Amid climate change, the global shift away from fossil fuels poses a threat to companies that produce these resources. But it also presents equally compelling opportunities to find new growth areas.
That’s the lens through which BHP, the world’s largest miner, is planning for its future. The company, based in Melbourne, remains a heavyweight in traditional energy markets like petroleum and coal. But it’s also investing heavily in the market for potash, a derivative of potassium that’s largely used on farms as a fertilizer.
According to a February 19 filing, the firm has earmarked $2.7 billion in capital expenditure for potash-mining infrastructure, including the completion of mine shafts it has dug in Saskatchewan.
BHP’s exploration of the potash market is an example of a low-risk, low-return investment that, if successful, could open the floodgates of profits, according to Andrew Mackenzie, its CEO.
In his view, the potential runway for returns stretches over the next century. The company expects the market’s annual demand to grow by 2% to 3% over the next decade — a pace that would help it exceed supply by the end of the 2020s.
“This could be a 100-year resource,” Mackenzie told Business Insider in a recent interview.
He continued: “At the moment, about 40% of our profits come from iron ore and 20% each from metallurgical coal, copper, and petroleum. We could replace one of those areas with potash over a few decades with that sort of investment.”
The timing would favor BHP as it ponders how to diversify away from fossil fuels and create other revenue streams, Mackenzie said. The potash market would also position the firm to become a prime supplier to Asia’s agrarian regions, where soils have been starved of potassium, he said.
Commodity prices across the board are volatile, but the 2015 crash in oil prices was the latest example of a nightmare outcome for miners that dashed head-first into a new opportunity in fossil fuels. In 2011, BHP participated in the gold rush into US shale oil and gas with a $20 billion investment in assets that it eventually sold to BP.
Mackenzie is so pressed by the need to transition away from fossil fuels that he advised President Donald Trump that it was possible to both be pro-coal and support the Paris climate agreement. Trump had promised during his campaign to withdraw the US from the agreement and made the announcement in 2017.
Mackenzie’s message to Trump was that the US had the opportunity to lead the creation of cleaner methods of production.
“We’re in a place where there is a risk to our business for peak coal — and not metallurgical coal — but peak energy coal and peak oil,” Mackenzie said. “And we need to think about how we diversify. But that isn’t going to happen until the 2030s. And if you handle it well, you could manage the transition.”
For Mackenzie’s firm, the transition includes finding alternative streams of revenue that can provide a lifeline as demand for fossil fuels shrinks. For example, he said, the rates at which people are buying electric vehicles — and the speed at which cities are outlining roadmaps to transition away from conventional cars — are quicker than he expected.
“Coal will last forever,” MacKenzie said. “But as a growing business, it’s a finite opportunity. And it’s likely to shrink over time. I’d say the same thing with oil.”
from Viral Update News https://ift.tt/2IZh3St
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