Speaker: Continued Efforts to Stop Climate Change Too Expensive, Wrong-Headed

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A veteran mining financier with a self-described "contrarian viewpoint" ripped the Biden administration's energy policies and issued a full-throated endorsement for building traditional central-station nuclear and fossil-fueled power plants in a February 28 talk at the annual conference of the Society for Mining, Metallurgy & Exploration (SME) (Englewood, California), held in Denver.

"We need a true 'all of the above' energy strategy that includes baseload coal and nuclear generation," said Rick Reeves, managing director of KCR Capital LLC (Lakewood, Colorado).

Noting that coal currently costs more than natural gas on a British thermal unit (Btu) basis, and that coal is priced competitively with natural gas in the Western U.S., Reeves blasted politically motivated limitations of the supply of both gas and coal.

"The financing market is not responding to the current (coal) commodity price market," he told the SME conference attendees. "Normally, at these commodity prices, investors would be eager to invest" in new coal mining projects. "But the U.S. government activities has limited opportunities for investing in non-renewable energy projects. Only renewable energy projects are getting funded. The banks and financial institutions are not focused on supporting the mining sector."

It's an "unsustainable situation," he continued, adding that non-traditional funding sources also are needed to rebalance U.S. energy markets.

Noting the recent warning from the PJM Interconnection, that it may have trouble meeting electric demand in its wholesale market, Reeves said "the people in the U.S. have First World expectations about their electricity -- when they flip a switch, they expect the lights to come on. When it becomes like Venezuela, where there are 12-hour blackouts, you'll see a change" in energy policy.

But in the next breath, Reeves seemed to soften that prediction, saying, "We won't be jumping off a cliff, but we will continue running downhill until we bottom out."

"If projected mineral consumption rates are reasonably accurate, the industry is locked into an unsustainable situation regardless of what happens with respect to climate policy," Reeves said. "Major mining companies are not buying junior greenfield development projects; most merger & acquisition activity involved producing companies/mines."

Most mining development activity by the majors is incremental expansion of existing operations, with little greenfield project development, he continued. Junior mining companies, he said, are attempting to develop mining properties to monetize their asset and exploration expenditures with limited success.

He asked rhetorically whether a carbon-free economy was possible or even desirable for developed economies. Reeves noted that renewable electricity generation like wind and solar were not dispatchable and that "low-cost energy storage is still an R&D project." In addition, "most rare earth elements are located outside of the U.S. sphere of influence while at least a century of fossil fuel reserves are currently within the U.S. sphere of influence."

"In the face of rising natural gas prices, the two lowest-cost U.S. sources of base load (electric generation), coal and nuclear, have been effectively capped at current generation levels by U.S. government policies, which are now partially enshrined in legislation" like the Inflation Reduction Act (IRA), which was signed into law by President Joe Biden last summer, Reeves said.

He asserted that climate-change policies "have taken on a religious fervor in California," even though the Golden State imports up to 65% of its electricity. Moreover, he said that renewable energy has significant environmental impacts that are being ignored, but nonetheless are real. Reeves charged that the mining and processing of rare earth minerals "has far greater environmental impact than fossil fuel production."

He referenced an estimate from The Wall Street Journal that implementing current climate-change mitigation proposals, when adjusted for inflation, will total $144 trillion worldwide over an undetermined period of time. Reeves further asserted that the current climate-change mitigation proposals "will not produce an economic return as they will not increase efficiency or productivity."

Reeves said, "This is one of the few times in U.S. history that energy commodities are showing monopoly price behavior, in large part due to government actions and responses to social pressures by financial institutions." New development and increased supply opportunities are limited due to federal limitations and moratoria on:

• Oil and gas transportation infrastructure
• Leasing and permitting of oil and gas
• Leasing and permitting of coal mine development
• Permitting of new-build coal or nuclear power plants

"Even new-build gas plants are declining," he commented. "Due to government support, funding has been diverted away from established energy commodities to renewable energy projects in an uncertain attempt to stop climate change. As a result, many fossil fuel producers, awash with cash due to high prices, have reduced capital investment and expansion with dividends and share buybacks."

He concluded by asking, again rhetorically, whether developed economies could remain prosperous with energy prices at monopoly levels. "Over time, the end result may be the standard of living in the First World approached the Third World."

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).