As the world faces a shortfall of both energy supplies and critical metals, difficult decisions are being made to meet the growing supply gaps without risking new dependencies on unsustainable producers or compromised geopolitical actors. Quite a problem for some; particularly for a range of European countries and firms in light of the Russian invasion of Ukraine.
Best resource practice shouldn’t be dictated by current events, it should be based on well researched and grounded information assessing impact from multiple points of view. Responsible procurement is about sourcing sustainable resources that don’t cost the earth, verified by independent advisors and industry professionals – free from any vested interests. This process is thorough, and takes into account many factors – for example, material sources, environmental impacts, waste management, labour outcomes, social impact – and dictates the proper approach for each.
An argument for this approach has never been made better than recently. The effects of irresponsible resource practices are being felt wall-to-wall with increases in inflation, cost of living, global climate, biodiversity loss, supply shortfalls, energy costs, and more. And now that you’re asking where your supplies come from, we should finally have an honest conversation.
In a massive change of policy, the EU has announced back in May that an import ban on Russian oil has been phased in, banning 90% of Russian oil imports by the end of 2022. crude oil imports are banned effective December. On 5 February 2023, the EU and UK price cap for refined petroleum products came into effect. The European Union (EU) and the United Kingdom (UK) have both implemented measures aimed at limiting the revenues received by Russia from its sales of oil and oil products. In October, the White House announced a ban on Russian metals, rocketing the price of aluminium by 6% in a day. Again, adding flames to the fire of the current inflation issue. Although not confirmed, the USA has proposed a potential 200% tariff on Russian aluminium as soon as this week — the stunning proposal alone a sign of the times.
Crude oil prices are down to $75.12 per barrel, after hitting a peak of $123.70 in March, 2022. Brent oil hit highs of $140 per barrel. For the same week last year a [crude oil] barrel cost $89.36. The same week in 2020, a barrel cost $58.24.
While the ban doesn’t include natural gas, unsustainable prices hikes of 300% back in May, 2022, has inevitably forced companies and consumers to look elsewhere. Worth noting, it has taken a devastating war for the EU to instigate serious reviews of oil and gas suppliers to make changes, but a positive move to reduce dependency on an unsustainable partner nevertheless.
It’s not just gas and oil being given the sustainable treatment, governments and corporations are assessing where all their materials come from. Mining and metals production is no exception. In 2022, on average, every ton of aluminium produced emitted 18 tons of CO2, totalling 1.775bn tons — that’s more CO2 emissions than the entire aviation industry for the production of just one material. However, unlike oil and gas, most metals can be recycled, repurposed, reused, and even recycled again. No credible loops exist for oil and gas, where renewable energy attracting high costs of investment and marginal gains over many years is really the only play. Whereas with metals, turning virgin mining into urban (or secondary) mining can easily fit ESG goals and sustainable investment interests within a much shorter time span. The technology already exists and there are many regions which are under-utilising their secondary potential.
Environmentally speaking, producing 1mt of secondary (recycled) aluminium saves 8mt of bauxite, is 95% more energy efficient, and emits 95% less CO2 than primary mining. There’s also the benefit of not having to deal with treating toxic dross (a by-product of aluminium production). The maths are simple. We know, because that’s the metals recycling model Romco have employed since 2015.
The Romco mission is to transform the production of metals to help solve the climate crisis. We do that by producing secondary materials from under-represented markets, replacing the need for environmentally costly primary production all over the world. Our aluminium and copper recycling facilities are capable of reducing over 11,200 t/co2 per month compared to primary production — that’s enough to replace 25,930 barrels of oil. That’s the ‘E’ (environment) in ESG taken care of, but the ‘S’ (social) and the ‘G’ (governance) elements cannot be forgotten, particularly in light of recent events.
As mentioned above, it’s important to delve into policies and legislation in place at individual companies, as well as at a governmental level. Does the company provide any professional development schemes? Is the company endorsed and welcomed by the local community? And if not, why not? Does the government promote ESG-aligned companies by taxing/ implementing levies on ‘dirty’ practices?
There are big questions to consider when scrutinising material sources that aren’t directly related to the commodity in-use. Scope 3 emissions are a huge part of why secondary materials are better for the environment than primary ones, e.g. oil and bauxite. In the case of sourcing any material, making marginal reductions to Scope 1 & 2 emissions, improving social responsibility, and governance are important to making the overall process more ESG. Even if those commodities are oil and gas.
So where else can companies look?
Pre-sanctions, the EU relied on Russia supplying 25% of its oil and 40% of its gas. Post-sanctions, the EU will need to find alternatives. It’s unrealistic for all of these supplies to be replaced with solar panels, wind farms, and nuclear power — at least not in the short term. Oil and gas are still going to be needed; the upfront cost and time required to transfer every EU country to renewables in 6 months is evidently unfeasible – it hasn’t been done, even for the countries with the highest GDP and existing infrastructure.
Before considering the “where else?”, it’s important to note that reliance on Russian imports is uneven – 98% of Slovakia’s oil is Russian whereas UK usage is only 8% – and that each country is limited by their resource access. Switching from Russian oil is more of a challenge for some more than others…
Inherently, oil and gas are dirty. We can’t switch to renewables overnight, but we can put measures in place to make each step and each indirect impact just that little bit cleaner. This can be done by using a technique more commonly known as marginal gains: differences as small as 1% all build to create a real, solid difference. Considering the environmental and social impacts of each step of the process will enable positive change, as well as ensuring governance of supplier countries is good, fair, and reasonable.
It has been suggested that oil demand could be met through imports from the US and Saudi Arabia. In terms of emissions, how do these countries compare when it comes to implementing processes to reduce Scope 1 & 2 output? How do these countries approach social issues such as gender equality, and worker’s health insurances? Delving into both policies and legislation at a governmental level, as well as those for individual companies, provides a bigger picture for improving ESG ratings for the oil industry as a whole.
A similar approach can be applied to alternative sources of natural gas. How are increases to production at existing sites in the Middle East or the US going to be met? Will they use EVs for transport? Incorporate automated digital technologies into production? Etc…
Interestingly, there are ESG certifications for natural gas companies; however these are in their early days and credibility and expected standards are unknown. Combining oil and natural gas with its direct competitor is a challenging concept, however with much reliance on these resources unavoidable (for the time being anyway) and material sources suddenly under great scrutiny, the industry has to do something to start cleaning its act up.
To learn how we are rising to the challenge of meeting the global commodities supply gap sustainably and ethically, you can subscribe to our news at https://romcometals.com/news-insight/, or visit romcometals.com