by fossil fuels, or nuclear.
Driven by the need to decarbonize due to increasingly apparent climate change, governments around the world right now are choosing to de-invest from oil and gas, and instead are plowing funds into renewable energies even though they aren’t yet ready to take the place of standard fossil-fueled baseload power, i.e., coal and natural gas.
We have seen this foolish endeavor playing out in Europe, where natural gas prices are hitting records due to coal plants being shut down as well as nuclear plants shelved, such as in Germany and France. The skyrocketing cost of electricity is being borne by ordinary citizens who had no part in this dumb policy of “premature decarbonization”.
EU natural gas prices. Source: Trading Economics
Saudi Arabia has warned that, without re-investing in the oil industry to find more deposits, the world could be short 30 million barrels a day in just eight years.
In the current under-supplied environment, high oil and natural gas prices will be with us for the foreseeable future.
(High natural gas prices are impacting food prices. Food inflation is being driven by record-high fertilizer prices and climate change. Higher input prices are usually passed onto the buyer of meat, fruits and vegetables, for the rancher/ grower to preserve his profit margin.
The fertilizer market has been pummeled due to extreme weather, plant shutdowns and rising energy costs — in particular natural gas, the main feedstock for nitrogen fertilizer.
Modern farming simply cannot do without fertilizer; its higher cost must be borne by producers and so higher food prices are likely going to be “baked in” for several years. Everyone from ranchers to farmers, greenhouse growers and orchardists will be affected.)
US food inflation. Source: Trading Economics
Oil, gas & hybrids
What happened in Europe is important for resource investors to understand, because it could exemplify what is coming to North America, if we continue this mad dash to decarbonize without respecting our ongoing dependence on oil and gas.
NDTV lays it out nicely in an article titled, ‘Europe Sleepwalked Into an Energy Crisis That Could Last Years’.
Starting with the observation that its natural gas stockpiles are running dangerously low, the article points out that Europe was blindsided by an energy crunch because it was unprepared.
“The energy crisis hit the bloc when security of supply was not on the menu of EU policymakers,” says Maximo Miccinilli, head of energy and climate at consultants FleishmanHillard EU.
Europe’s natural gas production has been declining for years, leaving it reliant on imports. Yet even after an especially cold 2020-21 winter diminished natural gas supplies, Europe’s leaders didn’t lift a finger in response. NDTV explains:
Still, Europe’s leaders betrayed no alarm. On July 14, the European Commission unveiled the world’s most ambitious package to eliminate fossil fuels in a bid to avert the worst consequences of climate change. With their eyes trained on longer-term goals, such as reducing greenhouse gas emissions at least 55% by 2030 from 1990 levels, the politicians did not sufficiently appreciate some of the potential pitfalls that lay immediately ahead on the road to decarbonization…
A recent bump in LNG imports from the U.S. has provided some relief, but it’s temporary at best. France needs to take several of its reactors offline for maintenance and repairs, resulting in a 30% reduction in nuclear capacity in early January, while Germany is moving ahead with plans to shut down all of its nuclear plants. With the two coldest months of winter still ahead, the fear is that Europe may run out of gas…
Traders are already preparing for the worst, with prices for gas delivered from spring through 2023 surging about 40% over the past month. Some say the crunch could last until 2025, when the next wave of LNG projects in the U.S. starts supplying the world market.
The world’s continued dependence on oil and gas is reflected in the importance of hybrid vehicles going forward. IHS Markit notes that hybrids are projected to outpace electric cars for years. This is in large part due to car buyers’ preference for the convenience of gasoline fuel, no need to charge the vehicle, and the lower cost of a hybrid compared to an all-electric.
We also see it in the crude oil import statistics of the United States and its allies.
Canada
Despite having the world’s third-largest oil reserves, more than half of the oil used in Quebec and Atlantic Canada is imported from foreign sources including the US, Saudi Arabia, Russia, United Kingdom, Azerbaijan, Nigeria and Ivory Coast. In 2019, Canada spent $18.9 billion to import more than 660,000 barrels of oil, according to the Canadian Association of Petroleum Producers (CAPP).
