Critical Minerals and the Renewable Energy Paradox
- PillarFour Capital Partners
- Sep 29
- 13 min read
Abstract
Energy addition, not energy transition: Growing renewable energy capacity has served to expand the global energy supply rather than displace fossil fuel consumption, which has increased four years running despite the rapid expansion of renewable capacity.
Significant upstream investment will be required: To address projected oil & gas demand growth and offset accelerating field decline rates, the IEA now estimates US$18.2 trillion of cumulative upstream investment by 2050.
Renewables are critical mineral-intensive: The energy addition/transition is fundamentally a critical minerals transition - wind and solar require 17 - 27 times more critical minerals and rare earths (REEs) than fossil-fuelled power plants by weight per TWh. EVs contain 6-fold more critical minerals and REEs than fossil-fuelled vehicles.
China’s near-monopoly of critical minerals creates new vulnerabilities: China dominates the processing of 19 of 20 strategically important critical minerals and REEs. China has weaponized this dominance through export controls, imposed post US tariffs. Western governments seek to reduce such dependence on China via international alliances, bilateral agreements, domestic legislation and direct investment in companies.
Technology Offers Some Hope: AI-driven exploration, digital twins, remote sensing and automated drilling could significantly improve discovery rates and reduce costs, compressing the typical 15-year development timeline for new mines.
The Paradox of Energy Security: Supply diversity is the cornerstone of energy security. The addition of renewables to the energy supply should improve energy security, yet the path toward renewable energy may well impede near-term energy security as well as economic growth and resilience.
The IEA - From Analysis To Advocacy
Founded in response to the 1973 oil crisis, the Paris-based International Energy Agency’s (IEA) original mandate was to ensure the security of global oil supplies. However, under Birol’s decade-long leadership, this mandate expanded to include renewable energy, energy efficiency and climate action. This broader brief also prompted an ill-advised pivot from the agency’s well-respected impartial data-led analyses and forecasts toward what some would regard as unwarranted advocacy for the energy transition amid a plethora of policy-led scenarios. Indeed, the IEA website describes its evolving mission as: ‘From oil security to steering the world toward secure and sustainable energy transitions’!
For many, the IEA’s 2021 ‘Net Zero by 2050’ report marked a nadir for the agency’s reputation. Albeit a scenario rather than a forecast, this report made headlines worldwide with its call for the immediate cessation of all oil & gas exploration and new field developments. The agency’s key but flawed underlying assumption was that existing fossil fuel demand would simply and swiftly wither away in the face of rapidly expanding, price-competitive global renewables capacity, thus rendering all fresh upstream investments unnecessary. A gift for environmental campaigners, this IEA report was subsequently cited in various lawsuits against oil & gas companies. The report also warned that swathes of imminent field developments risked becoming stranded, worthless assets - potentially wiping an estimated US$1 trillion-plus off publicly quoted oil & gas equity valuations. Some European banks, keen to burnish their net zero credentials (and protect their balance sheet from such calamity), duly pledged to cease directly financing new oil and gas projects.
Energy Security Trumps Transition
However, Russia’s invasion of Ukraine soon provided a stark reminder to politicians (and financiers) worldwide - particularly those across Europe - that when it comes to ‘keeping the lights on’, the immediate need for energy security clearly tops that of the energy transition.
Europe rapidly became the largest customer worldwide for US LNG. But, four years on, the EU’s landmark Methane Emissions Regulations, set to begin in 2027, potentially threaten the future of such vital US LNG imports. However, in response to US objections, the EU’s Director General for Energy has already conceded that Europe will implement such regulations ‘in a way that doesn’t constitute an irritant in any way.’ Pragmatism wins out!
So how has global fossil fuel demand fared since the IEA’s 2021 ‘call to arms’? Is the energy transition progressing in accordance with the IEA’s Net Zero scenario?
Energy Addition, Not Energy Transition
On a global basis, there is currently little evidence of a rapid or even significant energy transition: the overall energy supply is however benefiting from energy addition.
In hindsight, this should not be a surprise. When coal surpassed biomass in the 19th century and petroleum subsequently overtook coal in the 20th century, the incumbent energy sources continued growing in absolute terms for decades despite declining market shares.
Likewise, the rapid expansion of renewable energy capacity has certainly served to expand the global energy supply but, on a global basis, has not yet notably displaced fossil fuels in absolute terms. Overall primary energy demand for 2024 was up 2.1% year-on-year, but fossil fuel consumption also increased for the 4th year running, up 1.5% on 2023.
