The compression of the price of lithium increases the cost of the energy transition

The shortage of lithium salts essential for the production of batteries for mobile devices and electric vehicles is jeopardizing the energy transition.

Over the past 18 months, lithium carbonate and lithium hydroxide prices have risen at absurd rates, and the squeeze has only accelerated since the start of this year.

In January 2021, according to S&P Global Platt’s, lithium carbonate cost around $9,600 per ton. At the end of this January, the same material was quoted at over $50,000 per ton. This is panic buying, not rational price discovery.

This is the result of demand strongly supported by regulation and consumer choice in Europe, the United States and China, and supply constrained by underinvestment in recent years. Although there is lithium coming from new or expanded mines in Australia, the United States, Brazil and elsewhere, other sources that had been anticipated in Chile and Serbia are being closed or reduced by local opposition. .

“Technology”, or the use of different battery chemistries and more efficient use of available materials, is limited by physics or weight requirements. Even intensive engineering and project development will not easily close the lithium demand gap until 2030, 2035 or 2050, or whatever policy goal is chosen.

Magical thinking won’t help. As Christophe Pillot, a battery consultant and director of Avicenna Energy in Paris, puts it, there is no equivalent in batteries to “Moore’s Law”, which states that the number of components that can be crammed into a integrated circuit doubles every year.

“Energy density, battery life, charging time, etc. are improving, but there won’t be a revolution in the next five to ten years. There will be, say, 5% annual performance improvements, and it will take work.

Governments in the United States and Europe want clean battery cell factories, but metal mining and refining is less ready for the cameras. Chile’s new government insists, reasonably, that using virtually irreplaceable fossil water to produce more lithium salts in the Atacama Desert is environmentally and socially unsound.

The immediate response from environmentalists in rich countries is that batteries should be made from recycled materials. However, scrap must be collected and prepared for remanufacturing; losses are inevitable. Even theoretically, this does not increase the total amount of battery materials required.

We have been collectively spoiled by the fantastic increases in the usefulness of microprocessor-based mobile devices. This is where Moore’s Law worked. But propelling vehicles carrying goods and people requires a lot more energy than phones or laptops. Also, after a certain point, cramming more power into packs increases the risk and severity of battery fires.

China has been quicker to adopt the use of battery-powered vehicles than the United States or Europe. It has, however, avoided some battery material imports and shortages by using more lithium-iron-phosphate compounds for some parts instead of the expensive nickel and cobalt compounds that provide greater range for customers in the rich world. Cheap and local is a rational choice for intra-city cars, small trucks and buses.

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Even China cannot eliminate all of its lithium needs, which rely heavily on imported ore from Australia and salts from Chile. Tellingly, the most commonly used lithium price series are for lithium carbonate expressed in Chinese yuan per ton.

Why not get people – somewhere – to mine and refine more lithium, especially at these prices?

As one mining investor put it: “Yeah, eventually deranged Australian diggers will come, and people who are just holding stocks now (or speculating – editor’s note) will sell at some point. Then prices will crash, just like in the last cycle. At the time, the price of lithium plunged from over $17,000 a ton in 2015 to around $8,000 in 2018, then rebounded until early last year.

Manufacturers of electric vehicles and utility storage could, hypothetically, respond by contracting in advance the four or five year lead time needed for mining investments. Sounds easy, but as one industry economist put it: “A year and a half ago, in the midst of Covid, who would have made a five-year bet on a huge increase in vehicle use? Automakers could spin faster than the upstream metal supply.

You may think that government investment in research and development could have supported innovation more, but no. Professor Donald Sadoway of MIT, a specialist in battery technology, says that “Even ARPA-E (the US Energy Research Agency) wants go-to-market plans and only happy endings.” Expect to pay for your laptops and electric vehicles.

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