Danger for the energy transition: essential, lithium could be missing

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What if the energy crisis that Europe is going through today was just a foretaste of what the energy transition will be like? Indeed, moving from dependence on hydrocarbons to strategic metals could prove more difficult than expected. Thus, the supply of lithium, used mainly in the composition of batteries (lithium-ion) for electric vehicles, “it is expected to be 4% below projected demand in 2030 and 24% in 2035”that is, respectively 100,000 tons and 1.1 million tons (see graphic), “Even assuming all new lithium mining projects currently considered likely or possible by the industry come online, as well as a significant expansion of lithium recycling projects.”warn experts from the Boston Consulting Group (BCG), in their report entitled “The Lithium Supply Crunch Doesn’t Have to Stall Electric Cars”.

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Shortage situations exacerbate competition more than cooperation, as we have seen with masks or vaccines during the Covid-19 pandemic or even with Russian gas, initially between European countries.

“This looming supply shortage, if not addressed through coordinated action, could significantly delay the transition from fossil fuels to renewable energy and the global fight against climate change.”BCG experts warn.

Since lithium has become a strategic metal, “this will lead to government interventions in their production and supply”, consider a recent report on the metal published by market analysis firm Fitch Solutions. It predicts that production will triple by 2031, an average annual increase of 13.6%. Australia, the world’s largest producer, should triple its production during this period and should represent a 35% share of the world market. Chile and China should each double their production in these 10 years, while Brazil will triple its production, which today is much more modest. As for Argentina, it should multiply its current production by six.

129 new mining projects

Fitch Solutions has identified no fewer than 129 lithium-using site projects, including 25 for Canada alone (see graphic). Of these 129 operations, 105 belong to “junior” mining companies. “This is problematic because the low presence of large mining players poses risks to the execution of currently planned projects and casts doubt on the ability to carry out these lithium projects in the long term.”create Fitch Solutions.

lithium projects

At the same time, global demand is set to triple by 2031, mainly through increased sales of electric vehicles, which are expected to rise from 11.4 million to 30.3 million units. Only the batteries that equip electric vehicles will represent 80% of the lithium demand compared to the current 40 or 45%. This development has public support. In Europe, in addition to the measures decided by each Member State, the NextGenerationEU plan was already aimed at promoting the energy transition in the face of the energy crisis accentuated by the end of dependence on Russian hydrocarbons since the conflict in Ukraine. The United States wants to reduce its dependence on certain supply chains that are largely dominated by China. Beyond that, both sides of the Atlantic must capture the benefits of the energy transition by decarbonizing economies and creating new industrial sectors that create jobs.

China, leader in battery production

This competition will reorganize supply chains. “The location of battery production will influence the geographic demand for lithium”, underlines the Fitch Solutions report. While China will remain the world’s leading battery maker for the next 10 years, with 80% of production capacity, other producing countries will gain momentum, including Japan, South Korea, the United States, and even Hungary. New entrants should quickly enter this market, such as Germany, Poland, Sweden, France, the UK, Thailand, and Indonesia. To ensure the lithium needs of these countries, “Australia and Canada are likely to be the main beneficiaries due to their ties to the United States, their ability to produce significant volumes of lithium, a favorable environment for mining activity, and concerted political efforts to strengthen ties in battery production with partners. in the markets. out of China”judge the Fitch Solutions report.

In the United States, a portion of the $370 billion Biden Inflation Reduction Act is dedicated to developing the battery manufacturing sector and securing the Supply Chain. At the same time, the Federal State provides economic incentives of up to 7,500 dollars for the purchase of an electric vehicle if it contains a battery assembled in the United States, Canada or Mexico, with a share of critical metals in countries that have free trade agreements with the United States. Joined.

Towards an increasingly integrated sector

On this side of the Atlantic, the European Union has formed the European Battery Alliance, funded by the European Commission, which includes measures to secure lithium and other essential metals for the energy transition. This type of support is also adopted by emerging economies. India has also decided to approve and give financial incentives only to battery production projects that incorporate a part of locally produced components.

This competition is also exacerbated by metal-producing countries. Having the mines, they want to develop integrated sectors with processing segments with higher added value. In the breakdown of the lithium-ion battery value chain, lithium mining, primary processing and refining account for 25-30%, manufacturing of anodes, cathodes and electrolytes 20-25%, and the production of assembled cells and batteries from 45 to 50%. percent, according to BCG.

For example, in Indonesia, a consortium of state-owned companies, including a mining company that holds a significant portion of the country’s nickel reserves, signed a memorandum of understanding with South Korean giant LG Energy Solution, a battery maker, to invest $9,000 million to refine metal and manufacture cathodes and batteries. Jakarta has also signed a memorandum of understanding with the Chinese company Contemporary Amperex Technology (CATL) which, together with two local companies, will develop a $6 billion integrated battery production project. For its part, in March, LG Energy Solution signed an agreement with Stellantis to produce batteries in Canada for more than $4 billion.

This competition is also found among manufacturers, particularly car suppliers, to secure their supplies. The American Tesla has signed a three-year agreement with China’s Ganfeng, one of the world’s leading producers of lithium compounds. Volkswagen seeks to create a real ecosystem of suppliers, from lithium extraction to battery assembly in Spain. The German manufacturer has also signed an agreement with the German-Australian company Vulcan Energy Resources to extract lithium in the Upper Rhine Valley in Germany. Renault and Stellantis will also receive lithium from Vulcan. The American Ford will buy 25,000 tons of lithium per year extracted from a deposit in Argentina, operated by the Australian mining company Lake Resources.

The refining sector even more concentrated

Refining activity is even more concentrated. The latter Chile exports 66% of the world’s supply of lithium carbonate, which it extracts from the brine evaporated from salt water. China produces most of the rest using a different method: refining lithium carbonate from spodumene ore, mostly sourced from Australia. China accounts for more than half of the world’s lithium hydroxide exports.

The application of more restrictive environmental standards will also sharpen competition between countries to move towards carbon-free production throughout the chain. “Conventional lithium mining can present a number of environmental risks, such as soil and groundwater contamination. The technologies and processes currently used in lithium extraction require large amounts of water, a serious disadvantage in arid regions”, stresses the BCG. Various mining projects have faced popular opposition in Portugal, Serbia and the United States, and exploitation is highly contested, for example, in Spain. For its part, the European Commission could classify lithium as a toxic product, making the development of a mining activity in Europe more delicate. This “green premium” could reduce supply. And even if other models of batteries that do not use lithium are being developed and could become substitute products tomorrow, “In the short term, none of these models can offer the combination of cost, weight and energy density of lithium-ion batteries”says BCG.

High prices

The tensions in the lithium market are reflected in the prices of the mineral. “We expect carbonate and hydroxide prices to remain at multiples of their pre-Covid level in real terms until 2025, when they will recede but remain high”warns Fitch Solutions, which believes that ” in China (the relevant market), the price of lithium carbonate should rise to 68,000 dollars a ton on average in 2022 and 55,000 dollars in 2023. That of lithium hydroxide should appear on average at 67,000 dollars a ton in 2022 and 56,000 dollars in 2023”. Compared to before the pandemic, prices have increased by more than 500%.