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Will Lithium Become the New Oil?

madhedgefundtrader's picture




 

Long time readers of this letter know that I have been a huge bull on lithium plays, my pick in the sector, Sociedad Quimica Y Minera (SQM), bringing in a handy 250% pop off the lows in 2009. You couldn’t lose, because if the car battery boom faded, they always had a great fertilizer business to fall back on. Since I’m in a report reading mood, I thought I would sit back in my Aeron office chair, put me feet up on my polished beech desk, and plow through the numerous submissions forwarded to me by readers who attended the first “Lithium Supply and Markets Conference” in Santiago, Chile in January.

The bad news is that a truly economic, price competitive lithium battery is still some ways off. Prices for lithium-ion batteries for hybrid electric vehicles (HEV) need to drop by 50% and those for plug-in hybrid electric vehicles (PHEV) by 67%-80% in order to compete on a level playing field.

Gasoline has 64 times more energy per unit of weight than lithium batteries, but this advantage is partially offset by electric motors that are four times more efficient than conventional piston engines. Lighter weight cars and other design improvements, like recapturing power when braking, shrink the lead further.

Dr. Steven Chu’s Department of Energy is pouring money into research on an amazingly wide front, and strides are being made with different electrodes (silver, sulfur, manganese), leading to rapid advances in inorganic chemistry. The challenges are formidable, with overcharged large lithium ion batteries prone to explode or catch on fire, or internally or externally short circuit.

The conservative big car companies, Toyota and Honda, have stuck with proven nickel metal hydride batteries offering half the power per weight, and are understandably reluctant to make the needed multibillion dollar investments until more is known about the long term life of lithium batteries.

Another wrinkle is that Bolivia, the Saudi Arabia of lithium salt reserves, has effectively nationalized the industry before it got off the ground, limiting its investment in development to $350 million. As the production of EV’s, HEV’s, and PHEV’s is expected to ramp up to 5 million vehicles a year by 2020, this could be a problem.

Many in the industry expect that lithium prices will not be driven by demand from car makers, but by the price of oil. Take crude up to $150 again, and all of a sudden, everything works.

The intelligent way to approach the industry now is to invest in low cost producers of proven battery technology, like Enersys (ENS), Exide Technologies (XIDE), C&D Technologies (CHP), and ZBB Energy (ZBB). Leave the pie in the sky stuff for later.

Unlike past battery car movements, this one is not going to end up crushed in a junkyard. I’ll let you know how my lithium battery powered all electric (EV) Nissan Leaf, on sale in December, works out.

For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/ .

 

 

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Fri, 03/05/2010 - 17:18 | 255386 carbonmutant
carbonmutant's picture

Ummm... Lithium's real competitors areare a couple of ultracapacitor technologies.

They're still in the labs undergoing testing but they are worth keeping an eye on.

One is Barium Titanate being developed by EEstore in Cedar Park, TX http://en.wikipedia.org/wiki/EEStor

and the other is graphene developed by Univ Texas at Austin

http://www.sciencedaily.com/releases/2008/09/080916143910.htm

Fri, 03/05/2010 - 17:18 | 255383 Anonymous
Anonymous's picture

http://www.nextenergynews.com/news1/next-energy-news-toshiba-micro-nucle...

Dot a few of these around the joint. You can bury the fuckers so the NIMBYS can't moan. theres one being tested in Alaska.

Fri, 03/05/2010 - 17:06 | 255362 Anonymous
Anonymous's picture

Interesting view on lithium from IncaKolaNews:

http://incakolanews.blogspot.com/2009/09/lithium-juniors-snake-oil-part-...

Also, Bolivia. Everything one reads in English-language press about Bolivia is a lie. The US press in particular. Pura mentira. But, Evo's a commie! Yeah? And we elected a war criminal prezzy-prezzy twice.

Joe Salatin- cool. Soil remediation- the future.

Fri, 03/05/2010 - 16:42 | 255325 A Nanny Moose
A Nanny Moose's picture

Electric cars are a great idea, except that our electric grid cannot handle its current load without popping fuses.

So, how shall we add capacity against the tide of NIMBYS who don't even like windmills, or solar thermal?

