Lithium demand soars while supply lags behind

The article below by Peter Stewart appeared in The Analyst column of the July 9 edition of Natural Gas Daily, a gas market publication by Interfax. Please note that all views expressed reflect the opinions of the author, and are for information only.

Lithium-ion (Li-i) batteries are the fastest-growing technology in the power storage sector, according to a recent report by Forum for the Future, which tapped insights from half a dozen key executives in the UK energy sector. But the rising cost of lithium and cobalt, which is a component of the cathodes used in Li-i batteries, could slow their progress.

Cheaper batteries are seen as a potential threat to gas demand because they could reduce the need for the fuel to deal with intermittency in renewable power generation. The World Energy Council issued a report on energy storage, E-storage: Shifting from cost to value 2016, which said Li-i batteries were among the most efficient technologies on offer and predicted a sharp fall in costs.

“The cost profile of lithium batteries has been strikingly similar to that of solar PV, falling four-fold in six years,” the Forum for the Future report said.

However, the vast bulk of solar PV cells are made from crystalline silicon, which is among the most abundant of elements in the earth’s crust. Costs have fallen sharply in recent years largely because of process improvements and growth in the scale of manufacturing.

In contrast, lithium is a relatively rare mineral, the price of which has risen sharply as demand has grown. Reserves are concentrated in a few countries: Chile and Australia account for the bulk of world production; and while a number of countries in Europe, Latin America, Asia and Africa have deposits, Argentina and China are the only other states with substantial reserves.

The price of lithium carbonate soared by as much as 300% year on year in 2016 because of an acute shortage of spodumene, a mineral rock that lithium is extracted from, which is mainly found in Australia. Chinese demand for lithium briefly pushed lithium carbonate prices above $20,000/ton in 2016. The price spike led to a scramble of mining activity that has now boosted production, but prices remain above $10,000/ton.

Cobalt is an even rarer commodity, with half of the world’s mined production coming from just one country: the Democratic Republic of Congo. Elsewhere, cobalt is produced as a byproduct of copper and nickel mining, both of which have declined because of low prices. Batteries account for 80% of refined cobalt demand. With China dominating the production of refined cobalt, supply is expected to remain tight as battery demand surges towards the end of the decade driven by increases in electric vehicle production.

Future demand

Elon Musk’s Tesla recently unveiled its Model 3 electric car, which uses Li-i batteries made by Panasonic. Tesla is also developing utility-scale applications for Li-i batteries. It signed a deal with the state of South Australia in July to install a 100 MW Li-i battery – more than treble the capacity of the world’s largest existing battery.

The US Geological Survey estimated demand for lithium rose by 14% between 2015 and 2016. Demand is expected to grow even more rapidly as electric vehicles are rolled out on a larger scale over the next few years, although it will slow as battery recycling becomes more common. New lithium production from Australia and Tibet should ease the upward pressure on prices over the next year, and alternative battery designs are available if supply is unable to meet demand in the longer term.

The World Energy Council’s report said that although Li-i is the leader, “many other possible battery chemistries are in development or in the research phase, and could well supersede these”. The report singled out flow batteries as a significant potential competitor.
Peter Stewart
(C) Resource Economist