Mining industry sceptical of EU joint purchasing plan for critical minerals

Good morning and welcome back to Energy Source, coming to you from London and Brussels.

Today I am at Shell’s annual general meeting where the European oil and gas major faces a shareholder vote on the board’s March decision to weaken its climate targets from the levels set three years ago.

Among the many different resolutions across the energy sector during this voting season, the vote at Shell is one of the most important, serving as a de facto referendum on the role shareholders want integrated oil and gas companies to play in the energy transition.

In 2021, Shell committed to cut the net carbon intensity of its products by 20 per cent from 2016 levels by 2030, 45 per cent by 2035 and to net zero by 2050. At the AGM that followed, 89 per cent of shareholders backed the plan, which Shell promised to review every three years.

In March, rather than strengthen the targets, Shell weakened them, arguing that the shape of the energy transition and the pace of progress in different countries was uncertain. It is now targeting a 15-20 per cent reduction in net carbon intensity by 2030 and has dropped the 2035 target.

The vote on the revised strategy is advisory and not binding. Still, it asks shareholders a simple question: should oil and gas companies lead the energy transition or should they proceed more cautiously — as Shell has decided to do — so they can maximise returns for shareholders while maintaining optionality?

Check out ft.com later on for my report from the meeting.

Before then please dig into this thought-provoking dispatch from the FT’s EU correspondent Alice Hancock, on the viability of the bloc’s plans to support the energy transition by centralising the procurement of critical raw materials.

Thanks for reading — Tom

Mining execs: EU joint buying critical minerals not as easy as Covid vaccines

Executives in the mining sector have cast doubt on the EU’s plans to jointly buy minerals critical to the clean energy transition as the bloc did for vaccines during the coronavirus pandemic and, more recently, gas.

The gas joint-buying platform worked like this: the European Commission opened a call for companies that wanted to join the common purchasing effort. It then aggregated the demand and went out to global markets to matchmake that demand with supply.

In its first tender, a demand for 34 billion cubic metres of gas was met by offers for three times as much.

The need for critical raw materials as demand for solar panels, wind turbines and batteries surges has become as equally pressing as gas, which fuels the majority of EU households.

“With the common purchase of gas exports it works very well and exceeded all our expectations . . . We need to use better the political and economic weight of Europe to get better supplies to Europe,” the EU’s Green Deal chief Maroš Šefčovič told a small group of journalists on the sidelines of a sold-out summit of mining executives and critical mineral wonks in Brussels last week.

The decision to push ahead with the joint purchasing plan comes as the bloc’s landmark Critical Raw Materials Act — an effort to secure supplies of a list of 34 crucial materials for EU industries — comes into force this week. 

But mining executives are sceptical that using such a scheme for not just one commodity but more than 30 will work.

“Fifteen years ago I was involved in a project for the German government, which was trying to pool purchases of critical raw materials and it just didn’t work because the demand was so diverse and very few companies buy the same kind of raw materials,” said Benedikt Sobotka, chief executive of Eurasian Resources Group. 

There were very few companies that buy copper concentrates, lithium or cobalt hydroxide in Europe, for example, he said. In part because the processing of these minerals is generally carried out elsewhere.

Victor Gonzalez, Europe and north Africa chief executive for Xcalibur Smart Mapping, a mapping company, echoed the view that the critical raw materials environment was just “a bit complicated” for such an initiative.

“When are you going to buy them? Before processing them? After processing them? Who is going to process them? It’s not a straightforward answer . . . with the Covid vaccines it was easier.”

Some executives said the commission should think harder about supporting recycling first.

“Before you bring in the materials . . . you should be planning how we are going to recycle it before we get it because having a circular economy all powered by green energy is where we need to get to,” said Chad Blewitt, managing director of the mining giant Rio Tinto’s Jadar project in Serbia.

The law on critical materials sets an overall recycling target of at least 25 per cent by 2030.

But that is still a long way from being met.

“We don’t have the materials in the system today to do all that recycling,” said Blewitt, adding that even if you recycle about 25 per cent of a material, such as copper today, “you have to keep mining”. “Lithium is even worse,” he said.

EU exploration efforts need a kick-start

To jointly buy anything, you also need to know where to get it from.

But Europe was woefully behind on mapping its own deposits, according to EuroGeoSurveys, the umbrella organisation for 37 geological surveys across the region.

“A lot of the geophysics is really old,” said Julie Hollis, secretary general of EuroGeoSurveys. And because the mining sector in Europe has been in decline for decades “there is a limited investment market” for exploration, which is a high risk, high reward pursuit.

(For context: in the past 25 years, mining in Europe has decreased by 30 per cent, while it has grown on every other continent except Antarctica.)

Initial mapping of even just a small area can cost tens of millions of euros. It requires low-flying planes, skilled pilots and expensive equipment.

The Critical Raw Materials Act demands that EU countries set up national exploration programmes. At the summit last week, France, Germany and Italy all pitched to investors to join on national investment schemes that back minerals exploration as well as processing and recycling plants.

The French government, for example, will provide €500mn to a national minerals fund with the hope of private investors bringing in an additional €1.5bn.

According to the EU’s main target, the bloc should increase its domestic supply of critical raw materials from about 3 per cent now to 10 per cent by 2030 — a gap that sounds small until you realise how vanishingly remote the odds of successfully finding and establishing new mines is, particularly when permitting can take several years.

“One in 50 exploration projects will discover anything and even fewer become a mine,” Hollis said. (Alice Hancock)

Power Points

• Calpers, the largest public pension plan in the US, will vote against the re-election of ExxonMobil’s board in protest against the oil major’s “reckless” legal action to “silence” climate-related shareholder resolutions.

• European utilities are scaling back or reviewing their renewables targets due to high costs and low electricity prices in a sign of the difficulties of transitioning away from fossil fuels.

• Environmental groups plan to exploit new Biden administration rules on air pollution to step up their campaign against the further development of US natural gas export terminals.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.