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Cobalt: A Precarious Supply Chain

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Cobalt: A Precarious Supply Chain

Cobalt: A Precarious Supply Chain

How does your mobile phone last for 12 hours on just one charge?

It’s the power of cobalt, along with several other energy metals, that keeps your lithium-ion battery running.

The only problem? Getting the metal from the source to your electronics is not an easy feat, and this makes for an extremely precarious supply chain for manufacturers.

Our infographic today comes to us from LiCo Energy Metals, and it focuses on where this important ingredient of green technology originates from, and the supply risks associated with its main sources.

What is Cobalt?

Cobalt is a transition metal found between iron and nickel on the periodic table. It has a high melting point (1493°C) and retains its strength to a high temperature.

Similar to iron or nickel, cobalt is ferromagnetic. It can retain its magnetic properties to 1100°C, a higher temperature than any other material. Ferromagnetism is the strongest type of magneticism: it’s the only one that typically creates forces strong enough to be felt, and is responsible for the magnets encountered in everyday life.

These unique properties make the metal perfect for two specialized high-tech purposes: superalloys and battery cathodes.

Superalloys

High-performance alloys drive 18% of cobalt demand. The metal’s ability to withstand intense temperatures and conditions makes it perfect for use in:

  • Turbine blades
  • Jet engines
  • Gas turbines
  • Prosthetics
  • Permanent magnets

Lithium-ion Batteries:

Batteries drives 49% of demand – and most of this comes from cobalt’s usage in lithium-ion battery cathodes:

Type of lithium-ion cathodeCobalt in cathodeSpec. energy (Wh/kg)
LFP0%120
LMO0%140
NMC15%200
LCO55%200
NCA10%245

The three most powerful cathode formulations for li-ion batteries all need cobalt. As a result, the metal is indispensable in many of today’s battery-powered devices.

  • Mobile phones (LCO)
  • Tesla Model S (NCA)
  • Tesla Powerwall (NMC)
  • Chevy Volt (NMC/LMO)

The Tesla Powerwall 2 uses approximately 7kg, and a Tesla Model S (90 kWh) uses approximately 22.5kg of the energy metal.

The Cobalt Supply Chain

Cobalt production has gone almost straight up to meet demand, and production has more than doubled since the early 2000s.

But while the metal is desired, getting it is the hard part:

1. No native cobalt has ever been found in nature.

There are four widely-distributed ores that exist, but almost no cobalt is mined from them as a primary source.

2. Most cobalt production is mined as a by-product.

Mine source% cobalt production
Nickel (by-product)60%
Copper (by-product)38%
Cobalt (primary)2%

This means it is hard to expand production when more is needed.

3. Most production occurs in the DRC, a country with elevated supply risks:

CountryTonnes%
Total122,701100.0%
United States5240.4%
China1,4171.2%
DRC67,97555.4%
Rest of World52,78543.0%

(Source: CRU, estimated production for 2017, tonnes)

The Future of Cobalt Supply

Companies like Tesla and Panasonic need reliable sources of the metal, and right now there aren’t many failsafes.

The U.S. hasn’t mined cobalt in significant volumes since 1971, and the USGS reports that the United States only has 301 tonnes of the metal stored in stockpiles.

The reality is that the DRC produces about half of all cobalt, and it also holds approximately 47% of all global reserves.

Why is this a concern for end-users?

1. The DRC is one of the poorest, corrupt, and most coercive countries in the planet.

It ranks:

  • 151st out of 159 countries in the Human Freedom Index
  • 176th out of 188 countries on the Human Development Index
  • 178th out of 184 countries in terms of GDP per capita ($455)
  • 148th out of 169 countries in the Corruption Perceptions Index

2. The DRC has had more deaths from war since WWII than any other country on the planet.

Recent wars in the DRC:

  • First Congo War (1996-1997) – A foreign invasion by Rwanda that overthrew the Mobutu regime.
  • Second Congo War (1998-2003) – The bloodiest conflict in world history since WW2 with 5.4 million deaths.

3. Human Rights in Mining

The DRC government estimates that 20% of all cobalt production in the country comes from artisanal miners – independent workers who dig holes and mine ore without sophisticated mines or machinery.

There are at least 100,000 artisanal cobalt miners in the DRC, and UNICEF estimates that up to 40,000 children could be in the trade. Children can be as young as seven years old, and they can work up to 12 hrs with physically demanding work, earning $2 per day.

