Lithium Working Papers SeriesThe Future of the Lithium Market*Juan Carlos Zuleta Calderón* Paper presented at the Second Lithium Supply & MarketsConference organized by Industrial Minerals held from January26 to 28, 2010 in Las Vegas, USA
2The Future of the Lithium Market *Juan Carlos Zuleta Calderón **AbstractIn a presentation at the inaugural Lithium Supply & Markets Conference held in Santiago in January20091, three factors were suggested to determine whether lithium-ion (Li-ion) batteries will beadopted by the global automobile industry in its transition to electric propulsion, namely: the oilmarket, technological development and resistance to change. Here this argument is reviewed andextended in light of some important recent events that have occurred in the world economy. First,the oil market is reanalyzed not only in terms of yearly oil prices and their volatility but also in relationto average oil prices and volatility for the last 12 years. Second, technological development is nowdiscussed in reference to different types of Li-ion batteries as well as other classes of rechargeablelithium batteries that are beginning to appear in the market. Third, resistance to change iscomplemented with acceptance to change. In addition, the original argument is further developed toshow how the above mentioned factors interact among each other and the way the lithium batterymarket operates within the Lithium Supply Chain to conform the basis for a more compact model oflithium battery adoption. Lastly, Bolivia´s lithium prospects are analyzed to see the efforts it iscurrently making to develop the world´s largest lithium resource, together with the physical, politicaland social challenges, and a preliminary personal view on the industrialization of the Salar de Uyuni.The oil marketOnce the economic recession has been declared to be over, oil prices haveaveraged around US$ 76 a barrel during the last quarter of 2009. As anticipated in aprevious article, they could not in fact drop forever and a long run perspective of theworld economy did indeed call for not-so-low oil prices to avoid a supply crisis2. Theargument that “Peak oil” and climate change may prevent an ever-lasting decreaseof oil prices also appears to be quite relevant today. In addition, although 2009closed with a yearly average oil price about 38% lower than the value obtained in2008, this did not diminish the intensity of the electric car race. Of course, pricesare not alone in the oil market as determinants of adoption of Li batteries; pricevolatility (i.e. uncertainty) counts as well. But this variable showed a much lowerfigure in 2009 than in 2008. Yet, again, the lithium rush was seen to be on the rise.At first sight, the findings above would demolish the original contention that both oilprice and its volatility may have an important effect on adoption of Li batteries.However, the argument remains intact if yearly oil prices and their volatility (asmeasured by yearly standard deviations) are examined in relation to average valuesfor a given period of years3.* This paper was published by parts on SeekingAlpha.com (See: http://seekingalpha.com/article/188489-the-future-of-the-lithium-market-part-i, and http://seekingalpha.com/article/188499-the-future-of-the-lithium-market-part-ii).** Independent lithium economics analyst based in Bolivia1See Juan Carlos Zuleta, “Can the Inauguration of the Lithium Era Be Taken for Granted?”, paper presentedat the First Lithium Supply & Martkets Conference held in Santiago Chile in January 2009.2See Juan Carlos Zuleta, “Lithium´s Electric Shock”, Industrial Minerals, January 2009.3Some time was devoted to define an appropriate period of time for this analysis. To begin with, this effortwas constrained by data availability: Whereas WTI at Cushing provides daily oil prices for the period01/02/1986 – 12/30/2009, Brent offers such information for the period 05/20/1987 – 12/30/2009 only.Secondly, from 1986 or 1987 up to 1999 oil prices averaged each year no more than 24,53 dollars a barrel or23,76 dollars a barrel (depending on the data utilized), but from 2000 on they started to climb and would nevercome back to previous figures. However, 1998 was an atypical year since it reflected the lowest values for bothcomplete series. So it appeared reasonable to establish 1998-2009 as the period of analysis for this study.