Fri, 03/05/2010 - 15:42 | 255233 jc125d
jc125d's picture

Yeah we'll be flatfooting it around Bedrock like Fred F http://www.youtube.com/watch?v=2s13X66BFd8&feature=related

by the time Oh-Bamma's 2nd term comes 'round. Yabba-Dabba-Do!

Fri, 03/05/2010 - 14:20 | 255073 Anonymous
Anonymous's picture

the real tesla car:
"As soon as they were on the country roads, clear of the more congested areas, Tesla began to lecture on the subject. Of the motive source he referred to "a mysterious radiation which comes out of the aether". The small device very obviously and effectively appropriated this energy.

Tesla also spoke very glowingly of this providence, saying of the energy itself that "it is available in limitless quantities".

Dr. Tesla stated that although "he did not know where it came from, mankind should be very grateful for its presence".

http://keelynet.com/energy/teslcar.htm

Fri, 03/05/2010 - 14:04 | 255048 Jay
Jay's picture

Let us know how the Nissan Leaf works out for you. Proponents of electric vehicles seldom mention that the electric grid is in no shape to power them in any number. Hopefully none of your neighbors will buy an electric vehicle.

Fri, 03/05/2010 - 14:49 | 255115 Dark Helmet
Dark Helmet's picture

Only one way to fix that: lots of people buy them, the grid starts to smoke and crash and burn, and people finally tell the NIMBYs to shove it and actually fix the grid.

In California back when they had rolling blackouts, the best suggestion I heard was this: every time the politicians warn of a blackout, turn on every appliance in your house at once. That would get their attention.

We have no shortage of power sources for the grid. The problem is that this is America, and in America we don't do infrastructure. (due to a combination of corruption, NIMBYism, and political head-up-our-assness)

Fri, 03/05/2010 - 13:34 | 255008 Anonymous
Anonymous's picture

The real world numbers are ...
The most successful electric car is the Tesla. Its battery pack weighs 1000 lbs.
They claim its range is 250 miles, but not at 100 mph, more like 20 mph.
Anyway that's about 8 gallons of gasoline, or 50 lbs. Not only that, you have drag the 1000 lb battery everywhere you go, where a gas tank empties out. See the Top Gear episode on the Tesla, for a more sobering assessment than Telsa's marketing dept. provides.

Batteries take a long time to charge, and must be carefully managed at intermediate charge to maintain life time, further reducing their effective capacity. BTW: a new battery pack for a tesla is around $40,000.

In the end batteries are a non-starter. Battery technology will improve, but so will the technology of everything else. Experimental IC engines are approaching 30% tank to wheel efficiency. Not glamorous, but affordable.

Fri, 03/05/2010 - 13:31 | 255004 Anonymous
Anonymous's picture

The real world numbers are ...
The most successful electric car is the Tesla. Its battery pack weighs 1000 lbs.
They claim its range is 250 miles, but not at 100 mph, more like 20 mph.
Anyway that's about 8 gallons of gasoline, or 50 lbs. Not only that, you have drag the 1000 lb battery everywhere you go, where a gas tank empties out. See the Top Gear episode on the Tesla, for a more sobering assessment than Telsa's marketing dept. provides.

Batteries take a long time to charge, and must be carefully managed at intermediate charge to maintain life time, further reducing their effective capacity. BTW: a new battery pack for a tesla is around $40,000.

In the end batteries are a non-starter. Battery technology will improve, but so will the technology of everything else. Experimental IC engines are approaching 30% tank to wheel efficiency. Not glamorous, but affordable.

Fri, 03/05/2010 - 12:49 | 254915 37FullHedge
37FullHedge's picture

One thing not mentioned anywhere is superconductors, I am unaware of the material but they do exist but only work at very low temps sub 100c or 200c

I have seen an experiment with them about 15 years ago but never anything since, It is my understanding if superconducters could be developed at normam heat ranges this would change electric use like communications pre and post internet development,

I also understand an engine that runs on water as a fuel has been developed but took out of the market,

The point is beware of black swans nothing is a no brainer. 

