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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University…

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Why There Won’t Be An OPEC For Battery Metals

Mining

Over the past 58 years, major oil-producing states have aligned their interests in the ‘Organization of Oil Producing Countries’. During those years, OPEC has been able to steer price of ‘black gold’ in a direction more favorable to its members. The goal of this organization has been to “coordinate and unify the petroleum policies of its members”, while at the same time “ensuring the stabilization of oil markets in order to secure an efficient, economic, and regular supply of petroleum”.

In this perspective, the rise in sales of electric vehicles or EVs is more or less a threat to the flow of income of these countries. This process has been seriously accelerated by the sharp decline in battery production costs in recent years. In the long-term, EVs will account for 8 percent of total vehicle sales in 2025, 24 percent by 2030, and 54 percent by 2040. This means that by 2040, 8 million barrels of oil could be displaced.

Obviously, the rise in sales will not only impact oil but also cause an increased demand for metals used in the production of batteries. Currently, the most important elements are lithium, cobalt, and nickel. As with oil, the majority of commercially extractable deposits is located in several countries, which some analysts have dubbed as the ‘new OPEC’. However, this article will argue that such a development will not happen in the foreseeable future due to several reasons.

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First, the top countries producing lithium (Chile, China, and Argentina), Cobalt (Congo, Russia, and Australia), and Nickel (Indonesia, Philippines, and Canada), are with the exception of Congo stable states and with a high level of control over their territory. These countries possess, with the exception of Congo, relatively well-diversified economies where mining is a welcome boon to the economy but in no way essential. Oil for most of OPEC’s members was and still is an essential part of government income. Mineral producing countries, therefore, have less incentive than oil producing ones in organizing themselves in a comparable organization. 

Second, the strategic and financial importance of oil for the national economy led to what is now OPEC but required the participation of public organizations such as national oil champions in order to make it effective. These ‘National Oil Companies’ or NOCs control production either by themselves or in a joint-venture with foreign companies. The mining of metals, in contrast, is in most areas of the world done in an open economic space where private companies participate for exploration rights. For Lithium one Chilean and two American companies vie for domination: Sociedad Quimica y Minera, Albemarle, and FMC corporation.

The electrification of many major economies is changing the market for commodities quickly. Rapid urbanization and industrialization in China have led to an air pollution problem. The Chinese government has therefore embarked on a serious push for alternatives to improve air quality. Domestic and international firms are eagerly making use of the new policy that can be seen in the rapid rise of China’s share of global EV sales which currently stands at 21%. The Asian giant intends to become the biggest producer of lithium-ion batteries by 2020 with a 62% global market share. The Chinese government is stimulating domestic lithium production in order not to be too reliant on others. 

Furthermore, resources used in the manufacturing of batteries are not ‘consumable’ commodities in the way oil is. While refined products are used a single time during combustion, batteries are obviously rechargeable. Furthermore, the rising importance of sustainability in societies worldwide combined with cost savings means that recycling is an important process. Therefore, it is likely that metals producing countries will not be able to exert the same level of influence on prices as OPEC.

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During the past decades, OPEC has been one of the most important factors in setting the price of oil. Even with the rise of fracking in the US, no other player or organization has been able to influence developments in the energy sector on the same level. The primary reason is that the world remains highly dependent on oil, giving its producers an edge.

The willingness of major lithium, cobalt, and nickel producing countries to organize themselves can be met with relative skepticism due to the above-mentioned arguments. Another factor making accurate predictions difficult are technological developments in the sphere of battery production. High prices tend to stimulate innovation and the search for alternatives. The soaring cost of cobalt, for example, has already spurred some companies to look for alternatives. Even though the current outlook for commodity prices looks stable, the situation could change quickly due to economic, political, and technological developments, making an OPEC for battery metals highly unlikely at this moment in time.

By Vanand Meliksetian for Oilprice.com

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  • Bharath on June 17 2018 said:
    Most of the journos are setting the narrative that there will be only 8 million barrels oil demand reduction by 2040. This is outright fake and false narrative.
    By 2022 itself there will be million electric buses and half million electric trucks and 20 million EV's/ ride sharing cabs. And from 2023 every year there will be some 0.5 million electric bus and Electric trucks sales will happen.
    That means by 2022 itself there will be a reduction of 3-4 million barrels of oil demand.
    And every year 1-2 million barrel more oil is not required and by 2030 it will be 90% electric buses and electric trucks which will reduce almost 20-25 million barrels
  • Mamdouh G Salameh on June 17 2018 said:
    OPEC has succeeded and flourished for the last 58 years because it sits on 71.5% of the global proven reserves of oil. Oil is the life blood of the global economy. There can never be an alternative as versatile as oil to replace it during the 21st century and far beyond. In a research paper titled:” A Post-Oil Era Is a Myth” published by the United States Association for Energy Economics (USAEE), I argued strongly and convincingly that oil will reign supreme through the 21st century and far beyond. This is the raison d’etre of OPEC.

    There can never be an OPEC for battery metals due to two major factors: cost and technology. Cost is driving battery manufacturers to move away from expensive metals such as Lithium, Cobalt and Nickel into cheaper alternatives including solar batteries. Technology is leading the way and could eventually make these aforementioned metals redundant. Therefore, you can’t have an OPEC of batteries when metals are changing and alternatives are evolving.

    And contrary to your arguments, electric vehicles (EVs) will neither pose a threat to oil in transport nor to the flow of income to OPEC members throughout the 21st century and far beyond and I will explain to you why.

    Some experts are projecting that some 50 million EVs could be on the roads by 2024 while others like BP and Aurora Energy Research are projecting 320 million EVs and 540 million EVs respectively by 2040.

    Currently, electric and hybrid cars combined number under 2 million cars out of 1.477 billion internal combustion engines (ICEs) on the roads worldwide, or a negligible 0.14%. This is despite support by significant government subsidies. The total number of ICEs is projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.

    Global oil consumption is projected to reach 110 million barrels a day (mbd) by 2025 hitting 120 mbd by 2040.

    At a most favourable scenario, we might have some 50 million EVs on the roads by 2040. By that time the world will be using 43.8 billion barrels a year (bb) of which 75% or 32.85 bb will be used to power 2.790 billion ICEs around the world. Bringing 50 EVs on the roads will reduce the global oil demand by only 0.59 bb (1.6 mbd) or 1.8% by 2040. This could only displace 1.6 mbd and not the 8 mbd you mentioned in your article.

    However, I hasten to add that even 50 million EVs by 2040 is an impossibility. The reason is that current manufacturing capacity of EVs and hybrids amount to 1 million vehicles annually of which only 500,000 are EVs and the rest are hybrids. So it will take many decades to manufacture 50 million EVs.

    Moreover, there will be a need for trillions of dollars of investment to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge 50 million electric cars.

    A post-oil era is a myth. Oil will continue to rein supreme throughout the 21st century and far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Dempsey on June 18 2018 said:
    As the article does mention, in passing, the main reason why there won't be an OPEC for battery metals is the likelihood that substitutes will be available; not the same for oil.
  • Najeeb Ullah on June 24 2018 said:
    Mamdouh G Salameh sir I respect your credentials and vast experience in the energy industry. But I fear your figues for EVs are off by a factor of 2. Today there are close to 4 million EVs on the roads worldwide.(there were 3 million light vehicles and over 300000 buses and trucks at the end of 2017).This is excluding wheelers such as electric scooters and mopeds of which there are well over 100 million in China alone.

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