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barrel and the battery: oil, lithium and the energy transition","the-barrel-and-the-battery-oil-lithium-and-the-energy-transition","article/the-barrel-and-the-battery-oil-lithium-and-the-energy-transition",{"_uid":557,"date":558,"tags":559,"editor":560,"content":570,"excerpt":828,"featured":50,"reporter":829,"_editable":833,"component":834,"seo_title":553,"categories":835,"visibility":839,"author_company":49,"featured_image":840,"seo_description":828,"author_full_name":49,"author_job_title":49,"formattedDate":845,"formattedArticleDate":846},"7e3ff56d-647a-4bb9-97e7-676e140290a2","2021-01-22 00:00",[],[561],{"slug":562,"name":563,"content":564},"matthew-bird","Matthew Bird",{"job_title":565,"image":566,"bio":568,"linkedin":569},"Senior Editor - Supply Chains & Data Visualisation",{"filename":567},"https://a.storyblok.com/f/287943243085208/512x512/14738033ec/matthew-bird.jpeg","Matthew writes, edits and produces content for Benchmark Intelligence and Benchmark Source across the whole mine to grid supply chain. He also acts as a liaison to the press. He has a PhD in electrochemistry from the University of Nottingham.","https://www.linkedin.com/in/birdmatthew/",{"type":571,"content":572},"doc",[573,580,589,594,599,602,605,610,615,620,625,630,635,640,647,652,657,662,667,672,677,682,687,692,697,702,707,712,717,722,727,732,737,742,747,752,757,762,767,772,777,782,787,792,797,802,807,810,815,820],{"type":574,"attrs":575,"content":576},"paragraph",{"textAlign":49},[577],{"text":578,"type":579},"A look at today’s energy mix provides a sobering reminder that oil, gas and coal continue to dominate the global energy system (see Figure 1).","text",{"type":574,"attrs":581,"content":582},{"textAlign":49},[583,585,587],{"text":584,"type":579},"Oil reigned supreme throughout the 20",{"text":586,"type":579},"th",{"text":588,"type":579}," century (reaching its peak in the mid-1970s) and while its share in the energy mix has fallen by 20% over the past 50 years, on an absolute level, oil consumption has grown year-on-year (see Figure 2).",{"type":574,"attrs":590,"content":591},{"textAlign":49},[592],{"text":593,"type":579},"This is an important consideration when discussing the ‘energy transition’ – a byword for achieving a net-zero energy system by 2050.",{"type":574,"attrs":595,"content":596},{"textAlign":49},[597],{"text":598,"type":579},"‘Energy transitions’ are not new. The world has already been through multiple transitions: the shift from coal to oil being the most noteworthy over the past 100 years.",{"type":574,"attrs":600,"content":601},{"textAlign":49},[],{"type":574,"attrs":603,"content":604},{"textAlign":49},[],{"type":574,"attrs":606,"content":607},{"textAlign":49},[608],{"text":609,"type":579},"So, what makes the current ‘energy transition’ so different? We highlight three key areas:",{"type":574,"attrs":611,"content":612},{"textAlign":49},[613],{"text":614,"type":579},"It is in this context that we must understand why li-ion batteries are being deployed to tackle carbon emissions from transport (see Figure 3) – which account for approximately 23% of total energy-related CO2 emissions.",{"type":574,"attrs":616,"content":617},{"textAlign":49},[618],{"text":619,"type":579},"Unlike industries such as steel or cement, cost-competitive technologies exist for transport.",{"type":574,"attrs":621,"content":622},{"textAlign":49},[623],{"text":624,"type":579},"Li-ion batteries sit on the lower end of the CO2 abatement cost curve, a dynamic supported by the decline in li-ion cell prices over the past five years (from $230/kWh in 2015 to $110/kWh in 2020).",{"type":574,"attrs":626,"content":627},{"textAlign":49},[628],{"text":629,"type":579},"Strategies to tackle transport emissions have not gone unnoticed in the oil industry, either.",{"type":574,"attrs":631,"content":632},{"textAlign":49},[633],{"text":634,"type":579},"Saudi Aramco, for example, is taking a different approach: investing R&D funds to improve the fuel efficiency and well-to-wheel CO2 emissions of ICE vehicles – a