Fri, 03/05/2010 - 13:00 | 254935 Anonymous
Anonymous's picture

You mean an engine (actually a fuel cell, not an engine) that runs off of hydrogen that was derived from water being split with an electric current into its components of hydrogen and oxygen. The by-product is once again, pure water. This fuel cell then powers an electric motor.

Its currently being used in several countries. Most notably, at the recent olympic village of Whistler BC. Its also being used in Germany, US, India, China, Pakistan, Netherlands, etc. etc. etc.

Here is GM's design
http://www.youtube.com/watch?v=jKI8hEPDjh8

Fri, 03/05/2010 - 11:53 | 254829 dudley
dudley's picture

I went to New Delhi in early 2000 and it was polluted with fumes from deisel vehicles.  Two years later, after they had passed a CNG only rule, the air was clean and clear.  Why would we chase electricity and the rare metals associated ( which China controls ) when we can convert to CNG and use our own sources ? If India can do it we can too.

Fri, 03/05/2010 - 13:19 | 254974 overmedicatedun...
overmedicatedundersexed's picture

CNG- is bad because it is cheap and clean, the tech is already done, promotes employment in USA, reduces balance of trade and $$ to oil cartels..now you know why it will never happen

the ecogreen gangs (supported by arab oil $$/global warming alarmists) will put a stake thru it's heart.

simple answers are not favored by the ruling elites...oil to 80+bucks and not one word

about the oil tax on our economy..oh we are so

screwed.

Fri, 03/05/2010 - 11:23 | 254790 Anonymous
Anonymous's picture

Why bang your head against a wall. Hydrogen is a much better store of energy.

Unfortunately its not gonna make people as rich as a less abundent resource. Otherwise, we would already be on it.

Fri, 03/05/2010 - 14:46 | 255111 Thorny Xi
Thorny Xi's picture

Hydrogen is not an energy source, since it binds with almost everything in nature and requires energy to unbind.  It's a transfer medium, like electricity, and in no way efficient enough as a system to use at the scale required in the modern life we take for granted with oil, since H requires a lot of energy to unbind, compress to high pressure and transport and, on top of that it's native energy per mass is much lower than oil, kilo per kilo.  With all comined energy input requirments and the technology needed to then use it, iwth its embeeded energy requirements added, H makes electricity look good.

 

 

 

Fri, 03/05/2010 - 12:09 | 254853 Anonymous
Anonymous's picture

I see you point and I do agree... nevertheless, what you're saying is only partially correct. Hydrogen is indeed the most common element but, trouble is, the H atoms are combined with other elements and not in pure H2 form... not on Earth at least.

The problem is that obtaining H2 out of other compounds is not trivial or cheap at the present moment. Take, for example, the most common compound in which hydrogen is found: water (H2O). Extracting the H2 out of H2O can be done by electrolysis but the energy required to split the H2O molecule is greater than the energy you get from using the H2 as fuel. That is why hydrogen is not a good choice right now.

If you'd ask me, the best readily available technology right now is nuclear fission reactors and the best technology of the future is nuclear fusion reactors. The fuel for fusion reactors is much more commonly available than uranium (the fuel used in fission reactors) and the principle behind a fusion reactor makes it much safer than the fission reactors because, if something happens with the containment chamber, the reaction mass just loses the temperature necessary to sustain the fusion reaction and it just cools down by itself. It would, probably, melt the whole reactor, if not the whole facility, but after the initial meltdown you could just go in to clear the rubble (molten mass of goo more likely) in your slippers and cotton underwear and still be able to have children afterwards.

Fri, 03/05/2010 - 15:03 | 255138 Anonymous
Anonymous's picture

I fully agree. However, many places in the world are introducing smart meters to shift energy demand to off peak times. Even if producing one unit of energy in hydrogen costs one unit of energy (net even), at least we can use the energy produced at night, to offset demand during the day.

Hydrogenics is working on a utility scale hydrogen generation unit somewhere in south east asia for this very purposes.

Hydrogen is a better 'store' of energy, as compared to any material that can be used in a battery. No leak in your storage, no loss of energy. It is not toxic if it leaks. It can be produced locally, no matter where you live. If a national grid was set up, it would be impossible to destroy... think terrorist or war targets.

