Discussion - The UK's Need for a Midstream Industry
On the 29th June 2021, the Critical Minerals Association held its latest breakfast chat webinar, ‘The UK’s Need for a Midstream Industry’, with the discussion focussing on how the UK can position itself to be viewed as more competitive regionally. The CMA was delighted to welcome:
· Puruvi Poddar, Chief Corporate & Business Development, Tirupati Graphite
· Dave OudeNijeweme, Head of Technology Trends, Advanced Propulsion Centre UK
· Ian Higgins, Managing Director, Less Common Metals
The discussion was led by Jeff Townsend, Critical Minerals Association.
‘We are joined by three experts to have a discussion on critical minerals and the midstream industry, what it means, and why it is important. At the Critical Minerals Association, we recently gave evidence to the Parliamentary Environmental Audit Select Committee. Here, many companies and individuals highlighted the importance of midstream developments - and this is where a bottleneck exists in the international market.’- Jeff Townsend, Critical Minerals Association
Puruvi Poddar, Chief Corporate & Business Development, Tirupati Graphite
Tirupati Graphite is a fully integrated company in the graphene and graphite space, starting from the mining of raw materials to the midstream, and then to the cusp of the value chain in the form of graphene.
In the graphite industry, the midstream constitutes all of the high-tech processes which are currently only done in specific parts of the world. This reliance on certain regions poses a threat as demand is expected to increase by over five times and the industry may not be able to cope.
China has lost a lot of advantages over the last few years regarding costs from the primary side, so you see many Chinese firms shifting their primary sourcing to Africa, and developing more of their midstream capacity domestically. With the current pandemic, the need for localisation has emerged, so that instead of monopolised markets or suppliers we can have a diversified source base. This presents an opportunity for the UK.
There are numerous benefits to operating a midstream industry. If you operate in the primary sector, you must sell your product to companies in the midstream, whereas in the midstream, you can benefit from the highest level of value creation. A midstream industry can also provide the latest technologies, research and development for the nation as a whole, and benefit from serving the highest end customers.
With the global race towards the electrification of the automotive industry, the Indian government has put things in place to ensure India is well positioned to compete, which has made India an attractive jurisdiction to operate Tirupati’s midstream. The government has launched subsidies across states, and formulated new policy to support the development of the electric vehicle supply chain. They have supported electric vehicle manufacturing and have the advantage of already being a global leader in the manufacturing sector. Geopolitically, India is supported by nations across Europe, as well as by the United States, which gives them an advantage over Chinese competitors. India has managed to reduce costs by improving technologies, and investing in new greener technologies, such as the waste processing method of ‘Waste to Wealth’ where by-products of midstream processes are utilised. These technologies give us the advantage of being able to set up midstream processes anywhere in the world and helps us to serve local demand where possible. The biggest challenge for us setting up in the UK is gaining support from the government. Having the support and capital structure which we have in other jurisdictions is important to be able to commercially manufacture our products.
ESG is an important factor in the midstream, and policies play a crucial part in this. Jurisdictions have their own environmental policies, but investors also have their own requirements of ESG standards. As companies adopt more stringent and more eco-friendly processes, developing the midstream will help us achieve strong ESG standards globally.
Dave OudeNijeweme, Head of Technology Trends, Advanced Propulsion Centre UK
The Advanced Propulsion Centre UK is primarily a funding organisation that looks at the automotive industry and the industrialisation of new technology, including late-stage research and development and providing a capital support element.
The automotive sector is going to increase demand in the next 10 years for raw materials that the sector has never needed before, including graphite, and rare earth elements. These raw materials have always been used for different end sectors, but the automotive industry is adding new demand on top of this. The bottleneck of this demand for critical materials lies in this midstream element. We need to focus on the midstream for security of supply. In the long term, the midstream is where the most value is added in the supply chain so it is critical to understand.
China had a strategy, as well as demand and sources for resources such as rare earths and graphite. Resources which China lacked such as cobalt and nickel, were sourced externally. What is changing now is demand. The demand for electric vehicles specifically, as well as new Rules of Origin following the Brexit trade deal, mean some materials will have to be sourced in Europe in the coming years, shifting the demand to Europe. Our challenge now is to determine how to build our midstream industry up from small beginnings to an industry that can be globally competitive.
In order to make the UK an attractive place for a midstream industry, our barriers to entry must be the lowest in the region, whilst still retaining high environmental standards. We must make it straightforward and inexpensive to obtain environmental permits in this growing market, especially since the demand for certain components such as batteries will increase 20-fold by 2030. Labour costs for midstream processes are low, and you need a midstream industry to be close to demand. Our proximity to European demand is therefore beneficial to reduce costs without reducing margins, especially in the automotive industry. Additionally, the midstream is energy intensive, and the UK’s supply of low carbon electricity leaves us well positioned for a midstream industry.