In 1973, oil and gas accounted for 62.2% of total primary energy supply, 86.7% with coal. Fifty years later, fossil fuels still represent the vast majority (80%) of primary energy supply, with oil and natural gas alone still accounting for more than half (52.3%).
Despite all the political, legislative and environmental support for the energy transition, there is clearly a disconnect between policy-led scenarios and reality: namely that oil and natural gas will continue to play a leading role in meeting growing overall energy demand.
Nevertheless, over the last decade, upstream oil & gas investment has fallen by 35%, from US$870 billion in 2015 to an estimated US$567 billion for 2025. Spare production capacity is also shrinking as OPEC+ members are unwinding voluntary cuts to their production quotas.
With field decline rates accelerating worldwide and a modest ca. 3 mmbopd ‘cushion’ of OPEC+ spare capacity, any further decline in global upstream investment would risk future supply deficits given the further demand growth forecast for oil and natural gas.
Significant Upstream Investment Required To Address Projected Oil & Gas Demand
As one might expect of an oil cartel, OPEC’s World Oil Outlook, published mid-2025, offers the most aggressive forecast for global oil demand in 2050: 123 mmbopd, up 18.5% from 2024 (0.7% CAGR). The associated upstream investment required to address such projected oil demand growth is estimated at US$15 trillion, or US$575 billion per annum out to 2050.
OPEC Estimates US$15 Trillion Of Upstream Investment To 2050
Despite its long-standing advocacy of the energy transition, the IEA finally performed a welcome volte face with its recent 2025 report ‘The Implications of Oil and Gas Decline Rates’.
Indeed, the IEA appears to have reverted to its original mandate: the security of oil supplies. The report warns that continued demand for oil & natural gas will require sustained, multi-year upstream investment of many hundreds of billions of dollars, primarily to counter accelerating field decline rates - as if field decline rates were a new phenomenon!
The IEA estimates some US$18.2 trillion (US$13 trillion for oil, US$5.2 trillion for gas), or US$700 billion per annum, of upstream investment is required to deliver the 20% increase in oil & gas production by 2050, forecast under the IEA’s latest ‘Current Policies’ scenario.
Furthermore, more than 75% (US$14 trillion) of the above upstream investment would be required just to maintain oil & gas production at current levels to 2050 - a stark illustration of the financial impact of accelerating field declines worldwide.
Global Energy Supply To 2050 - Oil & Gas Will Play A Significant 'Baseload' Role
In contrast to the IEA’s 2021 Net Zero by 2050 report that garnered so much attention, the reality is that the oil & gas industry is far from its sunset years. The above forecasts and those of the EIA, ExxonMobil and other industry players all highlight the need for significant upstream investment, ensuring sufficient supply to meet long-term oil & gas demand.
Global Energy Demand Growth Will Hinge On Renewable Energy Capacity
By 2050, per the IEA Current Policies scenario above, oil and gas will still represent almost half (49%) of global primary energy supply, more than renewables and nuclear combined.
With coal in steady long-term decline, global energy demand growth therefore entirely depends on the continued, rapid expansion of renewable energy capacity worldwide.
As investors in the upstream oil & gas space, we are well acquainted with the various geopolitical, technical, financial and logistic risks that accompany oil & gas exploration, development and production worldwide.
Given the fast-growing, pivotal role that renewable energy will play in enabling future global energy demand growth, we should perhaps compare and contrast the various risks that accompany these two vital contributors to future global energy supply capacity.
Renewable Energy Technologies are Mineral-Intensive
The transition toward renewable energy, albeit currently an addition of renewable energy, is fundamentally a materials transition - more accurately a critical minerals transition.
What Are Critical Metals, Minerals and Rare Earth Elements?
The most widely used critical metals and minerals include copper, nickel, manganese, cobalt, gallium, chromium, tungsten, molybdenum, zinc, lithium, graphite and silicon. There are 17 further rare earth elements (REEs) , the most widely used being neodymium, cerium, lanthanum, praseodymium, dysprosium and yttrium.
The US Department of Energy currently identifies 60 such critical minerals & REEs as being of strategic importance, the EU just 34.
Why Are They Of Such Strategic Importance?
Critical metals, minerals & rare earth elements (REEs} are essential for a host of strategic industries including renewable energy, automotive, defence, aerospace, advanced manufacturing, robotics, semiconductors, data centres, medical technologies, oil refining & petrochemicals. They underpin energy security, economic growth and resilience.
