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Historical copper and oil consumption since; Data source: BP statistical energy review, JeGross, GCSG
below: Price evolution of copper and oil; Data source: Bloomberg
Copper is a critical metal for our societies and its use is expected to increase significantly beyond the growth rates we have experienced over the past decades. These historic growth rates of 3-4% per year were strongly linked with the aspiration of many nations towards higher GDPs and hence, increased overall energy demand.
Mobility transition away from fossil fuels and increased renewable energy production will be faced with a material increase in the use of copper for these technologies such as wind generated electricity, electric cars and trucks, solar power and the upgrade of the ageing electricity grids in all major urban hubs.
In light of this background, we examined copper‘s source and how it compares to the “old world“ we live in today which is powered by energy that largely originates from fossil sources.
We compiled data from the largest copper mines on the globe and compared this database with the world‘s largest oil fields. The results are surprisingly similar from a supply perspective. Looking at the historical price development of these two commodities shows, that not only the growth rate of copper demand has decoupled from that of oil, but also the price increases for the two commodities.
Indeed, copper might just be the new oil.
Oil
The 15 largest oil fields ever discovered on this planet provided initial reserves that amount to roughly 25% of global oil reserves. Hence they carry weight. Many of these fields are controled by countries which are member of the so called OPEC group. Today, the OPEC countries produce around 30% of the world‘s oil. Although it does not seem to be a particularly high share, over the decades, this group was able to significantly impact oil prices, especially as they have the ability to supply the market with spare oil capacity from Saudi Arabia.
The Arabian peninsula hosts the largest oil fields globally. 53% of the top 15 oil fields (not including Iran) are located there. These 5 Arabian deposits account for roughly 13% of global reserves.
Copper
What the Arabian peninsula is for oil, so are Chile and Peru for copper. Both countries provide 40% of globally mined copper. Of the top 15 copper mines, 9 are located there, accounting for 63% of the reserves hosted in these 15 deposits. These 15 deposits host 17% of global copper reserves.
The copper mining industry is far more concentrated than the oil industry with two countries alone, Chile and Peru, controlling 40% of supply (vs 15 OPEC countries controlling 30% of global oil). The big difference is that neither Peru nor Chile have spare production capacity and their copper supply have been in decline for several years already.
A very similar situation can be observed when looking at the age of the deposits. As with the giant oil fileds, the mammoth copper deposits are old. Their discoveries date back from the 19th century to the mid 20th century. Today the world relies on hydrocarbon energy from very old fields and on copper from even older deposits which should make the energy transition into renewable energy possible.
Data source: Company reports, Scotia