Source: CAPP
United States
For decades the United States imported more oil than it exported. It wasn’t until 2019 that US net imports of crude oil and finished products flipped from negative to positive, making the country energy-independent. That year, US oil production reached a record 12.2 million barrels per day. However in May 2020, the States was back to being a net oil importer, and it has oscillated since.
According to the Energy Information Administration (EIA), in 2005, U.S. refineries relied heavily on foreign crude oil, importing a record volume of more than 10.1 million barrels per day (b/d). About 60% of the imported crude oil came from four countries: Canada, Mexico, Saudi Arabia, and Venezuela, and each was responsible for between 12% and 16% of total U.S. crude oil imports that year. By 2019, U.S. crude oil import trading patterns had changed significantly. In total, U.S. crude oil imports have fallen sharply, but imports from Canada have risen steadily to 3.8 million b/d, more than twice the imports from Canada in 2005.
The EIA chart below shows the United States gradually loosening the grip Saudi Arabia had on its oil imports — going from about 2.3 million barrels a day in 2005, to just 500,000 currently.
Source: EIA
Exactly one year ago the US didn’t import any Saudi crude for the first time in 35 years. Bloomberg notes that 12 years prior, American refiners were routinely importing about 1 million barrels a day, the second-largest supplier to the U.S. after Canada and seen as a major security risk.
How did the US become energy-independent? It began hydraulic fracturing tight shale oil fields like the Permian, Eagle Ford, Marcellus and Bakken. Fracking may have pushed US oil production to a situation of energy independence, but it came at a huge environmental cost. Pumping a toxic mix of chemicals and proppants to liberate oil and gas from tightly packed rock layers requires huge amounts of water and has been known to seep into and pollute groundwater. Fracking also releases methane, a greenhouse gas 84 times more powerful than carbon dioxide, with research indicating the US oil and gas industry emits 13 million tonnes of methane annually.
In sum, the the holy grail of US energy independence has only been achieved by sacrificing the environment; air and water pollution not only costs money, but the health of people and animals living next to wells, and sometimes, their lives.
European Union
We’ve already mentioned the energy crisis in Europe brought about by prematurely closing nuclear and coal power plants, leaving the continent dependent on Russian natural gas.
In 2019 the EU produced 39% of its own energy, and imported 61%. According to Eurostat, petroleum products comprise the majority of available energy sources (36% crude oil, 22% natural gas), with renewables representing 15% of the total, and nuclear and solid fossil fuels both 13%.
The Canadian Energy Centre recently put out a very interesting paper documenting the EU’s dependence on totalitarian regimes for its energy fuels. Since 2005, the bloc has imported €286 billion form tyrannies and aristocracies, with Russia being the largest source of natural gas for the past 15 years.
The fact sheet examined NG imports from within and outside the European Union from Not Free, Partly Free, and Free countries between 2005 and 2019.
Germany is one the world’s largest natural gas importers. Data from Rystad Energy shows that in 2019, the country shipped in 55.5 billion cubic meters of gas from Russia, 27 bcm from Norway and 23.4 bcm from the Netherlands.
So much for Germany’s “energiewende” (energy transition).
What’s wrong with importing gas from Russia? The report notes that Russia has a history of interrupting natural gas flows for political gain:
This ever-growing dependence on Russia makes the EU potentially vulnerable to natural gas supply disruptions that could result from geo-political events, such as Russian meddling in the former Soviet Bloc countries. In the past, Russia has punished European countries that were selling Russian gas to Ukraine by cutting off natural gas being delivered through both Nord Stream and an existing pipeline to the Ukraine.
Other highlights from the report:
Of the over €286 billion worth of natural gas imported by the EU from Not Free countries between 2005 and 2019, almost €165.3 billion worth, or nearly 58%, came from Russia; over €89.1 billion worth, or 31.1%, came from Algeria.
