The Economist - UK (2022-03-26)

72 Finance & economics TheEconomistMarch26th 2022

risks.  As  the  troubled  mining  projects  in

Russia  show,  important  investments  can

become  victims  of  local  conditions  and

geopolitics.  Huge  rents  could  corrode  do­

mestic  markets  and  political  institutions;

autocrats enriched by electrodollars could

make mischief beyond their borders. Saad

Rahim of Trafigura, a trading firm, says the

shift to clean fuels is “less an energy transi­

tion  than  a  commodity  transition”.  It  will

be a turbulent one. 

The green boom is not just another “su­

percycle”,  as  prolonged  periods  of  high

commodity  prices  are  known.  The  last

such  cycle,  early  this  century,  was  fuelled

by  rapid  urbanisation  and  industrialisa­

tion  in  China.  The  combined  real  gdpof

Brazil and Russia, two resource­rich econ­

omies,  grew  by  two­thirds  between  2000

and 2014. But the rally was largely driven by

China  alone.  When  the  country’s  leaders

decided it should build fewer factories and

flats,  the  commodity  giants  suffered.  The

green  transition,  by  contrast,  stems  from

the  decisions  of  many  governments,  not

one. And decarbonising the world is likely

to be the job of decades. 

Another big difference lies in the mate­

rials  in  demand.  China’s  splurge  burned

through heaps of coal, iron and steel. The

green boom centres on non­ferrous metals

that are more niche. Their combined annu­

al revenues today, at $600bn, is equivalent

to only a fifth of that of the bulk materials

that  China  favoured.  There  may  be  more

explosive growth to come. 

To  understand  which  commodity  pro­

ducers stand to win and lose from a green

transition, we construct a simple scenario

for  the  use  of  ten  “energy­linked”  com­

modities  in  2040,  assuming  that  global

warming by 2100 stays below 2°C. Based on

data  from  a  range  of  industry  sources,  we

project demand and revenue for three fos­

sil  fuels  (oil,  gas,  coal)  and  seven  metals

(aluminium, cobalt, copper, lithium, nick­

el, silver and zinc) that are critical to build­

ing  an  electricity  economy.  We  assume

that  prices  remain  at  today’s  elevated  lev­

els, prompting miners to exploit untapped

deposits. And we assume that a producer’s

market  share  in  2040  is  in  line  with  its

share of known reserves. 

Our  findings  suggest  the  world  will  be

less reliant on energy­related resources in

2040  than  it  is  today—largely  because

wind and sunshine, the sources of the fu­

ture, are free. Total spending on our basket

of ten commodities falls to 3.4% of global

gdp, from 5.8% in 2021. Spending on fossil

fuels,  relative  to  world  gdp,falls  by  half

(and  would  shrink  further  were  it  not  for

gas).  The  revenue  from  green  metals  re­

mains smaller, but rises from 0.5% to 0.7%

of gdp.It nearly triples in absolute terms. 

The number of big producers of energy­

linked  commodities  falls  over  time:  48

stand  to  pocket  sales  equivalent  to  more

than5%oftheirgdp, downfrom 58 in 2021

(seechart2).Morethanhalfoftotalspend­

inggoestowardsautocracies.

You can group producers into three

buckets,basedontheexpectedchangein

theirrevenuesfromthetenenergy­linked

commoditiesbetweennowand2040.The

firstcomprisesthewinners—thegreensu­

perpowers. These electrostates include

some rich democracies. Australia has

trovesofeverymetalincludedinoursam­

ple.Chileishometo42%oftheworld’s

lithiumreservesanda quarterofitscopper

deposits,much ofthem intheAtacama

desert (pictured on the previous page).

Othersareautocracies.Congohas46%of

globalcobaltreserves(andproduces70%

oftheworld’soutputtoday).Chinaishome

toaluminium,copperandlithium.Poorer

democracies in Asia and LatinAmerica

mayalsohitthejackpot.Indonesiasitson

mountainsofnickel.Peruholdsnearlya

quarteroftheworld’ssilver.

