How resources players are crossing the industry divide to drive decarbonisation across Asia-Pacific

The global push for decarbonisation is reshaping traditional industry boundaries for energy and mining and metals players. Sector lines are blurring as mining and metals companies, seeking to secure reliable, cost-effective clean power, are engaging more closely with the previously unfamiliar energy value chain. Similarly, energy companies are broadening their expertise in the markets for critical raw materials on which the energy transition depends.

At Baringa we're seeing industry sectors that once competed for capital and global talent uniting to tackle the challenge of reducing the emissions associated with producing metals like aluminium, steel and copper. We are working with mining companies investing in green energy initiatives, oil and gas majors collaborating with energy businesses on renewable energy projects, and metal producers changing their approach to power procurement.

Many of our resources clients are exploring investments in new classes of clean assets, including future fuels like hydrogen, creating unprecedented overlap between previously separate sectors. Hydrogen is poised to play a pivotal role in decarbonising hard-to-abate sectors like steel and aluminium. With green hydrogen facing challenges with scale and commercial viability, many major energy companies are exploring hybrid clean hydrogen solutions, including integrating carbon capture utilisation and storage (CCUS) capacity and co-located renewable power generation. 

This article shares examples of how resources players across Asia Pacific are crossing industry divides as they explore and implement innovative decarbonisation strategies – and the market information they are using to inform investment decisions. 

Examples of cross-industry decarbonisation plays in Asia Pacific

We see three key themes for success as industry players position to create value in the middle ground between traditional sectors as Asia Pacific’s economies decarbonise. 

1. Knowledge of both the energy and commodity markets to develop new green, or clean, low-emissions products.
2. A clear understanding of cross-border decarbonisation opportunities within the region’s commodity markets, and the policy frameworks that best facilitate collaboration.    
3. An ability to manage cross-value-chain development risk through end-to-end supply chain ownership – either directly, or by forming consortia.

The following examples illustrate some of these elements in action.

Source: Baringa

1. Knowledge of both the energy and commodities markets to develop new green products

This dual market insight enables companies to create solutions that not only meet environmental goals but also align with economic realities, driving competitive advantage in a rapidly evolving landscape.

Example: An oil and gas major, steel maker and iron ore miner aim to export low emissions iron feedstock from Australia to the Asian steel industry.

With the global steel industry responsible for approximately 8% of global greenhouse gas emission, the need to collaborate to develop innovative solutions to decarbonise iron and steel making has never been greater. Across the region, we are increasingly seeing Asian steelmakers partner with Australian iron ore miners and global energy companies to explore pathways to competitively produce low emissions iron and steel products. 

Producing green iron requires both renewable energy and green hydrogen, making energy players a critical part of a development consortium. Pre-feasibility studies of green iron projects therefore require detailed understanding of both energy costs and end commodity markets to design viable solutions. 

For example, we've worked closely with a green iron and steel project developer to undertake technoeconomic modelling and assist in commercially optimising facility design. This work was part of a detailed feasibility study to develop a green or low emissions, fully integrated steel mill in Western Australia. The mill will produce products for export into Asia, as well as iron and steel products that could help decarbonisation in domestic markets.

Source: Baringa

Example: Asian metals commodities traders are shaping carbon markets and developing new green products. 

Traditional commodities traders are looking at carbon offsets and energy markets as potential opportunities to create new, high-value products, as well as meet decarbonisation or compliance obligations. Robust green products that can command a premium require traceable and attributable carbon credits, and data platforms to underpin carbon accounting. Baringa works closely with trading businesses to understand the commercial drivers for these (sometimes nascent) markets, as well as the operational requirements to trade across major Asian markets, such as Australia, Singapore and Japan.

Similarly, commodities traders are looking to capitalise on the value driven by relatively low-emissions production for various products. This requires a comprehensive and defendable definition of the Scope 1, 2 and 3 emissions associated with a given product – a process that is often extremely complex, requiring inputs from multiple parties in different countries.  

