Storage faces deepening Lithium-ion deficit

BY BEN COOK:

  • Doubts about whether lithium industry can meet demand
  • Lithium prices have doubled in the last year
  • Public opposition to lithium mining is growing

Hopes for the wider adoption of battery storage are largely pinned on the availability of affordable lithium.

Lithium is a highly reactive alkali metal, which conducts heat easily and is also relatively lightweight. That makes it an excellent component for batteries. Indeed, lithium-ion batteries offer three times the energy density of rechargeable lead batteries.

As a result, the expectation is that lithium-ion batteries will be at the forefront of the global battery energy storage boom.

To give an indication of how much the battery storage sector will be relying on lithium supplies, it is estimated that lithium-ion will account for 85% of newly installed energy storage capacity. This represents a substantial shift given that more than 90% of existing global energy storage capacity takes the form of pumped hydro.

It comes as no surprise then to see that global lithium demand will increase fourfold by the end of this decade. Annual global demand for lithium carbonate is expected to total 429,000 metric tonnes this year, but this will have grown to 1.7million tonnes by 2030.

Yet, though demand is set to spike, there are serious doubts about whether it will be possible to meet this demand.

Credit Suisse has warned that the lithium supply “glut” has ended, while Macquarie Bank has caused even more of a stir by claiming recently that, in the longer term, the lithium market is likely to be in “perpetual deficit”.

Growing opposition

What is the cause of this deficit?

One of the key reasons is that lithium mining has caused significant controversy and is encountering an increasing level of public opposition.

Let’s consider the ‘lithium triangle’. This is an area of South America that covers parts of Bolivia, Chile and Argentina and contains around 65% of the world’s lithium resources, which equates to around 47 million tonnes.

But mining lithium can have negative social and environmental impacts. To produce one tonne of lithium, 500,000 gallons of water is required. This means water supplies are depleted in areas where communities are already suffering from water scarcity.

As a result, Chile, for example, has tried to limit foreign ownership of natural resources by introducing a bill aimed at facilitating the expropriation of private companies involved in lithium mining in the country. The bill was rejected by legislators, but it serves to show how political changes could potentially restrict the supply of lithium.

Meanwhile, in Argentina, indigenous communities have taken legal action in relation to what they say are lithium projects’ violations of their right to free, prior, and informed consent.

Chinese supplies not assured

It’s also important to highlight China’s dominant position when it comes to the supply of the main components for lithium-ion batteries.

China is in control of 51% of the global reserves of chemical lithium, 62% of chemical cobalt and 100% of spherical graphite, all of which are key elements for lithium-ion battery production.

Will China guarantee the supply of these materials to global lithium-ion manufacturers? This can’t be taken for granted, especially when you consider that China has in the past attempted to stifle competition in the high-tech industry by limiting its own supplies of lithium to Japan via the setting of prohibitively high export tariffs. That time, the World Trade Organisation stepped in to impose rules that stopped the practice.

Lithium prices on the rise

The effect of all this is that lithium prices are on the rise. Lithium hydroxide prices stood at $5,000 per tonne during the summer of 2020, but since then prices have doubled to $10,000 per tonne. This makes the production of lithium-ion batteries more expensive and thus the development of lithium-ion battery storage systems becomes a costlier business.

But this issue is compounded by the fact that $10,000 per tonne is not a high enough price to incentivise an increase in lithium production by either restarting stalled mining projects or investing in new schemes. According to Credit Suisse, higher prices will be needed in order to give the industry the incentive to increase production to meet demand.

This has created a supply deficit. According to Macquarie, this year’s deficit will be almost 3,000 tonnes, but Credit Suisse has predicted that the deficit could balloon to almost 250,000 tonnes by 2025.

It looks like growth in energy storage capacity could potentially fall short of what was initially anticipated.

Is there a way around this problem? Potentially, yes. Take the example of Tesla, which announced last autumn that it had acquired rights to a 10,000-acre plot in Nevada where it planned to extract lithium in addition to building a lithium refinery to supply a new factory in Texas.

It’s an ambitious plan, but will it work? Some analysts will argue it doesn’t have to. The simple fact that Tesla has announced the plan has put pressure on the lithium industry to offer its product in a more cost-effective way.

Whether the industry is able to that quickly enough remains to be seen, but the fact is that the energy storage sector could soon feel the knock-on effects of lithium scarcity if it’s not already doing so.

However, this represents a significant opportunity for other forms of battery technology – such as flow batteries – to fill the gap in the market.

Lithium-ion batteries may be dominant at the moment, but the supremacy of this form of battery technology could soon face a serious challenge.

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