Just to make it plain, I have no better understanding of whether we are headed for a boom or bust in any sector than anyone else. Booms, and busts will come from a complex interplay of politics, global consumer confidence, economics, or basically supply and demand.  These blogs, if you are keeping up, have raised a number of issues about future energy requirements and these will certainly play their part in the next boom.

Oil

In mid 2014 the oil price dropped from over US$100 a barrel down to a low of about $30 and currently settling down somewhat in the $40 per barrel range. The crash was largely due to oversupply, including the large input that US shale oil provided.  Some would argue that the price has settled back to its long term average after a period of high prices.

The crash was also due to politics / economics where OPEC decided not to lower production rates to try to keep their share of sales. If expensive new oil was sent packing then perhaps OPEC could go back to controlling the market. It is also possible that the thinking included lowering oil prices so that the new green technologies could not compete.

Part of the problem is that no-one really controls the market , or at least not for long. Saudi Arabia is a major player and probably has a large say in what OPEC does.  Saudi Aramco is the company that runs their oil business and until 1988 was called the Arabian American Oil Company.  It is most likely the largest Company in the world, but is highly secretive about its resource base and cash.

Or at least that was until recently. On 25 April 2016, the Deputy Crown Prince announced a “Vision for the Kingdom of Saudi Arabia” where he described spinning off parts of Saudi Aramco in an IPO and declaring that the Saudis would not be reliant on oil within twenty years. He stated that this was necessary as the country was currently on track to be completely broke by early 2017!! Saudi currently relies completely on oil and have become used to US$100 barrel oil.

So does this mean that the politics of OPEC will change? Other countries within OPEC have similar problems, but can they afford to reduce production?  The low oil price has already reduced both exploration and production (where the cost outweighs income).  Shale oil drilling and production has decreased considerably.  Add to this the disruption to Canadian production from wildfires and there is upward pressure on oil prices.

Over time oil prices will go up. New reserves are generally expensive to prove up by drilling. With money harder to come by for exploration, supply options will reduce until contracts are unable to be satisfied. As exploration and development have significantly slowed, it will take time ( a few years) for production to be increased.

The issue is when prices will significantly increase. Elon Musk may have a large input into this as the rise of electric cars and battery systems may reduce the need for oil.  More on that later.

Gas

Oil and gas are to some degree Siamese twins. They are often found together and therefore produced together.  Gas can also replace oil and vice versa to a large degree.  While oil prices are highly variable due to supply and demand pressures, gas has always been much slower to respond.  Gas required pipelines and long term contracts to cover these high initial costs.

As gas required widespread infrastructure it was often driven by political pressures. In Australia this was seen in arguments over where national pipelines would be built and where gas plants could be located. In Europe and Asia the battle was about which country could supply gas at what price. Russia held a lot of the power as it owned most of the gas and could send it east into China or west into Europe.

Many countries had “stranded” gas resources that were uneconomic to develop. Australia has a vast resource, including proved reserves in its offshore waters, but these were unable to be developed with low domestic gas prices.  This began to change with a high oil price.

Australian domestic wholesale gas has historically been in the A$3-5 per gigajoule range, but has been on the rise recently, partly due to increased cost of exploration, development and production. With the development of LNG (Liquefied Natural Gas), the possibility of selling gas at oil like prices became a possibility.  Oil like prices were necessary to establish the plants due to the increasing cost of the raw product and the added cost of liquefying the gas (under extremely high pressure and low temperature).

The recent drop in oil price will (or already has) flow onto the LNG price creating a serious problem for Australian (and world) LNG producers, unless long term contracts were in place (these are generally oil price related). A few years ago LNG prices had been expected to be about US$10-15 per GJ but the spot price is now down to about US$7 per GJ and expected to fall further.

Mobile gas supplies should be good for the environment with less pollution and less CO2 output than equivalent petrol and diesel use. It is likely that the business will do well over time and provide an increased demand for raw gas supplies.  With the drop in price, exploration for future supplies has been significantly reduced. Community concerns with gas production may also effect gas supplies.

In the short term oil and gas prices are very low and are liable to continue to be so (even decreasing further in price). At some time in the next 1-5 years I would expect prices to sharply rise due to the lack of new reserves proved up.

Coal

The demise of coal has been predicted for at least fifty years, but it does seem to be a survivor. Coal prices have been dropping steadily for the last six years from about US$100 per metric tonne (MT) to about $50 currently. In Australia, over 60% of our electricity is still produced from coal and word wide it is still the major power source.

Coal is the dirtiest of fossil fuels. It is essentially carbon, so burning it produces large amounts of carbon dioxide (burning CH4 produces less CO2 as a lot of the energy is from the hydrogen). Mining and transporting coal release all the adsorbed methane to the atmosphere, produces a major coal dust problem and leaves large holes in the ground. Groundwater movement is heavily impacted and potentially polluted.

As such there is significant pressure to use less coal. Coking coal is a required element in steel manufacture, so the downturn in steel manufacturing will also affect coking coal prices.

It is anyone’s guess as to the future of coal but I would expect supply and price to remain relatively steady as it has always done.

Energy Minerals

Elon Musk announced his intention to build the world’s largest battery manufacturing plant in Nevada, including a major partnership / investment from Panasonic. The plant is partially built and is already in production, building Tesla’s Power Wall batteries.  It will be the world’s largest building and it is planned that it will build more batteries in a year than the current world’s output. Last year Elon declared that this factory is the first of many.

Tesla is introducing a cheap version of its current vehicle and has received over 300 000 orders (with a deposit of $1000) and expect to be producing about 500 000 cars per year by 2018. They have just announced the sale of about $2 billion in stock to help speed up the manufacturing.

The Tesla batteries are currently lithium ion 18650 but are likely to be improved and materials changed in the short and long term. Currently the batteries have a carbon (graphite) negative electrode (cathode) and a metal oxide anode with a lithium salt in an organic solvent as the electrolyte.  The metal oxide can be almost any metal but is generally lithium cobalt oxide, lithium iron phosphate or lithium manganese phosphate.

Nissan Leaf electric car batteries are said to have about 70% of their original output after 5 years (less in hot climates). Lithium ion phone batteries are severely impaired after about 1000 cycles (3years on daily charge).  It is unknown how long Tesla batteries will last either now or with future improvements.  It is said that they will last 5000 cycles (15 years) but this remains to be seen.  Other component batteries may have this longevity, for example Simon Hackett’s Redflow  zinc bromine battery.

If all of this comes to pass, and if it does it will grow very quickly, then we will need all sorts of minerals to allow this to happen. There are many different possible battery configurations, all requiring different materials.  As well as this most require silicon chip control to prevent overheating and explosions ( beware cheap lithium ion batteries).

With changes in battery types it is hard to guess what raw materials are going to be in greatest need. Add to this other green technologies which include solar cells and permanent magnets in windmills there would appear to be a massively increasing requirement for raw materials over the next few years. Mining these materials are interlocked with cobalt being produced as a by product of copper mining currently.  If cobalt is required in greater amounts then copper mining may increase ( with a potential drop in copper value).

I would expect a new mining boom over the next few years, based on green energy requirements. It may also slow an oil / gas price recovery. Required elements are likely to be lithium, high quality graphite, cobalt, nickel, neodymium, dysprosium, cadmium and zinc – but who knows?

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