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CERAWeek 2023

With more than 8,000 delegates and 1,000 speakers, CERAWeek by
S&P Global displayed the ever-closer entwining of the energy
and mobility sectors. Scores of CEOs and ministers from global
energy and utilities – as well as automotive, technology,
manufacturing, policy, and financial communities – gathered to
discuss the transition of these key industries.

Until recent years of its four-decade history, CERAWeek has been
an energy-industry conference. Mobility and transport didn’t really
play a significant role, other than as a downstream consumer of
petroleum products.

But with the transformation of the automotive sector away from
internal combustion toward battery-electric and hydrogen
fuel-cells, suddenly the world of mining, extraction, and refining
has become intertwined with mobility.

With much of the automotive world pointed toward
electrification, procurement en masse of items such as
copper, lithium, nickel, and cobalt have become essential elements
to creating the next generation of transport. Savvy automakers and
suppliers are already negotiating directly with raw materials
providers to secure their supply chain.

With that in mind, if there was one recurring theme among the
C-suite speakers at CERAWeek 2023, it involved scarcity – of labor,
equipment, sustainable resources, and of ESG-compliancy.

“We’ve moved from an era of Big Oil to one of Big Shovels,
because of how many minerals are going to be involved in the energy
transition,” said Daniel Yergin, vice chairman of S&P
Global.

This doesn’t just apply to rare-earth elements. Even the supply
of metals considered rather ordinary, such as copper, are going to
come under stress in the surge toward electrification. If a company
is in the automotive electrification space, copper is essential –
but it will be sharing that demand with makers of cell phones,
appliances, computers, telephone cables, and consumer
electronics.

“Unless we have World War III, or a global economic catastrophe,
there is going to be a significant shortcoming of copper,” said
Richard Adkerson, CEO of mining giant Freeport-McMoRan. “Very high
copper prices are inevitable.” (For reference, copper hit an
all-time high in February 2022, but prices have been volatile since
then
as near-term demand optimism has faded.)

With projected EV sales forecast to grow by tens of millions of
vehicles by 2030, the demand for minerals and elements such as
lithium, cobalt, and nickel is going to be extremely challenging to
reach.

S&P Global Mobility forecasts market demand of about 3.4
Terawatt hours (TWh) of lithium-ion batteries for light vehicles,
annually, by 2030. The 2021 output for the auto industry: A mere
0.29 TWh.

With scarcity comes a paucity of nuance when obtaining these
hard-to-obtain resources. Western countries want to reduce
dependency on countries with different values or strategic
interests (notably mainland China), while at the same time reducing
supply chain geographic concentration. But with environmental,
social, and governance (ESG) concerns coming the forefront, the
mining of the raw materials that power our EVs is going to come
with a Faustian bargain: Our battery packs, motors, and inverters
could be the next equivalent of altruistic fair-trade coffee, or of
morally questionable conflict diamonds.

“Is the goal widespread energy adoption as quickly and cheaply
as possible, or a responsibly, ethically sourced supply chain?”
asked Frank Fannon, managing director of Fannon Global Advisors and
the inaugural US assistant secretary of state for energy
resources.

Jose Fernandez, US under secretary of state for economic growth,
energy and the environment, bluntly put the need for energy and
resource security: “We need 15 times the lithium and 24 times the
cobalt of what we have now. We are relying on China for 85% of the
process. We need to diversify.”

The Inflation Reduction Act (IRA) was a frequent topic during
the conference, in terms of how it is expected to assist in
developing a resilient US supply chain for electric vehicles and
batteries. Moreover, the IRA could serve as a stimulus for domestic
investment and job creation. However, without concerted efforts to
reduce red tape and establish incentive schemes for the upstream
industry, the current regulatory and permitting process in the US
could impede the domestic mining of battery materials. If these
supply chain snarls are not rectified, there could be crimped
availability of electric vehicles.

Even if fresh lithium reserves were to be discovered today, it
takes at least 15 to 20 years to develop an operating mine from
time of discovery, said Andrea Vaccari, director of responsible
production frameworks and sustainability for Freeport-McMoRan.

Physically digging the mine can be the least of the concerns,
Vaccari added: “We have some mines in the US that could be online
right now that have been in litigation for several years. There is
no equation, no piece of equipment, that will drill through social
problems.”

But legal and permitting problems in the US may be lesser
worries than the choices that accompany mining in some overseas
markets. Peru and Chile—which control 40% of the world’s
copper—are undergoing political instability as well as protests
regarding worker rights and compensation. The Chilean government
also recently nixed a USD2.5-billion mining project that would
threaten a rare species of penguin. Child labor in cobalt mines in
the Democratic Republic of Congo, and human rights violations in
Papua New Guinea, have been well documented.

Those extra steps—of convoluted permitting processes,
getting community buy-in, and ensuring equitable treatment of
workers—add layers of cost compared to older, more blunt
methods of mineral exploitation.

“Once we understand there is a value to that, the moral
implication forces us down that road. But there is a price to
that,” said Christopher Skeete, minister for the economy for the
province of Quebec.

Even if ESG-compliant resources are secured, there is the issue
of building a massive, stable, and revenue-positive BEV charging
network cost-efficiently, and scaling it to function reliably for
millions of vehicles without getting bogged down in bureaucratic or
technical obstacles.

“There is extraordinary demand we are seeing,” said Catherine
Hunt Ryan, president of manufacturing and technology for
engineering, construction, and project management giant Bechtel. “There are constraints on capacity additions.”

Such as? Grid access not set up for distributed infrastructure,
supply chains not ready for bulk orders of switchgear, and getting
utility and city partners to understand the need for programmatic
networks instead of the “onesies and twosies” that have been built
so far, Hunt Ryan said.

