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Why lithium is thecentre of the $765b battery arms race

In 2030, the world will need as much lithium in one year aswas mined between 2015 and 2022. And that’s going to take a lot ofinvestment.

Australia is thankfully past thesilly debates about the need for the energy transition, but the past weeks havemade it clear that there’s a new and arguably more worrying problem to contendwith: the sheer practicalities of decarbonisation.

A week after Daniel Westerman, the chief executive of theAustralian Energy Market Operator, warned that local investment in renewable energy had effectively stalled, BHP chief executive Mike Henry made clear the challenges the world faced in providing the raw materials required to deliver the transition

We need a massive wave of capital investment – perhaps anadditional $US100 billion ($148 billion) per year in capital investment in theresources sector – if the world is to get on track” to keep global warming to1.5 degrees, as per the Paris climate agreement, the CEO told the World MiningCongress in Brisbane.

For the commodities that BHP sells, production needs to soar:two times as much for copper in the coming decades as in the past few, fourtimes as much for nickel, twice as much for steel and twice as much for potash.

But a new report by battery minerals research house Benchmarksuggests the pressure on critical minerals such as lithium, cobalt andgraphite, is just as intense. Benchmark estimates that at least $US561 billion($765 billion) needs to be invested between now and 2030 to ensure the globalbattery minerals supply chain – from mines to processing facilities tofactories – can keep up with demand for electric vehicles.

And lithium isat the heart of this challenge.

Lithium bottlenecks

“Benchmark’s view is that lithium,more than any other part of the supply chain, will be the bottleneck for thegrowth of the battery industry,” the new report says. While lithium mining isexpected to crash through 1 billion tonnes for the first time in 2023,Benchmark’s estimate for demand suggests that production needs to rise to 2.8billion tonnes by 2030.

Or to put it another way, Benchmarksays more lithium will be needed in 2030 than was mined between 2015 and 2022.

Lithium prices have recentlystabilised after falling 40 per cent from their peak late last year, and thedemand picture continues to improve. Macquarie analysts said this week thatglobal sales implied that EVs (both fully electric vehicles and hybrid EVs)would top 32 per cent this year.

“Over the medium to longer term, weexpect China to match Europe in EV penetration rates by the end of this decade,followed by the US. The global EV penetration, which includes mild hybrid EVs,could exceed 60 per cent by 2030,” Macquarie says.

Of the investment required to fill thebattery supply chain gap, $US220 billion is required for critical mineralsdevelopment, with nickel the other big supply problem. Manufacturing the 3.7terawatts of batteries Benchmark estimates will be required by 2030 (up from 1terawatt today) will need $US201 billion of investment, with the remaining$US93 billion needed for mid-stream processing.

More investment needed

But Benchmark chief executive SimonMoores says the industry needs to think carefully – and in a much moreco-ordinated way – about the timeline for investment.

“A gigafactory can be built in two tofive years. A refinery can be built in two. But the mines needed upstream ofthem take between five and 25 years to develop. So even though gigafactoriesrequire the largest amount of investment, it is imperative that investment ismade now in the mines.”

Benchmark acknowledges that its $US561billion estimate could prove too low if we see countries develop regionalsupply chains that go around China’s dominant battery production industry.

On Tuesday, Mike Henry also warned ofthe dangers of nationalism in critical minerals:

“This is an understandable reaction tothe growing appreciation for the indispensable nature of these criticalminerals and to concerns about the magnitude of the challenge that needs to bemet in terms of new supply.

“But governments striving to securetheir own critical mineral supplies must ensure they don’t undermine theoutcome the world needs to achieve – where in fact a combination of pragmaticinternational co-operation and competition can jointly accelerate the energytransition.”