We expect major upheavals in the financial markets over the next few years. In this article we explain our cyclical framework for these challenging times and why you should invest in commodities now.
Published: 16th of June, 2021
t o r c k c a p i t a l m a n a g e m e n t
Energy Revolution – Part 6
The Transition to Alternative Fuels in the Shipping Sector is Set to Drive Demand for Nickel and Platinum Group Metals
19th of October, 2021 - torck capital management AG
This week’s blog article discusses the clean energy technology transition and its impacts on mineral demand in the shipping sector. Along with aviation and heavy industry, shipping is part of a growing range of hard-to-electrify sectors. The transportation sector, as we discussed in Part 4 of this blog article series, makes up approximately one quarter of global energy-related CO2 emissions, whereby road transportation is responsible for over 70% of all greenhouse gas (GHG) emissions. It is clear, therefore, why EVs are considered the main mean to ensure a strong contribution of the transportation sector toward the objective of net-zero emissions.
In contrast, shipping and aviation – a sector which we will discuss in the next article – both contribute around 2.5% of global energy-related CO2 emissions each, with emissions still increasing every year. But to put it into context, a large container ship can emit the CO2 equivalent of 75,000 cars, which highlights the decarbonisation potential of the shipping sector.
Figure 1 shows that an overall ambitious energy transition, which is analysed by the International Renewable Energy Agency’s (IRENA) Transforming Energy Scenario, would still leave global emissions at about one-third of their current levels. Over two-thirds of the remaining emissions come from challenging sectors such as aviation, shipping and heavy industry. Their reduction will require additional renewable energy, electrification (both direct use and green hydrogen), energy efficiency, carbon management, and other structural and habit changes.
In the absence of suitable mitigation policies, the International Maritime Organization (IMO) estimates that greenhouse gas emissions associated with the shipping sector could grow between 50% and 250% by 2050 as shipping is a key enabler of international trade. Shipping accounts for about three-quarters of total freight transport activity, which continues to increase globally. IMO, therefore, announced the target of a 50% reduction in GHG emissions by 2050 and a complete phase-out by the end of the century. According to the International Energy Agency (IEA), strategies to comply with the Paris Agreement have been defined, but policies to encourage alignment with the ambitious goals laid out by the IMO are still needed.
There has long been talk about the use of EV technology in shipping, but the development has been slow until recently. The energy density of batteries is still too low. That means batteries cannot store enough energy in relation to their size and weight. Low-carbon fuels accounted for only 0.1% of final energy consumption in international shipping in 2019. Biofuels are the only non-fossil alternative that has been adopted more widely so far. The main initial targets for hybrid- and fully-electric propulsion are short-distance and light duty applications, such as passenger ferries, cargo ferries, and tugboats. These are the three types of technologies currently available:
Diesel-electric drive: The electricity for driving the electric engine, which moves the ship’s propeller, is generated by diesel-fuelled internal combustion engines.
Hybrid drive: Batteries store the surplus energy generated from the internal combustion engine to provide additional peak power or to propel the ship with nothing but electricity for some time. A hybrid drive can reduce CO2 emissions by up to 15% relative to a diesel-electric drive.
Fully electric drive: The ship is solely driven by electricity stored in batteries. Depending on the share of renewable energy used to charge the battery on board of the ship, CO2 emissions can be reduced by up to 95% relative to a diesel-electric drive.
In international shipping, where batteries reach their limitations, hydrogen-based solutions have the greatest GHG reduction potential.
Since hydrogen almost exclusively occurs in compounds, pure hydrogen (H2) is acquired by splitting the compounds in a process called electrolysis using a source of energy. In the context of decarbonisation, hydrogen needs to be low carbon from the outset and ultimately green meaning that it is produced by the electrolysis of water using renewable electricity.
Around 70 Mt of dedicated hydrogen are produced today, 76% from natural gas and almost all the rest (23%) from coal. The way it is produced today, hydrogen cannot be considered a clean energy alternative, just like electricity generated from a coal or gas plant is not considered clean. But since the production of green hydrogen requires electricity, the process could serve to stabilise grids with high shares of renewable energy sources like wind and solar by absorbing excess electricity in times when supply exceeds demand. Additionally, significant scale-up of electrolysers is necessary. In IRENA’s Transforming Energy Scenario it is estimated that there would be 160 Mt of green hydrogen produced annually by 2050. To produce that amount requires between 50 GW and 60 GW of new electrolyser capacity per year to reach around 1,700 GW until 2050 (see Figure 2). While the cost of production is a barrier to the uptake of green hydrogen at the moment, costs are falling – largely due to falling renewable power costs that result from the Energy Revolution.
Hydrogen electrolysers and fuel cells that convert the chemical energy of hydrogen and oxygen into electricity require nickel or platinum group metals (depending on the technology type). This could considerably increase the demand for these critical minerals. Further expansion of electrical grids and the deployment of shore-side electricity facilities to charge EV marine vessels and provide electricity to docked ships will also drive copper demand as it is an essential element for almost all electricity-related technologies.
Continue reading with part 7 here.
About torck capital management
torck capital management is an asset management boutique based in Zurich. Well-established in the Swiss financial industry, our goal is for torck to become the leading boutique of choice for exponential opportunity investments. We aspire to both drive meaningful change with our investments and seize exponential return opportunities in times of market disruption. Our new “Energy Revolution Fund” – launched at the end of September 2021 – builds on the thesis that a worldwide clean energy transition will kick-start another “super cycle” of rising commodity prices, which was last seen in the early 2000s when China’s economic growth took off. With investments in hand-picked junior mining companies that ensure an adequate supply of minerals for the clean energy transition, we see the potential for our next exponential opportunity.
Follow our upcoming blog articles to learn more about how the clean energy transition will impact the demand for critical minerals and create a strong investment case for junior mining companies.