Lithium: The New Oil

Alessandro Bruno
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The Coup in Bolivia Could Boost Lithium Prices and Energy Resource Geopolitical Dynamics

Lithium prices will likely increase in the next few years. As electric cars replace gasoline powered ones, lithium will gain a strategic value not unlike that of crude oil today. And, Bolivia, the poorest country in South America, has the resources to become the ‘Saudi Arabia’ of lithium. The resignation of Evo Morales has tightened the market, indefinitely putting a halt to important lithium mining projects, which should sustain prices in the medium term. Notably, the coup and its possible – if not probable – links to lithium mining have stressed how all South American leaders (just as those of the Persian Gulf in relation to oil) will have to decide how manage the largest lithium reserves in the world.

Lithium: The New Oil

To an even more anxious extent than drivers looking for gas stations during the 1973 OPEC oil embargo, nothing characterizes 21stcentury ‘homo-sapiens’ lifestyle quite like the (insert gadget of choice)-battery-socket triangle. If social scientists, media gurus and advertising copywriters have noticed this trend, investors should have perceived by now that much monetary value lurks behind the gesture of ‘plugging-in’. The whole world needs to ‘plug-in’ angst, and the angst to recharge batteries will only intensify as car manufacturers are shifting away from the internal combustion engine in favor of electric motors at a faster pace than anyone had imagined even five years ago. Whoever has the most reliable, enduring, lightest and most powerful battery will build the best vehicles. Batteries, in an imminent future, will even generate enough power (and be light enough) to propel airplanes.A cell phone, a notebook, a tablet, work because of the  energy contained and released through lithium-ion batteries. But, the appeal of electric cars, (or even hybrid cars), is driving the appetite. Such vehicles are, quite literally, battery packs on wheels. And the batteries alone make up some 42% of the sticker price. (Source: Investopedia).

Many see ‘electric power’ as the way to end dependence on oil from the Middle East. However, such independence is the stuff of geopolitical fantasies: the rising demand for battery generated electric power has already shifted the geopolitical balance away from the sands of Saudi Arabia and closer to those of South America, which holds the richest lithium deposits in the world; especially, Argentina, Chile and Bolivia together hold some 80% of the world’s lithium (the Salar de Uuuni, a salt flat covering 10,000 square kilometers at 3,600 meters above sea level). being the largest known deposit). It is located near Potosi, perhaps the most important mining center of South America during the Spanish colonial era. The salt flat, which is also rich in magnesium, potassium and sodium, contains some 47% of the known world’s lithium reserves. At a price ranging between $8,000-10,000 per metric ton, the potential is clear.

Indeed, the batteries that have hooked the whole world are the lithium-ion (Li-ion) kind. And they are found in anything from smartphones to tablets, to electric cars and modern airliners.

Lithium is a low-density metal, typically found in salt form, noted for its ability to keep its level of charge (in case of inactivity). It is an abundant alkaline mineral, but nowhere is it abundant (and easy to extract) as it is in vast majority of the kind that’s most suitable to make rechargeable batteries. However, one of lithium’s main advantages as a resource is that, unlike oil, just about everyone has some. It’s found everywhere; and therefore, it’s unlikely that conflicts will break out because of it. Should a geopolitical dispute develop over lithium, it will have more to do with the know-how to advance related battery technology than Nevertheless, because of its sheer size, all major industrial powers, starting from the United States, are coveting South American lithium. Those who will, write rules of the contest to build the best lithium battery, therefore, will not focus on the geographic control of the resource. Rather, they will focus on the ability to combine the expertise, technology and resource together in order to transform the resource directly into batteries. More than power-relations, the winners of this game will excel at diplomacy. Battery dominance will be a factor of scientific competence, mining and geopolitics.

Who Wants South American lithium?

All industrial powers want South American lithium, though, clearly the United States, Japan, Germany, South Korea and, of course, China have the most interest. But, it’s China, which has been investing most heavily in the research. And therein rests the core of the problem. Because the real ‘resource’ is the manipulation and technology around lithium, ambitious governments, focused on lifting standards of living, have imposed conditions on would-be extractors. They must invest in the mining as well as the technology. And that’s the key to understand what happened to President Evo Morales of Bolivia – and the key to understanding how the race for lithium, the ‘21stcentury oil’, will have to be played. Indeed, as commercial lithium mining operations in the Salar de Ayuni began in 2016, President Morales quickly became dissatisfied with the notion of perpetuating the exporting model that has kept so many countries behind: that is the export of natural resources and the import of expensive finished goods.

Morales wanted to establish an in-house battery production process in order to export finished batteries. And Morales reached such an agreement in January 2019 with Germany’s ACI System(ACISA). Among others, ACISA supplies batteries to Tesla Motors. Germany, which is one of the remaining industrial powers, needs to secure batteries for its large auto manufacturing groups, which have quickly developed electric vehicle lineups, after a few years of trailing behind the Japanese and Americans. But last November 4, the Bolivian government canceled the agreement after protests from Potosi locals, expressing anger over the terms of the deal and the environmental consequences deriving from the magnesium tailings from the lithium extraction. Morales, for his part, probably expected more investment in the human resources through the installation of educational facilities, chemistry faculties, or at least scholarships to train the local people in the relevant skills. Morales, in turn, wanted to sign a $2.3 billion agreement – this time with China – turning Beijing into its strategic partner for lithium extraction and battery technology. Morales thought China to offer the best solution to achieve a complete battery production supply chain.  The Bolivian government was even rumored to attempt a nationalization of the project, but a week after the cancellation, President Evo Morales ‘resigned’ (or was the victim of a coup).

Is there a coincidence between the cancellation and the resignation? Perhaps, but the resulting political turmoil has effectively cut out Bolivia and its massive lithium resources from the market. Even China, which had designs with a project of its own in the Salar de Uyuni, will not have a chance to pursue any mining, given the political and social instability – even if the new people in charge will seek re-alignment with the West (i.e. USA, Europe) instead of China and Russia.

Alessandro Bruno

Alessandro Bruno

Alessandro Bruno, born in Naples, (BA and MA in International Relations, University of Toronto). Alessandro is a research analyst and writer in various business sectors and international politics. He was a Programme Officer for the UN in North Africa and a senior for one of the first international sustainable investment...
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