ArrowHead Models – Rare Earth Elements

The ArrowHead Global Rare Earth Model (AGREM) Represents the Way Global Rare Earth Elements Markets Work throughout the World

Rare Earth Elements Importance and Needs

Rare earth elements (REEs) have become of increasing concern to companies and policy makers in the United States and elsewhere in the world as they endeavor to begin and accelerate the era of energy transition and electrification. To correctly make critical decisions, especially as a result of new infrastructure bills, critical materials bills, Department of Energy (DOE) policy, Environmental Protection Agency (EPA) policy, and impending and accelerating national and state regulation, government and companies need to understand (along all global supply chains and value-added chains of so called “rare earths”) the future:

• availability
• price
• quantity
• capacity retirements
• capacity additions

To correctly make decisions and answer many critical questions, decision makers must know future prices, production levels, consumption levels, imports, and exports for every REE facility in every country in every region of the world. There is no substitute; that information must be understood and known now and forward in time in order to make correct decisions, both in terms of REE supply as well as REE incorporation into products in which REE components are essential. Energy policy in the United States and around the world is becoming critically dependent on rare earths and other critical elements, and decision makers need the capability to understand them soup to nuts and as they look to the future. Companies considering the impact of the push toward green energy on their development and retirement decisions and on their business, those considering developing new REE resources, those needing REE for the development of their products, such as electric vehicle (EV) manufacturers, or those considering development of renewable resources will very much need this crucial REE information. One cannot understand or predict fully the cost, penetration, and application of renewables and increased electrification, e.g., electric vehicles (EVs), without the crucial REE information.

First Ever Multiregional Global Economic Models for Rare Earths

We have what the hydrocarbon and electricity industry as well as policy makers want to meet those needs: a multiregional global economic Rare Earths Elements model. (Dr. Carl Nesbitt, Mackay School of Mines, renowned mining-metallurgical-chemical engineer, delivered the technology and chemistry data for this model. He has worked and taught in the mining and metals production industries for over three decades.) We already have the most comprehensive electricity generation-transmission-load model in the industry to help us know the true economic and environmental value-added of additional and better rare earths- and lithium-based technologies and prices. These models enable management and policy makers to the answer critical questions they are asking, such as:

1. Are there enough rare earth elements (REEs) to support greening and decarbonization, or is it a stretch too far?

• Will rare earths like neodymium, dysprosium, and praseodymium be available to manufacture the burgeoning number of high temperature permanent magnets required?
• At what prices? Are such prices economically viable for those technologies?
• Will Chinese market power in rare earths torpedo things like wind turbines and EVs and cause vendors to eschew them?
• What does it take to blunt such market power? Building competing processes downstream from the monopoly constraint? Building processes upstream from the monopoly constraint (i.e., excess capacity)?
• If some rare earths need to be coproduced in excess (a joint production problem known to economists), how low will certain rare earths prices have to go? Which rare earths are byproducts and how low will their price/disposal costs go? How much drag on profitability will that entail?
• Does it matter if we have domestic REE mining and processing? Do we need it in our own country or continent? Or can we rely on it in other countries or continents, secure in the knowledge that it will be available to our green industries?

2. Shortages or bottlenecks in rare earth supply will drive up rare earth element prices. REE usage is not independent of price.

• How high can prices go before some or all rare earths become noncompetitive in various end uses? How high a price would daunt RRE use in wind turbines or EVs?
• Are price histories or historical extrapolations/projections at all relevant? (No!)
• Can rare earth elements be recycled and reused economically? How much will that decrease price

3. For companies considering investments, where are the potentially attractive investment targets in every supply chain of every commodity sector as well as the energy sector?

4, Is the green revolution going to soak up all the capital and deny it to hydrocarbon and other sectors?

• Where is the bulk of the capital in the energy system deployed? (Everyone thinks they know the answer, but they probably don’t.)
• The answer is crucial to understanding the hydrocarbon and renewables industries and capitalization thereof.
• It is why countries and utilities have trouble adapting.

5. Is the Green revolution going to harm or sink the hydrocarbon business?

• At what rate?
• In what market segments?
• What are the key competitors against hydrocarbons?
• How much hydrocarbon demand will be “left over” for the oil and gas industry after green technologies take their cut?
• How will decarbonization affect crude, condensate, NGL, and gas prices?
• Are peak oil or gas scenarios really credible? Or is there plenty of oil and gas supply to meet demand even after green technologies penetrate?

Detailed, Comprehensive Representation of Market Components

To correctly make any investment decision on new development whether in renewables or traditional energy commodities, companies need to accurately project and understand future prices and quantities for all of the pertinent rare-earth commodities to determine whether the investment will be profitable before the investment is made rather than after. Similarly, legislators and energy regulators also need to understand the impact of their proposed regulatory actions to determine whether the action will achieve the intended goals and not cause drastic unexpected market repercussions,  before the regulatory action is taken rather than after. The only way to meet these requirements is having an accurate way of projecting future prices and quantities for all rare earth commodities globally at every location. Companies and governments also need to know how much total of each rare earth element  or other critical materials, such as lithium, emanate from every element of every value chain in the world under prospective policy actions up and down the value chains and add them all up. ArrowHead has long enabled companies to understand these complex issues using its global economic models for many commodities, such as power, emissions, natural gas, oil, refined products, petrochemicals, etc.

