An investment of at least US$1 trillion will be needed in key energy transition metals over the next 15 years "to meet the growing demands of decarbonization," reports consultants Wood Mackenzie, noting that the figure is almost twice the amount invested over the last 15 years.
"Put simply, the energy transition starts and ends with metals," the consulting firm said. "If you want to generate, transmit or store low/no-carbon energy you need aluminium, cobalt, copper, nickel and lithium."
Julian Kettle, Wood Mackenzie's vice chairman of metals and mining, noted that producers are becoming more and more carbon conscious and some majors have transitioned out of high carbon assets altogether. "It isn't just about portfolio balance," he said in a statement, "the green agenda will have a profound impact on the way these companies extract and refine metals, with lower carbon operations an increasing priority."
Kettle said this has resulted in a renewed interest in scrap metal, but that the collection and sorting of scrap is still "problematic." He also noted that scrap metal can't be used in a number of applications in greener energy, including electricity cable and wiring, which demand primary metal.
"Green energy procurement and generation is at the fore, and portfolio optimization is now a must-have on any board agenda," he stated. "It feels like the tipping point is imminent. We expect carbon to become a non-negotiable component of any AGM - as safety did in the 199os."
One of the problems is that prices for some of the transition metals are "well below long-term incentive levels," according to Wood Mackenzie, and that "long-dated returns from investing in mining and processing sit uneasily against the need for certainty of regular dividend payments or the near-term gains that can be made from other popular asset classes."
This issue, it said, "severely hampers the ability of boards to undertake the necessary long-term decisions needed to develop the supply that high-growth energy transition related commodities demand."
"If producers cannot meet the most basic of consumers' needs," Kettle noted, "a time will surely come when they find ways to innovate out such unreliable raw components from their supply chain."