Tech Talk - a gentle cough for Simon Michaux

In response to a post I wrote a couple of weeks ago Marty suggested that I watch a video by Simon Michaux discussing peak mining. So I did.

A quick check through Linked In has Simon Michaux as a Mining Consultant in the Brisbane area, having been a Senior Research Fellow at the Julius Kruttschnitt Mineral Research Center (JKMRC) at the University of Queensland for 14 years. (I should mention I spent a sabbatical at the Mining Department at the University of Queensland in 1987).

In his presentation Simon discusses Sustainability in regard to the mining industry, pointing out that as the population rises and demand for minerals increases, that demand can only be met by mining leaner and deeper ores, once the shallow easy and cheap to mine deposits are gone. (A similar argument to that of peak oil, which he does talk about in his presentation as well as mentioning the predictions that we are nearly at Peak Coal).

I have a number of problems with his approach, and have discussed some of them in various posts over the past few years, but let me discuss them again as a rebuttal to his conclusion that the world is rapidly heading into disaster and the end of the Industrial Age as the costs to mine minerals and the difficulties in finding enough product make it impossible to continue our current trends.

Now it is true that back in the days when Europeans first came to the United States that the local tribes around the Great Lakes were mining pure copper strips and large slabs and nuggets could be found. White Pine Copper Mine in Michigan was still finding these when I visited there some decades ago, but they occurred in a relatively hard host rock and the deposit was going deeper and becoming more expensive and so the mine closed. Because of economies of scale it became cheaper to simply dig much lower grade ores out of the ground. He cites the example of Bingham Canyon where the mine now extracts copper from ores with less than 1% of disseminated copper, rather than the pure copper nuggets of former times. And he points out that as the ore is ground finer it requires more power.

Figure 1. Relationship between energy required to liberate minerals from ore by reducing the particle size, leading to higher energy demands. (Simon Michaux)

There are a couple of points that need to be raised here. The first is that digging ore (and coal) out of a surface mine is a relatively simple and comparatively inexpensive operation. It does not require large applications of exotic technology and the whole process of getting the ore from the solid to the point where the mineral is liberated is straightforward.

The reason that there are steel balls shown on the rhs of the above figure is that after the body of the ore is broken free with explosives the fragments are picked up in a large shovel and loaded into mine trucks that carry hundreds of tons at a time to the main plant where the ore is crushed in part by falling into long rotating drums filled with steel balls that break the rock into fine particles through impact and attrition. (A simplified modern version of pounding the rock fragments with hammers until it gets small enough to free the mineral). Simon makes the point that modern technology is now capable of breaking the ore down to 5 micron particle sizes to free the ore, but that this takes increasing amounts of energy (as shown above), and that hauling all the ore to the plant and crushing it all to this small particle size is leading to unsustainable energy costs – particularly as oil and other fuel prices are set to continuously rise in the future.

But here he makes a critical misjudgment, because his argument rests on the mining industry and the manufacturing industry remaining the same, and following conventional practices into the sunset. But this is unlikely to happen. Just as the increase in prices made it possible to develop hydrofracking of long horizontal wells and thereby develop the oil and gas in the otherwise uneconomic deposits of Dakota and Pennsylvania so technology can find alternate processes that will lower the costs for mining minerals.

For example it is not necessary that the trucks that haul the ore rely on diesel fuel produced from oilwells. Some mines have already switched to biodiesel, which has some advantageous properties for their operations. Other mines use electrical power to run their haulage and GE has demonstrated that diesel engines can run on a mixture of fine coal and water. The reason that countries such as the UK have migrated away from coal use has more to do with the availability of cheaper sources of alternate fuel and for political reasons rather than there being a lack of available coal. (Note that German use of coal for power is increasing as an example).

Secondly the use of ball mills for crushing all the ore is simple but not necessarily all that efficient. I have noted that a more efficient process, wherein ore can be reduced in one step from 1 cm size to 5 micron size, using cavitation, is quite easy to build and operate.

The use of hydroexcavation and instant ore comminution using cavitation means that the ore can be separated into mineral and waste at the mining machine, and (because of the way the process works) both fragments of the ore are broken at the natural grain size, so that there is no need for overgrinding, and the fragmentation is by tensile fracture growth instead of compressive crushing, saving energy. By separating the mineral at the face, and leaving the waste in larger fragment sizes the waste can be relocated close to the mining face, potentially being used to provide support in regions that have been mined out. Only the mineral needs to be moved from the face to the plant – cutting energy costs dramatically.

Once the mineral is available as a fine particle it becomes easier to treat it and process it into the required feedstock which, as 3D Printer technology migrates into the construction of larger and more useful items from metals and more advanced materials so the waste involved in older conventional practice will be minimized and costs in financial and material items contained.

The future is likely therefore to be much more exciting and positive than Simon Michaux foresees, though I do agree that it will become more sensible to mine landfills to reclaim minerals – but then we have been doing that for some time now. But no, we are not coming to the end of the Industrial Revolution, merely moving to a different phase.

Cornucopia or Malthusia - a reply to John Tierney

Five years ago John Tierney agreed on a bet with Matt Simmons that by this year the average price of crude oil would average $200 a barrel. The bet is now due, although, sadly, in the interim Matt has passed away. And Mr Tierney has just posted (h/t Leanan) his comment upon winning the bet. While recognizing the impact of the recession on oil prices, after their rise to $147 in the intervening years, he points out that this year crude averaged $80. This he feels justifies the position of the Cornucopian approach to life, rather than the Malthusian.

