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Oil to lithium, the energy transition is shuffling the cards for global politics

Predicted scarcity of metals and rare elements are causing geopolitical tensions

Emmanuel Hache, Economic analyst at IFP Énergies nouvelles
On May 13th, 2021 |
3 mins reading time
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Predicted scarcity of metals and rare elements are causing geopolitical tensions

    Emmanuel Hache
    Emmanuel Hache
    Economic analyst at IFP Énergies nouvelles
    Key takeaways
    • Some metals that are required for low carbon technologies could be running short by 2050 – specifically, copper, cobalt and, to a lesser extent, lithium.
    • China is investing heavily in mining subsidies and companies in the lithium sector in order to secure their supply for battery production.
    • Several countries (Chile, Bolivia, Argentina, Democratic Republic of Congo) with abundant resources could benefit from increased demand.

    Decar­bon­is­ing the ener­gy and elec­tric­i­ty mix has become a pri­or­i­ty to meet inter­na­tion­al cli­mate objec­tives. Since 2010, invest­ment in renew­able ener­gy has great­ly increased (~$3,800bn)1. In 2020 alone, more than $500bn was invest­ed across all kinds of low car­bon tech­nolo­gies (pow­er gen­er­a­tion, hydro­gen, stor­age, CO2 cap­ture and stor­age, and elec­tric vehi­cles) – more than invest­ments into hydro­car­bon explo­ration and production.

    While this shift is enabling coun­tries to be par­tial­ly released from the eco­nom­ic and geopo­lit­i­cal stakes relat­ed to ener­gy secu­ri­ty, it could cause oth­er geopo­lit­i­cal issues to become more com­plex, with new depen­den­cies emerg­ing. The ener­gy tran­si­tion is influ­enc­ing the over­all dynam­ic felt on raw mate­ri­als mar­kets, as it is clear that demand for cer­tain mate­ri­als such as cobalt, lithi­um, rare earth ele­ments and cop­per will accel­er­ate, since they are need­ed for low car­bon technologies.

    Table 1: Max­i­mum ratio of cumu­la­tive demand for mate­ri­als by 2050 in rela­tion to proven resources. Data should be inter­pret­ed thus­ly: for cobalt, in a +4°C sce­nario, the inter­na­tion­al cumu­la­tive demand would rep­re­sent 64% of glob­al proven resources ver­sus 83.2% in a +2°C scenario.

    In our sce­nar­ios (cf. table 1), cobalt and cop­per will be the most restrict­ed met­als in the ener­gy tran­si­tion dynam­ic, as more than 80% of cur­rent­ly known resources will have been con­sumed by 2050. Nick­el and lithi­um, most­ly used in the bat­tery sec­tor, will also be run­ning low in the future, where­as rare earth ele­ments seem to be the least geo­log­i­cal­ly limited.

    Along­side this geo­log­i­cal risk, the ener­gy tran­si­tion may also strength­en the posi­tion of play­ers (coun­tries or com­pa­nies) involved in these met­als’ var­i­ous val­ue chains. On this note, the cobalt mar­ket is remark­able, as it is dom­i­nat­ed by one main play­er at either end of the val­ue chain – the Demo­c­ra­t­ic Repub­lic of Con­go (DRC), which pro­vides 70% of pro­duc­tion, and Chi­na, which under­takes more than 50% of pro­cess­ing. The cobalt mar­ket is symp­to­matic of oth­er raw mate­ri­als mar­kets, sub­ject to seri­ous sup­ply risks due to safe­ty, envi­ron­men­tal and social prob­lems in the DRC (such as pol­lu­tion, large num­ber of ille­gal mines, and child labour), but also to China’s strength­ened role in the area.

    On the lithi­um mar­ket, issues are geo-eco­nom­ic in nature. On the one hand, there no longer seems to be a risk of the main pro­duc­ing coun­tries (Aus­tralia, Chile, and Argenti­na) cartelis­ing the mar­ket, à la Orga­ni­za­tion of the Petro­le­um Export­ing Coun­tries (OPEC), or coun­tries in the Lithi­um Tri­an­gle (Argenti­na, Chile, and Bolivia) form­ing a coali­tion, as nation­al strate­gies have veered apart. The biggest prob­lem is found on the com­mer­cial side of things. At present, the mar­ket is dom­i­nat­ed by five com­pa­nies – two Amer­i­can (Alber­mar­le and Livent), one Chilean (SQM), and two Chi­nese (Tian­qi Lithi­um and Gan­feng). They alone hold more than 80% of mar­ket share, with near­ly 66% for Alber­male, Tian­qi and SQM. The Chi­nese com­pa­nies’ rise to pow­er since the ear­ly 2010s shows the extent to which lithi­um is con­sid­ered a strate­gic mate­r­i­al for Chi­na. And these com­pa­nies’ cur­rent pol­i­cy involves pur­chas­ing con­ces­sions or com­pa­nies from pro­duc­ing coun­tries. They are seek­ing to con­sol­i­date their access to resources, in order to con­trol the entire lithi­um pro­duc­tion sec­tor, from pro­cess­ing to bat­tery manufacturing.

