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The New Energy Era: The Lithium-Ion Supply Chain

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The world is rapidly shifting to renewable energy technologies.

Battery minerals are set to become the new oil, with lithium-ion battery supply chains becoming the new pipelines.

China is currently leading this lithium-ion battery revolution—leaving the U.S. dependent on its economic rival. However, the harsh lessons of the 1970-80s oil crises have increased pressure on the U.S. to develop its own domestic energy supply chain and gain access to key battery metals.

Introducing the New Energy Era

Today’s infographic from Standard Lithium explores the current energy landscape and America’s position in the new energy era.

lithium ion supply chain us china

An Energy Dependence Problem

Energy dependence is the degree of a nation’s reliance on imported energy, resulting from an insufficient domestic supply. Oil crises in the 1970-80s revealed America’s reliance on foreign produced oil, especially from the Middle East.

The U.S. economy ground to a halt when gas prices soared during the 1973 oil crisis—altering consumer behavior and energy policy for generations. In the aftermath of the crisis, the government imposed national speed limits to conserve oil, and also demanded cheaper, smaller, and more fuel-efficient cars.

U.S. administrations set an objective to wean America off foreign oil through “energy independence”—the ability to meet the country’s fuel needs using domestic resources.

Lessons Learned?

Spurred by technological breakthroughs such as hydraulic fracking, the U.S. now has the capacity to respond to high oil prices by ramping up domestic production.

By the end of 2019, total U.S. oil production could rise to 17.4 million barrels a day. At that level, American net imports of petroleum could fall in December 2019 to 320,000 barrels a day, the lowest since 1949.

In fact, the successful development of America’s shale fields is a key reason why the Organization of the Petroleum Exporting Countries (OPEC) has lost the majority of its influence over the supply and price of oil.

A Renewable Future: Turning the Ship

The increasing scarcity of economic oil and gas fields, combined with the negative environmental impacts of oil and the declining costs of renewable power, are creating a new energy supply and demand dynamic.

Oil demand could drop by 16.5 million barrels per day. Oil producers could face significant losses, with $380 billion of above-ground investments becoming worthless if the oil industry and oil-rich nations are not prepared for a surge in green energy by 2030.

Energy companies are hedging their risk with increased investment in renewables. The world’s top 24 publicly-listed oil companies spent on average 1.3% of their total budgets on low carbon technology in 2018, amounting to $260 billion. That is double the 0.68% the same group had invested on average through the period of 2010 and 2017.

The New Geopolitics of Energy: Battery Minerals

Low carbon technologies for the new energy era are also creating a demand for specific materials and new supply chains that can procure them.

Renewable and low carbon technology will be mineral intensive, requiring many metals such as lithium, cobalt, graphite and nickel. These are key raw materials, and demand will only grow.

Material201820282018-2028 % Growth
Graphite anode in Batteries170,000 tonnes2.05M tonnes1,106%
Lithium in batteries150,000 tonnes1.89M tonnes1,160%
Nickel in batteries82,000 tonnes1.09M tonnes1,229%
Cobalt in batteries58,000 tonnes320,000 tonnes452%
(Source: Benchmark Minerals)

The cost of these materials is the largest factor in battery technology, and will determine whether battery supply chains succeed or fail.

China currently dominates the lithium-ion battery supply chain, and could continue to do so. This leaves the U.S. dependent on China as we venture into this new era.

Could history repeat itself?

The Battery Metals Race

There are five stages in a lithium-ion battery supply chain—and the U.S. holds a smaller percentage of the global supply chain than China at nearly every stage.

Lithium-Ion Supply Chain

China’s dominance of the global battery supply chain creates a competitive advantage that the U.S. has no choice but to rely on.

However, this can still be prevented if the United States moves fast. From natural resources, human capital and the technology, the U.S. can build its own domestic supply.

Building the U.S. Battery Supply Chain

The U.S. relies heavily on imports of several keys materials necessary for a lithium-ion battery supply chain.

U.S. Net Import Dependence
Lithum50%
Cobalt72%
Graphite100%
(Source: U.S. Department of the Interior, Bureau of Land Management)

But the U.S. is making strides to secure its place in the new energy era. The American Minerals Security Act seeks to identify the resources necessary to secure America’s mineral independence.

The government has also released a list of 35 minerals it deems critical to the national interest.

Declaring U.S. Battery Independence

A supply chain starts with raw materials, and the U.S. has the resources necessary to build its own battery supply chain. This would help the country avoid supply disruptions like those seen during the oil crises in the 1970s.

Battery metals are becoming the new oil and supply chains the new pipelines. It is still early in this new energy era, and the victors are yet to be determined in the battery arms race.

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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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Coal

Every Coal Power Plant in the World (1927-2019)

See every major coal power plant ever commissioned on this animation, which covers a time period from 1927 until 2019.

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If you live in a developed country, it’s been clear that the appetite for coal power is falling.

Not only has coal been singled out as a primary source of carbon emissions and air pollution, but it’s also been getting phased out in favor of cheap natural gas in some regions around the world.

In the U.S., electricity generation from coal has been dropping since the late 2000s, and in Europe the departure from coal has accelerated even quicker. In fact, it’s estimated that European coal power output could fall 23% in 2019 alone.

A Different Global Story

However, despite a growing consensus around the use of thermal coal in the West, the global story is actually quite different.

Today’s animation from SVT Nyheter details every coal power plant in the world from 1927 to 2019, and it shows that coal power — especially in South Asia — has continued to ramp up.

As of 2019, there are an estimated 2,425 coal-fired power plants in the world, combining for an operating capacity of about 2,000 GW and roughly 15 billion tonnes of CO₂ emissions.

Global Tipping Point?

Since 2010, there have been hundreds of new coal power plants commissioned — and almost all of them can be found somewhere in Asia:

CountryCoal capacity (2010)Coal capacity (2018)% change (2010-2018)
🇨🇳 China 630,238 MW972,514 MW+54%
🇮🇳 India100,037 MW220,670 MW+121%
Other Asia127,515 MW191,088 MW+50%

However, it seems that this could be the year that the story changes.

Preliminary data suggests that Indian coal consumption could drop in 2019 for the first time in over a decade. Meanwhile, it’s expected that China’s growing coal capacity could be fully offset by decreasing use of the fossil fuel in developed nations.

As a result, according to Carbon Brief, global coal power generation could fall 3% in 2019:

If this trend continues, it could be a sign of a tipping point in global coal consumption — and if the sentiment around coal shifts the same way in China, the potential impact could be amplified even further.

Will 2020 provide additional evidence towards a global sea change in coal dependence, or is 2019 just a blip on the radar?

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