Would that he were right! In his article he cites oil from new fields coming ashore from fields off Africa and Brazil, and increased production from the oil sands of Canada and the United States, as promising a maintenance of this Cornucopian era into the future. And he uses a historic parallel to show how in an earlier time Julian Simon won a similar bet against Paul Ehrlich, John Holdren and John Harte over the price of a basket of 5 metals.

Admittedly he is currently in good company, since the EIA is not looking for the price of crude to rise above $100 a barrel for another six years, and the IEA recently posted in their December Oil Market Report that global production increased from both OPEC (up 45 kbd) and non-OPEC (up 355 kbd) sources in November. It sees that production will continue to increase through 2011, meeting an increase in demand to 88.8 mbd. 0.5 mbd of that will come from an increase in NGL from OPEC, rising to 5.8 mbd.

Art Berman has just explained some of his concerns with the optimistic projections of the EIA Annual Energy Outlook and I agree with his line of argument. But let me take a slightly different tack in disagreeing with the Cornucopian position.

And it is true that oil companies are now gearing up for a much greater level of investment in this next year than in the recent past. The WSJ quotes a Barclay’s Capital report that levels will reach $490 billion, up 11% on last year. It also notes that the price rises of 2008 led to a boom in deepwater rig construction, and the 25 built in 2010 will be joined by 35 next year. All of which allows the Journal to end with a quote that “Higher investment now will mean lower prices than they would otherwise be in the future.” (Well yes, but . . . . ) But the reality is that the levels of investment that will be required to sustain current levels of production are likely to exceed these numbers, and we are in a time when greater prospecting will likely only lead to a diminished return. Not that we don’t need that investment.

So how does one address this issue. Well Let’s just go back to that original bet by Simon against Ehrlich et al on the price of metals. The original bet was as follows:

Ehrlich and his colleagues picked five metals that they thought would undergo big price rises: chromium, copper, nickel, tin, and tungsten. Then, on paper, they bought $200 worth of each, for a total bet of $1,000, using the prices on September 29, 1980, as an index. They designated September 29, 1990, 10 years hence, as the payoff date. If the inflation-adjusted prices of the various metals rose in the interim, Simon would pay Ehrlich the combined difference; if the prices fell, Ehrlich et alia would pay Simon.

Then they sat back and waited.

Between 1980 and 1990, the world's population grew by more than 800 million, the largest increase in one decade in all of history. But by September 1990, without a single exception, the price of each of Ehrlich's selected metals had fallen, and in some cases had dropped through the floor. Chrome, which had sold for $3.90 a pound in 1980, was down to $3.70 in 1990. Tin, which was $8.72 a pound in 1980, was down to $3.88 a decade later.
Which is how it came to pass that in October 1990, Paul Ehrlich mailed Julian Simon a check for $576.07.

Just out of curiosity I went to Infomine and looked at the price of those metals over the past 10 years (though they only plot chromium and tungsten prices for five). The plots for the 5 metals follow, and to make the calculations simple I have rounded the metal values a little.

Chromium:

$200 in 2000 would have bought 66.7 lbs (it was $3), and in 2005 would have bought 160 lbs of chrome, which would now be worth $425 roughly. Over the 10-year interval however, buying $200 of chromium would have cost you $23, not counting inflation.

Copper:

However, when we look at copper, that $200 would have bought 250 lb of copper in 2000, and over the decade that purchase has gained $862, roughly.

Nickel:

A similar situation applies to nickel, where $200 would have bought about 66.7 lbs of nickel in 2000, and that investment would have gained $533 over the 10 years.

Tin:

The same is also true for tin, where $200 would have bought 91 lb of tin in 2000, and that would sell today for about $1,090; the investment thus making $890 over the decade.

Tungsten:

$200 would have bought 6.25 lb of tungsten in 2005, which would now be worth $265 roughly. It has been difficult to find the price of tungsten in 2000, although the price is reported to have trebled from that pre-2004, suggesting that it was around $14 back then. That would give a purchase of some 14 lb, which would now be worth around $600.

So the $1,000 investment from 2000 would now be worth (in 2010 dollars) $177+$1,062+$733+$1090+$600 = $3,663

Using the Inflation Calculator there has been 27% inflation since 2000, so that the $1,000 would now be worth $1,270. The price of the metals has thus roughly trebled over the time period.

I have not been able to find an accurate value for tungsten in 2000, though I know that the price went up significantly in 2003 when the only mine in the North Americas (the Cantung mine in Canada) closed. It is now re-opening. Most of the world’s tungsten now comes from China.

This reality suggests the underlying longer-term truth to the supply situation for materials that are extracted from the earth. There is only a finite amount there, and while it is possible, due to changing economic circumstance, that a Cornucopian viewpoint might for a while appear true, the growing demand for product, as countries, particularly those in Asia, aspire to Western levels of consumption, will rapidly emphasize the Malthusian long-term condition. (Although cherry-picking specific dates may allow one to transiently make the alternate case).

One has only to consider what is happening to gold and silver, not to mention the rare earth minerals.

Matt may have been a little early in his prediction on $200 oil, but I would be very surprised if we did not see a bit more than $100 within the year. The impact that a price rise above this level will have on the global economy makes it difficult to predict what will happen after that, but we could easily see $150 a barrel by 2015, if the economy can sustain it.