Of the €16.4 billion worth of natural gas that the EU imported from Not Free countries in 2019, nearly €16.3 billion worth, or 99%, was imported from just three countries — Russia, Algeria, and Libya (see Figure 2b).
Sources: Canadian Energy Centre, Eurostat, Freedom House
Of the €16.4 billion worth of natural gas that the EU imported from Not Free countries in 2019, Italy, Spain, Hungary, Greece, and Slovakia alone imported over €14.8 billion from tyrannies and autocracies. Italy imported the most at nearly €9.3 billion or 56%.
The EU and Turkey are heavily reliant on Russia for natural gas: 77% of natural gas exports from Russia’s majority state-owned Gazprom go to the EU. Germany used the most gas at 57 bcm followed by Italy at just over 22 bcm.
For at least 15 years the EU has been heavily dependent on the natural gas shipped to it from autocracies and tyrannies, most notably Russia. With the planned completion of Gazprom’s Nord Stream 2, natural gas imports to the EU from Russia will only grow, making the EU even more vulnerable to Russian influence.
Australia
Australia’s fuel security is more precarious than most Australians probably realize. According to The Conversation, not only does the country not have the internationally mandated 90-day stockpile, but ongoing refinery closures put it on track to being 100% reliant on imported petroleum by 2030.
These refineries import around 83% of the crude oil they process, with the lion’s share coming from Asia (40%), followed by Africa at 18% and the Middle East at 17%.
The article notes that ongoing tensions in the South China Sea threaten a major supply route for Australian oil imports, the disruption of which would have consequences within days for our food supplies, medication stocks, and military capacity.
The vulnerability of Australia’s supply lines through Indonesia has also been documented. In 2014, Al Qaeda-aligned militants tried to hijack a Pakistani frigate and use it to target US Navy vessels in the Indian Ocean. The terrorist group reportedly urged jihadists to attack oil tankers in two maritime hot spots that supply Australia with up to 70% of its gasoline.
Japan
Japan’s relative isolation and its lack of natural resources made it the fifth-largest oil consumer and fourth-largest crude oil importer in 2019. The country has no international oil or natural gas pipelines, and therefore relies exclusively on tanker shipments of LNG and crude oil.
Before the 2011 earthquake/tsunami and partial meltdown at Fukushima, Japan was the world’s third largest nuclear power user, behind only the US and France. Prior to 2011, nuclear accounted for 13% of total energy needs, but the closure of all of Japan’s nuclear facilities for safety reasons and testing (some have re-opened) meant that by 2019, nuclear’s share had dropped to 3%.
According to the EIA, coal continues to command a significant share, 26%, of Japan’s total energy consumption, although natural gas is the preferred choice of fuel to replace nuclear.
In 2020, Japan’s largest crude oil importer was Saudi Arabia, and in 2019, the country consumed around 173 million tonnes of oil, with the largest amount coming from OPEC member states in the Middle East, according to Statista.
Conclusion
At the end of the day we have to ask, “Is going green really worth it?” To determine that, we first need to check whether mining all of the metals required for electrification and decarbonization is actually green. Chinese rare earths, Indonesian nickel, Congolese cobalt, are anything but.
For many years the United States and its allies bought their oil and gas from Saudi Arabia and other Gulf states. In recent years that dependence has eased.
At AOTH we’ve been warning for a decade the dangers of relying on fracking for anything but short term energy dependence. “The decline rate of shale gas wells is very steep. A year after coming on-stream production can drop to 20-40 percent of the original level. If the best prospects were developed first, and they were, subsequent drilling will take place on increasingly less favourable prospects.”
“My thesis is that the importance of shale gas has been grossly overstated; the U.S. has nowhere close to a 100-year supply. This myth has been perpetuated by self-interested industry, media and politicians. Their mantra is that exploiting shale gas resources will promote untold economic growth, new jobs and lead us toward energy independence.“ Bill Powers, author ‘Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth’ in a Energy Report interview.
