Transcript MINERAL ECONOMICS

RESOURCE DEPLETION AND THE
LONG-RUN AVAILABILITY OF MINERAL
COMMODITIES
John E. Tilton
Colorado School of Mines and
Pontificia Universidad Católica de Chile
Email: [email protected]
Birkbeck, University of London
October 17, 2012
PURPOSE & SCOPE
• Explore the threat of depletion to the
long-run availability of mineral
commodities
• Mostly conceptual. Few definitive
forecasts
• Focus on depletion alone and not other
threats
OVERVIEW
I.
II.
III.
IV.
V.
Nature & perceptions of depletion
Cumulative availability curve
Petroleum
Lithium
Conclusions and implications
I. NATURE OF DEPLETION:
TWO COMMON VIEWS
• The fixed stock paradigm
• The opportunity cost paradigm
Fixed Stock Paradigm
Logic
• Earth is finite
• So supply of any mineral
commodity must be a fixed stock
• Demand is a flow variable
• Depletion inevitable
• Interesting question: life
expectancies of available supply
Copper and Petroleum Life
Expectancies at Current Use
(years)
Reserves Resources
Copper
Petroleum
34
40
Resource
Base
264
110 x 106
123
Not
available
Fixed Stock Paradigm
Shortcomings
• Recycling
• Substitution and backstop technologies
• Life expectancies at current rate of use
of resource base can exceed millions of
years
• Rising costs will cause economic
depletion long before actual physical
depletion
Opportunity Cost Paradigm
Logic
• What really matters: the sacrifice
society must make for more of a
mineral commodity
• Long-run trends in real prices is
the most common measure used to
reflect trends in opportunity costs
Opportunity Cost Paradigm
Determinants of Price
• Depletion pushes prices up
• New technology and innovation
push them down
• The future – race between the two
• The past – many available studies
Copper
Aluminum
Nickel
Zinc
2011
2008
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
1957
1954
1951
1948
1945
1942
1939
1936
1933
1930
1927
1924
1921
1918
1915
1912
1909
1906
1903
1900
Index
Real Price Trends for Aluminum,
Copper, Nickel, and Zinc, 1900-2011
(Five-Year Average, 1900=1)
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Opportunity Cost Paradigm
Shortcomings of Price
• Factors other than depletion affect
prices (mostly in short run)
• Environmental and other external
costs (levels vs trends)
• Future prices unknown
Opportunity Cost Versus Fixed
Stock Paradigms
• Despite the problems with price,
opportunity cost paradigm more
useful way of assessing the threat of
depletion
Implications for Depletion
1. Scarcity not inevitable: A race between
the cost-increasing effects of depletion
and the cost-reducing effects of new
technology
2. Availability can increase over time, and
has in the past for some mineral goods
3. Threat is economic depletion - higher
costs and prices curtailing demand - not
physical depletion
Implications for Depletion
4. Probably not a surprise, time to respond
5. Focus on cost and price trends, not life
expectancies
III. CUMULATIVE AVAILABILITY
CURVE
• Shows total quantity
available at various
prices over all time
• Scarcity (measured by
costs and prices)
depends on:
Price
and
costs
– Movement up curve
– Shifts in curve
– Slope and shape of curve
• USBM efforts in 1970s
and 1980s
• CAC is not a traditional
supply curve
Cumulative primary output
Other More Troubling Shapes
Price
and
costs
Price
and
costs
Cumulative primary output
Cumulative primary output
Copper and the Skinner
Hypothesis
Unimodal
Bimodal
Amount
of metal
available
at a
given
grade
Amount
of metal
available
at a
given
grade
Grade
Source: Skinner (1976)
Grade
Copper and the Skinner
Hypothesis
Common rocks
107
Energy,
BTU/lb of
copper
The
mineralogical
barrier
106
105
Sulfide ores
104
0.001
0.01
0.1
Ore grade, %Cu
1
10
Source: Skinner (1976)
Another Cause of Jumps in CAC
• Demand exceeds byproduct
supply requiring much more
costly main product production
Three CAC Benefits
• Useful expository device
• Calls into question some
common beliefs
• Can provide useful insights into
the threat of depletion
1. Useful Expository Device
• Shape of the curve
• Nature and incidence of mineralization
• Other geologic factors
• Movement up the curve
– Growth in metal consumption (consumer
preferences, conservation, material
substitution)
– Recycling
• Shifts in the curve
– Changes in input costs
– Cost-reducing technological change
2. Questions Some Common Beliefs
• Population growth
• Renewable resources
• Resource use in developed
countries
3. Assessing the Future
Threat of Depletion
• When shape of CAC is
benign – depletion is
not a problem
• When shape is not
benign – depletion may
or may not be a threat
• Requires actual
estimation of CAC
Price
and
costs
Cumulative primary output
IV. PETROLEUM
Roberto F. Aguilera and others, 2009.
“Depletion and future availability of
petroleum resources,” Energy Journal,
Vol. 30, No. 1, pp. 141-174
Approach
• Extends two USGS studies – National Oil
and Gas Assessment (1995) and World
Petroleum Assessment (2000)
• Estimates resources from
• Unassessed provinces (using a Variable Shape
Distribution model)
• Future reserve growth
• Unconventional sources of liquids (heavy oil, oil sands,
and oil shale)
• Estimates production costs
• Many explicit assumptions
Life Expectancies
Conventional
Petroleum
Conventional
and
Unconventional
Petroleum
Years at 0%
DD Growth
Years at 2%
DD Growth
Years at 5%
DD Growth
151
70
43
651
132
70
Findings
• Quantity of conventional petroleum
greater than often assumed
• Use of unconventional petroleum
does not cause a big jump in CAC
• Price not likely to rise sharply in
near future due to depletion
• Hard landing unlikely even if
conventional oil production peaks
V. LITHIUM
Andrés Yaksic and John E. Tilton,
2009. “Using the cumulative
availability curves to assess the threat
of mineral depletion: The case of
lithium,” Resources Policy, Vol. 24, pp.
185-194
Concern
• Lithium batteries for hybrid and full
electric automobiles
• Demand growth could exceed
available resources
• Perhaps R&D should be redirected
Approach
• Literature review and interviews to
identify known resources and their
production costs
• No attempt to estimate undiscovered
resources. So new discoveries can
cause CAC to shift downward
• Demand scenarios
Types of Lithium Resources
• Brines
• Hard rock mineral deposits
• Clays
• Seawater
Lithium from Seawater
• Huge resource - 44.8 billion tons at
20% recovery rate
• Cost estimates based on 1975 study
by Steinberg and Dang at Brookhaven
National Lab updated for inflation –
$7-10 per pound of lithium carbonate
Estimated Lithium CAC
Findings
• Depletion will not be a problem
• Conventional sources sufficient for
the rest of this century and beyond
• Lithium from seawater is a huge
source of potential supply and only
raises costs of lithium used in autos
from $42 to $150
V. CONCLUSIONS AND
IMPLICATIONS
• Threat of depletion depends on
three sets of determinants
• Movement up and shifts in CAC
unknown and unknowable
• Shape of CAC (though often
unknown) is knowable
• Knowledge of the shape can
provide useful insights concerning
the future threat of depletion
RESOURCE DEPLETION AND THE
LONG-RUN AVAILABILITY OF MINERAL
COMMODITIES
John E. Tilton
Colorado School of Mines and
Pontificia Universidad Católica de Chile
Email: [email protected]
Birkbeck, University of London
October 17, 2012