3As shown in Table 1 and Figures 1 and 2, both yearly average oil prices andvolatility clearly reflect figures well above their corresponding total averages (for theperiod 1998-2009) during the last 5 and 3 years, respectively. The numbers attainedin 2009 do not seem to be as near to the ground. Albeit low, they are still well abovethe average for the last 12 years.Hence because yearly oil prices (beginning 2005) and their volatility (starting in2007) remained above the average figures over the period 1998-20094, the trendtowards electrification in the car industry as well as adoption of advanced lithiumbatteries to come to grips with this development intensified5. This resolves thepuzzle as to why despite the recent fall of oil prices and their volatility both car andTable 1Movements and Volatility of Oil PricesYearlyAverageYearlyStandardDeviationYearlyAverageYearlyStandardDeviation1998 14,42 1,56 12,48 1,581999 19,34 4,54 17,90 5,032000 30,38 2,97 28,66 3,402001 25,98 3,57 24,46 3,412002 26,18 3,21 24,99 2,942003 31,08 2,63 28,85 2,482004 41,51 5,79 38,26 5,642005 56,64 6,26 54,57 6,162006 66,05 5,60 65,16 5,872007 72,34 12,88 72,44 11,762008 99,89 28,46 97,19 28,702009 61,88 13,37 61,67 12,32TotalAverage45,47 7,57 43,89 7,44YearBrent (US Dollars PerBarrel)WTI at Cushing US DollarsPer Barrel)Source: Energy Information Administration. Yearly averages and standarddeviations were obtained using daily oil prices.4Using a longer period of time (1986-2009), both yearly average oil prices and volatility show numbers abovetheir corresponding total averages during the last 6 years.5This argument appears to be supported by at least the following facts. First, in November 2005, A123Systems announced the development of lithium iron phosphate (LFP) cells based on research licensed fromMIT which have been in production since 2006 and are being used in consumer products, aviation products,automotive hybrid systems and plug-in hybrid electric vehicle (PHEV) conversions (See:http://en.wikipedia.org/wiki/Lithium_ion_ battery). Second, beginning 2006 ThunderSky Lithium Battery Limited have beencommercializing LPP batteries for use in Do it Yourself style electric car conversions (See: http://en.wikipedia.org/wiki/Thunder Sky) and, currently, in the electric cars made by Aptera and QUICC (See: http://en.wikipedia.org/wiki/Lithium_iron_phosphate_battery). Third, the announcement by General Motors in January2007 that by 2010 it will introduce the first mass-produced Li-on powered PHEV into the market and thealmost immediate responses coming from the rest of car makers of the planet.
4battery manufacturers are still investing billions of dollars in research anddevelopment of different electric cars and advanced lithium batteries. It alsosuggests that both car and battery makers may be placing more emphasis on bothyearly oil prices and volatility in relation to total average numbers over a givenperiod of years rather than simply yearly figures for their decision to invest in thedevelopment of electric cars and advanced lithium batteries.Figure 114,4219,3430,3825,98 26,1831,0841,5156,6466,0572,3499,8961,881,64,5 3,0 3,6 3,2 2,65,8 6,3 5,612,928,513,445,57,60,0025,0050,0075,00100,001998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009USDollarsPerBarrelWTIOil Prices(Averages and Standard Deviations)Yearly Average Yearly Stand. Dev. TOTAL AVERAGE TOTAL STAND. DEV.YearsSource: Table 1.Figure 212,4817,9028,6624,46 24,9928,8538,2654,5765,1672,4497,1961,671,65,0 3,4 3,4 2,9 2,55,6 6,2 5,911,828,712,343,97,40,0025,0050,0075,00100,001998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009USDollarsPerBarrelBrent Oil Prices(Averages and Standard Deviations)Yearly Average Yearly Stand. Dev. TOTAL AVERAGE TOTAL STAND. DEV.YearsSource: Table 1.
