Fortescue Metals Group Ltd.'s move to become the first major miner to price its net-zero target suggests that gas will remain crucial on the mining industry's path to decarbonization.

Founder and Executive Chairman Andrew Forrest told a Sept. 20 analyst call the company is "the first heavy industry company in the world to action and fully cost a decarbonization strategy." The $6.2 billion needed to reach net-zero by 2030 will largely be spent from fiscal 2024 to fiscal 2028 to cut off all fossil fuels from its Western Australian mines, reduce carbon dioxide emissions and displace about 700 million liters of diesel and 15 million gigajoules a year of gas by 2030.

Yet Forrest, who has championed phasing out coal-fired blast furnaces for steel production and developing hydrogen-fueled green iron and steel in Western Australia, said the world's fourth-largest iron ore producer will keep its gas-fired generation infrastructure as "emergency backup in case of any uncertainty."

"It gives us a very solid 'plan B.' Our plan A is to switch off all the intakes of fossil fuel into the Fortescue Metals Group," Forrest told analysts.

Outpacing peers in scaling renewables

"The objective here is around scale and pace, and Fortescue is planning to significantly outpace its competition in scaling renewables at its operations," Peter Gardett, executive director of financial and capital markets at S&P Global, said in an email interview.

Fortescue could pull off its net-zero targets by 2030, given "deep pockets, passion and drive ... and because Fortescue is reaching for so many different technologies," said Dave Manning, managing director of renewable energy construction firm JUWI Renewable Energy Pty. Ltd.

"In all of the models we've run using solar, wind and batteries, we haven't been able to achieve 100% renewables economically for actionable net-zero, with the cost of batteries today," Manning told S&P Global Commodity Insights.

"Solar is everywhere, but with solar and battery, the best you're going to get is up to 40% of the power needs. Include wind and you get to 85%, but to get to 100% you need that fourth technology, which could well be hydrogen," Manning said.

The miner announced Sept. 20 that an additional 2 GW to 3 GW of renewable energy generation and battery storage will be deployed, plus the incremental costs associated with a green mining fleet and locomotives. Fortescue is also awaiting regulatory approval for the planned 5.4 GW Uaroo Renewable Energy Hub that includes wind, solar and battery storage.

Gas not going anywhere

Forrest's statement speaks to the reality of current renewable energy and battery storage technology: Gas will be a mainstay of the mining industry's energy mix through 2050, when most miners aim to hit net-zero.

The current high cost and availability of deployment for battery backup presents short- to medium-term constraints on widespread adoption, so "backing up with gas is just building in smart, lower carbon resilience into Fortescue's plans," Pacific Road Capital Managing Partner Matt Fifield told Commodity Insights.

For now, all of Fortescue's 125 MW of operating power generation capacity is gas-fired, according to S&P Global Market Intelligence data, reflecting fossil fuels' dominance in the energy mix of Western Australian miners.

This is the challenge for most miners that are only looking at one or two renewable solutions, which will not be enough to get the industry to net-zero by 2050, Manning said.

"There is a growing recognition that gas, even if it needs to be offset with carbon trade, is going to be a crucial component of enabling net-zero transitions," Gardett said. "Investors are able to buy that story by taking associated debt if the numbers and carbon accounting hold up."

Fortescue may well be betting on more effective demand-side management and cost-effective renewables across its operations.

"If Fortescue is able to more effectively match capacity to demand across 95% of its operating hours ... with natural gas stepping in only at moments of extreme distress, they'll be able to position themselves as truly outstanding operators" at a time when climate capital is looking to invest in mining capacity to support energy transition build-out, Gardett said.

"Fortescue is trying to decarbonize on a grand scale with some pretty big numbers and ambitious targets very few other mining companies are going to take that much risk on. That, in turn, will lead to gas being around for quite a while," Manning said.

Christiaan Heyning, Fortescue Future Industries Pty. Ltd.'s head of decarbonization, told analysts Fortescue does not "see a role" for gas as its primary source of power by the end of the decade as renewables come into its energy mix. "As soon as renewable energy goes up, our gas [fired] generation will go down."