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UPDATE 4-BHP to supply greener Australian nickel to Tesla

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* BHP to supply Tesla from Nickel West operation

* Nickel West to start sulphate output in Sept quarter

* BHP, Tesla to work on energy storage solutions (Adds share price move, detail)

MELBOURNE July 22 (Reuters) - Global miner BHP Group said on Thursday it signed a nickel supply agreement with Tesla Inc and will work with the electric carmaker on lowering carbon emissions in the battery supply chain.

Tesla said in June it expects to spend more than $1 billion a year on battery raw materials from Australia given the country's reliable mining industry and responsible production practices.

Western automakers are also seeking to diversify supply chains to lessen their dependence on China, in line with a U.S. policy to rely on allies to supply metals for electric vehicles.

BHP's nickel division accounts for less than 1% of its earnings, which are dominated by iron ore. Shares in the miner were up 3% at A$51.37 by 0454 GMT.

BHP said the metal will be supplied from its Nickel West operation in Western Australia, which is set to add nickel sulphate - a key battery chemical, and one that has much higher margins than nickel metal - in the September quarter.

Nickel makes batteries energy-dense, allowing cars to run further on a single charge.

BHP and Tesla will also look at end-to-end raw material tracing using blockchain, and work on energy storage solutions, the miner said in a statement.

"Tesla is going to take up available nickel from well-established producers with strong operational credentials as much as it can," said Steven Brown, an independent consultant based in Australia.

"These are logical moves for Tesla at this point of time when there's not a lot of other opportunities."

Nickel West's carbon footprint is around half the size of even the newest producers in top supplier Indonesia, which use an energy-intensive technology to extract nickel from laterite ores, he said. Its waste disposal practices are also seen to be lower risk.

BHP in February signed a deal to secure up to half of its power needs for its Kwinana nickel refinery from a local solar farm, although the rest is powered by the state grid, which uses coal power.

Indonesian producers have said they will initially dispose of their waste on land but there are questions about where their waste will go in the long term, and whether that might mean discharging them into the sea, Brown added.

Indonesia currently accounts for about 30% of nickel supply, according to the International Nickel Study Group (INSG), but Brown expects that to reach 50% by 2025.

Australia was the world's fifth biggest producer of mined nickel last year, according to INSG figures, accounting for about 7% of global supply.

BHP has committed to cutting carbon emissions by 30% by 2030 from 2020 levels with a long-term target of net zero operational emissions by 2050. It is working with customers to lower emissions from the steel-making industry that is among the worlds' heaviest polluters. (Reporting by Melanie Burton and Nikhil Kurian Nainan in Bengaluru; Editing by Subhranshu Sahu and Richard Pullin)