Transcription
[Music] Hello everyone, and welcome to another one-to-one online content session today to discuss decarbonization and the opportunities for the mining and energy industries. We have Peter Kiernan, lead analyst of energy at the Economist Intelligence Unit, and we have Alan Ray, metals analyst at Bloomberg Nef. And now, Peter and Alan, I don't know if you want to take just a minute or so to introduce yourselves and and tell everybody about kind of what your key focus is on.
Okay. Hola, I'm the lead energy analyst at the Economist Intelligence Unit. I'm based in Singapore. I've been in Singapore for about two and a half years now, and my focus is on energy policy. I manage the EIU's energy briefing products, which includes our country reports and 10-year forecasts of 70 countries around the world. And my focus is on energy policy and the energy transition and the dynamics within those.
And hello everyone. I am Alan, and I am based in Singapore as Bloomberg NEF's metals analyst. So I mostly cover nickel in the region, especially in Southeast Asia, and the supply and demand fundamentals for the metal in battery electric vehicles. But we also cover sector transitions in the clean energy transition into renewable energy, electric vehicles, and transport electrification and advanced transport. So we are part of Bloomberg's network as a primary research service, and we are a group of around 250 professionals located globally. So we have far-reaching analysis on the global markets for energy transition.
Okay. And so I guess to kick things off, I want to talk about, um, COVID-19 and the way that it's impacted energy and electricity demand. And maybe we can Peter can kick us off with a discussion about how different fuel sources have been impacted and where you see kind of this transition going.
Well, as far as the impact of COVID-19 is going, of course, it's had a very big impact on energy consumption overall. With flights banned, with lockdowns in place, social distancing measures, disruption of supply chains, lower industrial activity, people working from home and offices closed, an impact so far this year on energy demand overall has been very acute. Particularly, as we know, there was a huge drop in oil consumption, and that's affected the lockdowns and other measures have affected the use of oil in the transport sector for road travel and air travel in particular. And also, there's been an impact on electricity consumption, which in turn has had a big impact on the demand for coal in the power sector and also on natural gas. So the IEA actually came out with some analysis just recently, and they're resonating that coal consumption will fall about 8% this year, with the most severe part of that happening in the first half of this year, assuming there's some kind of return to normalcy in the second half of 2020. And we'll wait and see if that occurs. But assuming that, the year-on-year loss will be about 8% for coal consumption overall. So that's just not the demand for coal for the power sector, thermal coal, but for coal consumption overall. But our generation accounts for a large part of that. Also, there'll be a drop in natural gas consumption, a very severe drop in oil consumption as well. What was interesting about what they also said is that the use of renewables will actually still slightly increase. And if you look at the impact on renewables, it hasn't been nearly as severe as it has been for the fossil fuels. That coal has taken the biggest hit. So I guess from the slump in electricity consumption, natural gas to a lesser extent, while renewables in most markets have managed to hold their own so far, which I think is interesting. So that poses a question: in a post-COVID-19 world, where do we sit in 2021? It's anybody's guess. And I think a lot of that depends on what the policy responses will be to getting economies out of the very depressed economic circumstances that we're all in.
Do you think that COVID has kind of highlighted the the push for renewables and the impact, you know, the the effect of climate change and that sort of thing? Has that really highlighted that globally?
I think in many ways it has, although I think it's still too soon to tell if there's actually going to be long-term behavioral changes from this. I know that there's stronger calls and louder calls for using a green LED recovery, like we need green LED stimulus measures. And that's been called for in Europe and the US, especially. I think in the EU policy field, there's a lot more responsiveness towards that at the moment than in the US. So we'll have to see how that plays out. I know that the EU is looking at continuing with this Green Deal proposal and to have a green-oriented economic recovery package. In terms of behavioral changes, will people stay working at home? That impacts oil demand. We have to wait and see. That's possible. On the other hand, will people be less inclined to use public transport? That's like another question. But I certainly, as some monster or on, I see more and more emphasis being placed on this uses as an opportunity to further the energy transition, or at the very least, we shouldn't let the coronavirus impacts get us distracted in the long term from the next big challenge, which is, or the longer-term challenge, which is climate change. That we can't take our eyes off that issue either.