Fri, 03/05/2010 - 17:28 | 255397 carbonmutant
carbonmutant's picture

 " While the replacements for oil are uncertain, the leading candidates have one thing in common - the need for massive quantities of hydrogen in the production process.  "

Dr. Charles Forsberg is the Executive Director for the MIT Nuclear Fuel Cycle Study

CO2 become a feedstock for liquid fuel production if I have a cheap supply of hydrogen...

Fri, 03/05/2010 - 11:15 | 254774 Anonymous
Anonymous's picture

California used 20 billion gallons of gasoline and diesel
in 2006. I did a couple of calculations and it would take
75 1 GW Nuclear reactors to produce Equivalent amount of energy as 20billion gallons of gas/diesel. This isn't taking into account transmission line looses, battery and battery charger efficiencies, Nuclear plants
down for maintenance, etc. The number of nuclear plants needed to offset our gas/oil use could easily be twice that.
My point here is that we better start building these plants
now. I realize we don't need to offset all at once.
I don't think lithium is sustainable for any long term useage, but would be a good intermediate play.
I drive a hybrid vehicle and I don't think many folks are going to be able to afford the things. At roughly 100k miles, the battery packs need changing and that is $6,000,
which will be more than the vhicle is worth at that point.
I don't think EV's will be practical until we make a breakthrough on battery storage technology
We are missing the boat by not using Natural gas for our cars. We are wasting natural gas to make electricity too. Nuclear power the best way to make electricity
Longer term, nothing we are presently doing has any sustainability..

Fri, 03/05/2010 - 17:34 | 255411 carbonmutant
carbonmutant's picture

 The good news is that you don't have to replace all liquid fuels with electricy in order to have a significant impact.

And the more electric vehicles we have the cheaper the batteries will become because of simple volume production.

But I agree with you about Natural gas. We are wasting a resource.

Fri, 03/05/2010 - 14:03 | 255046 Thorny Xi
Thorny Xi's picture

Unfortunately, today's civilization and lifestyle was never possible, and is not possible without the BTU per mass oil has provided in it's convenient, atmospheric-pressure, room temperature, liquid form. Oil, with 140,000BTU/gal (or gasoline, with 125,000 BTU/gal) provides the equivalent of about 410 man hours of work per gallon.  Life as we've constructed it simply will not go on without cheap, reliable oil. 

Only nuclear beats oil, and as "254774" points out, it will require far more nuke investment per capita vehicle than today's economy can support.

Nuclear power also involves substantial long term tangible and intangible (waste pollution factors) costs, which combine with it's construction and operating cost to bankrupt any plan of deployment at the scale needed to replace petroleum.  (By the way '774', electricity transmission line and distribution losses before plugging average 18%. Nukes, like coal and gas combustion plants, conform to Law Two of thermodynamics, which means they are about 30% efficient in converting heat into mechanical and then electric energy - he balance is lost as waste heat in cooling towers, etc.  Which means they need a LOT of water to operate, another dwindling resource... but let's not go there right now.) Just wake up and try to cope with the fact that you're not going to be pulling into the wind powered Starbux in your atomic-powered car.  Reality sucks, but as somebody around here says, you should trade the tape.

Me?  I'm long on local shoe leather and black-smithing schools, since feet did all of the transportation work everywhere until a just few generations ago.  I tell my kids to major in organic farming, with a minor in reclaiming herbicide and pesticide destroyed soil, which will not produce today without GMO seed stock that's immune to these petrochemicals - both of which will be hard to come by when my kids are my age.  

 

Fri, 03/05/2010 - 14:55 | 255124 Hulk
Hulk's picture

18% loss isn't as bad as I thought it would be.
In my above scenario, in which I wasn't logged in, I am also
assuming that we start utilizing breeder reactors and stop wasting
precious fuel by cooling off spent fuel rods in swimming pools
for years, which is just a big fucking waste of energy which we can
no longer afford (in reality, waste is never affordable)
Have the kids look into pasture farming, the organic farm has been taken over by the money changers and is now bastardized.
The good news, which you probably already know, is that once you introduce organic matter (compost)back into the soil, the bacteria
and worms get things back to normal quickly. Composting is an amazing process , and even breaks down PCB's
The best treatment on composting I have ever read is "the humanure handbook" and is available for free at:
http://www.jenkinspublishing.com/humanure.html

Pasture Farming is very profitable, BTW. Its an easy sell
now that the traiblazers like Joel Salatin have cut a path
for the rest of us.

