We hear a lot of discussion in the media today about “critical minerals.” For the general public this might seem like jargon used by geologists and other professionals in the energy industry, so some context might help us understand this term and lend weight to the need to secure mineral supply chains for future energy production.
When we talk about “critical minerals,” we are referring to elements that are essential for electronic devices. These are elements in non-fuel minerals such as lithium in spodumene. They are also elements, like germanium and gallium, that are required for manufacturing integrated circuits for various electronics and sensors.
Defining ‘Criticality’
What makes these elements “critical”?
To start, we can look back to the Vietnam War for insight. Special operations forces during the conflict developed a targeting matrix for prioritizing targets for the Joint Chiefs of Staff. Assessments on strategic targets like railroad bridges used an acronym, “CARVER,” to find the most important and approachable targets that would have the greatest effect on the campaign. Much has been written about the CARVER matrix and I will leave it to those authors to explain the approach. I want to point out that the first letter in the acronym is given by the term “criticality.” This is for good reason. A risk assessment will find a vital system with a single point of failure that would be devastating if lost. During the war, this approach was used to determine which strategic targets would have the greatest effect.
An example of criticality can be found in the story of the destruction of bridge over the Song Ma River, 70-miles south of Hanoi. Much of the North Vietnamese Army support for the Vietcong guerrillas passed along rivers that flowed south. The town of Thanh Hoa was a major staging area of personnel and equipment crossing the demilitarized zone. The Dragon’s Jaw Bridge, as it came to be known due to its proximity to a geological feature, was a bottleneck along that transportation route through the demilitarized zone. Destruction of the bridge would significantly impede resupply of the guerrillas’ forces fighting the South Vietnamese and United States. The Joint Chiefs of Staff saw the bridge as a critical target, however sorties flown to attack the bridge during Operation Rolling Thunder failed. The substantial NVA air defenses protecting the bridge made an effective attack virtually impossible. Although it sustained minor damage several times from bombs or missiles, most bombs dropped to destroy it completely missed the bridge. Worse for the United States was the political firestorms that arose from downed pilots being paraded on American television by NVA forces.
The Pentagon awarded a contract to Texas Instruments for a solution. In 1958, an engineer for the company, Jack Kilby, invented the integrated circuit to simplify complicated wiring needed for transistors. The original company, Geophysical Services Inc., was a producer of seismic equipment for the petroleum industry. Texas Instruments was spun off from the parent company during the rapid growth of the laboratory division due to the semiconductor contracts for the military.
When the Pentagon submitted a request for proposals for guided bombs, the company proposed using semiconductor chips and a laser target designator in a kit that could be attached to preexisting free-fall bombs. The bombs would in effect be able to steer themselves precisely along a terminal trajectory to destroy the critical target by following laser light detected by the semiconductor chips. This is how the bridge over the Song Ma River was eventually destroyed.
Chips in Oil and Gas Production
It is easy to take for granted the availability of semiconductor chips in modern society. Today, integrated circuits made on semiconductor chips are built into practically every electronic device. The connection that exists between semiconductor chips and modern conveniences like those in our automobiles cannot be overstated. We are cognizant of our reliance on them only when a supply-chain crisis arises, as during the COVID-19 pandemic. Disruptions of semiconductor chips supply chains could have an adverse effect on any industry, including petroleum production.
For some perspective, consider just one significant example of their criticality in our industry: their role in the shale-gas and tight-oil revolution that happened in the United States due to the combination of hydraulic fracturing partnered with horizontal drilling technology. Measuring-while-drilling instruments downhole and sophisticated computers on the rig communicate information in real-time or near real-time. Horizontal drilling is very challenging without these technologies, because, well – just imagine geosteering based solely on lagged samples from the mud logger. This means data is obtained far behind the bit, and timing of corrective actions is delayed at the risk of drilling out of zone. Near-bit MWD and the precision guidance it affords is far superior because the reaction time for a course correction is minimized, resulting in reduced risk and greater potential cost savings.
The abundance of cheap semiconductor chips was the unsung hero of this revolution in petroleum production.
Now, consider all the chips used to link the internet so that this MWD information can be transmitted on- and off-location. Even if no information is transmitted to remote locations, connection between sites on the drilling pad is facilitated by the many chips in computer networking hardware. Therefore, if one nation could control the supply of chips used in manufacturing these components, it could control the whole petroleum industry by restricting that supply of raw materials. Here we can see how semiconductor chips are a critical part of the petroleum industry.
‘Chips are The New Oil’
In his book “Chip Wars,” Chris Miller covers the development of semiconductor chips over the decades. He cites Advanced Micro Devices’ CEO Jerry Sanders as once declaring, “Semiconductors are the crude oil of the 1980s, and the people who control the crude oil will control the electronics industry.” Miller paraphrases Sanders by writing, “Chips are the new oil.”
If, for example, the Vietcong could have somehow controlled the raw elements used in the Paveway II laser-guided bomb, the technology might never have been developed. Similarly, about a decade or so later, the Gulf War would not have ended so quickly. That war was about liberating Kuwait’s oil from Iraqi control. The crisis in semiconductor manufacturing is also about control.
Imagine for a moment that 90 percent of the world’s oil production came just from Kuwait. The coalition forces liberating the country from its Iraqi occupiers would have been operating on borrowed time. Fuel used for each sortie flown for dropping a precision-guided weapon would have been virtually irreplaceable. This is the situation today in Ukraine, where chips are critical to the asymmetric warfare for sovereignty.
This is the context for recent investments by Apple and the U.S. Department of Defense in companies like MP Materials. Restrictions on exports of raw materials for semiconductor products stymie both the defense and energy industries. In effect, these restrictions complicate or prevent resupplying nations like Ukraine, or possibly in the future, Taiwan, with weapons to defend their sovereignty and independence. They also hinder the renewable energy transition and give authoritarian governments outsized leverage over democratic nations.
Everyday life is inconceivable without devices that use semiconductor chips. Small countries like Taiwan become big players in geopolitics. Larger governments intervene in the industry. The semiconductor industry is a key factor in wars and war plans.