We have discussed a theme around shortages that has been going on for months and is prevalent in many of the headlines today. It has also been a central theme of much of our energy transition work, as we think about the raw materials needed to meet the demand for solar and wind power as well as the infrastructure for hydrogen generation. The exception is lithium, where we see regular announcements around expansion projects, such as the one linked from Albemarle. The EV makers and battery storage manufacturers are doing an excellent job of encouraging investment in lithium, taking stakes in battery projects, and in some cases taking stakes in the lithium projects themselves. Offtake agreements also help projects get funding. We suspect that the offtake agreements are tactical – not aimed at buying out a source of lithium or a source of batteries but aimed at ensuring that a surplus of capacity gets built, to ensure no bottlenecks in the future.
The disconnect between lithium and other materials and some sources of energy is staggering – it is as if the investment community has decided that nothing else has growth prospects and deserves funding. The market dynamics are different, in that the automakers are large enough and focused enough to influence the supply of lithium. For other materials, governments are likely going to need to step in to ensure that enough capital gets deployed. We were speaking with a European gas pipeline operator yesterday about an opportunity to double the flow of natural gas into Europe through the pipe. Tactically, Europe should be encouraging as much supply investment as it can to ensure that the region has ample natural gas today, even if the plan is ultimately to phase much of it out through the increased use of renewables. By allowing investors and activists to label these investments as bad, countries are driving the destructive price inflation that we see today. As we discussed in our Sunday report, we will need more conventional polymers.
Source: Bloomberg and C-MACC Analysis