Allen, I don't know if you want to weigh in here.
Yeah, it's very interesting that renewables are gaining ground and not losing as much compared to traditional conventional sources of energy such as fossil fuels. And that's an increasing trend as well for the mining industry, even before the impact of the coronavirus pandemic. And for the metals industry, especially on if you focus on low-carbon technologies, the impact of COVID-19 is mostly, it's not even just on the demand side of things, but especially on the supply side as well. As people earlier mentioned that it impacted the supply chains. So this balance of supply and demand impacts actually caused a lot of markets to be to shift from purported deficits initially before the pandemic to actually having significant surpluses this year. So one thing to note there is that even with the advent of the impact of the pandemic in the industry, there is still a push for having a renewable energy for an iteration in the mining industry, simply because the cost of electricity from solar and wind, for example, is much, much cheaper, especially for new generation compared to your conventional fossil fuels. So that's one thing to note in in a specific sense for the metals and mining industry production.
And there was a recent World Bank report that talks about kind of the world of renewables and the role of kind of the batteries specifically in that, saying that production would need to increase by 500% in order to meet the growing demand. Do you want to explain a little bit about that and kind of where which metals kind of we'd be looking at and where that all comes into play?
Sure. The key focus now is actually supplying the critical minerals and metals needed to support the low-carbon energy technologies that would help in achieving the climate goals by 2050. I think that World Bank report is the climate-smart mining initiative, where they were in, they expect that for copper and nickel alone, you would need to ask for nickel alone, you would need to more than double the production of total nickel output in 2020 by 2050 to 2.3 million metric tons. And that amount alone will service just the low energy technologies, not counting the other demand drivers of the metal, which is currently stainless steel inflating applications. So that growth will definitely come from additional capacity. And apart from the discussions on supply, supply-side risks, since some of all the metals, so nickel is one of the most critical in terms of additional supply, since it's not just securing additional supply for these applications, its securing the rights of life. Since especially for a nickel, not all nickel is created equal. You have your class one high-purity nickel and your class two, a charged nickel, which is mostly used for stainless steel applications. Now, current production levels are at 50/50, relatively. But that means only 50% of total supply currently will be even amenable for use in the pure low-carbon energy technology, such as batteries, which is a seen to be the fastest driver in the coming years. So apart from nickel, which is one of the key metals needed to support your transport electrification, you also need copper for wiring and other applications. And copper is also increasingly on having these supply-side risks that are not going to be solved anytime soon, just from your raw mineral source, increase in capacity. So one thing to note in copper is that it is likely that scrap consumption and recycling of the metal will be able to help in easing supply-side concerns. And in terms of decarbonization, that that actually helps a lot, since recycling of metals consumes significantly less amounts of energy and is very easy to decarbonize through electrification. And that can be solved through your purchasing power agreements for renewables. So those two metals alone will help in decreasing your decarbonization while also increasing your capacity. And all in all, I think the focus is not mostly on those metals in terms of your decarbonizing the industry, since they account for significantly less compared to aluminum and iron and steel. So out of all industrial process heat, out of all the final energy demand consumption, industrial process heat accounts for a quarter. So all total final energy demand, 25% of that is just for industrial process heat. And out of that 25%, 40% alone is from your iron and steel production, which are very carbon-intensive processes. And aluminum accounts for around 7%, together with the other base metals. So these processes alone, if you solve the decarbonization of iron and steel and aluminum, would cut almost half of all industrial process heat emissions, assuming you get to Net Zero by the required amount of time. That places the focus mostly on iron and steel, not so much on the key base metals that you will need for your low-carbon energy technologies. So that's one thing that needs to be solved by the industry as a whole.
Peter, I'm not sure if you want to talk a little bit more about kind of the push towards renewables and maybe policy changes or what's been going on in the transition away from from coal as a fuel source and and and where you see things heading now.
