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Decarbonization and the new energy metals

Military intelligence developed scenario planning to deal with an unpredictable enemy.

Military intelligence developed scenario planning to deal with an unpredictable enemy. Since the biggest long run uncertainty for the mining supply sector is whether the world will abandon fossil fuels, suppliers need to look at the decarbonization scenario.

Mining suppliers will need exit strategies if they depend on fossil fuel producers. They also need to think about the minerals that make decarbonization possible to identify the products they can supply.

In the decarbonization scenario, fossil fuel producers will be selling less and buying less. Unless carbon capture and storage becomes economical, the coal industry will simply disappear. Natural gas will replace coal over the next 15 years, and it too is likely to be phased out by 2050. Oil production will increasingly be limited to the lowest cost producers in the Middle East. Goodbye to new tar-sands projects and much of the demand for giant trucks in the North American market. Oil drilling and geological work will dry up. Some drillers and geotech people will move to the expanding geothermal energy industry. Waste heat will become a valuable commodity, so heat pumps will be in demand. Toyota’s recent commitment to fuel cell cars suggests that a hydrogen economy is on the way. Pipeline suppliers may want to read Jeremy Rivkin on converting existing pipelines to carry hydrogen.

The most exciting action, however, is likely to be around the new “energy metals.” InfoMine lists only four traditional energy minerals – coal, oil, gas and uranium. Of these, only uranium has any prospects under decarbonization. The “new” energy minerals – lithium, graphite, cobalt, and the rare earths, along with good old copper – are all essential to the renewable energy chain. Electricity will flow through copper from wind generators made with rare earth magnets to lithium batteries, to motors made with rare earths. It’s energy metals from start to finish under decarbonization.

Until recently, the largest user of lithium was for making ceramics and glass. By 2011, as much lithium was going into batteries for mobile devices and portable tools. Commercial demand for electric vehicles started to kick in around 2011 and production of EVs is now growing exponentially.

Tesla, for example, launched its first lithium-powered car in 2008. The company now has 50,000 vehicles on the road and plans to build 10 times that number annually by 2020. That is just one company. Virtually every other auto producer has EVs and/or hybrids either in the showroom or in the pipeline. As production grows, the cost falls. China is now giving preference to EVs on highways and in parking lots to build their EV industry.

Electric vehicles are not the only growing demand for lithium. By 2020, it is expected that grid and renewable energy storage will use more lithium than the auto industry. Prices are almost certain to rise, bringing more supply to the market. Exponential growth of five per cent per year will triple demand by 2050. Estimates of the actual growth rate run as high as nine per cent per year, which would require over eight times the current production. Demand is projected to outstrip supply as more countries become developed and their demands for energy metals increase. It is pretty clear that mining suppliers should be looking at lithium and rare earth producers as a growth market.

Other “energy metals” are needed for motors. Electric motors don’t pollute, are cheaper to build, provide more torque, use less energy and are cheaper to maintain than even the best comparable gasoline or diesel engines. Motors take copper windings and magnets. The strongest permanent magnets are made with the rare earths: neodymium, praseodymium, samarium and dysprosium.

The rare earths aren’t rare, of course, just present in low concentrations and difficult to separate. China supplies almost all of the world’s rare earths and has driven most non-Chinese suppliers out of the market. However, demand will rapidly outstrip Chinese supply under the decarbonization scenario, and we will see another rare earth boom. Low current price signals are a poor guide to where these markets are going.

>Under the decarbonization scenario, the energy metals will boom. Mining suppliers will have to decide for themselves if decarbonization is coming. First movers stand to gain big if the world does act on climate change.