Critical minerals and rare earths are vital components of renewable energy technologies. Without them, wind turbines and solar PV panels could not generate power, electric vehicles (EVs) could not move, and battery systems and the grid could not efficiently store and transmit electricity respectively => there would be no energy transition (or addition).
Renewable energy technologies are considerably more mineral-intensive than their fossil fuel counterparts:
According to IEA analysis, an offshore wind turbine requires 15.5 tonnes of critical minerals per megawatt (MW) of capacity, onshore wind: 10.1 tonnes/MW, solar PV: 6.8 tonnes/MW.
By contrast, coal and gas-fired power plants need just 2.5 and 1.2 tonnes/MW respectively.
Once adjusted for average power plant life and utilisation, this disparity widens further.
Renewable Power Generation is Highly Dependent On Critical Minerals
Electric vehicles place an even larger demand on critical minerals - each EV battery requires ca. 240 kg, six-fold that required for an entire internal combustion engine vehicle.
Novel EV battery chemistries are being developed to reduce current dependence on high-cost critical minerals, within the constraints of energy density, cycle time and longevity.
And let’s not forget the grid. The growth of renewable power capacity, both offshore and onshore, alongside increased domestic and industrial power consumption by EVs, heat pumps, data centres etc will require substantial expansion and upgrading of power grids worldwide, driving significant demand growth for copper.
Explosive Growth Projections ‘Choked’ By Critical Mineral Mine Lead Times & Access To Finance
Ambitious growth scenarios for renewable energy in turn call for overall critical minerals demand to double, even triple by 2030 and quadruple by 2040 or 2050.
Even the IEA’s most conservative Stated Policies growth assumptions for renewable energy capacity, EV sales et al, call for a significant surge in demand for critical minerals and REEs: lithium up five-fold by 2040, graphite and nickel up two-fold, cobalt and REEs up 60% and copper up 30%.
Delivering such supply growth will however take many years and much investment:
From discovery to first production, developing a new mining project can take 15 years on average, depending on the mineral, location, and mine type.
At least US$500 - 600 billion will be required for investment in new mining capacity.
Long lead times and large investment requirements already make for tough commercial decisions. Given global economic uncertainty and low pricing (potentially due to Chinese dumping) for some critical minerals, access to finance and thus the pace of investment in fresh mine capacity has slowed - risking future supply deficits (and keeping the West beholden to Chinese exports). If these italicized comments appear paranoid, keep reading!
China Holds Most Of The Cards - Its Near-Monopoly Creates New Vulnerabilities
Well documented but seemingly ignored for many years, in part for environmental reasons, China has built a near-unassailable position across nearly every stage and type of critical mineral processing and refining, a dominance that it continues to consolidate.
The result is that, unlike oil & gas, critical mineral supply chains exhibit an extraordinary level of geographic concentration, creating profound geopolitical vulnerabilities.
As the leading refiner for 19 out of 20 energy-related critical minerals, China controls over 95% of refining capacity for graphite, processes 77% of cobalt, 70% of lithium and 35% of nickel. For rare earth elements, China's dominance is near-absolute: 92% of global mine-to-metal refining capacity and a similar share of rare earth magnet manufacturing capacity!
China Is The Dominant Refiner Of Critical Minerals and Rare Earth Elements (REEs)
Out Of the Frying Pan Into the Fire?
As the table below illustrates, renewable energy - and thus critical minerals - offers a vastly different complexion of geopolitical and supply chain risks to those of the oil & gas industry.
Geopolitical and Supply Chain Risks - A Comparison of Oil & Gas and Critical Minerals
China’s chokehold on critical minerals and rare earths provides an obvious source of economic leverage; growth of renewable energy will therefore likely compound rather than abate the geopolitical and supply chain risks of global energy.
Diversification being the cornerstone of energy security, China’s near-total control of those critical minerals that enable renewable energy clearly impedes Western energy security.
Furthermore, as highlighted earlier, critical minerals and REEs are not only crucial for renewable energy technologies but also play a vital role in many high-tech industries including aerospace, defence, semiconductors and medical technology, making them central not just to energy security but also to economic growth and resilience.
In the wake of Trump’s sweeping ‘Liberation Day’ tariffs of April 2025, China ‘weaponized’ its dominance of critical minerals and REEs by introducing punitive export controls on key rare earth elements, causing mayhem across just-in-time car industries in US & Europe.