I think generally, before the coronavirus issue came up this year, if we just go back to 2019 and what the state of play was in for coal, I see sort of three different categories in terms of the outlook for thermal coal in particular. And that is, it's one, a decline in North America and Europe. And just interestingly, this morning I read that Poland's largest utility had announced to phase out its coal-fired power assets by 2045, which is pretty significant, given that Germany has already pledged to phase out coal by 2038. Poland is the other coal bastion, I guess, of Europe. And the fact that its largest utility has said that, you know, within 25 years, they won't have any coal assets, that is pretty significant. So I don't see any return for coal in Europe or North America. Then countries in the second category, such as China, Japan, South Korea, and Taiwan, it's either an outlook in the short term, medium term, a slight decline or stabilization in other cases, not terribly much in the way of robust growth. South Korea just became the first country in East Asia, I think, to announce that it would be net zero emissions by 2050, which is significant. In Japan, you have the return of nuclear power plants. So the outlook for coal, I think, will be general decline. Taiwan also wants to use less coal. In China, it's in a funny situation. Its demand has been plateauing or going up when you down the next and it ran about the same level. But I don't see much in the way of strong growth. In the second category, it's either stabilization or maybe in the longer term, an actual fall. So where the strength of coal in the future lies, I think in the short term, medium term anyway, would be Southeast Asia, where demand has been growing by about 4% or 5% per year. But even there, I see some policy changes and maybe an inflection point has been reached or was about to be reached where renewables are taking a bit more seriously. I guess Vietnam, for example, added 5 gigawatts of solar power last year. On paper, most as young countries do have renewables targets, or you know, whether it's a certain share of energy, energy consumption to be accounted for by renewables by a certain year, certain target, the capacity to be added. If you look around the region, Thailand, Vietnam, Philippines, Indonesia, does have those. So it's a matter of implementing those policies. So I do see a shift towards renewables. It's obviously well underway in the US and Western Europe, in particular. Obviously, has been in terms of capacity growth in China. It's there, and I think that will continue. And I'm seeing a stronger role in the longer term for renewables as well. And that's mainly because of stronger policy drive this overall and also the falling costs of solar and wind power. So I think in the longer term, we will see, even if there might be a temporary setback for renewables deployment this year, in the longer term, there will be, I think, a restoration of the level of capacity added per year. I see that returning. So the longer-term outlook for thermal coal, I think at best, also just stabilization. Probably it may peak even within the next 10 years. If you look at coal consumption over the last five years, it actually reached a peak in 2014, then it fell slightly for three years, increased slightly in 2018 and 2019. But as of last year, it was less than it was in 2014, not by much. So maybe it's reached some kind of plateau. And this year, of course, it'll drop significantly. So it may not reach that level of 2014 ever again. I'm making a bit of a call here. But given that the policy drivers, I think in the long term will still be in place, that and given the fact that already three-quarters of global power capacity additions comprise of renewables anyway now, this might slow this year because of all the impacts of COVID-19 on financing on priorities. But I think in the long term, particularly if green-oriented stimulus measures are put in place, that renewables in the long term can still look to a brighter outlook. That said, we're not on the trajectory that we need to be to meet the general goals of the Paris Agreement. So that is concerning as well.
Allen, I don't know if you have any, if you want to chip in here.
