The battle for Lithium is on! By the most conservative growth for Electric Vehicles, the World will need 2 million tons of Lithium by 2030. Problem: even if all expected production increases happen in this decade and without a hitch, we will still miss at least 200’000 tons. Will car manufacturers and giant Tesla be left without “White Oil”? Can innovative approaches save the day? From Australian mines to Chile’s Salars through Canada, China, France, and the USA, I’ve investigated the roads to battery-grade Lithium Hydroxide or Carbonate. And I may well have outsmarted Elon Musk himself.
Table of contents
- The Global Lithium Shortage
- Did I just find a treasure in my backyard?
- Will Lithium production increase in the next years?
- How is Lithium produced today?
- Direct Lithium Extraction: a new hope?
- “White Oil” is a Geopolitical Topic
- Can we really extract Lithium from any water source?
- The 4 Keys to strive in the “Lithium Age”
The Global Lithium Shortage
In April 2022, Elon Musk took to Twitter to address the global lithium shortage:
Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve.— Elon Musk (@elonmusk) April 8, 2022
There is no shortage of the element itself, as lithium is almost everywhere on Earth, but pace of extraction/refinement is slow.
The CEO of Tesla was reacting to the recent increases in lithium prices. At the time of the tweet, the lightest metal on earth was trading at an all-time high of $72’700 per ton of Lithium Carbonate.
Sure enough, it was a fair reaction to the spot market being multiplied by five in just three months!
Yet, the real deal in this graph is to be found somewhere else. The root cause for the global shortage was indeed baked much earlier; here’s why.
Why do we miss Lithium so bad?
In his tweet, Elon is actually right. The earth isn’t anywhere short of Lithium. As Henry Sanderson states in his Volt Rush book: “In theory, we could run every car on lithium batteries for a billion years, with the amount of lithium in the earth’s crust.”
The problem is that the EV industry took this theory much too literally. They treated Lithium like a commodity: whenever you need some, you’ll buy some, and Musk has never acted any different with Tesla.
I’ll expand on it in a second, but as Joe Lowry, the host of the Global Lithium podcast, told me: “Lithium isn’t a commodity like copper or coffee.”
Namely, if you stop buying, you’ll also prevent production from ramping up as it should. And you’ll be in raw material dept in the future.
China caught a cold; Western Australia got the flu
This is exactly what happened when CoVid hit. China, the world’s largest off-taker of Lithium, strongly reduced its purchases, and Western Australia, the largest producer of the mineral, stopped investing in asset expansion.
Worse, existing miners like Altura went belly up, and aspiring ones got, at best, slowed down. And at worst, bust as well.
So, when the world’s industrial tools started ramping up again at the end of the CoVid crisis, there wasn’t anywhere close to enough supply of Lithium to feed the soaring battery revolution!
What are the consequences on Lithium prices?
If you’ve followed Economy 101 courses, you know that high demand and low supply have a simple consequence: high and potentially skyrocketing prices.
This is how both Lithium Hydroxide and Carbonate spot prices went through the roof at the beginning of 2022, then more or less settled around $70’000 per tonne.
Yet, will they sustainably stay at those heights?
How will Lithium prices evolve towards 2030?
Ok, let’s be clear here: I don’t have a crystal ball, and I don’t know any reliable fortune teller. So this can’t be investment advice in any form!
There is an almost overall consensus that demand will stay high and supply short, calling for sustained high prices. Yet, two diverging voices had a high impact. Both Goldman Sachs and Credit Suisse predicted a slowing down of the Chinese market, which would, in turn, reduce the tension on lithium and bring the spot price down.
If those forecasts kinda impacted the stock market, they got contradicted by facts (so far), market players, and lithium experts.
For instance, Joe Lowry, again, wrote a detailed article calling out Goldman Sachs for painting “a ridiculous supply picture.”
So, battery-grade lithium staying in the $70-90’000 range sounds like the highest probability for the rest of this decade.
Did I just find a treasure in my backyard?
At $70’000 per ton, lithium starts to rightfully own its “White Oil” nickname. For what this comparison is worth, it means that today, lithium trades at more or less 120 times the price of crude oil!
But imagine. If by digging up my garden, I was to find oil, I would probably react something like this:
So how should I react if it suddenly got 120 times better, as it would reveal to not be oil but lithium?
I hear you: “pff, science fiction!”
Well, wait a second. I actually found lithium. And if not in my garden, actually pretty close. Let me explain in 45 seconds.
Potash Mining in Alsace
For the entire 20th century, potash mining has been a key activity in the region I come from: south Alsace. We mined potash when we were german, and we mined potash when we returned to french. We kept mining when german again, and we certainly didn’t stop when France took us back!
But at the turn of the 21st century, the deposit started running out, and the company operating it looked for new endeavors. They got a brilliant idea: turning the empty mine into a special landfill called Stocamine.
In 1999 they opened a “dangerous waste” storage operation that would last until 2002, when it caught fire – the fire lasted two months and caused a partial collapse of the galleries. Fun fact, nothing was supposed to be flammable in what was authorized to go down the mine.
But long story short, there’s an ever-lasting debate in front of the court to decide what to do with the trash, leaving it underground or taking it out. Court says it shall go out, but the french state thinks otherwise, anyways, not my point for today.
My point is: the environmental debate is: water will trickle down the galleries, and brines will ultimately fill the underground landfill. That water will ultimately come back up and potentially pollute the drinking water source for millions of Europeans.
To assess the water risk, the Potash/Landfill company was ordered to run a water test campaign at the bottom of the mine. And when I got hold of the report, something caught my attention.
On the two mining pits they tested, they found lithium:
This got me thinking. Could I actually make a ton of money by “digging up” that Lithium brine at the bottom of the Potash Mines where my uncle used to work?
