We’ve spent a good few posts looking at the down-stream situation with respect to potential EV manufacture by the major auto makers. Now let’s climb all the way back upstream to the beginning of the supply chain in order to look at the battery metal miners.
I will start right off by saying that in a lot of my blog posts over the years I have been sympathetic to those who worry about resource constraints. Techno optimists and Dr Pangloss libertarians point to the explosion in material wealth over the last 200 odds years with not a serious, prolonged resource constraint in sight. Yes, we have had temporary issues with oil around the Arab oil embargo in 1973 and the fall of the Shah of Iran in 1979, but they have been short lived.
Part of my argument against such unconstrained optimism is that just because we have a 200-year data set with no resource constraints, that doesn’t mean you should be overconfident projecting that situation into the future. A centenarian can boast of an empirical record of having lived for 36,500 days. If we forecast that record forward, does that give him or her a better future life expectancy than a 10-year old?
If I were to volunteer to bat for ‘Team Resource Constraint’ against “Team Techno Optimists’, however, it would not be on the availability of lithium.
The first person to get major media attention over the potential for a lithium deficit was William Tahil when he posted a paper online in 2006 called “The Trouble with Lithium“, with a follow-up in early 2007 here. In the Executive Summary, he argued the following:
“Analysis of Lithium’s geological resource base shows that there is insufficient Lithium available in the Earth’s crust to sustain Electric Vehicle manufacture in the volumes required (my note: he means to replace internal combustion engine vehicles), based solely on LiIon batteries. Depletion rates would exceed current oil depletion rates and switch dependency from one diminishing resource to another. Concentration of supply would create new geopolitical tensions, not reduce them.”
Tahil’s analysis started where any such work would start today: by looking at the reserves and resources for lithium as reported by the authoritative US-government agency the United States Geological Survey (USGS). Every year, the USGS publishes a report titled “Mineral Commodity Summaries”, which looks at the reserve and resource availability of 84 minerals and metals (from abrasives, aluminium and antimony to zeolites, zinc and zirconium) across more than 180 countries. The latest edition dated January 2018 is available here. You can also find the 2006 edition on the internet, which reports lithium reserves, reserve base and resources as of 2005. So this is the table Tahil would have had in front of him when he wrote his report:
According to USGS, 4.1 million tonnes of lithium reserves were available worldwide in 2005, 11 million tonnes of reserve base and 13 million tonnes of resources. The terms ‘reserve’, ‘reserve base’ and ‘resource’ are very important to understand. The term ‘resource’ is the widest and is defined by USGS this way:
“A concentration of naturally occurring solid, liquid, or gaseous material in or on the Earth’s crust in such form and amount that economic extraction of a commodity from the concentration is currently or potentially feasible.”
Note the wording “potentially feasible”. The reason why it is “potentially feasible” rather than “currently feasible” could be for three main reasons:
- The technology is currently not available to extract the metal or mineral but feasible technology is in existance.
- It is too expensive to extract the metal or mineral.
- The metal or mineral price is too low to allow a profit to be made extracting the metal or mineral.
Nonetheless, the word “potential” requires a judgement call. It does not include minerals or metals that could be extracted with a technology that is from the realm of science fiction. Similarly, the future price may be taken to be higher than the current price, but not significantly higher. Thus, no metal from mining on the moon makes it into the USGS’s resource or reserve base, even though it is feasible that at some distant day in the future we could put a mine up there. The definition of “reserve” is a lot narrower:
“That part of the reserve base which could be economically extracted or produced at the time of determination. The term reserves need not signify that extraction facilities are in place and operative.”
So here we are talking about metal or minerals that we know about and could be extracted profitably now; that is, at the current metal or mineral price, with the current mine and milling cost structure, and with current technology. Resources are a very slightly wider definition of the reserve base.