Sure. Um, I guess mostly the discussion about coal should revolve not just on thermal coal use, but also on metallurgical coal use. So thermal coal use focused on providing the energy and heat source, especially in the metals and mining industry processes, is just one part of the equation. But most of the conventional processes in producing metals, especially through smelting, would still require a bit of carbon inputs through your metallurgical coal. So that leads to replacement of coal use being much more compared to other industries. So in terms of thermal coal replacement, yes, around two-thirds globally, renewable energy is much, much cheaper, especially for new generation. But the regional discussion would also factor into play. Most of the developed world has access to cheap and low-carbon intense grids and are highly reliable, which is one of the main, main things that the metals and mining industries, as well as their operational processes, requires. But in developing markets, where some of the critical metals and minerals production and reserves are concentrated, as Peter mentioned, Southeast Asia is still much heavily reliant on coal for their meeting energy demand. And this is entirely mostly especially true for metals and mining industries located in remote locations where access to reliable energy and access to low-carbon energy is very difficult. Since they are in remote locations, mostly they have on-site generation. And this will mostly be through fossil fuel use, through diesel gensets that power their plants. So providing reliable access to these types of operator of operations would be critical in replacing thermal coal use for the metals and mining industry. Apart from the reliability and access, a lot of the processes also need high temperatures in their processes, which is something that cannot be provided by alternative fuels or processes such as. So for context of what we define as high-temperature processes would generally be around 500 degrees Celsius and up. So steam can only go to around 250, 300 degrees Celsius. And most of high-temperature processes can be mapped correctly at economical costs through your combustion, which is through fossil fuel use, and mostly reliant on coal. So, um, one thing to note here is that alternatives that can provide the same levels of temperature for your processes include electricity, which can be through your purchasing power agreement, PPAs with renewables to do have lower carbon-intensive processes. But again, most of the metals and mining processes are from long-term life of mine plants that have been operating for several decades now. And the sunk costs for these plants are very difficult, resulting in inertia in the industry, very high and difficult to overturn by introducing new processes, new fuel types and sources. So that's one thing that's also driving the discussions in terms of the carbonizing the processes in the industry. And finally, for your metallurgical coal use, especially in smelting, um, you would still require molecules as reductants to separate your metals and minerals into more usable forms. And that's something that coal currently provides reliably and very cheap compared to current developments in the technology, which include direct reduction through electricity, electrolysis process, which are very promising, but still not fully commercialized that it can overturn your conventional processes in the coming years. But yeah, that still remains to be seen. A lot of investment opportunities, a lot of startups, especially in the US and Europe, are already lab-proven. They just need to scale up in order to meet the costs needed for them to be competitive. And it's very interesting that Peter mentioned Poland as the coal bastion of Europe, because apart from your production processes for your metals as your raw inputs, right, emissions from the production of low-carbon energy technology materials, for example, the work of our energy storage team on lithium-ion battery emissions, see that raw material processes alone account for 25% of the lithium battery manufacturing emissions, which is highly significant. Also, mining supply chains are very complex and are spread around globally. And just the transport in between the parts of the supply chain can account for 7% of the carbon emissions. So addressing those concerns by locating your plants close together in demand centers is very critical. That's why there's a lot of that in Europe and China. But again, Poland is actually based on our modeling, one of the highest or one of the lowest scoring in terms of their grid carbon intensity for lithium-ion battery manufacturing. I I think it's it's the same with China, or it's relatively the same with China in terms of how low it scored in terms of the grid carbon intensity. And that might push away automakers and other customers, consumers of the metals and mining industry, that are looking to have overall life cycle emissions of their electric vehicles, for example, to be very low. Since you might be a zero emission, you might have a zero emissions vehicle, but overall life cycle emissions can still be high due to non-renewable energy-related power sources for manufacturing the key materials and components of coming up with your batteries and your electric vehicles. So that's a one thing very interesting to note in the discussion of moving away from coal, introducing new technologies, and overcoming the inertia in the industry to actually incentivize them to decarbonize.
It's interesting you bring up the electric vehicles, and I know that I know that, um, you know, this on the subject of electric vehicles, do you think that COVID has impacted kind of the shift towards more electric vehicles? You know, where do you see that heading?
Yeah, in terms of electric vehicles, actually, COVID has, uh, even before COVID, there has been some discussions on lower-than-expected electric vehicle sales, especially with the end of subsidies and cuts, tax cuts in China for new energy vehicle headed systems, and at the end of the subsidies, for example, in the US, especially in California. That might affect adoption of electric vehicles. And in 2020, compounding from the impact of COVID-19, actually compounded these factors, where electric vehicle growth is for the first time going to decline. So from our initial estimates, year-on-year from 2019, over in 2019 alone, it was lowered by 23%, which is significant, since of the growth projections are mostly continuing previously. So, but again, the pandemic has its impacts only on the short term. And overall, there's still the need to meet the challenges of your net zero emissions. That's why a long-term overall growth in electric vehicles is still going to be the trajectory. It was, it might have been delayed by the pandemic, but overall growth is expected to recover. So one thing that the impact of the coronavirus situation in terms of transport is that the growth in other segments apart from passenger EVs are largely going to be different from initial estimates. So people might be taking more share, a sorry, people might be taking more less public transport and more of your ride-hailing services, since they want to avoid crowds, or and if that's even if they go to the office. So that's the main points for the decline in, one of the main points in sales declines, adoption for the short term. But again, recovery is very much expected. And especially in segments in other countries where price parity between the conventional modes of transport and your electric vehicles are already within reach, for example, in India, China, Southeast Asia, two-wheeler demand is expected to increase. And it's actually one of the significant segments, especially for developing countries that rely on two-wheelers for commercial and personal use. So that segment alone is very significant in terms of their demand for batteries and overall energy. And in these markets, price parity is already achieved. So there will be much more electric vehicles in these segments compared to your conventional internal combustion engine gasoline motorcycles, for example. So there's a decline in the short term, but growth is still expected. And other segments will definitely grow as part of the long-term impacts of the COVID-19 situation.
