Opportunity Or A Fool’s Errand?

Emily Pickrell, UH Energy Scholar

As war in Europe points out the problems with relying too much on potentially unfriendly countries for critical energy supplies, the U.S. is looking for its own options in sourcing the lithium it needs for EV batteries.

Chip shortages were a factor in last year’s supply chain crisis in auto manufacturing. Shortages in lithium could mean that EV batteries are next.

Yet given that battery technology advancements are slow, the shortage is calling into question President Biden’s ambitious plans to transition to non-fossil fuel-based transportation, with more than nine million new EVs in the U.S. by 2030. 

Currently, more than 80% of the raw materials needed EV batteries come from China, which also controls nearly all of the worldwide processing facilities for key critical minerals, including lithium.

But the lion’s share of this lithium is mined elsewhere, and much of world’s resources are actually concentrated much closer to home – in Latin America.

Bolivia, Chile, Argentina, Peru and Mexico together make up about two-thirds of global lithium reserves, with most of it concentrated in Chile, Argentina, and Bolivia.

From a shipping perspective, not having to cross the ocean gives all of these countries a leg up over Asia for sourcing lithium, according to Marco Poisler, a supply chain logistics professor at the University of Houston.

An even bigger benefit is that it does not leave the U.S. in the situation Germany finds itself in – being dependent on a potentially hostile country.

“It is a lot riskier to try to secure lithium from China,” said Poisler, who is also the chief operating officer for global energy at UTC Overseas, with lithium equipment logistics experience in Bolivia, Argentina, and Chile. “If we look at the cultural ties that South America and Mexico has with the U.S., they are a lot easier to engage with, even a country like Bolivia.”

At the same time, the economics of lithium could also be a big blessing to the region.

Lithium prices have shot up from $10 per kilogram in January 2021 to more than $50. The price increases have come at a time when most of these same Latin American countries have been hit hard by the turbulent global economy and pandemic impact. Chile, for example, had a 6% contraction in its economy in 2020. Argentina fared worse: a miserable 10% contraction, coming on the heels of a previous recession.

Yet the region as a whole is now undergoing a resurgence of resource nationalism with respect to mining, especially for lithium.

And it is playing a big role in internal politics.

Former Bolivian president Evo Morales had tried to broker international lithium agreements last year but was removed in a coup, even as the protestors demanded more local ownership of lithium mining rights and more royalties. Morales has since accused the U.S. of organizing the coup, motivated by its desire for Bolivia’s lithium. The new president, Luis Arce, campaigned on a platform of developing lithium resources for the public benefit. 

In Chile, newly elected President Boric campaigned on ambitious climate change action and has proposed a state company for lithium exploitation. 

Argentina currently produces 10% of the world’s lithium but this could grow significantly, depending on how much risk companies are willing to bear. There is a strong environmental activist movement that is pushing back against the expansion, concerned about the environmental and social impact on the Puna region where the salt brines are located.

Mexico is perhaps one of the least appealing counties for sourcing lithium, both because of the technical challenges and the current political environment. Its geology makes the lithium itself much more difficult to access than the salt brines of Chile and Argentina. The Mexican President Lopez Obrador specifically singled out lithium for a proposed ban on private mining in a major constitutional change now under consideration.

In short, the mix of rising resource-based nationalism and an inadequate infrastructure in many of these countries may make it tougher to move quickly on these projects than once believed.

The potential opportunity is being ferreted out by tiny companies like EnergyX, a Texan energy start-up, which is in the process of exploring the possibility of importing Bolivian lithium.

They had best be patient, according to estimates from the Bureau of Economic Geography at the University of Texas, which offers a best-case scenario of at least four years for getting any of the South American lithium to market.

Even that time estimate assumes that the lithium would be in brine, which is much easier to reach than the rock-encased lithium in Mexico, explained Michelle Michot Foss, who led the research at the Bureau of Economic Research and who is now a fellow at Rice University’s Baker Institute for Public Policy.

“Not all lithium is the same,” Foss said. “There are big implications if the chemistry is carbonate versus hydroxide, for example – a great deal has to be invested to get one or the other, depending upon market demand.”

And the U.S. is not the only customer courting South American lithium, or even the most aggressive one. China already controls substantial lithium assets in South America, and its businesses have made roughly $4.5 billion in lithium investments over the last three years in South America and Mexico. These investments are supported by the Chinese government, as its banks give low-interest loans to Chinese mining and construction companies operating abroad.

The US government does have some tools at its disposal, such as the US export-import bank, that could be used to help provide some of the necessary financing for deals that might otherwise happen.

But companies that are hoping to circumvent tough environmental regulations and standards by outsourcing from Latin America will undoubtedly find quite a bit of pushback from south of the border, as local populations and governments are reassessing their relationship with international mining.

“Countries in the less developed world rightfully are demanding a unified approach to responsible mining,” said Margaret Kidd, program director of Supply Chain and Logistics Technology at the University of Houston. “Geography does not change that.”

Some have floated the idea of an OPEC-style organization in Latin America that would ensure fair and stable prices for lithium producers, and an economic and steady supply to consumers.

It’s an idea that has some potential,  if it provided a fair return on the capitol that needs to be invested in the industry and a level playing field in terms of regulations.

Many of these countries, however, have misplayed their hands in the past, using strong nationalistic approaches towards energy, such as Mexico’s attempt to pressure private renewable power companies out of the country.

A push too hard could force the EV world to focus harder on not requiring lithium at all. Lithium is not the only material that an EV battery can be built from, but it is currently the cheapest, and is expected to be so for some time to come. (Battery technology also requires other supply constrained minerals.)

A Latin American lithium future will have to be mutually beneficial, to make it work. Otherwise, the money will simply find other friends to play with.  

Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE. 

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.