0 Capturing the Biggest Business Opportunity in a Century… Resource Revolution Matt Rogers McKinsey & Company Global Outlook Norway Arendal August 2015
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Capturing the Biggest Business Opportunity in a Century…Resource Revolution
Matt RogersMcKinsey & CompanyGlobal Outlook NorwayArendal August 2015
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Resource Revolution – the Basics
▪ 2.5B people entering the middle class, even as resources get harder to produce—companies need to improve resource productivity 3-5% annually to keep up
▪ The opportunity: Combining information technology with industrial technologycan drive 10x productivity improvements on both supply and demand side
▪ This shift in the way we produce and use resources will restructure most traditionalindustrial markets and will require a new approach to management
▪ Today’s examples: Buildings, Autos,Oil, Consumer Electronics, Power,Agriculture—each industry facing a 10x productivity shift today
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The economic revolution underway is 3000 times larger thanthe UK Industrial Revolution
Country
Years to double per capita GDP Population at start of growthperiodMillion
United Kingdom 9154
United States 1053
Germany 2865
Japan 4833
Year 1700 1800 1900 2000
South Korea 2210
China 1,02312
India 82216
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The core challenge: we haven’t seen productivity shift we haveexperienced for labor in energy and other commodities
1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020
GDP perhour worked(labor)
GDP perton of oilequivalent(resource)
Productivity growth(multiples of 1820 productivity)48
36
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12
0
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China is building the equivalent of 100 New Yorks in 20 years
0
20
2000 2004 2008 2012 20162002 2006 2010 2014 2018 2020
40
60
80
100
2020 projections• 350 million in additional urban population• 221 total cities with populations of more
than 1 million• 170 new mass transit systems
Chinese building stock growthNew York City floor space equivalents added
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We are seeing a transformation across industries, for example,modular building can save 30-80% of energy and materials
Modular building techniquesemployed by the Chinesedeveloper Broad SustainableBuilding
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Broad Sustainable Building
Video of BSB building erected in 15 days
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What’s ahead: much lower cost, easier to assemble buildings withnet zero energy at a rental premium (PRIME)
More useablespaceFaster tobuildEasier toconfigure
Moving from R2 to R30
Efficient
Productive Integrated
Modular
Better lighting; comfort; security
▪ AdvancedHVAC
▪ Solar plusstorage
▪ LEDsplus wifimakesDSM
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In oil, hydraulic fracturing – video game technology meets drilling
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North American LTO production continues to grow, in spite of low oilprices, now surpassing 4 mmbd
SOURCE: HPDI; EIA; McKinsey analysis; NEB
U.S. LTO production (MMBD)4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0201520122011 201420132010
+52% p.a.
Eagle FordNiobraraBakkenWolfcamp
Other Avalon Bone Springs
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Restoring health to the oil and gas industry requires a fundamentalrethink of capital projects to drive break-even back down to $60/bbl
Mobile, Data-Driven O&M
IncreasedRecovery
Robotics
Design for constructability
Productivity
Autonomous SupplyChain
ModularizationDesign to cost
Power by the Hour
Sensors/Big Data Analytics
Logistics
Quality
Advancedmaterials
3D Printing
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In automotive, we are seeing the development of softwaredefined machinery, e.g. Tesla
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… and sharing is “in the money” for low mileage customers
02 0004 0006 0008 000
10 00012 00014 00016 00018 00020 00022 000
0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000
Annual cost of mobility$/vehicle equivalent
Mileage drivenper annum
4,876
BAY AREA
9,950 13,022
UberX
Purchase New Car
Leasing New Car
LyftLine
DriveNow
Public Transit
Ave. US driver(13,476 miles p.a.)1
15 13 14 14 129
22Percentage of US drivers
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These trends are restructuring the transportation industry from 67cents/mile today to 10 cents/mile and universal access (ACES)
Autonomousmaintenance& charging
Extend range
Electrified
Autonomous Shared
Connected/Software Auto route
Match open trips & 2 minute service
No upfront costsforbatteriesUse onlythe sizecar youneed
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We see massive structural waste in the food system Productive use
Land degradation~20% of arable land inEU is affected by soildegradation
Fertilizer utilization
Used by inediblepart of crop3
Lost orwasted
Not absorbedby human body
Fertiliser used to feed people
95% of fertilizers do not providenutrients to human body
Not takenup by
crops (upto 70%)
Releasing GHGemissions andcausingeutrophicationand drink waterpollution
Food wasteIn Europe, ~31% of ediblefood mass produced is lostor wasted
69% consumed
11% consumer waste
20% valuechain waste
Malnutrition deaths and diseasesObesity is responsible for~5% of deaths
50+% of Europeanpopulation isoverweight (30+%)or obese (22%)2
~5% of EUpopulation is at riskof undernutrition
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Big data meets industrial technology to change agriculture (andconstruction, pipeline safety, environmental monitoring, etc.)