    Rare earth ele­ments, con­sid­ered as rel­a­tive­ly unprob­lem­at­ic from a geo­log­i­cal point of view, have been nick­named the “vit­a­mins of mod­ern soci­ety” due to their var­i­ous prop­er­ties (elec­tri­cal con­duc­tors, ther­mal sta­bil­i­ty). They are cur­rent­ly used in many cut­ting-edge sec­tors, such as renew­able ener­gy and the mil­i­tary. At present, Chi­na rep­re­sents approx­i­mate­ly 62% of glob­al pro­duc­tion, fol­lowed by the Unit­ed States (12%) and Myan­mar (10%). Chi­na was able to quick­ly estab­lish itself on the mar­ket, thanks to extreme­ly strong cost com­pet­i­tive­ness, and has invest­ed over time in all parts of the val­ue chain. The rare earth ele­ments mar­ket is under­go­ing major trans­for­ma­tions at the moment. While Chi­na is already the biggest pro­duc­er and con­sumer world­wide, its exports could go down in com­ing years to sat­is­fy domes­tic demand. As is the case for oth­er raw mate­ri­als mar­kets, Bei­jing is try­ing to make over­seas invest­ments, but is com­ing up against oth­er coun­tries in seri­ous geo-eco­nom­ic competition.

    New mar­ket pow­ers could arise in the com­ing decades for all these raw mate­ri­als. Some pro­duc­ing coun­tries (Chile, Aus­tralia, Argenti­na, DRC, and Bolivia) have a source of wealth at their fin­ger­tips, which could be a major provider of eco­nom­ic devel­op­ment as long as min­ing rev­enue is man­aged effi­cient­ly and fun­nelled back into the local pop­u­la­tion. Out of all the nations involved, Chi­na already has a clear advan­tage, as its strat­e­gy to secure sup­plies of raw mate­ri­als (spear­head­ed by the “New Silk Road” project and direct invest­ments over­seas) is mak­ing it the key play­er in all these mar­kets. Strate­gic raw mate­ri­als could be the sub­ject of a dis­pute between Chi­na and the Unit­ed States in years to come2.

    The envi­ron­men­tal and soci­etal con­se­quences of min­ing raw mate­ri­als are also becom­ing key stakes for domes­tic pol­i­tics. It’s very pos­si­ble that, in the next few years, the chron­ic insta­bil­i­ty in some pro­duc­ing coun­tries will inten­si­fy. The issue of water and its dis­tri­b­u­tion between cit­i­zens and indus­tri­al raw mate­ri­als pro­duc­ers could very well become cru­cial for inter­nal pol­i­tics in many coun­tries. This shift could be strength­ened by the ener­gy tran­si­tion and low car­bon tech­nolo­gies, which con­sume large quan­ti­ties of water, as the main areas that pro­duce strate­gic mate­ri­als expe­ri­ence seri­ous water stress3.
    The issue of raw mate­ri­als will dom­i­nate the 21st cen­tu­ry, as will the com­plex­i­fi­ca­tion and glob­al­i­sa­tion of eco­nom­ic and geopo­lit­i­cal rela­tions between the var­i­ous players.

    1Bloomberg New Ener­gy Finance, https://​about​.bnef​.com/​b​l​o​g​/​e​n​e​r​g​y​-​t​r​a​n​s​i​t​i​o​n​-​i​n​v​e​s​t​m​e​n​t​-​h​i​t​-​5​0​0​-​b​i​l​l​i​o​n​-​i​n​-​2​0​2​0​-​f​o​r​-​f​i​r​s​t​-​time/
    2Fur­ther read­ing: Emmanuel Hache, « La diplo­matie des ressources au cœur de la rela­tion Chine-États-Unis? » (“Is Resource Diplo­ma­cy at the Core of the Chi­na-US Rela­tion­ship?”) in Revue inter­na­tionale et stratégique #120, win­ter 2020, pp. 49–58. https://www.cairn.info/revue-internationale-et-strategique-2020–4‑page-49.htm
    3Emmanuel Hache, Char­lène Bar­net, Gondia Sokhna Seck, « Les pres­sions sur l’eau, face ignorée de la tran­si­tion énergé­tique » (“Water Stress: The Ele­phant in the Room for Ener­gy Tran­si­tion”), 16 Feb­ru­ary 2021, https://​the​con​ver​sa​tion​.com/​l​e​s​-​p​r​e​s​s​i​o​n​s​-​s​u​r​-​l​e​a​u​-​f​a​c​e​-​i​g​n​o​r​e​e​-​d​e​-​l​a​-​t​r​a​n​s​i​t​i​o​n​-​e​n​e​r​g​e​t​i​q​u​e​-​1​54969

    Contributors

    Emmanuel Hache
    Emmanuel Hache
    Economic analyst at IFP Énergies nouvelles

    Emmanuel Hache holds a PhD in Economics from the University of Paris I. He is research director at the Institute of International and Strategic Relations (IRIS) and an associate researcher at Economix (EconomiX-CNRS, University of Paris Nanterre). He is an economist-prospector at IFP Énergies nouvelles and leader of the GENERATE project (Geopolitics of Renewable Energies and Prospective Analysis of the Energy Transition).