Could lithium supply constraints delay the energy transition?

Why is lithium so important for the energy transition?

As we discussed in part one of this blog, lithium’s combination of low weight and high electrochemical potential means it’s highly sought after for high-performance electric vehicle (EV) batteries.

According to the International Energy Agency, in a scenario in which we are on track to meet the goals of the Paris Agreement, sectors contributing to the green energy transition will be responsible for a staggering 92% of lithium demand by 2040.¹

Where does lithium come from?

While demand for lithium is global, supply is anything but. The so-called lithium triangle of Argentina, Bolivia and Chile account for over half of global reserves.²

Given the geopolitical risks that could arise from the concentrated nature of lithium production and processing (China accounts for more than half of the world’s lithium processing capacity) and the critical role it plays in the global decarbonisation journey, supply security has become a top priority for technology companies in Asia, Europe and North America.

How easy is it to extract?

Lithium extraction – typically carried out either from underground brines or from conventional mining of spodumene-bearing rocks – is a complex process with various stages of permitting and testing, and new mines typically take eight to 15 years to come on stream.

This combination of geographical concentration of supply and the complexity of extraction poses scarcity risk and a potential imbalance between supply and demand.

Is there enough lithium available to support the energy transition?

The problem isn’t that the world doesn’t have enough lithium, but instead getting the metal out the ground quickly enough to keep up with demand and ensuring the refining capacity to turn it into a battery-grade product that can be inserted into the battery value-chain.

This issue is consistent across other key energy transition metals such as nickel and copper, with the US Geological Survey noting that even as demand has markedly increased for these metals, higher prices have meant that overall identified reserves have increased, meaning the challenge is getting these metals to where they are needed to help drive the energy transition.

How might governments try to protect access to energy transition inputs such as lithium?

In its 2021 paper The Role of Critical Minerals in Clean Energy Transitions, the IEA made six recommendations to improve mineral security:

1. Ensure adequate investment in diversified sources of new supply
2. Promote technology innovation at all points along the value chain
3. Scale up recycling
4. Enhance supply chain resilience and market transparency
5. Mainstream higher environmental, social and governance standards
6. Strengthen international collaboration between producers and consumers

Could advances in battery technology reduce overreliance on lithium?

All-solid-state batteries (ASSBs) are leading the charge to become the main contender to today’s lithium-ion batteries in the next five to 10 years. However, far from alleviating demand for lithium, adoption of ASSBs could worsen the situation, as they require up to 130% more lithium than a traditional lithium-ion battery.³

New chemistries for next-generation batteries such as sodium-ion might become more popular, especially given to the need to reduce overreliance on lithium. However, even with a rapid sodium-ion adoption, according to Bloomberg NEF, lithium carbonate demand could still reach 2.4 million metric tons by the mid-2030s, which represents a fivefold increase from 2022.⁴

We believe batteries will remain a critical energy storage technology, and the raw materials that constitute them – particularly lithium – will continue to shape global supply chains and mineral exploration activities for years to come.

To learn more, read our whitepaper: The battery value-chain: how batteries and lithium are powering the energy transition.

1. Source: https://www.weforum.org/agenda/2023/01/minerals-metals-energy-transition-davos2023/

2. Source: https://www.fastmarkets.com/insights/argentina-doubles-down-on-lithium-to-meet-surging-global-demand

3. Source: BloombergNEF, June 2023, The Next-Generation Battery Tech Vying to Supercharge EVs.

4. Source: ibid.