Meanwhile, Amnesty International alleges that Apple, Samsung, and Sony fail to do basic checks in making sure the metal in their supply chains did not come from child labor.

Most major companies have vowed that any such practices will not be tolerated in their supply chains.

Other Sources

Where will tomorrow’s supply come from, and will the role of the DRC eventually diminish? Will Tesla achieve its goal of a North American supply chain for its key metal inputs?

Mining exploration companies are already looking to regions like Ontario, Idaho, British Columbia, and the Northwest Territories to find tomorrow’s deposits:

Ontario: Ontario is one of the only places in the world where cobalt-primary mines that have existed. This camp is nearby the aptly named town of Cobalt, Ontario, which is located halfway between Sudbury – the world’s “Nickel Capital”, and Val-d’Or, one of the most famous gold camps in the world.

Idaho: Idaho is known as the “Gem State” while also being known for its silver camps in Couer D’Alene – but it has also been a cobalt producer in the past.

BC: The mountains of British Columbia are known for their rich gold, silver, copper, zinc, and met coal deposits. But cobalt often occurs with copper, and some mines in BC have produced cobalt in the past.

Northwest Territories: Cobalt can also be found up north, as the NWT becomes a more interesting mineral destination for companies. 160km from Yellowknife is a gold-cobalt-bismuth-copper deposit being developed.

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Energy

The World’s Projected Energy Mix, 2018-2040

See how the world’s future energy mix is expected to change by 2040, using projections based on two different policy scenarios.

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The World’s Projected Energy Mix, from 2018-2040

Since 1977, the International Energy Agency (IEA) has put together the World Energy Outlook, a highly anticipated annual report that looks towards the future of energy production and consumption on a global basis.

In the latest edition, the report dives into two very different policy scenarios that help illustrate the choices and consequences we have ahead of us.

In this post, we’ll look at each policy scenario and then dive into the associated numbers for each, showing how they affect the projected global energy mix from 2018 to 2040.

The Policy Scenarios

The IEA bases its projections based on two policy scenarios:

  1. The Stated Policies Scenario
    This scenario is intended to reflect the impact of existing public policy frameworks, including announced policy intentions.
  2. The Sustainable Development Scenario
    This scenario outlines a major transformation of the global energy system, aligned with achieving the energy-related components of the United Nations’ Sustainable Development Goals (SDGs), such as reducing carbon emissions.

Neither scenario is technically a forecast; the IEA sees both scenarios as being possible.

However, this data can still provide a useful starting point for decision makers and investors looking to read the tea leaves. Will countries stick to their guns on their current plans, or will those plans be scrapped in the name of bolder, sustainable initiatives?

Scenario 1: Stated Policies

Today’s chart shows data corresponding to this policies scenario, as adjusted by CAPP.

See the energy use data below, shown in terms of Millions of Tonnes of Oil Equivalent (Mtoe):

 201820302040Est. % of mix (2040)
Global Total14,55016,20017,700100%
Oil4,5004,7504,90028%
Natural Gas3,5003,9004,50025%
Coal3,8503,9003,75021%
Other Renewables3007501,3007%
Modern Bioenergy7001,0501,3007%
Nuclear7008009005%
Solid Biomass6506005503%
Hydro3504505003%

Note: Data is based on CAPP conversion estimates, and is rounded to nearest 50 Mtoe.

In the Stated Policies Scenario, oil will be the largest energy source in 2040, making up about 28% of the global energy mix — and natural gas will be right behind it, for 25% of supply.

Coal consumption, which is decreasing in Western markets, will stay consistent with 2018 levels thanks to growing demand in Asia.

Meanwhile, renewable energy (excl. hydro) will see an impressive renaissance, with this category (which includes wind, solar, geothermal, etc.) increasing its portion in the mix by over 300% over 22 years.

Scenario 2: Sustainable Development

The IEA’s Sustainable Development scenario is very different from the status quo, as shown here:

Energy Consumption by Sector

Source: IEA

The contrast between the energy needed in the Stated Policies (STEPS) and Sustainable Development (SDS) projections is stark, going from a 2,500 Mtoe increase to a 800 Mtoe decrease in total consumption, driven by residential and transportation sectors.

Under this scenario, renewable energy use for electricity consumption (incl. hydro) would need to increase by 8,000 TWh more, with ultimately more than half of it in Asia.