signal that despite technological improvements in li-ion battery cell design and cathode chemistry, there remains competition from the incumbent players.",{"type":574,"attrs":636,"content":637},{"textAlign":49},[638],{"text":639,"type":579},"Regardless, the growing electrification of the energy system – supported by growing EV deployment – will also require a decarbonised power sector (driven by solar and wind) which in turn further feeds battery demand (as the need for power balancing to address renewable intermittency grows).",{"type":641,"attrs":642,"content":644},"heading",{"level":643,"textAlign":49},4,[645],{"text":646,"type":579},"Peak oil demand: not the right question ",{"type":574,"attrs":648,"content":649},{"textAlign":49},[650],{"text":651,"type":579},"What does this mean for oil demand?",{"type":574,"attrs":653,"content":654},{"textAlign":49},[655],{"text":656,"type":579},"Let’s start with the facts. Transport accounts for almost 60% of oil demand, with gasoline accounting for around 25% of the total. As can be seen in Fig 4, Light Duty Vehicles (LDVs) took up 27% of 2019 oil demand, with Heavy-Duty Vehicles (HDV) not far behind.",{"type":574,"attrs":658,"content":659},{"textAlign":49},[660],{"text":661,"type":579},"Gasoline displacement by EVs is not a one-to-one measure: emerging market growth (and secondary ICE vehicle markets), rising incomes and population growth all remain key drivers of oil demand growth.",{"type":574,"attrs":663,"content":664},{"textAlign":49},[665],{"text":666,"type":579},"Likewise, petrochemicals remain a bright spot as a result of rising demand for plastics.",{"type":574,"attrs":668,"content":669},{"textAlign":49},[670],{"text":671,"type":579},"However, both advancements in li-ion technology and hydrogen fuel cells are set to pressure gasoline and diesel demand out to 2030 and beyond.",{"type":574,"attrs":673,"content":674},{"textAlign":49},[675],{"text":676,"type":579},"In many ways, attempts to pinpoint when oil demand might peak (2020, 2025 or 2040) are moot. The confidence bands around oil demand projections are wide and vary across fuels and geographies.",{"type":574,"attrs":678,"content":679},{"textAlign":49},[680],{"text":681,"type":579},"What matters and is happening today is investor perceptions.",{"type":574,"attrs":683,"content":684},{"textAlign":49},[685],{"text":686,"type":579},"Big Oil majors, especially in Europe, recognise that devising a carbon emission strategy broadly aligned with the goals of the Paris Climate Agreement (PCA) is a non-negotiable.",{"type":574,"attrs":688,"content":689},{"textAlign":49},[690],{"text":691,"type":579},"These efforts are not being driven by peak oil demand anxieties but rather investor demands. BP, for example, has announced an ambitious target to cut its oil and gas production by 40% (1.1m b/d) over the next decade; likewise, BP will aim to ramp-up its renewable portfolio, with the aim of reaching 50 GW of capacity by 2030 (from 2.5 GW today).",{"type":574,"attrs":693,"content":694},{"textAlign":49},[695],{"text":696,"type":579},"Likewise, Total – a major player in batteries – outlined its long-term goals during Benchmark Week 2020, outlining a ramp-up in installed renewable capacity from 7GW today to 35GW by 2025. Long-term stable returns brought by renewables (and zero short-run marginal costs) are playing a role in this capital allocation shift.",{"type":574,"attrs":698,"content":699},{"textAlign":49},[700],{"text":701,"type":579},"According to Benchmark estimates, the levelized cost of solar PV has fallen by over 80% in the past decade. Furthermore, auction prices in certain locations – particularly the Middle East – reached record levels this year. Wind costs have fallen too. Unlike the previous financial crisis of 2008, these costs are now below the total costs of new gas plants.",{"type":574,"attrs":703,"content":704},{"textAlign":49},[705],{"text":706,"type":579},"Declines in renewable energy costs play an important role in the cost sensitivity analysis of li-ion cell costs – further incentivising IOCs to invest in