Over the past 58 years, major oil-producing states have aligned their interests in the ‘Organization of Oil Producing Countries’. During those years, OPEC has been able to steer price of ‘black gold’ in a direction more favorable to its members. The goal of this organization has been to “coordinate and unify the petroleum policies of its members”, while at the same time “ensuring the stabilization of oil markets in order to secure an efficient, economic, and regular supply of petroleum”.
In this perspective, the rise in sales of electric vehicles or EVs is more or less a threat to the flow of income of these countries. This process has been seriously accelerated by the sharp decline in battery production costs in recent years. In the long-term, EVs will account for 8 percent of total vehicle sales in 2025, 24 percent by 2030, and 54 percent by 2040. This means that by 2040, 8 million barrels of oil could be displaced.
Obviously, the rise in sales will not only impact oil but also cause an increased demand for metals used in the production of batteries. Currently, the most important elements are lithium, cobalt, and nickel. As with oil, the majority of commercially extractable deposits is located in several countries, which some analysts have dubbed as the ‘new OPEC’. However, this article will argue that such a development will not happen in the foreseeable future due to several reasons.
First, the top countries producing lithium (Chile, China, and Argentina), Cobalt (Congo, Russia, and Australia), and Nickel (Indonesia, Philippines, and Canada), are with the exception of Congo stable states and with a high level of control over their territory. These countries possess, with the exception of Congo, relatively well-diversified economies where mining is a welcome boon to the economy but in no way essential. Oil for most of OPEC’s members was and still is an essential part of government income. Mineral producing countries, therefore, have less incentive than oil producing ones in organizing themselves in a comparable organization.
Second, the strategic and financial importance of oil for the national economy led to what is now OPEC but required the participation of public organizations such as national oil champions in order to make it effective. These ‘National Oil Companies’ or NOCs control production either by themselves or in a joint-venture with foreign companies. The mining of metals, in contrast, is in most areas of the world done in an open economic space where private companies participate for exploration rights. For Lithium one Chilean and two American companies vie for domination: Sociedad Quimica y Minera, Albemarle, and FMC corporation.
The electrification of many major economies is changing the market for commodities quickly. Rapid urbanization and industrialization in China have led to an air pollution problem. The Chinese government has therefore embarked on a serious push for alternatives to improve air quality. Domestic and international firms are eagerly making use of the new policy that can be seen in the rapid rise of China’s share of global EV sales which currently stands at 21%. The Asian giant intends to become the biggest producer of lithium-ion batteries by 2020 with a 62% global market share. The Chinese government is stimulating domestic lithium production in order not to be too reliant on others.
Furthermore, resources used in the manufacturing of batteries are not ‘consumable’ commodities in the way oil is. While refined products are used a single time during combustion, batteries are obviously rechargeable. Furthermore, the rising importance of sustainability in societies worldwide combined with cost savings means that recycling is an important process. Therefore, it is likely that metals producing countries will not be able to exert the same level of influence on prices as OPEC.
During the past decades, OPEC has been one of the most important factors in setting the price of oil. Even with the rise of fracking in the US, no other player or organization has been able to influence developments in the energy sector on the same level. The primary reason is that the world remains highly dependent on oil, giving its producers an edge.
The willingness of major lithium, cobalt, and nickel producing countries to organize themselves can be met with relative skepticism due to the above-mentioned arguments. Another factor making accurate predictions difficult are technological developments in the sphere of battery production. High prices tend to stimulate innovation and the search for alternatives. The soaring cost of cobalt, for example, has already spurred some companies to look for alternatives. Even though the current outlook for commodity prices looks stable, the situation could change quickly due to economic, political, and technological developments, making an OPEC for battery metals highly unlikely at this moment in time.
By Vanand Meliksetian for Oilprice.com
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