The world is facing an energy transition process that revolutionises how energy is generated. The climate threat has made countries react, seeking ways to guarantee energy supply without producing polluting emissions, thus laying the foundations for the deepest and most systematic energy transformation process to date.
During the second half of the 20th century and the beginning of the 21st century, the primary energy sources were fossil fuels and nuclear energy. During this period, supply chains were dominated by those countries with large reserves of these fuels, monopolising their production and controlling exports. As a result, many of these countries have focused a large part of their economies on this activity and now, due to the new energy paradigm, have been forced to adapt to the new renewable reality.
Due to these changes, the next two decades are expected to be quite turbulent for the markets of these raw materials, as these countries will try to squeeze the maximum value out of these raw materials.
According to the report "The Role of Critical Minerals in Clean Energy Transitions", published in 2021 by the IEA (International Energy Agency), by 2040, up to 300 GW of solar and 160 GW of wind energy could be added (at best) each year worldwide. Moreover, given the latest developments in 2022, countries have been pushing for the deployment of renewable energy.
This new scenario w ill imply a significant movement within global energy supply chains, leading to different long-term strategies of fossil fuel importing and exporting states. The dependency relationship between importing and exporting countries will not disappear but will be replaced by a new dependency of an indirect nature. This is considered to be the case because, although it will not eliminate the need for raw materials, it will not generate as much subjugation to a single material. This is because, to manufacture renewable technology, different minerals need to be brought together, unlike oil or natural gas. Nevertheless, the global oil market will play an essential role in the coming decades.
The main spearheads of this new scenario will be the control of strategic mineral resources and the development of the most advanced technology.
Concerning the former, it should be borne in mind that the deposits of these minerals are distributed all over the planet, mainly in countries other than those possessing fossil fuels. Moreover, in some cases, the extraction of minerals needed for the energy transition is more concentrated than fossil fuels, as is the case with lithium (Australia, Chile and China), rare earths (China, USA and Myanmar) and cobalt (DRC, Russia and Australia); for the latter, three countries currently control more than 75% of world production, although new players are expected to appear shortly. Finally, add in nickel (nickel (dominated mainly by Indonesia) and graphite (Turkey).
What are each of these raw materials needed for the energy transition used?
- Lithium, nickel, cobalt (known as "blue gold"), manganese and graphite are mainly used for energy storage technology. They are considered strategic as their demand is expected to be high and uncertain in the coming years. Estimates indicate that it will increase by 500% by 2050 compared to current levels.
- Silver, copper and aluminium are the primary materials used in solar photovoltaic technology. Aluminium, for example, is used in PV module frames and solar tracker components. It is estimated that 87% of the increase in total aluminium demand in the coming years will be due to this technology.
- Rare earths (neodymium, scandium and yttrium, among others), among their many uses, are crucial for the manufacture of specific magnets needed in wind turbines. As a result, It is estimated that their demand will increase more than 11-fold compared to levels observed three years ago.
- Finally, copper, nickel and aluminium are critical and strategic raw materials as they are needed to manufacture a wide range of renewable technologies. For these materials, high but less volatile demand is expected, thus greater supply security. On the one hand, it is estimated that demand for copper and aluminium, in a bullish scenario, could double by 2040; similarly, demand for nickel is expected to increase by more than 60% by the same date.
China is undoubtedly the country best positioned for the expected new energy reality. Of the 30 raw materials considered critical for the EU, China leads world production in 19 of them.
Within the supply chain, the raw processing of extracted minerals is vital. This stage is necessary to make the raw material suitable for end users and is dominated by very few countries, especially China. The Asian dragon controls approximately 35% of nickel processing, 40% of copper, more than 50% of lithium, about 70% of cobalt and almost 90% of rare earths. Therefore, control of this second phase within the new energy reality is significant to increase the security of supply. Consequently, it is expected that many countries will start investing in raw material processing to gain some market share over China in the coming years.
As mentioned above, technological innovation will be crucial in the manufacture and reuse of renewable means of generation itself. This is the third main focus of expected power in the energy transition. In this case, research and development of new technologies are currently in the hands of OECD members and China. Furthermore, it is worth mentioning the importance of innovation in the search for substitute materials and the improvement of recycling and reuse processes for materials related to renewable technology, always in pursuit of greater efficiency in consumption and greater use of limited strategic minerals.
Taking all of the above into account, and with the growth rate of the green economy, it is estimated that the global market for strategic minerals will overtake the fossil fuel industry by 2040. But it should not be forgotten that other sectors also need to be supplied with these materials.
The energy transition we are undergoing is the result of several factors. Firstly, the obligation to mitigate climate change. Secondly, the need to find a solution to replace the Earth's dwindling fossil fuels. And finally, to move one step closer to the realisation of a model based on technological advances, more efficient, and which provides greater energy and economic independence for all countries.