“Each year, the U.S. Energy Information Administration (EIA) forecasts production from the nation’s tight oil and gas plays — the hydrocarbon-rich formations targeted by the U.S. fracking industry. And each year, the EIA predicts rosy prospects for the nation’s oil and gas output. David Hughes carefully peered through the EIA’s forecasts, basin by basin, comparing the agency’s assumptions against the real-world drilling data that showed faltering productivity and fast declines from many shale wells. And he concluded that the EIA’s long-term oil and gas outlook suffers from an optimism bias so extreme that it borders on fibbing.”New Report Throws Doubt on Overly Optimistic Fracking Forecasts From U.S. Government,Clark Williams-Derry
But many Western nations remain under the thumb of oil oligarchs or sultans. Take Germany, which consumes the most natural gas of any EU country, the majority of which comes from Russia. 77% of natural gas exports from Russia’s Gazprom go to the EU. Of the over €286 billion worth of natural gas imported by the EU from Not Free countries between 2005 and 2019, almost €165.3 billion worth, or nearly 58%, came from Russia.
In a world that still runs on oil, how free are Western nations, when they depend on the good graces of places like Russia, Algeria and Saudi Arabia, for their oil and gas?
How free is the West when it must go cap and hand to China, for the new electrification/ decarbonization metals?
Consider: China rules the electric vehicle supply chain. It is also a major player in renewable energy markets (solar & wind), and is building the most new nuclear power plants of any country.
In the rush to electrify/ decarbonize, is the West not just substituting one energy tyrant for another? The world’s largest consumer of commodities already has a monopoly on rare earths mining/ processing, produces the most lithium and cobalt, and dominates the graphite market.
China controls about 85% of global cobalt supply, including an offtake agreement with Glencore, the largest producer of the mineral.
Beijing also appears to be locking up nickel supply, through investments in the leading producer, Indonesia. China is working with Indonesia to develop a huge facility for developing battery-grade nickel.
According to the International Energy Agency, China processes about 90% of the world’s rare earth elements, along with 50 to 70% of lithium and cobalt.
The United States is 100% import-reliant on 13 of the 35 critical minerals the Department of the Interior has classified. They include manganese, graphite and rare earths. According to Market Intelligence data, the majority of critical minerals imported during the second quarter of 2021 came from South Africa (41.4%), with 7.9% shipped from China.
“We are dependent upon different countries, most notably China, for a number of our critical mineral resources,” S&P Global quotes Abigail Wulf, director of critical minerals strategy for Securing America’s Future Energy, a group advocating for greater US energy independence.
Source: S&P Global
As China’s fist tightens on the mining of critical and green economy metals, Western politicians like Justin Trudeau, Joe Biden and Germany’s (ex-Chancellor) Angela Merkel have supported green energy/ transportation at the expense of fossil fuels.
Germany is phasing out nuclear and coal-fired plants but has not yet achieved the renewable power capacity needed to replace shuttered power-generation facilities.
It needs Russian natural gas just to keep the lights on and buildings heated. The recent decision to shutter three of its six nuclear power plants in the middle of winter is foolish and cruel. What of the millions of Germans, and other Europeans unable to afford a quadrupling of power bills, that are being left in the dark to freeze?
Think about it. Without a workable plan to transition from fossil fuels to renewables, one that does not involve natural gas shipments from Russia, burning coal, or buying petroleum products from Saudi Arabia (like Canada and Japan), and without a concerted push to mine and explore for minerals within its own borders, the West is literally giving away its energy security to two countries: China and Russia.
They must be laughing at our stupidity.
(By Richard Mills)
PM Trudeau pushes critical minerals, continental supply chain ahead of Three Amigos summit
DISTRICT OF COLUMBIA – There’s plenty of room and lots of good reasons for Canada and the United States to find common ground on tax credits for electric vehicles, Deputy Prime Minister Chrystia Freeland said Wednesday on the eve of a key meeting between Prime Minister Justin Trudeau and President Joe Biden.
Otherwise, it could well become “the dominant issue” in a Canada-U.S. relationship that’s already facing “real challenges,” Freeland warned during a rooftop news conference at a downtown D.C. hotel.