Back to kind of this energy transition discussion. Peter, you briefly mentioned the role of nuclear. And I'm not sure if you're if you want to comment at all on where you think that industry has a place in this in this for discussion or just broadly.
I don't follow the nuclear sector specifically, but for broadly, obviously, I think it does. It's a significant source of low-carbon power generation. But the policies towards nuclear power vary from country to country and region to region. So I guess obviously Germany is about to complete its nuclear phase-out. I think other countries also plan to phase out their nuclear capacity in the region. Some other countries find it difficult to stop with nuclear power. But in other countries, such as China and Russia and India, there is still capacity being added. Given the fact that we are not on track to where we would like to be in terms of the goals, the Paris Agreement, or limiting the global average temperature increase to less than two degrees, much less than two degrees. You know, I guess we need sort of as many of the options that we have available. But in some countries, nuclear is either getting phased out or it's a non-starter. So it just depends where in the world. But the policy and the public attitudes towards nuclear power is like, for example, Japan is restarting some of the nuclear plants that it had put offline after the Fukushima accident. On the other hand, South Korea and Taiwan, I think long-term plan to phase out nuclear power or to reduce nuclear capacity generally. So it does vary from country to country.
I guess finally, ESG has taken kind of a very strong role in a lot of the discussions about mining and energy and and kind of where people how people conduct their business and where you invest your money. Do you want to give any kind of final thoughts on the role of this impacting operations?
Sure. In the metals and mining industry, several companies have pledged, are actually part of the TCFD initiative, which is for the climate related to the climate goals globally. So this would require them to actually stay in their report a portion for sustainability and the impact of climate change to their businesses in the industry as a whole. And apart from the talk of economics and all the top in discussion on costs, since again, renewable energy, if it can be provided reliably, it can significantly decrease costs and increase your output, which is definitely helpful for these companies and operations. And on the industry as a whole, pressures from your investors, your consumers, your customers is one of the driving factors that are pushing more ESG initiatives, especially in the mining industry. Again, um, the drive for greener metals in terms of their low carbon intense metals intensity and production process outputs are very critical in providing the much-needed boost in demand from these segments. Since again, automakers, for example, might shift away from higher carbon intense grids in terms of locating their plants in their battery manufacturing. And it's very counterproductive if, yeah, you produce the technologies that will aid in decreasing your net zero and achieving your net zero emissions goals, but you produce these key components through very carbon-intensive processes. So that's all. So those are several factors that affect and impact the push for more ESG initiatives and these companies. And again, policy is one going to be one of the main drivers. The EU green stimulus work of COVID-19, for adoption of renewable energy in the next two years, push for a boost in electric vehicle sales, which in turn will increase demand and further incentivize the production of the key materials and metals needed to actually supply the projected growth in demand. And, um, apart from those initiatives from the stimulus plans, our governments and other push for carbon pricing will significantly impact the viability of low carbon-intensive energy sources and their competitiveness in terms of pricing. Since if coal is cheaper, but you have a high carbon pricing system in terms of taxes, that will significantly affect the bottom line. And if you can shift your production to cheaper renewable energy, provided that again, it can be reliable for the industry and can provide the much-needed access in the remote locations where they operate, then that will be very beneficial and push them further in incentivizing and incentivizing these producers to shift to low carbon emissions processes in their production.
And I think that that sounds like a kind of a good place to wrap things up. Um, do we have any final comments from either of our panelists today?
All right, great. Well, thank you very much and thanks for taking part. And I hope to see everybody again live again soon.