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The Resource Revolution fundamentals are launching the NextAgricultural Revolution
Reducing risk
Broader reachBacterial
Innovation
Field to TableSupply Chain
Data-DrivenAutomations
Substitution/Synthetics Scalability
Eliminate waste
Driving upfieldproductivity
50% lesswater andfertilizer; 10-20% betteryield
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Across technologies, our materials dependency has become morecomplexElements widely used in energy pathways
1700 1800 1900 2000
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And we are increasingly drawing on rare materials
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Increasing supply risk Sustainable for now Some concern Significant risk/impact
Industrial usesDependency(mined onlyas byproductof anothermaterial)
Potential for shortage
Globalmarket size$ Billions
Volatility(2004-2009standarddeviation ofprice/meanprice)
Geographicconcentra -tion (numberof countrieswithsignificantreserves)
Recyclability(classifica -tion andpercentestimate forrecycling)
Impact of shortage
Contribu -tion toproductionprocesses
Resourcelinkages withfood/ energy
Years ofreserves(reserves/annualproduction)
Substitut-abiity
CobaltIndium
Chromium
PhosphorousPotash
Vanadium
GermaniumIron ore
Platinumgroup metals
Coking coal
Rare earth
Low16 29% High44.7 HighPossible High60%
83 38% High Medium3.0 HighChallenges High25%
N/A 34% High High0.1 LowChallenges Medium30%
N/A 24% High High0.3 LowPossible High60%-65%
Tungsten 48 33% High Low1.6 Possible High Medium30%-40%
Molybdenum Low42 34% Low6.0 MediumPossible High30%
Energy, autos, textiles, construction, electronics
AgricultureEnergy, fertilisers, primary constituent of gunpowder
Energy, steels, chemical industry, ceramic manufacture
Energy, steel, medicine, agriculture
Energy, technology, plastics
Energy, dental
Energy, high intensity industrial processes
Steel, construction, industrial applications
Construction, manufacturing, aerospace
Energy, household goods, coinage, jewelry, dentistry
Technology manufacturing, medicine, glass, oil and gas
Tehnology manufacturing, lubrication and heat transfer,paint
Steel production
Energy, glass industry as colouring and polishing agents
Electronics manufacturing, construction, chemicals,glassware
Energy, autos, plasticsEnergy, technology manufacturing, medicine
LowLow21 406 62% High Difficult High HighLowLow18 283 68% High68% Difficult High High
243 45% High Medium Medium1.2 MediumDifficult High
Lithium 514 8% Low Medium Medium0.1 Energy, ceramics, pharmaceuticals, aerospaceHighChallenges Low
61%Low206 75 30% Low Difficult High High
Copper 32%Low144 39 30% Medium Energy, constructionChallenges High MediumZinc 30%Low28 21 45% Low Automotive, building and constructionPossible High Low
Bauxite/Aluminum 1 48%Low72 133 18% High Challenges High Medium
Jewelry, electronics, aedical, aerospaceGold HighLow104 20 40% Low Challenges Low Low
Nickel 43%Low29 49 42% Low Construction, chemicalsDifficult High Low
Silver HighLow14 23 29% Low Possible Medium Low
MediumMedium203 174 24% Medium Difficult Medium Low
Lead 77%Low20 20 30% Low Challenges High Low
LowLow151 <50 34% Medium Challenges High High
LowHigh11 846 42% High Difficult High Low
Tin 34%Low7 20 24% Medium Possible High Low
N/A 10% High High High0.1Gallium MediumChallenges Medium
1 Data for reserves and geographic risk pertain to Bauxite. Other data pertain to Aluminum; 2 Wherever possible, market size represents finished/refined metal e.g., market size is for Aluminum metal and not Aluminaor Bauxite; 3 2009 data; 4 Platinum group metals includes ruthenium, rhodium, palladium, osmium, iridium, and platinum and are grouped together because of their similar physical and chemical properties as well astendency to occur together in the same mineral
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As a result, the Consumer Electronics Industries are restructuringrapidly (TECH)
Bette
r Pro
duct
s
Better Supply Chains
Efficient
Totalengineering
Holistic endgame
CircularSupply
Recycling start to finish
Integrated Life Cycle
managem
ent
Softw
are
upgr
adea
ble
Better market structure
Risk substituted out
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Demandmanagementnetworks
Now, Power needs to control a digital Network of Networks at theGrid Edge
Wind farm
Offices
Disturbancein grid
Centralpower plant
Industrial plant
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Isolated microgrid
HomesEfficiency/
Smart appliancesNetworks
StorageNetworks
Distributed GenerationNetworks
SmartMeter
Networks
123
123
Cyber
ElectricVehicle
Networks
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So, even the mature utility industry is undergoing a major 10xproductivity restructuring (4D)
10^6 moreinformationintensive
Disruptive
Distributedresources
Dispatcheddemand
Digitalnetwork
Integratingtransportation
Matching supply and demand resourcesin real time to keep market balanced
Localizeddemandmgmt
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Get the full story
Available onAmazon.comRestructuring markets globally:
▪ Transportation
▪ Utilities and Water
▪ Oil and Gas
▪ Mining
▪ Buildings and Construction
▪ Food and Agriculture
#ResourceRev
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