the downstream segment of the battery supply chain.",{"type":574,"attrs":708,"content":709},{"textAlign":49},[710],{"text":711,"type":579},"Indeed, all European energy majors have now set out plans to increase their renewable energy footprint (some with a dedicated focus on battery investments).",{"type":574,"attrs":713,"content":714},{"textAlign":49},[715],{"text":716,"type":579},"In the US, however, oil majors have largely shunned the strategies deployed by their European peers – preferring instead to make big bets on rising oil and gas demand and using their proprietary technologies to reduce the carbon intensity of their upstream operations (via Carbon Capture and Storage technology, for example).",{"type":574,"attrs":718,"content":719},{"textAlign":49},[720],{"text":721,"type":579},"In the Middle East, the rising cost of capital for Big Oil (see Fig 5) and the cuts to upstream capex (both due to covid-19 and Big Oil’s strategy shift to Big Energy) bring different opportunities as low-cost producers with spare capacity (primarily Saudi Arabia and the UAE) can increase market share in a more competitive market as oil’s share in the energy mix gradually declines.",{"type":574,"attrs":723,"content":724},{"textAlign":49},[725],{"text":726,"type":579},"So, clearly, the energy transition has different implications for different players.",{"type":641,"attrs":728,"content":729},{"level":643,"textAlign":49},[730],{"text":731,"type":579},"2020 has been a tale of two industries ",{"type":574,"attrs":733,"content":734},{"textAlign":49},[735],{"text":736,"type":579},"As the IEA made clear during their presentation at Benchmark’s Lithium Day, 2020 saw energy demand drop by 5%, with only renewables (solar and wind) registering an increase this year.",{"type":574,"attrs":738,"content":739},{"textAlign":49},[740],{"text":741,"type":579},"For the oil sector, demand is expected to fall by 8.8m b/d this year, wiping out six years of demand growth with expectations that demand will not return to pre-covid levels until at least 2023-24.",{"type":574,"attrs":743,"content":744},{"textAlign":49},[745],{"text":746,"type":579},"2020 has also been brutal for downstream oil refinery margins: the year witnessed negative margins for gasoline and jet fuel. While gasoline demand has largely recovered to pre-covid levels, jet demand is set to remain weak throughout 2021, with its future prospects pinned on the future health of the aviation industry.",{"type":574,"attrs":748,"content":749},{"textAlign":49},[750],{"text":751,"type":579},"Refining has always been a tough business with razor-thin margins and Europe was already expecting a wave of consolidations and closures.",{"type":574,"attrs":753,"content":754},{"textAlign":49},[755],{"text":756,"type":579},"Covid-19 has accelerated this process as new capacity additions outpace demand growth. Likewise, the onslaught of new mega-refineries in the Middle East and Asia has exacerbated the problem, forcing refiners to either adjust product yields, close down or convert their operations to bio-fuels, for example.",{"type":574,"attrs":758,"content":759},{"textAlign":49},[760],{"text":761,"type":579},"On the other end of the spectrum, 2020 also witnessed the roll-out of EV-friendly policy announcements and ambitious EV sales targets by OEMs. In November, the UK brought forward by a decade its timetable for a ban on the sale of new petrol and diesel-only cars to 2030. Europe has pushed forward with its Green New Deal ambitions; China has pledged carbon neutrality by 2060; and President-elect Biden has outlined plans for a net-zero economy by 2050.",{"type":574,"attrs":763,"content":764},{"textAlign":49},[765],{"text":766,"type":579},"2020 also signalled the growing appetite of energy majors to make big battery bets.",{"type":574,"attrs":768,"content":769},{"textAlign":49},[770],{"text":771,"type":579},"Giants such as Equinor signed a JV with Panasonic and Norsk Hydro to develop a li-ion battery business in Europe – driven not only by Europe’s growing EV demand but also Equinor’s growing renewable