To get a sense of how these definitions mesh together, the USGS puts out this helpful table:
The table is particularly interesting in that it shows us what doesn’t make it into the resource base. First, the bottom row labelled “other occurrences”. This includes “unconventional” reserves, which relates to reserves that can’t be extracted with any current technology that we aware of, although new technology could emerge (think of fracking of natural gas and oil). It also includes “low grade” resources. Many metals and minerals are found in minute quantities over vast areas but are impossible to extract economically.
Second, we have “undiscovered” resources in the right-hand column. Despite major advances in satellite, gravimetric, magnetic and seismic mapping, the majority of exploration is still old school. That means looking at the nature of surface geological formations and river sediments, or employing geochemistry techniques and soil sampling. From there, you move on to targeted exploration drilling. All this requires boots on the ground and costs money. So when the price of a metal goes up, more boots hit the ground and you get a migration of resources from “undiscovered” to “identified”.
Now let’s go back to Tahil’s report. His firm, Meridian International Resources (MIR), came up with lithium reserves of 6.8 million tonnes and a reserve base of 15 million tonnes, somewhat larger than those of the USGS. This is because they identified reserves that USGS had not included.
Note also the wording “contained metal”. Since lithium can exist in nature in different metal compounds and ores, both the USGS and Tahil keep count of lithium reserves via contained lithium metal so as to compare apples with apples, not apples with pears.
Using ‘contained metal’ as the unit of account, however, is just one approach. Another, is to use the unit ‘lithium carbonate equivalent’, or LCE for short. Lithium carbonate is used in a range of applications, particularly the manufacture of lithium-ion batteries. In general, pure lithium is of little use by itself since it is so inflammable as you can see here:
One tonne of the widely traded lithium carbonate only contains 0.188 tonnes of lithium metal. Likewise, if you had one tonne of lithium metal, you could theotetically produce 5.323 tonnes of lithium carbonate. To make things more complicated, there are other useful compounds of lithium on the market, such as lithium hydroxide, that contain more or less lithium metal. Moreover, the most common form of hard rock lithium, spodumene, contains a different amount still. A useful conversion table for the most common forms of lithium is given below:
Experts in lithium are at ease switching between these different forms, and Tahil changes from talking about contained lithium metal when referencing reserves to talking about lithium carbonate when assessing the needed supply for battery production. Journalists? Not so good at doing this. Consequently, you frequently see a journalistic treatment of lithium availability becoming hopelessly confused, since the writer in question has got into a complete muddle with respect to his or her unit of lithium account. This detour into lithium convertibility is important otherwise we wouldn’t be able to follow the rest of Tahil’s argument, which goes like this.
Tahil starts with a lithium reserve base figure of 15 million tonnes. However, he goes on to state that only part of that can be used in the production of lithium-ion batteries.
Only Lithium from the Brine Lakes and Salt Pans will ever be usable to manufacture batteries: the Spodumene deposits can play no part in this….
….Looking back at the table, we can optimistically estimate the Global Lithium Salt Reserve Base as 2MT for Argentina, 3MT for Chile, 5MT for Bolivia and 1MT for China – 11MT contained Lithium in total or about 58MT of potential Li2CO3. The US salt deposits are in decline. The relatively small hard rock mineral deposits can be discounted when considering their availability for batteries.
Note he gets to 58 million tonnes of lithium carbonate by multiplying his contained metal reserve base target of 11 billion tonnes by 5.323. Next, he reduces that number further by postulating that only a certain amount of lithium can be extracted in the recovery process. This reduces his total lithium carbonate reserve base further from 58 million tonnes to 33 million tonnes.
Finally, Tahil tries to estimate the total lithium carbonate requirement should we electrify the world’s entire fleet of cars:
The World Automobile Parc currently stands at about 900M vehicles. If they all used a 5kWh LiIon battery, they would contain 6.3M tonnes of Lithium Carbonate – and the fleet is growing all the time. 6.3M tonnes is in the region of at least 18% of economically viable Li2CO3 Reserves, including Bolivia. With a more realistic projection of at least an average 10kWh battery per vehicle, 36% of the world’s recoverable Lithium Carbonate Reserves would be consumed. 10KWh is still a small battery – even if 20kWh was achieved with the same Lithium utilisation, Lithium consumption will be at unsustainable levels.
