Fuel for Thought – Navigating a Turbulent World: Energy, Climate, Mobility, and Security

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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 13,487 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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Dive deeper into these marketing assets:

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CERAWeek: Hydrogen - In it for the long haul

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

CERAWeek: A road tax for America?

[This article has been updated to reflect current figures for L3 charging stations.]

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.