Both countries are pursuing fundamentally the same goal, Freeland said: encouraging the move away from gas-powered internal combustion engines in an effort to slow the impact of climate change around the world, while simultaneously encouraging post-pandemic economic growth.
But Biden’s proposed EV tax credit – which would effectively cut Canadian-made vehicles and parts out of a lucrative incentive worth up to $12,500 to a prospective U.S. car buyer – would work counter to their shared goals.
“Job 1 for us is just raising awareness,” Freeland said – something she’s confident the Canadian delegation accomplished Wednesday during meetings with senior congressional leaders on Capitol Hill.
“I think job 2 – and this is a very Canadian approach – is, we don’t want to just show up and say, ‘Here’s a problem.’ We’d like to show up and say, ‘Here’s the problem, and here are some ways that we can solve the problem.”’
Freeland didn’t elaborate on what some of those potential solutions might be, but her message was clear: there’s room for the U.S. to manoeuvre so that the objectives of the measure remain intact, but Canada doesn’t get left out in the cold.
She cited the newly forged North American trade deal, known south of the border as the U.S.-Mexico-Canada Agreement, or USMCA, as evidence that the two countries know how to work together.
“We sort of said, ‘Guys, like, we all spent a lot of time negotiating this agreement that had support – obviously from Republicans, it was a Republican administration – but it had support from Democrats too,”’ Freeland said.
“’Do you really want to violate it in such a significant way?”’
Electric vehicles will be a major part of Thursday’s discussions with Biden and Mexican President Andres Manuel Lopez Obrador – not just on tax incentives, but also where the U.S. auto sector is going to get the critical minerals and rare-earth elements so vital to the manufacture of EV batteries.
When global supply chains are under pressure, as they have been since the onset of COVID-19, the U.S. “could do worse” than relying on Canada to provide a reliable and affordable supply of raw materials, Trudeau said.
“It is a two-way street. We do well when we’re working together,” the prime minister told a question-and-answer session hosted by the Wilson Center.
China is the world’s leading supplier of those minerals and pandemic-induced bottlenecks have created major shortages – something Trudeau alluded to when he said some other countries have lower production costs because they “don’t care” about environmental or labour standards.
Conservative Leader Erin O’Toole called on the prime minister to deliver “tangible results” for Canadians at the summit, saying the relationship between Canada and the U.S. has been getting worse over the past year.
“Under Justin Trudeau’s watch, the United States has doubled tariffs on softwood lumber, put in place stringent Buy America policies threatening Canadian jobs, launched trade disputes against our agriculture sector, and cancelled pipeline projects,” O’Toole said in a statement.
He urged the prime minister to obtain guarantees that Biden will include Canadian-assembled cars in an electric-vehicle tax credit, carve out Canadian exemptions for Buy America policies and support the continuation of Enbridge Inc.’s cross-border Line 5 pipeline.
None of those things are likely to emerge from meetings with the president that are only scheduled to last a few hours.
O’Toole also called for a North American supply chain resilience strategy that includes Canada’s rare-earth minerals as a source for battery and electric-vehicle production.
Trudeau faces mounting pressure to address Canada’s misaligned COVID-19 border restrictions with his North American counterparts as well.
On Monday, four bipartisan U.S. senators wrote to Foreign Affairs Minister Melanie Joly to ask Canada to align border restrictions with its southern neighbours, especially when it comes to Canada’s requirement for a negative molecular COVID-19 test for incoming travellers.
“It is important for both of our nations’ economies that fully vaccinated individuals are able to travel between Canada and the U.S. with ease,” wrote senators Amy Klobuchar, Susan Collins, Chuck Schumer and Mike Crapo – three of whom were on hand Wednesday when Trudeau arrived for his Senate meeting.
The prime minister seemed at ease and relaxed as he worked the room upon his arrival, even eliciting a thin smile from Senate Minority Leader Mitch McConnell when the group lined up for a photograph.