(I’m really skipping purposely the environmental aspect here – that would be an immense sidetrack!)
High Lithium content in Groundwater: a new Eldorado?
Before getting some help to answer this question in depth, let’s do a sanity check by comparing the water samples I just dug up with two lithium projects that widely made the news in both the US and Europe.
The Salton Sea (California) – USA’s flagship project
First, the Salton Sea project in the US. Why? Because that project was chosen by the Biden administration as a flagship of their energy policies. The day president Biden got inaugurated, it announced a $14.9 million grant to study how the Salton Sea-region lithium could be used to make lithium hydroxide. Oh, and that grant went to Berkshire Hattaway, Warren Buffet’s company, so not exactly nobody.
We’ll see later how that’s not a piece of cake, but for now, I’ll just leverage their water sample (see below).
The Upper Rhine Valley (Germany – France) – Europe’s best card?
The second comparison I’ll draw here is towards the Upper Rhine Valley’s groundwater, and its flagship, Vulcan Energy. This one is no less than Europe’s largest lithium deposit currently investigated to produce “White Oil” in the European Union.
It’s been successfully piloted and just released its definitive feasibility study. Once built, Vulcan’s facilities shall produce 40’000 tons of battery-grade Lithium Hydroxide every year.
And I could have picked many more! Right now, and according to my own project tracking, eleven direct lithium extraction projects are under development in the World and shall produce a combined 300’000 tonnes per year of Lithium Carbonate or Hydroxide by the end of the decade.
Here’s my side-by-side comparison:
I know, that’s pretty unreadable and hard to understand. That’s why I’ll get REAL experts to look it up in a minute! But at first sight, we can identify a couple of items:
- Lithium Content is higher in my “Backyard” option than in two real world-famous projects
- Scavengers that should make Direct Lithium Extraction an even more challenging process seem reasonably OK-ish as far as my limited understanding gets it so far.
So, back to my question: could I soon become immensely rich?
Will Lithium production increase in the next years?
For my lucky ticket plans to become real, I need one crucial element: a sustained imbalance between supply and demand. We’ve already seen how, under the new realm of the EV revolution, lithium demand will soar.
According to Anthony Tse of investment firm Franklin Templeton, lithium demand could hit anywhere between 3 million and 5 million tonnes by 2030.
But be it these 3 to 5 million or the 2 million I used in my introduction, that still only represents one-half of the equation. To really solve it, we need to look into the other half: the World’s lithium supply.
How much Lithium does the World produce today?
The World produces about 720’000 tonnes of lithium carbonate equivalent. That’s the conversion of the USGS data into LCE, to which I’ve added 5’000 tonnes of US production – the only country whose production data is not shown in the USGS report.
I share this figure first because USGS is THE source everyone uses, so they must be right. Now, I also did my own calculation based on the addition of the active lithium productions announced by every single player, and my figure is slightly lower as I get 550’000 tonnes of lithium carbonate equivalent.
Now, despite my own lower figure, I’ll use the USGS figure going forward. I’m a muggle; they are the wizards, and I respect that! But to evaluate how fast the World can increase its lithium output, we need to understand how these 720’000 tonnes are produced today.
How is Lithium produced today?
Indeed, there are two ways to get battery-grade lithium: digging it up directly from lithium-rich rocks, or evaporating specific brines in ponds until they reveal their white oil treasure.
Hard Rock Mining
Lithium’s presence in rocks has been known since the late 18th century. And many pegmatites like Zinnwaldite or Lepidolite have been mined for that feature. Yet, if there’s a king in this court, it’s for sure Spodumene.
Spodumene has been mined for more or less as long as we’ve found some use for lithium. You dig it up from the ground at a Li2O concentration between 1 and 2%. You then concentrate it with a gravity process like, for instance, flotation, and up to a concentration of 6%.
Mining itself stops there, even though you’ll still need to go through several refining steps before using any of this lithium in batteries.
Refining Spodumene Concentrate (SC6)
The other route to produce lithium starts with a specific type of underground water: lithium-rich brines.
This water is pumped into large evaporation ponds, where the sun will reduce the water content over months, which in turn will concentrate the lithium and other compounds until it reaches sufficient concentration to be, here as well refined.
Refining Concentrated Brines
Indeed, in a perfect world, brines would contain only Lithium and Water, so once you’ve evaporated the water, you’re left with only “White Oil.” But bad news, the world isn’t perfect, and you’ve quite a bunch of other compounds to knock off in the concentrated stream.
First, you’ll need to run a filtration of your brine to remove impurities.
Then, a precipitation step will knock out the main compounds you still want to remove at that step. This is followed by a new filtration that takes out the precipitated solids.
Finally, you’re adding soda ash (Na2CO3) to the mix to create lithium carbonate (Li2CO3), which you still have to wash and dry.
Where is it happening?
That’s where it gets tricky. I mentioned several times the “global lithium production” but in fact, nothing’s really global in that story.
Hard rock mining happens largely in Australia, with six active mines, and China, that features three of them. Then, some smaller operations round it off in for instance Brazil or Zimbabwe: if you’re interested in the full story, I’ve made an exhaustive study of all active and planned Lithium Mining projects.
Evaporation ponds are essentially found in the “lithium triangle” consisting of Argentina, Chile and Bolivia, with two active operations in Argentina, two in Chile, and none in Bolivia, despite being the world’s largest lithium reserve – which is a fascinating story but not one for today! There are then two more sites in China, and one smaller capacity one in the US.
That’s “Global Lithium” as of today: essentially four countries that mine White Oil in its two different forms, Australia, Argentina, China and Chile!
Where and when will new production capacity come online?
Now, that map is also set to evolve.