I am also in agreement with you on the shoe leather....

Fri, 03/05/2010 - 11:12 | 254772 Anonymous
Anonymous's picture

Lithium makes up a very tiny percentage of the total cost of lithium-based automotive batteries. Raw materials are ~1/3 of the total cost of a finished battery. I can say with pretty high certainty that lithium is <10% of that cost. Depending on the precise chemistry, nickel, cobalt, and copper all contain larger cost shares. However, lithium shortage and geographical concentration could some day become an issue. Simbol Mining is processing lithium from domestic geothermal brine to address this. There are also new recycling techniques being developed to recover raw materials, including lithium, effectively from used batteries at end of life.

Most "next-generation" lithium-ion batteries do not explode when overcharged. See A123 Systems.

Fri, 03/05/2010 - 13:00 | 254936 Anonymous
Anonymous's picture

There's a company in Canada (Canada Lithium Corp.) that has initiated a prefeasibility study on its Quebec Lithium Project near Val d'Or, Quebec.

Canada Lithium Corp. is a Canadian-based resource and exploration company trading under the symbol CLQ on the TSX-V. The Company is in the midst of finalizing a prefeasibility study on the Quebec Lithium Project, which will include environmental, metallurgical, geological and engineering studies.

Canada Lithium has commenced processing a bulk sample at a pilot plant assembled by SGS Lakefield. In addition to fine-tuning the metallurgical process developed by SGS Lakefield, the bulk sample will produce battery-grade lithium carbonate samples for marketing purposes.

A Definitive Feasibility Study (DFS) now under way is scheduled for completion by the end of Q1, 2011. In addition, a program of extensional and infill resource definition drilling will be carried out in mid-2010. The focus of the extensional drilling will be to better define the location of spodumene-bearing pegmatites to both the northwest and southeast, on strike with the current resource.

Lithium carbonate is used in a wide variety of applications, including most lithium-ion batteries. Production of large lithium batteries is expected to become far more prevalent in the next few years, according to several manufacturers. Most of the large automobile manufacturers have plans for plug-in electric and/or hybrid vehicles over the next 2-3 years, with the first units, such as the Nissan Leaf and GM's Volt, expected to be released later this year or early next. Other future uses for large lithium-ion batteries include power grid stabilization systems and home and office backup power units. Canada Lithium has negotiated a marketing arrangement with Mitsui and Company of Tokyo, Japan, which covers the marketing rights for Japan, Korea and China over a 6-year period.

This company is one of many junior lithium miners hoping to supply the demand if it ramps up.

Then, we'll see which of these junior miners are the real deal.

Fri, 03/05/2010 - 11:03 | 254759 aurum
aurum's picture

Tantalum is a better play

Fri, 03/05/2010 - 10:52 | 254746 Anonymous
Anonymous's picture

Little FYI from the dork world -

Lithium Iron Phosphate batteries (AONE) are taking over the model aircraft world in a huge way. No fire hazard like lipo or lion and huge and fast charge and discharge rates. Downside is slightly heavier than lipo's and cutoff point is not gradual as they fall off a cliff at end of charge but that can be easily managed. I've cut over all my planes to this tech - good stuff and production is ramping now so costs are coming down....

Fri, 03/05/2010 - 10:49 | 254741 Anonymous
Anonymous's picture

And here I was, reading the headline and thinking you were talking about fusion reactors using the deuterium-tritium fuel cycle and wondering whether the ITER reactor became a mature technology overnight. Unfortunately you were just talking about lame car batteries. The point here, which Gunther noticed, is that the power stored in those batteries must come from somewhere and currently the majority of energy production capabilities are based on guess what: fossil fuels.

Until the issue of power production gets solved so that we become less reliant on fossil fuels, just moving the fossil fuel consumption from the individual engines to the power generators is just an useless PR exercise.