Renewable Energy (Electricity Generation)20182040% Increase
Stated Policies6,800 TWh18,049 TWh165%
Sustainable Development6,800 TWh26,065 TWh283%

Under this transformational and ambitious scenario, fossil fuel use would plummet. Coal consumption would drop by roughly 60%, oil consumption by 30%, and the role of natural gas in the energy mix would remain stagnant.

Two Scenarios, One Path

Both scenarios are a possibility, but in reality we will likely find ourselves somewhere in between the two extremes.

This makes these two baselines a helpful place to start for both investors and decision makers. Depending on how you think governments, corporations, and organizations will act, you can then adjust the projections accordingly.

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Chart of the Week

Visualizing the Biggest Risks to the Global Economy in 2020

The Global Risk Report 2020 paints an unprecedented risk landscape for 2020—one dominated by climate change and other environmental concerns.

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Top Risks in 2020: Dominated by Environmental Factors

Environmental concerns are a frequent talking point drawn upon by politicians and scientists alike, and for good reason. Irrespective of economic or social status, climate change has the potential to affect us all.

While public urgency surrounding climate action has been growing, it can be difficult to comprehend the potential extent of economic disruption that environmental risks pose.

Front and Center

Today’s chart uses data from the World Economic Forum’s annual Global Risks Report, which surveyed 800 leaders from business, government, and non-profits to showcase the most prominent economic risks the world faces.

According to the data in the report, here are the top five risks to the global economy, in terms of their likelihood and potential impact:

Top Global Risks (by "Likelihood") Top Global Risks (by "Impact")
#1Extreme weather#1Climate action failure
#2Climate action failure#2Weapons of mass destruction
#3Natural disasters#3Biodiversity loss
#4Biodiversity loss#4Extreme weather
#5Humanmade environmental disasters#5Water crises

With more emphasis being placed on environmental risks, how much do we need to worry?

According to the World Economic Forum, more than we can imagine. The report asserts that, among many other things, natural disasters are becoming more intense and more frequent.

While it can be difficult to extrapolate precisely how environmental risks could cascade into trouble for the global economy and financial system, here are some interesting examples of how they are already affecting institutional investors and the insurance industry.

The Stranded Assets Dilemma

If the world is to stick to its 2°C global warming threshold, as outlined in the Paris Agreement, a significant amount of oil, gas, and coal reserves would need to be left untouched. These assets would become “stranded”, forfeiting roughly $1-4 trillion from the world economy.

Growing awareness of this risk has led to a change in sentiment. Many institutional investors have become wary of their portfolio exposures, and in some cases, have begun divesting from the sector entirely.

The financial case for fossil fuel divestment is strong. Fossil fuel companies once led the economy and world stock markets. They now lag.

– Institute for Energy Economics and Financial Analysis

The last couple of years have been a game-changer for the industry’s future prospects. For example, 2018 was a milestone year in fossil fuel divestment:

  • Nearly 1,000 institutional investors representing $6.24 trillion in assets have pledged to divest from fossil fuels, up from just $52 billion four years ago;
  • Ireland became the first country to commit to fossil fuel divestment. At the time of announcement, its sovereign development fund had $10.4 billion in assets;
  • New York City became the largest (but not the first) city to commit to fossil fuel divestment. Its pension funds, totaling $189 billion at the time of announcement, aim to divest over a 5-year period.

A Tough Road Ahead

In a recent survey, actuaries ranked climate change as their top risk for 2019, ahead of damages from cyberattacks, financial instability, and terrorism—drawing strong parallels with the results of this year’s Global Risk Report.

These growing concerns are well-founded. 2017 was the costliest year on record for natural disasters, with $344 billion in global economic losses. This daunting figure translated to a record year for insured losses, totalling $140 billion.

Although insured losses over 2019 have fallen back in line with the average over the past 10 years, Munich RE believes that long-term environmental effects are already being felt:

  • Recent studies have shown that over the long term, the environmental conditions for bushfires in Australia have become more favorable;
  • Despite a decrease in U.S. wildfire losses compared to previous years, there is a rising long-term trend for forest area burned in the U.S.;
  • An increase in hailstorms, as a result of climate change, has been shown to contribute to growing losses across the globe.

The Ball Is In Our Court

It’s clear that the environmental issues we face are beginning to have a larger real impact. Despite growing awareness and preliminary actions such as fossil fuel divestment, the Global Risk Report stresses that there is much more work to be done to mitigate risks.

How companies and governments choose to respond over the next decade will be a focal point of many discussions to come.

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