Currently, EV early adopters charge from home or work 80% to 90%
of the time. As the vehicle population grows, owners may need more
flexible options in the field. The “second wave” will be less
tech-savvy, less forgiving to EV compromises, and less malleable to
change their behaviors compared to early-adopters.

The solution is much more technical than merely building more,
better chargers. Charging in the field brings complexity issues,
especially regarding payment. Consumers don’t want to navigate a
smartphone full of apps for EVgo, Electrify America, Chargepoint,
and automakers’ bespoke charging networks depending on which
station they use.

“Seamless payment is important because it’s about your time. If
you spend four minutes trying to make a payment, your EV experience
is done,” warned Aditya Jairaj, senior director of EV
strategy and transformation for Nissan Motor Corp.

Echoed Adam Benshoff, Ford director of EV policy, regarding
frequent software failures at chargers: “One bad charging
experience can turn off a customer for years.”

Then there are the mundanities, such as dealing with local
bureaucracies. A charging company might have grand aspirations to
install tens of thousands of chargers in the greater Los Angeles
area. But the cities of Los Angeles, Santa Monica, and Long Beach
may have different permitting regulations and processes—which
could bring scaling the network to a crashing halt.

The near-term requirements are steep.
S&P Global Mobility estimates there are about 126,500 Level
2 and 20,431 Level 3 charging stations in the United States today,
plus another 16,822 Tesla Superchargers and Tesla destination
chargers.

Even looking at EV sales growth by 2025—just two years
away—S&P Global expects there will need to be about 700,000
Level 2 and 70,000 Level 3 chargers deployed, including public and
restricted-use facilities.

Looking further to 2030, with the assumption of 28.3 million EVs
on US roads, an estimated total of 2.13 million Level 2 and 172,000
Level 3 public chargers will be required—all in addition to the
units that EV owners put in their own garages.

“We’re not looking at three to five years for our investments,
it’s 20 to 30. We need to be tied into urban and regional
planning,” said Sunny Elebua, senior vice president and chief
strategy and sustainability officer for Exelon. “We can’t advance
electrification without looking at the impact on the built
environment. Maybe we’re not even part of the grid anymore.”

But battery electric was not the only clean-tech solution to
future transportation. Although BEVs are predicted to add between
40 to 50 million new vehicles to the global car parc annually by
2030, there are 1.3 billion internal combustion vehicles that are
already on the roads.

Getting lower-carbon fuels into that existing vehicle parc is
essential, said Edouard Tavernier, president of S&P Global
Mobility.

“The vast majority of future on-road emissions come from what is
on the road today. If we want to decarbonize faster, we have to do
something about the existing fleet of vehicles,” Tavernier
said.

Having those vehicles burn cleaner – with newly developed
biofuels and eFuels – could be a way to decarbonize the existing
vehicle parc.

“Today we focus on drop-in fuels that use the existing
infrastructure: CNG, LNG, RNG, biodiesel,” said Carlos Maurer,
executive vice president for sectors and decarbonization for Shell. “We can leverage the infrastructure we have and the existing global
trading business. But you will hit the top of how many biomasses
you can supply, and you need to move to electrification and
hydrogen.

“Inevitably, we will end up in a poly-fuels world. The
regulations are different in different places. You have to work
with regulators, OEMs, customers, and end users to understand a
reasonable and affordable glide path,” Maurer added.

One technology that was brushed aside by Tesla’s electric rise
was hydrogen. But many executives attending CERAWeek are giving it
another chance, especially in the role of heavy-duty trucking
transport. There were 87 sessions during the five-day conference
where hydrogen was the main topic.

Hydrogen’s main advantage is a near-seamless experience to
diesel in terms of refueling, but with less vibration while in
operation, and its smell – or lack thereof.

Other Class 8 areas where hydrogen could hold an advantage is
with dump trucks, garbage trucks, mining loaders, and construction
haulers—vehicles that require energy, power, and payload, but
which run on prescribed “back-to-base” routes, said Randy MacEwen,
president and CEO of Ballard Power Systems.

That said, hydrogen fuel cells are still being proven out in
limited quantities and carry an imposing price premium. The
hydrogen infrastructure is still in nascent stages, which limits
potential retail market acceptance with trucking fleets.

At issue: Such an infrastructure needs to be in place first to
get long-haul truckers to invest in a new rig, said Michael Hoban,
Chevron’s general manager of hydrogen.

“Understanding the scale of hydrogen storage is pretty
sobering,” Hoban said. “Getting hydrogen is an up-front (cost)
load. Everything is pushed to the front. But you don’t need
additional infrastructure for every additional truck that comes
out, like you would with battery-electric charging.”

Until a national refueling infrastructure can be put in place,
those limitations are pushing hydrogen into the world of
regional-delivery trucks with access to hydrogen “hubs,” with
long-term maintenance savings that can defray the initial up-front
hit. This can apply to big-rigs as well as last-mile fleets.
Eventually the hope is that enough regional hubs can be built that
there will be interest in creating a network of hydrogen-refueling
stops to serve nationwide carriers. But that will take time,
perhaps a decade.

Which circles back to scarcity of resources, and our obligation
to the planet and those who live on it.

“It’s a very complex problem we are trying to solve,
particularly the climate,” said Andrew Fulbrook, vice president of
sustainable mobility for S&P Global Mobility. “People talk
about the new mobility era. But the transition we are going through
is an era of itself.”

————————————————————–

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CERAWeek: The challenge of sourcing
EV battery minerals in an ESG world

CERAWeek: A road tax for
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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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• Source: http://www.spglobal.com/mobility/en/research-analysis/fuel-for-thought-navigating-a-turbulent-world-energy-climate.html