“Mitch to my left,” Trudeau cracked. “Look at that.”
On the other side of the sprawling Capitol complex, Trudeau met with House Speaker Nancy Pelosi and members of Congress with a specific interest in Canadian matters, including New York Rep. Brian Higgins.
Higgins, a Democrat, has been championing the complete reopening of the Canada-U.S. border for months and said he remains frustrated that Canada still requires a PCR test to enter.
“The fractured approach to border management by both the U.S. and Canadian governments is contributing to public confusion, anger and frankly, it makes no sense,” Higgins said after the meeting.
“Testing is not only unnecessary, it is prohibiting a cross-border exchange critical to fostering economic recovery in both nations.”
Trudeau later promised news before the end of the week on the testing requirement but refused to confirm reports that Canada plans to exempt Canadian travellers returning from trips of less than 72 hours.
“We are looking at making steps to loosen up requirements while at the same time keeping Canadians safe,” Trudeau said, adding there’ll be “an announcement in the coming days.”
Trudeau capped the evening with a visit to an annual gala hosted by the Canadian American Business Association atop the ritzy Hay-Adams hotel, a stone’s throw from the White House.
His government’s climate change agenda is “not just about clean air and fresh water, although that’d be enough, but also about opportunities, good jobs, and a strong future for everyone,” Trudeau said.
“These are things on which, as countries and as friends, we are so deeply aligned. Canadians and Americans get – regardless of the various pushes and pulls of politics – that there is a clear direction forward that more and more people are seeing, more and more people know that they want to be part of.”
This report by The Canadian Press was first published Nov. 17, 2021.
– With files from Laura Osman in Ottawa
BHP sees need for battery metals more than doubling in 30 years
By Cecilia Jamasmie
Escondida is the world’s largest producer of copper concentrates and cathodes. (Image: BHP.)
As the pace and shape of the global transition to a greener economy has become a key issue globally, the need for battery metals will grow up to four times in the next 30 years, Vandita Pant, BHP’s chief commercial officer, said on Wednesday at the FT Commodities Asia Summit.
“Some of the modelling that we have done showed that in, let’s say a decarbonised world … the world will need almost double the copper in the next 30 years than in the past 30,” she told the audience at the inaugural session.
The world’s largest miner is also predicting that demand for nickel, another needed battery metal, will quadruple by 2050. “And all this will have to be done as sustainably as possible,” Pant added.
Her vision echoes those of most experts, from consultants such as Wood Mackenzie, ING Economics and BloombergNEF, to industry actors including top miners and electric vehicles makers lead by Tesla and Volkswagen.
Copper has long been a common component in most electrical wiring, power generation, transmission, distribution, and circuitry because of its high conductivity and durability.
New energy technologies, however, require even more copper and nickel. Output of both elements would have to rise exponentially over the next three decades to meet demand from renewable power generation, battery storage, electric vehicles, charging stations and related grid infrastructure, BHP estimates.
Boosting portfolio
Since Canadian Mike Henry took the top post at the company last year, the group has adopted an aggressive strategy to expand its footprint among what it calls “future-facing” commodities — copper, nickel and copper.
The miner is currently involved in talks with Australian billionaire Andrew Forrest’s Wyloo Metals concerning BHP’s imminent takeover of Noront Resources (TSX-V: NOT).
The two miners were in a bidding war over the Canadian miner, which owns the early-stage Eagle’s Nest nickel and copper deposit in the ‘Ring of Fire’ in northern Ontario.
The asset is believed to be the largest high-grade nickel discovery in Canada since the Voisey’s Bay nickel find in the eastern province of Newfoundland and Labrador.
BHP is also proceeding with the development of the Jansen potash project, in Canada, has merged its oil and gas assets with Australia’s Woodside Petroleum (ASX: WPL), and has sold a big portion of its coal business.