The figure above shows the simple, direct, and accurate way ArrowHead does it. For example, our Global Integrated Hydrocarbon Model is an economic model with ~50,000 nodes that span the world, so we can do what the figure at right shows – comprehensively throughout the world, represent worldwide every element of the pertinent supply-demand-transportation chain that come out by node, by region. Because each node in the model contains the economic science for representing the competitive behavior and the operational characteristics  of the real-world market aspect it represents, this ensures perfect accounting along each supply chain, taking perfect account of every process all along the way. Such information is exhaustive, accurate, and policy-sensitive, essential to correctly informing decision making. ArrowHead models explicitly and accurately model engineering, emissions, and economic activity for every element of the energy value chain throughout the world. The outputs are accurate projections of market prices, quantities, and capacity changes that occur under the combination of assumptions in our base cases or that correspond to clients’ viewpoints.

Without a technology that allows for explicit and transparent itemization and accounting for every market component that flows from mine to end-use applications, assumptions are obfuscated, and accounting is inaccurate. Only Arrowhead provides the visual, economic, value-chain model that allows for this level of forensic accounting of the intersection of technology, emissions, economics, and policy. Companies and governments cannot exhaustively and transparently quantify how the energy system affects them nor how they affect the energy system. Other than ArrowHead, no one has represented the inter-linked operation of rare earth elements (and other critical materials) similar to what we have done over the years with oil, natural gas, petrochemical, renewables, and electricity sectors of the energy market to see how they jointly combine to release CO₂, CH₄, and other pollutants up and down every value chain in the world. Additionally, because the ArrowHead models are economic models using the correct economics for representing competitive markets, the model results are accurate projections of prices, quantities, and capacity changes at every point in the markets. Without this, companies and agencies lack the most important information they need to make the right decisions. No one, except ArrowHead, has a world rare earths model containing every value chain to guide them capable of integrating easily with our other models of interrelated markets, such as our North American Power and Environment Model. We will help you understand these complex integrated markets and make the right decisions.

Absent such understanding, the public, the government, and companies are bombarded with solar, wind, biomass, battery, electric vehicle, fuel cell, hydrogen, and hybrid advocacy or scenarios with “colorful, adjectival names” and astronomical claims but without scientific or economic justification. They have no idea how various scenarios someone might proffer will help citizens of any particular country or the world as a whole or simply shift the problem to some other location in the world and impose on certain people.

AGREM Capability and Options

ArrowHead provides the capability to accurately project critical REE information (such as prices, quantities, and capacity changes) on a continuous time basis to help understand the markets and provide information for decision makers and those that inform them. The only way to do that reliably and accurately is with a global REE economic model which can accurately project prices, quantities, and capacity changes globally at every location worldwide for rare earths. We are aware of no one other than ArrowHead who provides the capability described here. ArrowHead has added the Global Rare Earth Elements Model to our many other economic models for other commodities such as North American Power and Environment, Global Natural Gas and LNG,  Global Oil and Refined Products, and Global Integrated Hydrocarbons, all of which were created using the ArrowHead Modeling Platform. For years, these models have been used by ArrowHead clients (or by ArrowHead market experts on their behalf) to correctly inform decisions and understand these markets and the impact that recent or possible industry events have on the markets and their business.

The ArrowHead Global Rare Earth Elements Model is a comprehensive, world scope, supply-transportation-demand economic model of the Rare Earths. It can answer the critical economic and price questions about rare earths. Not only that, the wealth of discussion of the topic is immense – you have a full world supply-demand balance model and the prices that exactly balance all those supplies and demand. Such discussions will greatly aid policy makers and decision makers in the greening world to make cost effective and profitable decisions. And no one else can build it because they lack the economic-modeling technology.

As with all of our models, the outputs of model runs are the projected prices and quantities for each REE at every point in time over the time horizon at every market point globally. The model also outputs capacity and transportation changes. The data used and the network structure are transparent and easily viewable by clients. All data, network structure, and assumptions can be reviewed and fully adjusted to include clients’ point of view, whether for a client base case or for any scenario. The global REE model includes use of the ArrowHead Dashboard, a simple and intuitive, yet powerful user interface for viewing all model results in attractive dashboards to display model results.

AGREM can be licensed with the ArrowHead Modeling Platform but is also provided to clients via a license of ArrowHead MarketVision, a high-technology, cloud-deployed visualization procedure for viewing and presenting ArrowHead model projections for prices, quantities, and capacity changes, for all REEs at every market point globally.