So this is the core of his thesis. We have 35 million tonnes of economically viable lithium carbonate and 6.3 million tonnes is required to equip 900 million cars with 5 kilowatt hour (kWh) batteries; that is 18% of total reserve base of lithium. And with a 10 kWh battery that goes up to 36% and with a 20 kWh it goes up to 72%. And that is excluding all the other uses of lithium and the fact that the world’s population keeps growth, economies keep expanding and people keep buying more cars. So we run out of lithium.
Note that the kWh is the basic measure of energy storage for an EV. The energy stored in an internal combustion engine (ICE) vehicle is the number of gallons/litres of gasoline/petrol held in its tank.
Before we start poking Tahil’s thesis with a pointy stick, let’s just tease a very useful metric out of it. If we need 6.3 million tonnes of lithium carbonate to equip 900 million vehicles each with a 5 kWh battery, that means that we need 1.4 kg of lithium carbonate per kilowatt hour of battery cells.
Now let’s take his methodology and apply it to the present day situation. We currently have a fleet of 950 million cars and 350 million commercial vehicles (OICA here), the latter requiring even bigger batteries. To make range anxiety a thing of the past, many auto experts believe each passenger car will need a 75 kWh battery. And let’s give our trucks and vans a 200 kWh battery on average each. That adds up to roughly 141 billion kWh’s worth of batteries. Multiply that by 1.4 kg of lithium carbonate per kWh and it’s about 200 billion kgs of lithium carbonate or 200 million tonnes. “Houston we have a problem: Tahil says we only have 35 million tonnes of lithium carbonate!”
In his report, Tahil was not a shrill for the oil industry: he was still arguing for a big battery push away from fossil fuels, but just thought the auto industry was backing the wrong horse, and he proposed other chemical configurations as being much more sustainable. Nonetheless, his article had sufficient hooks to appeal to editorial desks across the world: ‘Bolivia as the New Saudi Arabia’ or ‘World Jumps Out of the Energy Frying Pan into the Fire’; the headlines wrote themselves.
The media’s love of Tahil’s take on lithium has one worrying aspect: Tahil had already demonstrated a certain lack of analytical objectively by writing a nut-job piece of analysis suggesting that the Twin Towers destroyed in the 911 terrorist attack in New York came down due to two controlled nuclear explosions. In short, Tahil is a bit of a loony conspiracy theorist.
Once Tahil’s views on lithium gained mainstream distribution, it was not long before Newton’s third law kicked into play: “For every action there is an equal and opposite reaction”. So as Tahil become the media ‘go to’ man on peak lithium, a retired geologist named Keith Evans came out of retirement to be tapped by the media as the ‘go to’ man for the counter argument; basically, Evans said Talil was talking a load of old rubbish. In a simple piece of symmetry Evans wrote a riposte to Tahil titled “An Abundance of Lithium“.
As background, Evans was a specialist in lithium and had worked on a US government National Research Council report back in 1976 whose remit was much wider than the USGS. Their aim was to see how much lithium would be available worldwide in an era of rapidly expanding demand due to not only battery storage demand but also for fusion energy. A key point in his report, and one I would agree with, is that a rising price begets supply.
Nonetheless, most of the report takes issue with Tahil from the perspective of a static analysis. In other words, Evans believed that Tahil had got his numbers wrong just by incorrectly knocking out a whole bunch of potential lithium carbonate sources from hard rock spodumene, pegmatites and certain brine deposits. After he had crunched his numbers, Evans came up with these figures for reserves and resources:
So now we have nearly 30 million tonnes of contained lithium metal compared with Tahil’s figure of 11 million. That translates into about 160 million tonnes of lithium carbonate, not enough to supply my back-of-the-envelope 200 million tonnes necessary to electrify the world’s car fleet (let alone the storage energy needs). In other words, while Evans analysis was far more optimistic than that of Tahil’s, it basically leads us to the same conclusion: not enough lithium.