Before demand was growing as quickly as it is now, it was more of a global market. Now, with the sudden increase in demand in Europe, it will become a regional market where we are in direct competition with our European neighbours. The UK may not have all of the natural resources it needs, but we do have a number of midstream companies with an existing footprint in the UK and in Europe, such as LCM, Phillips 66, Mitsubishi, and Vale. Additionally, the UK government has offered a number of incentives for R&D and capital, to make us more competitive. Thus, the demand is here in the UK, the seed companies are here, but it comes down to securing a vast amount of private investment to further develop our midstream sector.
For many years, the UK was primarily looking at R&D in technology, but this did not lead to the industrialisation of the technology as we did not monetise the opportunities we created. Lithium-ion batteries are a perfect example of this, partly because the demand wasn’t there at the time. Capital support is key in the UK. Whilst Europe has support through the European Investment Bank, local and national government loans, investment and grants, the UK does not offer the same capital support, which the UK government is now rectifying. The speed to market is another crucial factor, which is an area where the UK may have the advantage compared to other jurisdictions. Various sites have been identified here that are already connected to the grid with the opportunity to gain permits swiftly, and that puts us in a good position for rapid midstream development.
A challenge for all midstream industry is that we are trying to create a new sector with new technologies in the space of 10 years. Whilst the demand is there, these messages have not been communicated down the supply chain. Thus, there has not been enough investment into midstream companies, and there have not been clear communications to the primary sector of the future need for these raw materials. The midstream needs access to funds, and this will not come from solely from the government in the amounts that are needed, but from private investment and joint ventures.
In terms of ESG, our overall goal is to move to net-zero, and the long-term investments that have been happening along the automotive supply chain, including the midstream area, has meant that many companies are aiming to be net-zero from the start, or have a path to achieving net-zero in place. Furthermore, the midstream is heavily involved in the circular economy, as the amount of raw materials needed for our green transition cannot be met solely by mining. These factors have led to some technological advances to improve environmental impact and supply sustainability, and this needs to be replicated through the supply chain. With our already decarbonising grid here in the UK, there is great opportunity for the government to make the UK a suitable place to invest in when considering ESG objectives.
Ian Higgins, Managing Director, Less Common Metals
Less Common Metals (LCM) is a midstream processor located in the UK. We are part of the rare earth permanent magnet supply chain as we take raw materials from overseas in the form of rare earth oxides which we process into rare earth metals to make into highly specialised alloys that are supplied to rare earth permanent magnet producers globally. As we are based in the UK and the majority of our raw materials and market is based outside of the UK, this conversation is interesting to LCM as we can discuss how to stimulate the midstream industry further in the UK.
Setting up an integrated midstream industry in the UK can be done as it has been done elsewhere. As mentioned previously, China has been following a strategy which has enabled them to become a global monopoly within critical mineral midstream industries for certain products. We need to understand what China has done in terms of integration, and understand how we can replicate the best parts of this whilst utilising our own advantages in order to be competitive. For the UK, these advantages could include geographical advantages, or a better understanding of our markets and the countries we sell to. From a global markets point of view, we can exploit the fact that end users have a strategic desire for a diversified supply, and that we have the scope to introduce improved environmental, social and governance (ESG), traceability and transparency standards which will place us at a competitive advantage.
The UK is in a very strong position to create an environment for the midstream industry to flourish. We have the benefit of wind power as a source of green energy, which is crucial as the midstream industry is often energy intensive. We have the demand for a midstream industry form the European market, especially in the electric vehicles sector. To further improve the conditions to operate a midstream industry in the UK, we need a sensible approach to permitting. At the moment, this is a barrier to small companies currently operating, as the cost of changing environmental permits based on activity changes is significant. We do not need a removal of permitting, but rather a restructuring of permitting by the UK government agencies to further support UK midstream industry.
We are in a regional race. For decades now, the West have looked enviously at countries such as Japan and the support that the Japanese midstream industry receives from their governmental bodies. Despite few natural resources domestically, Japan were able to invest heavily in external raw material sources to support their midstream industry, especially effectively with rare earths. Additionally, the USA have committed to investing multimillion dollar amounts into their midstream processes, especially to encourage those from overseas to set up in the USA. These examples highlight the importance for the UK to set up their own midstream, and the importance for the government to take steps to secure our raw material supply.
With this growing demand for electric vehicles, a possible challenge is ensuring that our supply of rare earths is sustainable. There are between 60-100 individual rare earth ventures looking to operate at the moment, and most of them are going to struggle economically. The good companies have multiple clients, so we must make the UK an attractive option for those looking to supply to us, but we must also make the right decisions on who we allow into the UK to ensure we have a sustainable supply.
By developing the midstream, we have a much greater scope for improved transparency and ability to audit supply chains to verify that the ESG standards are what they are presented to be. Additionally, the circular economy is an important factor especially in the permanent magnet industry where between 10-30% of the raw material ends up as waste. There are opportunities here for alternative sources of rare earths, coming from the waste produced, and also from end-of-life magnets, which will ensure the supply chain is cost effective and sustainable in the future.
Thanks to Puruvi, Dave and Ian for joining us!
Article by Phoebe Dawes, MSc Environment & Development, King's College London