The views expressed are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
The supply of tomorrow’s greenfield lithium must be secured and financed today
Lithium is the technology of choice for battery-powered mobility. The combination of being light in weight and high in energy density makes it the key enabling feature of the electrification of transportation and in turn decarbonisation. This once in a hundred-year technological change will impact over 15% of global gross domestic product from mobility alone.
Without even factoring in the growth of renewable power and related battery storage applications, the economic impact and emission reductions will be profound.
The World Health Organisation attributes local air pollution as the single largest environmental health risk contributing to 4.2 million deaths per year. Electric vehicles (EVs) are expected to reduce carbon emissions by 54% as compared to internal combustion engines and this figure will increase as power generation continues to transition to renewable sources combined with battery storage.
Incorporating full lifecycle emissions of an electric vehicle they are still 51% lower than internal combustion engines. German car manufacturer Daimler predicts advances in battery manufacturing will contribute to a further 30% reduction in Greenhouse Gases from electric vehicles.
Consensus estimates on electric vehicle penetration are increasing rapidly. Assuming the market is 50% EVs by 2030 means lithium production needs to go from 500,000 tonnes per year to three million tonnes per year, a six-fold increase. Despite the abundance of lithium on the planet, greenfield production from new mines is very limited. The most recent successful greenfield mine is in the South American lithium triangle which started production in 2015.
Prior to that, it had been over two decades since a new project successfully ramped up. Lithium America’s Cauchari-Olaroz project in Argentina should be the next new greenfield to start production in 2022. The time between new projects has decreased, from decades to, most recently, just seven years. However, the lithium market demand is forecast to grow by at least 150,000 tonnes per year in Lithium Carbonate Equivalent (LCE) terms for the foreseeable future, one project every seven years will not come close to meeting the coming demand.
Adding new capacity to solve the coming lithium shortage has not been for lack of trying. Companies around the world and especially from Australia, Canada, the United Kingdom and the United States have worked on developing new projects for years. Depressed lithium prices in 2019 and 2020 caused lithium financing to essentially dry up leading to a severe lack of exploration and development. Like in many other sectors, the supply of tomorrow must be secured and financed today given the lead times involved for equipment, human capital, and the overall supply chain.
The world is starting to take note: lithium prices have more than doubled or tripled compared to the same period in 2020. This is naturally attracting investor attention and has led to over $8.3 billion in capital fundraisings in the lithium sector in 2021 (an increase of 1785%). Governments around the world including Canada, the European Union and the United States have added lithium to their respective Critical Mineral’s list.
This is remarkable progress, but more can and should be done as forecasts suggest that the lithium demand will exceed over one million tonnes LCE by 2025 and three million tonnes by 2030 and will require over $15 billion just to keep up with demand projections that have so far understated electric vehicle adoption.
The legacy of lithium production is rooted in the lithium-rich brines of South America. Chilean and Argentinian lithium extraction is complex and has associated water use issues. The next wave of lithium development companies such as Sigma Lithium Resources Corporation are focused on hard rock pegmatite resources with the environmentally friendly use of dry-stacked tailings, limited water use that is confined to non-potable resources, water recycling systems and renewable power.
Investments enabling the development of key lithium resources are increasing and should consider various ESG factors including economic activity and the introduction of renewable power for remote disconnected communities, impacts on potable water resources, renewable power use for extraction and processing activities, surface disruption, land reclamation and additional infrastructure benefits to the local communities.
It is estimated that the lithium market in 2021 will be double that of 2017 and will double yet again by 2024. For the next five years, the industry will need on average ten new commercial-sized lithium chemical plants of roughly 20,000 tonnes per plant every year to satisfy projected demand. This is a tall order for an industry that has struggled to add a fraction of that over longer periods of time. That said, with the proper government policy, investor enthusiasm and environmental stewardship, the Lithium Decades have just begun.
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