Example: Mining and metals producers transitioning to cleaner sources of power

Electricity accounts for around 30% of the cost of aluminium smelting, with the vast majority of Asia-Pacific aluminium smelters powered by co-located, coal-fuelled power plants. In Australia, the energy transition of the power grid is progressing at pace. The resulting portfolio of large-scale renewable power generation, energy storage solutions and flexible firming capacity provides the platform for heavy industry to transition to low-carbon power. 

Our heavy industry clients are asking us to help them identify opportunities to add value to their business as they transition to these cleaner sources of power. By modelling different renewable power generation, power storage and firming asset configurations, and assessing the risks of each portfolio solution, we help these clients – including an Australian-based aluminium smelter – to select the optimal clean power sourcing pathway that best secures the long-term viability of their business.

Source: Baringa

2. A deep understanding of cross-border decarbonisation policy ambition

Cross-border collaboration overcomes the issue that the best markets for producing green commodities and power, or developing carbon storage, are not necessarily those with the highest appetite to pay for abatement. A deep understanding of the regional market as a whole is essential to capture the highest value, near-term opportunities.

Example: Australian clean hydrogen export projects to Japan and Singapore

A key challenge for green hydrogen export projects is securing offtake. Government subsidies are typically aimed at the production side (e.g., Australian Hydrogen HeadStart, or Production tax credit) or the buyer side (e.g. Japan’s Hydrogen Society Promotion Act’s offtake Contract for Difference, or Singapore’s tenders for ammonia fuelled power generation) depending on the needs of the market.

Securing offtake from multiple markets in an export play necessitates cross-border collaboration. This often involves forming consortia with diverse participants who need to align around the design of export projects that meet the requirements of different, often not fully formed, jurisdictional schemes. Baringa is supporting such consortia to design flexible commercial strategies appropriate for the policy environment, energy market environment and emerging carbon markets across Australia, Japan, Singapore and South Korea.

Source: Baringa

Example: Offshore carbon capture and storage projects designed to enable cross-border trade

In Australia, recent amendments to the federal London Protocol pave the way for companies to participate in cross-border carbon transport and storage networks. This allows regional trade partners to benefit from Australia’s ample geological storage resources for carbon transport and storage projects.

Source: Baringa

3. Managing cross value-chain development risk through end-to-end ownership or establishing consortia

When projects include high degrees of technology and nascent market risk, those progressing fastest are able to manage cross-value-chain risk via vertical integration or ownership of the supply chain. 

Example: Oil majors establishing themselves as key players in Asia-Pacific’s emerging Carbon Capture and Storage (CCS) industry

Given CCS projects benefit from economies of scale, a key challenge is sourcing sufficient captured carbon dioxide within transportable distance from the storage facility. As heavy emitters themselves, oil and gas companies can source substantial volumes of captured carbon from a single, owned asset, such as an LNG facility. This approach mitigates the cross-chain development risk that emerges when a CCS project relies on multiple, scattered carbon capture facilities, likely with individual development timelines. 

Oil and gas companies are also uniquely placed to develop carbon storage reservoirs beneath the ocean floor, with existing geological expertise and capabilities enabling them to locate and assess potential storage sites. For example, they can use their own depleted oil and gas reservoirs to store carbon far more economically than could be achieved with a saline aquifer. Repurposing oil and gas assets for storage enables the use of existing pipeline infrastructure and means the geology of the reservoir is already well understood. 

Example: Governments seeking to encourage CCS investment by supporting risk management

Policy makers and government are increasingly looking to step in to help manage CCS project risk, to broaden the field for competition and accelerate the development of projects. We work with government clients to define commercial strategies and policy frameworks to augment these new industry development pathways.

Navigating the energy transition successfully will require resources companies to invest in a deeper understanding of new markets and value chains to support strategic engagement with adjacent sectors to capture emerging opportunities. 

Let Baringa help your organisation navigate the energy transition. We’ve helped some of the world’s largest energy companies develop and implement strategies to achieve net zero through: operational improvement, investment in new energies and technologies, and divestment and decommissioning of old assets. Using a range of market models, we advise organisations across the value chain and throughout the asset lifecycle on commercial strategies and business models.