5Technological DevelopmentIn just a year since the inaugural LS&M09 conference, technological development inthe advanced lithium battery industry appears to have progressed significantly, bothin terms of its focus and the number of new lithium batteries that are reportedly partof different research projects.In terms of its focus, it is now amply acknowledged that breakthrough innovationsare likely to take place in different kinds of Li-ion batteries, not just lithium ironphoshate (LFP) batteries6. After the hype generated by the launching of the firstmass-produced range extended electric vehicle (REEV) by Chinese firm Buyingyour Dreams (BYD) using LFP batteries in December 2008, the concentration nowappears to have shifted towards Manganese Spinel Cathodes manufactured byLucky Goldstar (LG) Chemical from Korea which is working with its US subsidiaryCompact to provide Li-ion batteries to General Motors (GM) for its Volt car, andNEC from Japan, Nissan´s official Li-ion battery supplier for its Leaf automobile.But there is also an important effort underway with lithium-nickel cathodes byPanasonic, which has recently established a partnership with Tesla to help it lowerthe cost of its Li-ion batteries and extend the range of its cars including the plannedmodel S, a cheaper and more efficient electric car than its Roadster, which still usesa lithium cobalt battery. According to a recent article7, “Panasonic’s partnership withTesla is part of a larger strategy to dominate the market for advanced automotivebatteries”. Panasonic already leads the production of nickel-metal hydride (NiMH)batteries for hybrid vehicles. With Sanyo, the largest Li-ion battery maker in theworld, a subsidiary it bought in December 2009, it is likely to continue providingNiMH batteries to Toyota, Honda and Ford, and start “manufacturing lithium-ionbatteries for the plug-in hybrid version of the Toyota Prius”. Likewise, the nanowirebattery invented in 2007 has constituted another interesting Li-ion research projectin 20098. It essentially consists of replacing the standard graphite anode withsilicon, which is meant to store ten times more lithium than graphite http://en.wikipedia. org/wiki/ Nanowire_battery). Lastly, Hyundai is reportedly expected to useLithium-ion Polymer (LiPo) batteries, which have technologically evolved from Li-ionbatteries, for its Hybrid Electric Vehicles (HEV) (http://en.wikipedia.org/wiki/Lithium_polymer battery).With respect to new research projects, last year Lithium-Sulfur batteries have alsoreceived some attention. Following a Technology Review article, these batterieshave potentially a higher energy density than lithium-ion batteries, but have typicallybeen too expensive, unsafe, and unreliable to make them commercially available.Of these problems, perhaps the most difficult one remains cost mainly because theyuse lithium metal, the most expensive form of lithium9. In addition, in November2009 the University of Dayton Research Institute has announced the development6One important exception is A123 Systems, which has just struck a deal to supply LFP batteries to FiskerAutomotive for the Fisker Karma PHEV to be launched late this year in the US.7See Kevin Bullis, “Tesla to Use High-Energy Batteries from Panasonic”, Technology Review, January 13,2010 (http://www.technologyreview.com/business/24352/?nlid=2664).8See Katherine Bourzac, “More energy in Batteries”, Technology Review, November 06, 2009(http://www.technologyreview.com/energy/23893/).9See Kevin Bullis, “Revisiting Lithium-Sulfur Batteries”, Technology Review, May 22, 2009(http://www.technologyreview.com/energy/22689/).
6of the world´s first solid-state, rechargeable lithium air battery, designed to addressthe fire and explosion risk of other lithium rechargeable batteries and pave the wayfor development of large-sized lithium rechargeables for a number of industryapplications, including hybrid and electric cars (See: http://news.udayton. edu/NewsArticle/?contentId=25610). These batteries are purported to have higher energydensity than ion batteries due to the lighter cathode (oxygen) they use and the factthat this material is freely available in the environment and does not need to bestored in the battery.Much has been said about the lower power density of batteries compared withlithium fuels. Li-ion batteries achieve the highest density of 200.2 Wh/kg, whereasgasoline attains 12899.2 Wh/kg (See: http://en.wikipedia.org/wiki/Energy_density).Hence the energy density of gasoline would be 64.4 times higher than that of Li-ionbatteries. These numbers are essentially consistent with Engerer and Horn(2010)10. However, following a study from the Technical University of Zurich, citedby these authors, when the higher efficiency of the electric motor is accounted for,the energy density of gasoline would be net about 14-15 times higher than that ofLi-ion batteries. Using Li-air batteries could therefore contribute to reducingsubstantially this relation or even inverting it11. It should then come as no surprisethat Li-air batteries are considered to be one of “the five technologies that couldchange everything” over the next few decades (See: http://online.wsj.com/article/SB10001424052748703746604574461342682276 898.html#articleTabs%3Dcomments). The question remains as to the impact of this development on thelithium market, particularly considering that this kind of batteries will probably usemore lithium than Li-ion ones12.Under normal conditions, it seems reasonable to expect that technologicaldevelopment in the next ten years will follow a similar diversified path as the oneobserved in 2009 with Li-ion batteries aimed at facilitating the launching of the firstmass-produced electric cars in the US and other developed countries, while startingto gradually focus more on Li-air batteries, which are likely to take over the markettowards the beginning of the next decade. However, whether or not Li-ion batteriesbecome some sort of “transitional technology” will definitely depend on how soon Li-air batteries are commercially available.10See Hella Engerer and Manfred Horn, “Natural Gas Vehicles: An Option for Europe”, Energy Policy, Vol.38, pp. 1017-1029, 2010.11When fully developed, Li-air batteries are expected to have practical specific energies of 1000.8 Wh/kg(See: http://en.wikipedia.org/wiki/Lithium_air_battery). So the “gross” energy density of gasoline would beonly 12,89 times higher that of Li-air batteries. After accounting for the higher efficiency of the electric motor,the energy density of gasoline would end up being net just about 3.2 times higher than that of Li-air batteries.However, following the same source of information, theoretically, Li-air batteries could achieve even higherspecific energies: 5200 Wh/kg (including oxygen) and 11140 Wh/kg (excluding oxygen). With these values, itwould be possible to invert the relation in favor of Li-air batteries because the energy density of such advancedstorage systems would become between 1.7 and 3.7 times higher than that of gasoline.12As of now, there is no information on lithium requirement per kWh in Li-air batteries. However, since theyuse lithium for both their anode and cathode, chances are they will require more lithium per kWh overall thanLi-ion batteries. This is also endorsed by the fact that the lithium utilized in the anode is metallic lithium.Under these circumstances, one can wonder whether this will place additional pressure on the supply of lithiumin the world in about a decade or so.
