I’d back up a little bit and also recognize that the issue of critical minerals and the vulnerability the United States has with respect to our reliance on other parts of the world, not just parts of the world, on other parts of the world that aren’t exactly reliable sources of supply or perhaps secure.
The President recognized that long ago and issued an Executive Order that called on the administration to do a full analysis of what are our vulnerabilities in the critical minerals space more broadly. There’s a report I encourage your viewers, I know Michelle is an expert on the findings.
What we’ve done is looked at, as you indicated, issues with respect to the energy transition. How is that going to evolve? What time horizon? And at what scale? And what we’ve concluded, and I had some views coming into this working in the resources industry as you indicated. But what we see is there’s a global bottoms-up demand for cleaner forms of energy and it’s a scale, Brookings had a number of something like 3.5 billion people in the middle class today — 5.3 billion in a decade. The scale of this is tremendous and all of this demands cleaner forms of energy.
These energy resources are minerals intensive. Clean and green, but it requires a really big shovel at the beginning of its life cycle. And so we started asking the question, where are these minerals? What are these minerals? Where are they? And are there new frontiers given the scale of demand in the future. In the very near term where are they and what are the opportunities and challenges?
We found that some of these minerals tend to be in countries that don’t have best practice. They don’t have a level of standards that we certainly have adopted in the United States and other parts of the world have adopted. And we believe strongly that this transition, the demand for cleaner forms of energy, this is happening. As I noted, it’s a bottoms-up kind of phenomenon and it’s at a scale that’s really quite remarkable.
In fact I would just say even IEA noted that in 2020 all forms of energy growth will drop, except for renewables. It’s going to continue I think 6 or 8 percent will grow this year.
In fact the demand forecast that we’re seeing, and it’s both in terms of kind of the quantitative analysis, I mentioned IEA’s projections, but also qualitative work that we do talking to companies and countries throughout the supply chain.
We’re seeing maybe a blip in terms of delayed demand. It’s not demand destruction.
You know this well, Ken, whenever there’s a significant drop in oil prices the relative political ambition to do alternatives kind of dissipates. I believe that cycle has been broken. The traditional cycle is gone now. And you see it by the amount of capital that U.S. auto manufacturers, for example, are investing and they’re committed to those investments.
But what we have seen is some mines have to, because of the health concerns they’ve shuttered operations or limited operations. But a lot of them are back going.
What it did underscore, though, is the supply chain, how supply chains operate. The FTE did some reporting on this, but some renewables projects maybe not come on line in the same time horizon. But it’s a matter of delay, not proper demand destruction.
ERGI Deep Dive
Thank you. The ERGI construct is really, is a government to government discussion. We have four other founding partner countries — Canada, Australia, Peru and Botswana. A diverse group of countries coming together who all have long histories of experience of responsible mineral development. They’re all different regulatory structures, different histories.
So what we came to do, to come together and develop effectively why have we been successful and what are the lessons, best practices, that can be used elsewhere around the world?
So what we’ve developed is this forum. We also have an on-line toolkit that is intended to be actionable. You can go to the Energy Resource Governance Initiative (ERGI) to see it. It’s open source. It’s free. This provides through all of the critical components for mine development. Talking about how to manage resources at the beginning stages. How to develop a geological survey. How to ensure that you have the best win/win kind of a situation for all stakeholders in terms of revenue.
It provides a list of choices, and for each choice it takes you down a different path. So there’s nothing else like it that exists in the world. And it’s intended, again, for governments. That’s another unique feature of this.
We’re pretty excited about it. We just rolled out the tool kit, the last travel I did was to PDAC in Toronto, early March, and we unveiled the tool kit. It’s had a considerable amount of, it’s getting a considerable amount of attention.
Oil Market Stabilization and Cooperation
We kind of keep saying unprecedented, but the experience we’ve been through in the oil markets as well is part of that.
What is some of the work we did, and the Secretary, you may not be aware of this but he actually had a services company before he ever got into government. So he has a really keen appreciation for the industry and not just the big major companies that we’re all familiar with but the machinists, the people who work the fields over and provide the [kit]. So he gets it. And we’ve heard from plenty of U.S. companies who expressed concerns. We’ve heard from elected representatives at all levels of government and plenty of other countries.
What we saw was the COVID impact on demand is, was but continues to be acute for the whole world, and it had a disproportionate impact with kind of the OPEC-Plus disagreement on supply.
So the Secretary was engaged in that. He in fact spoke to the Crown Prince of Saudi Arabia mid-March. There’s a public readout of this conversation. And really encouraged the Kingdom to, as a global energy leader, to use its position of influence in that regard, but also its position of influence as the head of the G20 whose formation was to focus on economic stability of the world, right?
So here’s a key point of uncertainty linked to the oil markets as having greater spillover effects on all economies. So he encouraged the Crown Prince, the Kingdom, to take that leadership opportunity and we’re pleased to see that they did so. And of course because of that there was the G20, the OPEC-Plus got together, the G20 had their extraordinary energy-related ministerial.
But the U.S., some of the work that the U.S. has done goes back to our private sector and the responsiveness that our companies have in this country.
According to IEA, the U.S. has had the greatest curtailment of anyone because of the market, because of the market conditions. That is a different way, and we talk about energy diplomacy and we’re talking to other countries, what they all expect, unreasonably, but they ask for the U.S. government to give kind of some dictate on what our percentage reduction of production would be. And we constantly are explaining that that’s not the way it works. But this is also the point where a lot of U.S. firms were announcing investment cutbacks, sizeable ones — 30 percent chops in capex.
So we just walk them through that. It’s a constant bit of explaining.
Domestically, the U.S. was taking action on the SPR to create basically a demand response as well, to kind of suck up some of that supply. So the U.S. has been working hard on all levels.
Where we go from here, I think that’s important. You mentioned when I worked in the Senate in 2005. At that time one of the things I helped Chairman Inhoff at the time do was draft, put forth the hydraulic fracturing provisions. So in 2005 we did that. 2008 the shale revolution was born.
Again, that’s a reflection of the private sector’s innovation and just creating opportunity.
What we see now is going from that degree of energy insecurity to energy abundance. Now where we are is really engaging partners around the world in the guise of energy partnership. That’s the lens through which we look at this. It’s not simply about exporting our commodity, oil or gas, to other countries but helping them, and back to your question what is ENR’s focus, is where do they want to go in terms of their development path? What are the competencies the U.S. government, the whole of government can bring to support them on that development path? Then are there other tools? Then are there U.S. firms that can be the implementers to that policy?
So this is kind of the partnership approach that we have. But I have to say the oil and gas revolution, our now energy abundance, it’s created a considerable amount of foreign policy head room for us to engage with partners all around the world. That’s pretty meaningful.