Thesecondbucketcomprisescountries

withrevenuesthatstayflat,orfalla little.It

includesthelow­costmembersoftheOr­

ganisation of the Petroleum Exporting

Countries(opec)—includingIran,Iraqand

Saudi Arabia—and Russia. Although oil

revenueshrinks,theirshareofitexpands

from45% today to 57% in 2040.Other

countries, such as America, Brazil and

Canada,losefossil­fuelearningsbutare

abletotapvastmineraldeposits.

Higher­costpetrostateslosethemost.

Manyoil­richnationsinnorthAfrica(Al­

geria,Egypt),sub­SaharanAfrica(Angola,

Nigeria)andEurope(Britain,Norway)see

their revenues shrivel.Small states like

South Sudan, Timor Lesteand Trinidad

havetheirs hithard. Thepain does not

sparesomeGulfstates:theproceedscap­

turedbyBahrainandQatar,forinstance,

declinebya fifthormore.

Whatmightpreventthenewcommodi­

tysuperpowersemerging?Thekeyingredi­

entiscapitalspending.Theieaestimates

thatmajorminesthatcameonlineinthe

pastdecadetook,onaverage, 16 yearsto

build.Tomeetboomingdemandby2040,

theindustrymustsplashoutonnewpro­

jectsnow.Thesumsrequiredarebig.Ju­

lianKettleofWoodMackenzie,a consul­

tancy, reckons $2trn must be spent on

green­metal exploration andproduction

(e&p) by2040.Recentprojectssuggestdig­

gingoutenoughcopperandnickelalone

wouldrequire$250bn­350bnincapitalex­

penditure(capex)wellbefore2030.

Pedaltothemetal

Someoftheoutlayistakingplace.Anglo

American,a miner,aimstoexpanditscop­

peroutputby50­60%by2030.“Wewillde­

liverourpartofthebargain,”saysMarkCu­

tifani,itsboss.Manyotherswillnot.Burnt

bythecommoditycrashofthemid­2010s,

miningmajorshavereducedinvestment.

LiberumCapital,aninvestmentbank,cal­

culatesthatannualcoppere&pcapexhas

fallenbyhalfsince2014,to$14bn.Asprices

rise,sodoprofits.Butcashisbeinggiven

backtoinvestorsratherthanredeployed.

“Supplygrowthhasalmostbecomea dirty

word,”says Stephen Gill ofPala Invest­

ments,a venture­capitalfirm.

OnlyChinaisspendinga lot.InKolwe­

zi,inCongo’scobaltbelt,barefootchildren

greetallforeignerswithshoutsof“nihao”.

Chinese groups have nabbed most big

commercialdeposits;AlbertAbel,anarti­

sanalminer,complainstheyhavebought

mostsmallminestoo.Glencore,anadven­

turousSwisstrader,istheonlyWestern

firmtohavea foothold.InIndonesiaChi­

neseminersareclearingswathesofrain­

foresttodigoutnickel.

Thecapexdroughtisa resultofthree

dauntingproblems:theindustry’slimited

firepower, diminishing investment re­

turnsandrisingpoliticalrisk.Startwith

firepower. Though what miners must

spendovertwodecadesisequivalentto

onlyfouryearsoftypicaloile&pcapex,it

stillseemsbeyondthecapacityofthecom­

parativelytinysector.Evenbigminerscan

onlyfundoneseriousprojectata time.

Thismightbefixedbytappingcapital

Theenergymajors

Numberofcountriesbycommodity

revenueas%ofGDP*,200forecast

Sources:BenchmarkMinerals;Bloomberg;IEA;IMF;

Liberum Capital; LME; Our World in Data; Refinitiv;

RystadEnergy; USGS; Wood Mackenzie; The Economist

*Regimetypeasof 2021

2

Over%

Over10%

Over20%

403020100

Autocracies Democracies

Material heft

Top ten producing countries’ share of revenues, %

Sources:Benchmark Minerals; Bloomberg; IEA; IMF;

LiberumCapital;LME; Refinitiv; Rystad Energy; USGS;

WoodMackenzie;The Economist

1

Copper

Nickel

Aluminium

Zinc

Lithium

Silver

Cobalt

Oil

Gas

Coal

10095908580757065

202 2040 forecast

Fossil fuels

Green metals