7Acceptance of and resistance to changeAs originally defined, resistance to change is referred to actions by “governments,companies and individuals with vested interests to prevent the emergence of lithiumbattery technologies mainly because this will put at serious risk their current orfuture privileges or advantages”13. Here this concept is extended so as to begindiscussing also about the positive side of the coin, namely the activities performedby the same players to promote the adoption of such advanced energy storagesystems in their plausible search for national energy independence or security,sustainable development or just more efficient forms of transportation. For reasonsof space, in what follows, the topic will be examined once again with reference togovernments and companies only.In terms of governments, last year it was argued that some oil producing countriesmay be indeed “seeking a lead in clean energy”14. But of course this is probably notthe case for all of them, particularly those that have not been able to sufficientlydiversify their economies. So there is always a possibility that some oil producingcountries would be interested in the failure of lithium. On the other hand, 2009 hasbeen emblematic in terms of the billionaire financial support provided by thegovernment to the emerging electric car and lithium battery industries in the US.Nevertheless, the behaviour of the US government has not been exempt from somecontradictions and confusion15. In addition, tax incentives aimed at the introductionof “green cars” are beginning to proliferate all over the world.Regarding companies, last year this topic was taken up exclusively in terms of therole of state-owned petroleum enterprises in the adoption of Li-ion batteries by thecar industry16. But of course other companies may have to do a great deal with thelithium business as well, even within the car industry itself. One case in point isToyota17.Somewhat surprisingly, there are some signs that Toyota’s strategy has started tochange significantly by the end of 2009. Two reasons appear to explain thisbehaviour. First, following the tremendous hype produced by other major carmakers such as GM and Nissan that by the end of this year will be launching thefirst mass-produced lithium-powered REEVs and BEVs in the US, it seems thatToyota has begun to realize that their previous arguments against use of lithium indifferent kinds of electric vehicles (Li-ion is not a proven technology and there is no13See Juan Carlos Zuleta, “Revisiting Peak Lithium or Lithium in Abundance”, EV World.Com,(http://www.evworld.com/article.cfm?storyid=1491), June 24, 2008.14See Juan Carlos Zuleta, “Can the Inauguration of the Lithium Era Be Taken for Granted?”, paper presentedat the First Lithium Supply & Markets Conference held in Santiago Chile in January 2009.15See Juan Carlos Zuleta, “The Obama Audit Task Force and the Volt”, EV World.Com, (http://evworld.com/blogs/index. cfm?authorid=209& blogid=728& archive=1), April 18, 2009; Juan Carlos Zuleta, “TheIllusion of Lithium Batteries?”, EV World.Com, (http://evworld.com/article.cfm? storyid=1688) April 22,2009; Juan Carlos Zuleta, “Critiquing John Petersen´s `The Plug-in Vehicles Scam`”, Seeking Alpha.Com,(http://seekingalpha.com/article/134927-critiquing-john-petersens-the-plug-in-vehicle-scam), May 04 2009.16See Juan Carlos Zuleta, “Can the Inauguration of the Lithium Era Be Taken for Granted?”, paper presentedat the First Lithium Supply & Markets Conference held in Santiago Chile in January 2009.17For a critical view of Toyota`s and Honda`s perspective on plug-in electric cars, see: Juan Carlos Zuleta,“Why Toyota and Honda Dislike Lithium?”, EV World.Com, (http://evworld.com/blogs/index.cfm?authorid=209&blogid=711 &archive=1), March 29, 2009.
