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Opportunities from the transition

September 17, 2018

  • The transition to a net-zero carbon economy is well under way

  • Companies and nations can choose to embrace or resist the changes

  • The transition offers both risks and opportunities for companies and economies

  • Backcasting from consideration of the desired future state (the net-zero carbon economy) will provide some indication of where the opportunities lie

 As with any transition, the move to a net-zero carbon economy presents both risk and opportunity for businesses. The Australian Financial Review recently had a story that focusses on South32 and the changes the company has made in recent years. Most notably, the company is selling out of thermal coal in South Africa. This is directly related to South32's assessment of their exposure to climate risk. To quote CEO Graham Kerr (as told to the AFR), "10 years ago no one really talked about it (exposure to thermal coal), five years ago you had maybe one investor talking about it, and now we have a could of investors probably at every roadshow every day talking about how they can't invest in you because we've got energy coal exposure."

 

On the opportunity side, South32 has seen an increase in their manganese business driven by policy in China. These policies, to promote low emissions and reduction in non greenhouse gas atmospheric pollutants from furnaces and smelters, has resulted in an increase in import of high quality manganese - such as that produced by South32. This is an example of climate (and sustainability) opportunities being realised by a business. One aspect of climate related opportunities to be considered, much like climate related risks, is how Government policy may create additional markets for your products or provide opportunities to diversify your portfolio of products.

 

So what are some other climate related opportunities that may be available to businesses and how do those businesses go about assessing. In July, I presented at the Life of Mine Conference in Brisbane on the topic of climate related risks and opportunities for the Australian mining industry. Some of the topics explored were:

 

Alternative energy sources - the move to a net-zero carbon economy has led to an increase in installed capacity of various renewable energy technologies - which in turn has greatly reduced costs as a result of relatively fast learning rates for key renewable technologies. Renewable energy is a viable energy supply option now for many different businesses and will become more so as costs of energy storage decrease in a similar manner to allow greater penetration of renewable energy into energy mixes. The mining industry, both in Australia and around the world shows massive potential for incorporation of renewable energy as mine sites often have expensive electricity sources (diesel) and are often in areas which experience high insolation. Solving the intermittency issue is key as security of supply is a high priority for mining operations though this can be achieved with backup power supply from traditional sources, battery storage for short term energy supply during changeover of primary supply and micro-grid control - which should include both generation and demand management.

 

Advances are also being made in alternative energy for mobile equipment such as battery powered vehicles underground and LNG powered vehicles in open pit operations. Electric trolley assist, where large vehicles have pantographs installed and use electric power on inclines is also possible. Using hydrogen in fuel cells for large vehicles is an area that is moving quickly and also presents an opportunity for the mining industry. The added advantage of fuels such as battery power and hydrogen, and even LNG, is that electricity consumption in underground ventilation can also be reduced as fans will not be required to remove diesel particulates. As with all of these climate related opportunities, advances in other areas of the economy (e.g., battery electric vehicles, hydrogen fuel cells, renewable energy) will likely result in cost reductions that the industry can take advantage of.

 

Efficiency opportunities and cost reduction - technology is moving quickly in a number of areas and introduction of technologies and operating processes in other industries can be applied to energy intensive industries such as the resource industry. There are a great many ways to increase efficiency of operations and reduce energy, emissions and costs. For example, the resources industry is a great candidate for digitisation and artificial intelligence. The industry, especially the mining industry, has tended to have information distributed across disparate systems and only a small part of the data collected is actually used. Advances in computing power and reduction in technology costs have presented an opportunity to collect vast volumes of data at a very granular level. In addition, artificial intelligence can be applied to this data to quickly identify trends, test hypotheses and provide optimisation parameters. With mining in particular there's an opportunity to link resource geological models, mining operational outputs and the processing plant - with the overall aim of optimising the facility output by minimising variation in the inputs. A further step can be taken by including the whole resource value chain and optimise an enterprise wide objective function by using AI to analyse and optimise extraction, processing, shipping and markets.

 

Future markets - climate change presents a number of opportunities for new markets and new products as the world moves to decarbonise. For the mining industry, this includes some of the critical materials and minerals used in new products. For the oil and gas industry, this means new energy sources and new service industries. Critical minerals required in the new economy are those that are used in the products that enable and contribute to the energy transition. For example, minerals associated with large scale electrification efforts, battery storage and electric vehicles may see a increase in demand in coming years. This includes aluminium for light weighting of vehicles, copper for use in electric vehicles and in other motors and transmission lines, nickel, lithium and cobalt in lithium-ion batteries, vanadium in redox flow batteries, rare earths in electronic components and wind turbines and other materials. For the oil and gas industry, future markets include new energy sources and energy carriers such as natural gas in the short term and hydrogen supply chains in the longer term - plus reconfiguring their businesses to focus on energy such as renewable electricity, electric vehicle charging and others.

 Post mining opportunities - finally, an interesting area to be explored in coming years is the idea of post mining land use and ideas to utilise mining areas after mining operations have ceased. The Kidston gold mine in Northern Queensland is a great example of post mining operation land use as the former mine site is now the site of a large solar PV plant, and the two open pits - which are at different elevations - are proposed for use as pumped hydro storage. This form of battery uses times of excess electricity generation to pump water to a higher location (in this case the upper pit). This water is then run down to the lower pit through a turbine when it is required. It is feasible to consider that old underground workings could be used for a similar purpose. Another potential opportunity arising from climate change and the change of land use from mining to something else may be in the ability to revegetate the land and generate carbon credits from tree planting or from sequestering soil carbon. Though the size of the opportunity will be smaller than that associated with the mining in the first place, it does provide a potential revenue stream after the land use changes.

 

It is clear that climate change, and action on climate change, presents risks to companies that are slow or unwilling to change. The transition to a net zero carbon economy is already happening so resisting the change is very much a risk. It is also clear that companies, and nations, that are willing to embrace change may unlock significant opportunity. These changes will not come overnight but similarly, the opportunities will not be implemented overnight. Those that start the journey of transformation now will find themselves in a much better position once the requirement to change becomes to much to ignore. It is certainly advisable to give detailed thought to the opportunities that may present themselves in the future and see what needs to be done now to take advantage of those.

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