Commodities

The U.S. Government Dips Its Toes in Commodities, But Is It Enough to Create a Domestic Supply Chain?

DOE’s $107 million loan for a graphite processing plant in Louisiana is a step in the right direction. Much more is needed for U.S. processing and refining of minerals that are now critical to hitting climate goals.

The US Department of Energy's loan of $107 million to an Australian graphite mining business, Syrah resources, to set up a facility in Louisiana is a win. Especially for industries that are manufacturing electric vehicles (EVs), as the graphite mined in Mozambique and then refined by Syrah in the U.S. will help produce anodes for the batteries of 2.3 million new EVs by the year 2040.

While this is good news, it shouldn’t be the only good news. The DOE loan is just scratching the surface of a problem that extends across value chains. Instead of one allocation, this could be the first step in a series of coordinated actions and creative initiatives to build a proper US supply chain that can handle the accelerating demand for clean energy.

Notably, President Biden’s $3 billion plan to boost battery production for EVs won’t include allocations for domestic mines to produce the critical minerals the battery industry (and other cleantech industries) relies on.

Now let’s talk about what’s compounding our commodities crisis.

We all know there's been unprecedented commodities disruption in the last six months. What has compounded that effect, however, is underinvestment in the global commodities sector and severe underinvestment in the domestic commodities sector, and specifically in the mining industry. Many mining assets take upwards of 10 years to bring the full value chain properly online, from discovery to permitting to production. If we wait on those assets, we’ll also miss out on developing the midstream and downstream processing and refining. Those require additional coordination, investment efforts, and long-term planning.

Without such domestic processing and refining capacity, we risk investment cycles creeping up on countries and companies — which risks a lack of supply, fewer profits, and missed opportunities to meet the demand for net-zero infrastructure goals. As it stands, there's a fundamental mismatch on the material side of the equation between the United States’ climate targets and a domestic critical materials ecosystem. A better 2030 market means we need to get started on coordinated efforts now, not later.

Ellis Sullivan, Chief Executive Officer of Climate Commodities Processing, further emphasized the importance of developing domestic critical minerals processing in the near term, stating “Critical minerals are important to many industries in the US, not just EV batteries. The US has its own reserves of some these minerals which we should be exploring on a continuous expedited basis, but there are also many minerals that simply just aren’t naturally here. Almost all minerals must be processed or purified to some extent before they are suitable for end-use application, and these can often be very technical, expensive, and energy-intensive processes. Beyond exploration of our own natural resources the US must make investments in the processing of all critical minerals. Having US based processing capability for critical minerals ensures domestic raw material supply chains and allows for agnostic raw material sourcing (from both inside the US and foreign) as opposed to being wholly dependent on any one country for a mineral, like we currently are on China for many of them”

Where are the creative initiatives that will get us started on the path to better supply chain resiliency?

No country can control its resource endowment. But every country that cares about the energy transition can take steps to host processing and refining capability, and keep economic benefits within their jurisdiction.

This doesn’t have to mean banning all exports of a material, like the nickel ban in Indonesia that started in 2014 as a way to increase domestic investment. Instead the United States could align every dollar spent subsidizing electric vehicles, for example, to a corresponding unit of economic benefit in that supply chain. Anchoring those supply chain benefits to domestic processing and refining operations strengthens our economy at the same time. It's not overnight, but the full length of the value chain needs to be taken into account, if we want supply to keep up with demand.

The investing and policy community is starting to look at other creative solutions, such as loans in the form of credit backstops, condensing permitting timelines, and articulating to communities how important it is that we host new infrastructure for energy-crucial commodities so we can process and refine them close to home.

Near-term solutions could also look like providing price protection that is more comprehensive than traditional fixed-price offtake contracts, and credit enhancements to help lessen investor risk. Providing price floors and backing performance guarantees can help orderly markets develop despite today’s near-monopolies on critical materials. Expediting permits and encouraging conversations between state and federal jurisdictions can create a better supply chain ecosystem for future renewable energy strategies.

These steps take a systematic approach to near-term reshoring, rather than penalizing existing industries with trade barriers they can’t get over.

Shipping channels like the one in Houston, mass oil refining, and various chemical operations are all examples of other industries that have taken similar steps to grow a robust supply chain and create resilience here at home in the traditional commodities sector. With fast-approaching net-zero deadlines for action on climate change, the materials markets critical to the energy transition now need the same treatment, if we want to guarantee that the next generations of Americans will continue to have access to reliable clean energy solutions.

Nicholaus Rohleder is a former roughneck in the Texas oilfield turned new energy commodity trader, Columbia University Adjunct Professor, and Forbes 30 Under 30 honoree for his work in clean energy. He Co-Founded Climate Commodities, a financial technology and commodity trading firm focused on enabling the climate economy, and the New American Energy Fund, a climate technology supply chain hedge fund. He also serves as a member of the Energy Technology Leadership Council at Tulsa Innovation Labs, an economic development initiative funded by the George Kaiser Family Foundation, and on the editorial team for the Energy Policy Now podcast at the University of Pennsylvania’s Kleinman Center for Energy Policy. He received three degrees in the areas of finance, economics, and engineering, one from Columbia University, and two from the University of Pennsylvania.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Nicholaus Rohleder

Nicholaus Rohleder is a former roughneck in the Texas oilfield turned climate technology entrepreneur, Columbia University Adjunct Professor, and Forbes 30 Under 30 honoree for his work in climate technology and clean energy. He is the Co-Founder of Climate Commodities, a multi-strategy asset manager and financial technology firm focused on the climate supply chain and raw materials enabling the energy transition. He also serves as a member of the Energy Technology Leadership Council at Tulsa Innovation Labs, an economic development initiative funded by the George Kaiser Family Foundation; and on the editorial team for the Energy Policy Now podcast at the University of Pennsylvania’s Kleinman Center for Energy Policy. He received degrees in finance and engineering, respectively, from Columbia University and the University of Pennsylvania.

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