Last month, in a marked escalation, China issued a broader set of export controls to disrupt global supply chains across a wide set of strategic industries but also hinder international efforts to diversify access to critical minerals via new refining and manufacturing projects.
Supply concentration for critical minerals and rare earths is a clear and present danger.
Too Little Too Late? Can The West Successfully Diversify Access To Critical Minerals?
Western governments clearly dropped the ball, allowing China to build a near-monopoly in global critical minerals markets. What practical remedies are available?
With such clear recent evidence of China’s intent and ability to ‘weaponize’ its dominance over critical minerals and REEs, Western nations are accelerating existing political and economic efforts to secure and establish diverse critical mineral supply chains:
International Alliances & Bilateral Agreements
A range of international alliances have been launched - the Mineral Security Partnership in 2022, the G7 Critical Minerals Production Alliance in 2025. Trump’s recent Asian tour saw a flurry of bilateral critical minerals agreements signed with Japan, Malaysia, Thailand, Australia and even China! Further agreements with the UK and EU may well follow.
Domestic Legislation & Financial Support
The US Inflation Reduction and CHIPS Act provides significant financial support to bolster domestic US production and processing of critical minerals.
As a resource-abundant nation, Canada introduced its Critical Minerals Strategy in late 2022 to position itself as a key Western supplier of critical minerals through targeted domestic upstream and processing investments. Likewise, the EU introduced its Critical Raw Materials Act in early 2024 - which sets targets for domestic extraction, processing and recycling to increase the resilience of its critical minerals supply chains.
Direct Investment
Of late, the US has been on a spending spree - investing directly in critical minerals projects to bolster resilience in a sector considered vital to national security.
2025 has seen the US government acquire:
A 10% (C$35.6 million) stake in Canadian miner Trilogy Metals, which is developing the Ambler Metals project in Alaska;
A 5% equity stake in publicly-quoted Lithium Americas and a separate 5% asset-level equity stake in the company’s Thacker Pass lithium mining project;
A US$400 million equity investment in MP Materials to accelerate the construction of a new rare earth processing plant in Texas.
The US and Australia also recently signed a joint US$8.5 billion investment deal, including a commitment to invest in an advanced gallium refinery in Western Australia.
Likewise. the EU and UK also provide financial support, including direct investments, to critical mineral supply chain players and projects.
Technology Offers Some Hope
All of the above alliances, bilateral agreements and direct investments are great but China’s lead in these markets likely ensures control of the supply chain for many years. Indeed, as discussed earlier, a major structural barrier to the swift diversification of the global supply of critical minerals is the sheer length of time - some 15 years on average - it takes to transform a discovery into commercial production.
However, a range of advanced technologies are being applied and developed to improve discovery success rates and thus reduce both the lead time and costs to first production.
Advanced Sensing and Imaging
Satellite, aeroplane and drone-based remote sensing technologies enable the efficient capture of regional, basin and prospect-scale data over all manner of terrain with high precision, including LiDAR, hyperspectral, electromagnetic and advanced gravity gradiometry data - the latter offering sufficient resolution to identify rare earth deposits.
AI-Based Exploration
AI-powered algorithms and models hope to transform mineral exploration by analysing geological, geophysical, geochemical and satellite datasets - the goal being to better and more swiftly predict deposit locations, grade, and tonnage. Some companies in this field claim that AI-based geological exploration can reduce drilling costs by up to 60% and quadruple discovery success rates.
3D Modelling and Digital Twins
Digital twin technology combined with 3D subsurface modelling simulate the pre-drill resource potential of a prospect, optimizing the exploration program, costs and risks.
Automated and Precision Extraction
Automated drilling tools and AI-guided sensors enable precision core extraction and high-resolution stratigraphic mapping of ore bodies, reducing costs and land disturbance.
Summary
The pursuit of renewable energy creates a paradox: the global drive for more renewable energy should ultimately improve energy security. However, the path toward renewable energy may well impede energy security in the near-term. Access to the necessary critical minerals and rare earths currently results in a profound overdependence on a single state-led vendor operating within a concentrated supply chain - a far cry from the globally diverse and well-established oil and natural gas/LNG supply chains.
Diminishing such supply chain risks will depend on the success of diversification efforts, technological substitution, recycling innovation, and the ability of Western governments and companies to build alternative supply chains at scale and speed.
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