8sufficient lithium on earth) can no longer stand on their own. In this connection, aslimited as it might be, its new plan aimed at putting 500 lithium-ion-powered PHEVson fleet-trial in Japan, Europe and the US, must be seen as an important stepforward. Second, as is well known, Panasonic has been Toyota’s partner in theproduction of nickel metal hydride (NMH) batteries for its “star” hybrid electricvehicle (HEV) “Prius”. But Panasonic’s recent acquisition of Sanyo may unfold anew set of circumstances for Toyota. It could in fact enable the motor giant tobecome a key player in the new electric car market to be formed following thelaunching of GM’s Volt and Nissan’s Leaf later this year.Interactions among the Different Determinants of Adoption of Li BatteriesAs shown in Figure 3, the arguments previously discussed may become morecomplex. In what follows an effort is made to show some examples of howadoption itself influences its very determinants and how they in turn interact amongeach other to form a cumulative causation model.Relation # 1: As adoption of Li batteries proceeds, the demand for oil could tend tobe diminished, eventually leading to a price decrease which discourages adoptionof Li batteries. This could be ameliorated by a pro-change government that places atax on gasoline, while providing more funding for technological development, forexample.Relation # 2: As adoption of Li batteries proceeds, acceptance of change willincrease (and resistance to change will decrease), further encouraging adoption aswell as financial support for technological development and government policiesaimed at energy independence.Relation # 3: As adoption of Li batteries proceeds, technological development willbe encouraged, further promoting adoption, while tending to diminish the demandfor oil, and eventually leading to a price decrease which discourages adoption of Libatteries. As in Relation # 1, this could be controlled by a pro-change governmentwith some specific policy directed to limit the supply of oil, for example.Figure 3OIL MARKETTECHNOLOGICALDEVELOPMENTACCEPTANCEOF / RESISTANCETO CHANGEADOPTION OF LI BATTERIESSource: Based on Juan Carlos Zuleta, “Revisiting Peak Lithium orLithium in Abundance”, EV World.Com, June 24, 2008.
9The Lithium Supply ChainTo enrich the analysis, in Figure 4, the notion of Lithium Supply Chain is introduced.In its most basic form, this concept implies a set of relations among the threemarkets in terms of supply and demand which can be explained as follows. First,the EV Market demands Li-batteries which in turn requires lithium from the resourcemarket. Second, the resource market supplies lithium to the Li battery market whichin turn supplies Li batteries to the EV market. It is clear that, other things beingequal, the new markets also interact with the determinants of Li battery adoption,while they may themselves be influenced by other factors.A new set of relations can therefore be established as follows.Relation # 4: As the price of oil increases, the demand for Li may tend to increase,because the demand for Li batteries will be increased due to an increase in thedemand for electric cars. But as the supply of Li increases, the price of oil willdecrease because the supply of Li batteries may also increase, encouraging theproduction of electric cars, while further discouraging the demand for oil.Relation # 5: As technological development (say of Li-air batteries) proceeds, moreand more Li will be required because the demand for Li batteries will also beincreased, due to a greater demand for electric cars. But if there is no sufficientlithium to meet the additional requirement of the resource, the prices of lithium willincrease discouraging that specific type of technological development, because thedemand for Li batteries will have most likely decreased due to a reduction in thedemand for electric cars in view of the increase of the cost of the batteries.Relation # 6: As the acceptance of change (say on the part of the government)increases, the demand for electric cars will also augment tending to diminish theprice of electric cars which in turn will further encourage the acceptance of change.Figure 4OIL MARKETTECHNOLOGICALDEVELOPMENTACCEPTANCEOF / RESISTANCETO CHANGELIBATTERYMARKETLIMARKETEVMARKETLITHIUM SUPPLY CHAINSource: Figure 3.
10Bolivia´s Lithium ProspectsAs is well known, with its 5,4 million MT of Li content (US Geological Survey),Bolivia holds the world´s largest reserves of lithium. Since May 2008 thegovernment has been developing a pilot plant to obtain around 480MT of LiCarbonate a year. As of October 2009 the progress of the plant showed a delay ofat least 6 months which implies that it will become fully operational only in 2011. Inaddition, the government has announced that it will invest US$ 350 million on anindustrial plant to produce between 20,000 and 30,000 MT of Li Carbonatebeginning 2015.The lithium endeavour in Bolivia faces at least three different kinds of challenges.First, at the political level, the government has decided to go on its own Accordingto the Project Director the plant will be completely owned by the state because: (1)Bolivia has the largest reserves of lithium in the world; (2) that is the only way toensure that the benefits will be reinvested in the region and in the country; (3)Bolivia should guarantee the supply of Li to the world on clear market conditions;and (4) exploitation and industrialization of Li should be sustainable and integral.