But wait a minute, I trained as an economist and I don’t like such static approaches to analysis. Let’s go back to the USGS reserve and resources chart and remember that the right-hand column refers to “undiscovered resources”.
And how does the market decide to turn “undiscovered resources” into “identified” ones when you have a limited existing supply but a very large potential demand? Through price.
Has the price signal had any effect? You bet! Let’s jump to the latest Mineral Commodity Summaries report published by USGS in January 2018. On page 99, we get this table for lithium:
Reserves are now at 16 million tonnes and resources at 53 million tonnes. Back in 2005, those numbers were 4.1 million tonnes and 13 million tonnes, respectively. So in 10 years we have found a shed load of lithium. Moreover, 53 million tonnes of lithium translates into 282 million tonnes of lithium carbonate, the kind of quantity we need to support an EV transition.
Now at this stage I need to introduce some caveats:
- Moving from contained metal in ore or brine to lithium carbonate results in losses
- Not all resources will easily migrate to reserves.
- Many of the resources are in geopolitically unstable areas of the world.
- Battery grade lithium carbonate and lithium hydroxide require exceptional purity. Many sources of lithium contain contaminants or impurities that are difficult to remove.
- Putting in mine infrastructure costs a lot of time and money. Ditto scaling up ore and brine processing capability.
Nonetheless, while I am not some kind of libertarian free market Ayn Rand acolyte, I think markets do a pretty good job of discovering scarce but needed resources through the mechanism of price (even if they don’t do a good job of dealing with externalities like climate change).
As an example, in Appendix C of the USGS Mineral Commodities Summary 2018 the case of copper is highlighted:
“Reserves data are dynamic. They may be reduced as ore is mined and (or) the feasibility of extraction diminishes, or more commonly, they may continue to increase as additional deposits (known or recently discovered) are developed, or currently exploited deposits are more thoroughly explored and (or) new technology or economic variables improve their economic feasibility. Reserves may be considered a working inventory of mining companies’ supplies of an economically extractable mineral commodity. As such, the magnitude of that inventory is necessarily limited by many considerations, including cost of drilling, taxes, price of the mineral commodity being mined, and the demand for it. Reserves will be developed to the point of business needs and geologic limitations of economic ore grade and tonnage.
For example, in 1970, identified and undiscovered world copper resources were estimated to contain 1.6 billion metric tons of copper, with reserves of about 280 million tons of copper. Since then, almost 520 million tons of copper have been produced worldwide, but world copper reserves in 2017 were estimated to be 790 million tons of copper, more than double those of 1970, despite the depletion by mining of more than the original estimated reserves.
Future supplies of minerals will come from reserves and other identified resources, currently undiscovered resources in deposits that will be discovered in the future, and material that will be recycled from current in-use stocks of minerals or from minerals in waste disposal sites. Undiscovered deposits of minerals constitute an important consideration in assessing future supplies.”
So we started with X amount of copper in 1970, since then we have consumed 2X amount of copper and now we are left with 3X amount of copper. That is the magic of the market dragging ‘undiscovered resources’ into the ‘identified’ category.
Now for this post, we did some wild back of the envelope forecasting of demand requirements for lithium based on Tahil’s assumption of 1.4kg of lithium carbonate being needed for 1 kWh of battery energy storage. Tahil’s numbers, however, look a bit dodgy and I think we could do better, so in my next post we will go full battery nerd and look at lithium content of different types of battery chemistry. In the process, we will start to build up a picture of how different battery chemistry leads to different performance and cost outcomes for different auto makers. Trust me, to make a call on whether Tony Seba will get 95% EV penetration and 130 million EV sales in 2030 you really need to know this stuff.
For those of you coming to this series of posts midway, here is a link to the beginning of the series.
Risk and Well-Being 