Canada’s Opportunity to Remake Its Economy through Critical Strategic Minerals
Energy crisis as an opportunity, but not the one Canada thinks.
A mining truck operates at an open-pit mine.
The well-worn trope that every crisis presents an opportunity holds up well in present circumstances. The stalemate between Iran and the US over control of the Strait of Hormuz would seem to indicate a potential windfall for oil and LNG (liquified natural gas) as prices start to spike. The potential spike is important, because oil and gas production prices are 3-5 times higher than in the Middle East; data indicate only Brazil and the UK are higher cost producers than Canada. Similarly, in LNG, Canada is one of the highest cost producers, according to an independent analysis. In fact, shipping natural gas is around 4-5 times more expensive than LNG, according to the World Bank. In 2022, I co-authored a working paper on the competitiveness of Canadian LNG, finding that there are far cheaper producers that can ship pipeline gas to the primary import markets of China, such as Russia, Kazakhstan, and Malaysia, and the EU, such as Norway, North Africa, and Azerbaijan. Even if there is a supply shortfall for NG due to the war in Iran, then, it’s more likely to be filled by more mature and cheaper producers than Canada, including the US. The reality is that a new pipeline or LNG project requires a 25-40 payoff, and there is little appetite in the private sector for taking risky bets on a market that is impossible to predict.
Both short-term and long-term forecasts portend a downward trend for oil prices. The reasons are clear, Russia and the Middle Eastern states are cheaper producers, closer to markets, and see the need to pump out oil as quickly as they can, before the market starts to shrink. The market will shrink as EV mandates and adoption kick in across Canada, the EU, California, and prices for EVs come down as range improves over the next decade. Already, sales of EVs in China are greater than for gas cars. Recent spikes in EV sales in the wake of the Iran war are (ironically) accelerating the trend. While overall LNG is forecast to increase, supply, including sources outside of the Middle East, is ramping up so fast that it’s expected to overwhelm demand increases. Moreover, the costs of renewable energy are now competitive with natural gas, so we should expect to see demand shrink, pushed both by energy security and market forces.
As costs come down, one major challenge remains- the need for energy storage. While the costs of batteries are rapidly declining, there are still challenges in terms of EV range and the inability of batteries to store energy over long periods of time, a key obstacle given the intermittent nature of wind and solar. Hydrogen has been proposed as an alternative, but our analysis demonstrates that it’s far more expensive than batteries, and most of it still comes from natural gas, so it’s far from being a feasible large scale solution. For now, then improving the lifespan, recyclability and costs of batteries will be the main focus of the green transition.
Battery Components: Critical Strategic Minerals
As I discuss in my review of the geopolitics of critical strategic minerals (CSM) for International Journal, there are interesting parallels between the emerging dependence of battery and renewable energy supply chains on a few key CSM sources and the century-long dependence on large oil producers in the Middle East. While exploration and development of geological reserves is an ongoing process, the fact is that for the moment, there are concentrations of economic suppliers for key inputs. These include rare earth elements, from China, which it used to hold off the US on further trade sanctions in recent years. It includes lithium, which is found in abundance in the “Lithium Triangle” of South America, where more than 75% of known reserves lie. Cobalt is another key element, and 77% of it comes from the Democratic Republic of the Congo (DRC).
China is way ahead of the West in all of these technologies, dominating EVs, wind and solar production, as I discuss in the article. It’s also made enormous efforts to dominate the sources of CSM through investment pacts with the host countries. As with petrol, the danger is not just that the West finds itself flat footed in its ability to compete in these key industries, and all the income, exports, and jobs that come with them, but that we recreate the volatility of the petrol economies and the resource curse. The resource curse refers to the corruption, centralisation, authoritarianism and economic dependency and volatility that went with the export of large volumes of petrol. Aka “the paradox of plenty,” the problem helps to explain why seemingly resource rich countries such as Venezuela failed to distribute their gains or diversify their economies. Just as the Strait of Hormuz acts as a chokepoint for oil, inviting in continual external contestation that ramps up authoritarian and volatile politics, the same curse could affect the exporters of CSM. For example, the DRC’s cobalt sector has already reflected high levels of corruption and substandard labour conditions.
As we step into an era of green energy and untether the world economy from fossil fuels and all the mishegoss that came with them, we have a moment to shape the supply chains of CSM towards more salutary outcomes. We can begin with cultivating greater diversification of supplies, wherever possible, making the effort to shift towards more renewable, recyclable and abundant CSM. For example, there is an effort to shift from lithium to sodium ion batteries. Similarly, we don’t want to reduce greenhouse gas emissions but in the process create mountains of green waste. Sustainability is multi-factor concept, and environmental issues need to be paired with efforts to create positive governance and labour conditions in supplying countries. In the West’s competition with China for developing the green economy, it has 2 trump cards. The first is the rules-based order through which prosperity domestically and across the West has been created. Defence of this order requires Western solidarity in support of the rules, which may have to wait for a change in US Administration, but which our PM has pointed out can be solidified by the rest of the West in the meantime. It requires a united front to confront cheating of all forms that degrades the collective benefits of the system. The second is our social values, which in the long-run, will make us more valued partners in the global South than the Chinese, but only if we consistently support good governance and human rights. We can do things differently in the second green energy age, if we can see beyond the mirage of quick profits.
His recent article, “The geopolitics of the green transition and critical strategic minerals,” is published in International Journal and available here.
