Research Shows Peak Lithium Concerns Overhyped and Unfounded

When M. King Hubbert first presented his peak oil theory to the American Petroleum Institute in 1956, he faced a lot of criticism. However, his prediction that US petroleum production would peak in the late 1960s to early 1970s proved true in 1970, and foreshadowed the 1973 energy crisis. In 1974, riding the success of his earlier prediction, Hubbert forecast that global oil production would peak in 1995; experts have argued the facts ever since, with some going so far as to call peak oil a myth.

Regardless, at nearly $100 per barrel and with no indication that prices will drop significantly in the near future, governments and industries around the world are scrambling to find suitable alternatives to head off another major energy crisis.

In order to combat high fuel prices and high pollution levels, much of the global auto industry is now following a government-incentivized path toward increased production of electric vehicles (EVs). Japanese and Korean auto makers are currently leading the way, with their North American counterparts playing catch-up.

This push toward clean, green, driving machines is what has propelled the lithium market forward over the past five years, and many in the space are confident that demand for EVs is on the verge of taking off and bringing lithium companies along for the ride.

In the five years since lithium-ion batteries were first envisioned as an alternative to carbon-based fuel, many an editorial has pondered the question, “what about peak lithium?” Skeptics argue that there may not be enough economically extractable lithium to support a global switch to vehicles powered by lithium batteries. Yet, research data shows that this pseudo theory has been needlessly overhyped.

Numerous studies show lithium is in ample supply

The truth is that extractable lithium supplies are ample, and exploding demand will fuel further exploration for the white gold. A January 2012 US Geological Survey (USGS) report on lithium puts total world reserves at 13 million tons, with an additional approximate amount of 34 million tons of identified resources in countries including the US, Bolivia, Chile, Argentina, China, Australia, Brazil, the Congo, Serbia and Canada. The report pegs global mine production for 2011 (excluding US production) at 34,000 tons, up over 20 percent from the previous year, with estimated worldwide consumption falling between 22,500 and 24,500 tons.

Results garnered from using the Hubbert Linearization — a formula, designed by Hubbert in 1982, that uses production data to estimate the logistic growth rate and quantity of a given resource that will ultimately be recovered — to plot world lithium production from 1920 to 2020 (based on statistics published in 2011 by the USGS) show that lithium, unlike oil, is in the early stages of its production cycle.

A 2011 study conducted by the Lawrence Berkeley National Laboratory and the University of California Berkeley estimates that 1 billion 40 kWh lithium-based EV batteries could be built from current lithium reserves. The study found that lifetime system costs, among other factors, would pose more of a constraint on battery production than economically extractable lithium resources.

The study’s authors also note that although resources are plentiful, lithium production will need to increase to meet projected EV demand. “In the short-term (10–15 years) and long-term (40–50 years) there is sufficient availability of the elements for battery deployment in grid-scale applications. For the EV application, scale-up of Li production will be needed to meet short-term goals, but will be especially necessary to meet long-term goals,” the authors of the study state.

Another 2011 study conducted by the University of Michigan and Ford Motor Company concludes that “[e]ven with a rapid and widespread adoption of electric vehicles powered by lithium-ion batteries, lithium resources are sufficient to support demand until at least the end of this century.” The study’s researchers estimate global lithium resources at 39 million tons after assessing data from 103 deposits. Total demand for lithium from 2010 to 2100 is estimated as falling between 12 and 20 million tons.

Electric vehicle demand will improve alongside lower purchase prices

Any barrier to the adoption of lithium batteries as an alternative to carbon-based fuel lies not in the availability of the resource, but in the public’s willingness to adopt electric vehicles. And success for lithium companies depends upon investor certainty that widespread adoption of EVs is soon to be a reality and not a Jetsonian fantasy.

In a poll conducted by Pike Research in the fourth quarter of 2011, 40 percent of respondents said they would be “extremely or very interested in purchasing [a highway-capable plug-in electric vehicle] assuming the price were right.” The study points out that “price sensitivity is an issue that continues to loom over the [EV] industry, as survey participants’ willingness to pay was much lower than the prices currently planned by automakers.”

For now, car buyers pay a $10,000 to $20,000 premium for EVs over conventional gas vehicles, largely due to the cost of the lithium battery. However, as Lithium Investing News reported earlier this year, a study conducted by McKinsey & Company indicates that the cost of an EV lithium battery pack could drop from the current $500 to $600/kWh range to about $200/kWh within the next eight years, and to about $160/kWh by 2025, bringing EVs into a competitive price range with petro-powered vehicles.

 

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.