Fri, 03/05/2010 - 10:44 | 254734 jc125d
jc125d's picture

If you were really a MHFT instead of a big talking weenie, you drive one of these: http://www.teslamotors.com/

Consider yourself outed.

Fri, 03/05/2010 - 13:51 | 255031 Hammer59
Hammer59's picture

Lease a shiny new Tesla for as low as $1658./mo      MHFT can certainly afford it, but what about the average taxpayer?  After all, Tesla motors recieved @$ 100 million from the Federal Government recently.

Fri, 03/05/2010 - 09:58 | 254680 FranSix
FranSix's picture

Lithium-6 is the substance required to provide tritium in thermonuclear weapons.  Lithium-6 is more stable to store than tritium, and will transmute into tritium under heavy neutron bombardment.  It fuses with the deuterium in the plasma surrounding the lithium-6 plug, now tritium, caused by an atomic trigger.

"Lithium-6 is valued as a source material for tritium production and as a neutron absorber in nuclear fusion. Natural lithium contains about 7.5 percent lithium-6. Large amounts of lithium-6 have been produced by isotope separation for use in nuclear weapons. Lithium-7 gained interest for use in nuclear reactor coolants."

http://en.wikipedia.org/wiki/Lithium

http://en.wikipedia.org/wiki/Thermonuclear_bomb

There is a small error in the Lithium article that implies that Lithium-6 was only used in the in early thermonuclear weapons.

Fri, 03/05/2010 - 10:09 | 254695 Rick64
Rick64's picture

Whatever happened to cold fusion?

Fri, 03/05/2010 - 12:36 | 254894 Hulk
Hulk's picture

Cold Fusion is waiting on Clean Coal, which is qued
up and waiting for Solar...

Extraordinary Popular Delusions and the Madness of Crowds
one of my all time favorite books

Fri, 03/05/2010 - 09:58 | 254679 Anonymous
Anonymous's picture

I think these plays have been sufficiantly pumped to the masses. It seems a pretty crowded trade at this point.

Fri, 03/05/2010 - 09:18 | 254662 Anonymous
Anonymous's picture

There was an electric car craze during the transition from steam engine to gasoline engine. There will be another electric car craze during the transition from gasoline engine to compressed-air engine.

There is still a great play in trading it up then down.

Fri, 03/05/2010 - 12:53 | 254925 Dark Helmet
Dark Helmet's picture

Compressed air? The energy density is horrible unless we can make air tanks, hoses, and compressor parts out of super-mega-tensile-strength unicorn shit.

Hydrogen also sucks, since it's inefficient as hell to produce and there's no infrastructure in place. We have an electric power grid already.

Natural gas is more likely to eat electric cars' lunch in the short term. NGVs would already be quite compelling (e.g. the Honda Civic GX) if there were stations, and those wouldn't be too hard to deploy. Conservative talk radio hosts emit enough natural gas to ensure a good supply for quite some time.

Fri, 03/05/2010 - 07:52 | 254632 Anonymous
Anonymous's picture

No,

If Lithium becomes too expensive, Zinc-Air or Aluminum will be a cheaper substitute. It may even happen that Zinc-Air prices out Lithium even before it becomes mainstream.
Lithium based cars will likely be "status symbol", peones will go with smaller range / cheaper batteries.

Fri, 03/05/2010 - 03:53 | 254590 Gunther
Gunther's picture

At best lithium will be the new oil tank.

The electrictiy stored in the lithium battery has to come from somewhere.

Fri, 03/05/2010 - 16:56 | 255348 Blindweb
Blindweb's picture

+1

 

The Platinum family may be a better play as we are forced to use increasingly dirty fuel sources.  I haven't looked into it much though, maybe there's something better used in coal scrubbing 

Fri, 03/05/2010 - 12:47 | 254911 Dark Helmet
Dark Helmet's picture

Somewhere like: coal, gas, wind, solar, nuclear, geothermal, hydroelectric, hydrothermal, hamsters, etc.?

There's really no energy problem. There is an oil problem and as a result an energy storage problem. "Batteries" is one of the buzzwords of the century.

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