energy portfolio.",{"type":574,"attrs":773,"content":774},{"textAlign":49},[775],{"text":776,"type":579},"Increasingly, we are likely to see further JVs or direct debt-financed investments by the energy majors as interest rates remain low and energy majors tackle the question of how to balance the intermittency of renewables in the power system.",{"type":641,"attrs":778,"content":779},{"level":643,"textAlign":49},[780],{"text":781,"type":579},"Where bottlenecks bring opportunity for the oil majors",{"type":574,"attrs":783,"content":784},{"textAlign":49},[785],{"text":786,"type":579},"Clearly then, Europe’s shift from Big Oil to Big Energy has begun and the investment case for li-ion batteries is not only being spurred by EV demand but also the rise of renewables.",{"type":574,"attrs":788,"content":789},{"textAlign":49},[790],{"text":791,"type":579},"However, these investments have so far focused on the downstream: cell capacity, EV charging and storage. As Benchmark have previously highlighted, upstream mine financing challenges remain a key bottleneck going forward. In short, investment dollars are being allocated to finance the demand of key metals – lithium, nickel, and cobalt – but not their supply.",{"type":574,"attrs":793,"content":794},{"textAlign":49},[795],{"text":796,"type":579},"Ever-declining li-ion battery cell prices have been treated as a canonical axiom. However, further declines in cell costs cannot be taken for granted – particularly as some forecasts suggest li-ion cell prices dropping to $55-60/kWh by 2030.",{"type":574,"attrs":798,"content":799},{"textAlign":49},[800],{"text":801,"type":579},"With the cathode as the most expensive part of any Li-ion battery configuration, cell costs are highly sensitive to raw material prices – particularly nickel, lithium and cobalt. While battery manufacturers are working to new cathode chemistries and aiming to source cheaper cathode active materials, the surge of downstream investments is not being matched in the upstream.",{"type":574,"attrs":803,"content":804},{"textAlign":49},[805],{"text":806,"type":579},"To take one example, lithium, from the chart below, which shows the scale of the gap in supply-demand balances required to meet surging demand.",{"type":574,"attrs":808,"content":809},{"textAlign":49},[],{"type":574,"attrs":811,"content":812},{"textAlign":49},[813],{"text":814,"type":579},"The prospect of major bottlenecks in the li-ion supply chain not only risks derailing the cost-competitiveness of li-ion batteries but also its investment case for integrated majors as they seek to build new renewable and power businesses.",{"type":574,"attrs":816,"content":817},{"textAlign":49},[818],{"text":819,"type":579},"One solution going forward could be that the integrated energy majors take the initiative to invest directly in the upstream. This could make sense for a number of reasons:",{"type":574,"attrs":821,"content":822},{"textAlign":49},[823],{"text":824,"type":579,"marks":825},"Ahmed Mehdi, Principal Consultant, Benchmark Mineral Intelligence ",[826],{"type":827},"italic","A look at today’s energy mix provides a sobering reminder that oil, gas and coal continue to dominate the global energy system (see Figure 1). Oil reigned supreme throughout the 20th century (reaching its peak in the mid-1970s) and while its share in the energy mix has fallen by 20% over the past 50 years, […]",[830],{"slug":562,"name":563,"content":831},{"job_title":565,"image":832,"bio":568,"linkedin":569},{"filename":567},"\u003C!--#storyblok#{\"name\": \"article\", \"space\": \"\", \"uid\": \"7e3ff56d-647a-4bb9-97e7-676e140290a2\", \"id\": \"\"}-->","article",[836],{"slug":837,"name":838},"critical-minerals","Critical Minerals","private",{"id":49,"alt":841,"name":841,"focus":841,"title":841,"source":841,"filename":842,"copyright":841,"fieldtype":843,"meta_data":844,"is_external_url":51},"","https://a.storyblok.com/f/287943243085208/53384189ad/bm-battery-barrel.png","asset",{"alt":841,"title":841,"source":841,"copyright":841},"Jan 22, 2021","22nd January 2021",[],[],1792773935516]