(With files from Reuters)
Countries, cities, carmakers commit to end fossil-fuel vehicles by 2040
By Simon Jessop and William James, Nick Carey
Summary
Volvo Cars, Ford, GM aim for 100% zero-emission vehicles
Volkswagen, Toyota, Stellantis not part of pledge
United States, China and Germany missing from pledge
GLASGOW, Nov 10 (Reuters) - (This November 10 story corrected to read Volvo Cars in bullet point, paragraphs 9 and 12)
A group of countries, companies and cities committed on Wednesday to phasing out fossil-fuel vehicles by 2040, as part of efforts to cut carbon emissions and curb global warming.
But the world's top two carmakers, Toyota Motor Corp (7203.T) and Volkswagen AG (VOWG_p.DE), as well as major car markets China, the United States and Germany, did not sign up, highlighting the challenges in shifting to zero emissions.
The Glasgow Declaration on Zero Emission Cars and Vans, unveiled at climate talks in the Scottish city, sees the groups pledge to "rapidly" accelerate the transition to low-carbon emission vehicles, aiming to green leading markets by 2035.
Headline signatories included Ford (F.N) and General Motors (GM.N), the world's second-most populous country India and major corporate purchasers of vehicles including Leaseplan, which rents 1.7 million cars in 30 countries.
Martin Kaiser, Executive Director of Greenpeace Germany, said the absence of the major economies and producers was "gravely concerning".
"To stop new fossil fuels, we need to cut off our dependency," he said. That means moving on from combustion engines towards electric vehicles and creating clean public transport networks without delay."
A German environment ministry spokesman said the country's government would not sign on Wednesday as it had not reached internal consensus on a "marginal aspect" of the pledge concerning whether fuels made from renewable energy but burned in a combustion engine could form part of the solution.
Cars, trucks, ships, buses and planes account for about a quarter of all global carbon emissions, data from the International Energy Agency showed, mostly from road vehicles.
Others who did sign up included Sweden's Volvo Cars (VOLCARb.ST), Daimler AG's (DAIGn.DE) Mercedes-Benz, China's BYD Co Ltd (002594.SZ) and Jaguar Land Rover, a unit of India's Tata Motors Ltd (TAMO.NS).
Other countries signing up included New Zealand and Poland, joining a number of nations already committed to ensuring all new cars and vans are zero emission by 2040 or earlier, including Britain, host of the COP26 summit.
Among other leading companies and cities on board are ride-hailing company Uber (UBER.N) and food retailer Sainsbury's (SBRY.L), the South Korean capital Seoul and Brazil's Sao Paolo.
As countries look to agree a way to price carbon globally, Volvo Cars, which has already committed to going fully electric by 2030, said separately it would assume a carbon price of 1,000 Swedish crowns on all future projects. read more
CHINA
The commitment comes on a day dedicated to transport at the conference, where policymakers are looking to accelerate efforts to cap global warming by mid-century.
But the apparent unwillingness of China, the world's largest car market, and the United States - the world's largest economy and second-largest car market - to join the pledge raises questions about its effectiveness.
While the United States is not on board, key car-buying states like California and New York are.
An industry source said some carmakers are wary of the pledge because it commits them to a costly shift in technology, but lacks a similar commitment from governments to ensure that the necessary charging and grid infrastructure would be built.
The European Commission has proposed an effective ban on fossil-fuel vehicles by 2035, accompanied by a commitment to a charging infrastructure demanded by carmakers. read more
The world's No. 4 carmaker, Stellantis (STLA.MI), was also missing from Wednesday's pledge, as were Japan's Honda Motor Co Ltd (7267.T) and Nissan Motor Co Ltd (7201.T); Germany's BMW (BMWG.DE) and South Korea's Hyundai Motor Co (005380.KS).
Reporting by Simon Jessop, William James and Nick Carey; Additional reporting by David Shepardson in Washington and Shadia Nasralla in Glasgow; Editing by Cynthia Osterman, Peter Cooney and Alexander Smith
Resource Revolution and a Green Paradox?
Mark Smith, Co-manager, TB Amati Strategic Metals Fund
An energy system powered by clean energy technologies needs significantly more minerals, notably:
Lithium, nickel, cobalt, manganese and anode graphite for batteries
Rare earth elements (mainly heavy REEs) for wind turbines and electric vehicles motors
Copper, silicon and silver for solar PV
Copper and aluminium for electricity networks
There is no shortage of mineral resources, but recent price rises for cobalt, copper, lithium and nickel highlight how supply could struggle to keep pace with the world’s climate ambitions.
An analysis of the projected share of clean energy technologies in total demand for selected minerals in a sustainable development scenario (1.5°C) – shows the above-mentioned metals could benefit strongly.
Mineral demand for clean energy technologies by scenario
Source: International Energy Agency
In the short term the supply-demand picture for the base metals and specialty metals is well matched, however if you project the committed mine production against primary metal demand an emerging deficit presents itself in the medium term.
Either the global climate ambitions will have to be tapered or we will have to adjust to an inflationary commodity environment under a sustainable development scenario (wrt climate change).
Supply and demand projections (under a sustainable development scenario)
Source: International Energy Agency
Put another way? The energy transition starts and ends with (strategic) metals and a primary supply response needs significant capital investment both for exploration and mine development.
According to Wood Mackenzie the challenge of scaling up primary base supply is massive:
Base case 2.5°C pathway = US$0.5 trillion capital investment over next 20yrs
Accelerated energy transition; net zero by 2050 and limits 1.5°C temperature rise = US$2.0 trillion over next 15 yrs
Source: Wood Mackenzie
ETO= Wood Mackenzie's Energy transition outlook scenario (1.5°C pathway)
A 5 X increase in base metal supply is needed by 2040. Worse case without significant scrap recycling:
11.3Mt aluminium deficit
19Mt copper deficit
3.5Mt zinc deficit
2.6Mt nickel deficit
2.2Mt lead deficit
Battery metals 7x to 42x current demand/supply???
Is the mining industry prepared? NO!
During the last ‘mining boom’ investors encouraged miners to grow at any cost, growth over margin was the investors choice. This led to over geared balance sheets and a peak (2012) in development capital to bring new mines on line. The metals cycle changed and mines closed, and the development capital shrunk. We entered a 10 year period of debt restructuring and financial discipline. In reality the industry should have been doing the opposite to prepare for this new metal demand wave.
Annual development capital has more than halved ($130bn to $60bn) and exploration expenditure over the same period fell from a peak of $21bn in 2012 to $8.7bn in 2020. With the lead time of 7-10 years to bring a new mine on stream, we could witness significant pinch points post 2025/2027.
Investors should now be demanding production and development growth NOT dividend yield, as our industry is entering a phase of ex growth, declining reserve life and lower mineral grades.
The next decade should be very interesting for the resource investor from a capital growth of mining investments and an aggressive M&A cycle as the majors mop up the mid-caps to maintain a growth profile.
Global (non-precious metal capital expenditure US$bn)
Source: Scotia Bank
Resource nationalism inevitable?
An evolving clean energy transition calls for an evolving approach to energy security; policy makers must expand their horizons and act to reduce the risks of price volatility and supply disruptions.
Production and processing of many minerals such as lithium, cobalt and some rare earth elements are geographically concentrated, with the top three producers accounting for more than 75% of global supplies.
Supply chain concentration (and control)
Source: International Energy Agency
Ironically, China is the largest single emitter of greenhouse gases, yet controls the majority of minerals and processing facilities to produce metals and chemicals key for the western world to decarbonize its energy supply. There lies the problem!
In summary:
1. The mining industry is not currently prepared to respond to the green ambitions of politicians.
2. Renewable energy technology will have to improve/adapt to thrift out some key metals to ensure a sustainable supply-demand balance.
3. Metal demand for decarbonisation will have to take precedent over other discretionary demand sectors
4. Policy makers globally (ex-China) will have to act quicker to ensure the extraction and processing of key metals are permitted outside China within the next 7-10yrs.
5. And we haven’t even addressed the role uranium will play in the green energy transition…
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