With the energy transition under way, Australia could become a critical minerals superpower if it stopped simply shipping raw materials out of the country and instead focused on value-added products manufactured with the use of renewable power, according to Tim Buckley.
Australia is home to a number of minerals that have widespread use in renewable and battery technology, including copper, nickel and lithium. In fact, Australia is the largest exporter of lithium, a key ingredient for batteries, and iron ore in the world.
But much of it is sold in its raw form and if the country is to take a leading role in the energy transition, then it needs to focus on value-added products, Tim Buckley, Founder and Director of Climate Energy Finance, said during a recent luncheon presentation for the Investment Innovation Institute [i3].
“If we get it right, we’ll probably have a trillion-dollar investment in all these industries over the next 20 years. That’s the magnitude of the opportunity. Think of a hundred billion dollars a year of green iron [alone],” Buckley said.
My pitch to the Australian government is we need to be geopolitically sensible and protect Australia's interests like every other country in the world does. Let's actually serve Australia, build the refineries in Australia and export a value-added, decarbonised product
“[But] we need our Australian superannuation industry to pressure BHP and all of our companies to think strategically and to drive solutions.
“And then we need to pressure, as voters, our federal government to give them the mandate and elect politicians who accept and act at speed on the science, no matter what colour they are, so that we can actually deliver on the massive generational opportunity for Australia to be a critical minerals, renewable energy-powered superpower.”
Despite being the leading producer of lithium, a key mineral in the production of batteries for electric vehicles, much of the lithium exported by Australian companies takes the form of spodumene, which is predominantly rock.
“Lithium spodumene is 1 to 6 per cent lithium and that means it’s 94 to 99 per cent rock. We export rock with a little bit of lithium on it,” Buckley said.
“My pitch to the Australian government is we need to be geopolitically sensible and protect Australia’s interests like every other country in the world does. Let’s actually serve Australia, build the refineries in Australia and export a value-added, decarbonised product.”
The Battery War
Currently, China dominates the global lithium refining industry, producing close to 80 per cent of the world’s lithium hydroxide, a key ingredient in lithium-ion batteries.
But some progress is being made in Australia to capture market share as several miners are looking to build lithium hydroxide processing plants locally. For example, Albemarle is constructing what is expected to be one of the world’s largest lithium production facilities in Kemerton, Western Australia.
“Wesfarmers is building, Albemarle is building and Pilbara Minerals, IGO are proposing to build lithium hydroxide factories,” Buckley said.
“That’s about taking lithium and making it lithium hydroxide, getting all the rock out and then selling offshore refined lithium powered by renewable energy, so embodied decarbonisation. We go from exporting rock to exporting value-added products.
“We’ve got to think strategically. We’ve got to think about the magnitude of the opportunity and we’ve got to think about the need to pivot the Australian economy and transform our economy so that we’re a key beneficiary and facilitator of the world’s decarbonisation.”
China is also home to the largest battery manufacturer in the world, CATL (Contemporary Amperex Technology Co Limited). This company is building some of the world’s biggest batteries and energy storage facilities in Europe.
For example, the company announced last year that it would build a €7.3 billion battery plant in Hungary, which will be Europe’s largest battery plant. Buckley said this is a strategic play by China as it is wary of potential trade barriers.
“It’s building the world’s biggest battery factory in Hungary to get around the question of: ‘Will the Europeans continue to keep buying Chinese-made products?’ Well, CATL pre-empted that five years ago. They built a factory in East Germany and now they’re building one twice as big in Hungary,” he said.
China is already facing trade barriers in the United States. Many Chinese companies are caught under the “Foreign Entity of Concern” clause, which bans them from providing products or services to certain US organisations. The clause is part of many acts, including the Infrastructure Investment and Jobs Act, the CHIPS and Science Act and the Inflation Reduction Act (IRA).
South Korea has seized upon this situation by filling the gap. Battery manufacturer LG Energy Solutions is currently building several multi-billion-dollar plants across the US, including in the states of Georgia, Michigan, Ohio and Tennessee.
“Korea’s government thinks strategically. If China can’t supply to America and America is the biggest market in the world, then why don’t we supply it?” Buckley said.
“They’re building eight factories at the moment and each factory is US$3, 4, 5 billion. Now that company didn’t exist about a decade ago.”
Yet, South Korea is still dependent on lithium from Australia, but currently spodumene is first processed in China and lithium hydroxide is then sold to South Korea to make batteries. Buckley said there is an opportunity for Australia to step in.
“The Australian government needs to work in partnership with the Koreans. Where is all of the lithium that Korea is using coming from? It’s coming from China because we don’t process lithium. We ship it to China; 97 per cent of Australia’s lithium goes to China. And they refine it and then they ship it to Korea,” he said.
“But all of a sudden, [US President Joe] Biden has turned around and said: ‘If you supply it from China, that battery’s not eligible for the IRA,’ so the Koreans have turned around and said: ‘We will build the factories in Korea using imported Australian LNG and imported Australian thermal coal to power the factories.’
“But why don’t we skip the middleman and build a refinery in Australia?”
Australia is also the world’s largest exporter of iron ore and Buckley sees green iron as another key element in leading the energy transition.
Steel is currently made in large blast furnaces, fuelled by large amounts of coal. But a new technology has been developed that replaces coal with green hydrogen, called direct reduced iron (DRI).
Green iron made under this DRI technology is now being considered by major global steelmakers as a substitute for iron ore in the production of steel.
“If we, Australia, don’t green steel and then think we’re going to go and compete with our biggest trade partners, Japan, China, Korea and India, then they’re probably not going to be our friends,” Buckley said.
Our trade balance will drop $120 billion in the next two years relative to last year anyway because of commodity prices. But if the world has to be liveable, then that's going to go to zero in the next 10, 20 or 30 years. So we should plan for that
“Why don’t we decarbonise our iron ore in partnership with them and then give them a decarbonised product, called green iron, to put into their steel mills so we’re not threatening them? We partner with them, we’re letting them deliver on their net-zero emissions targets closeand we’re doing embodied decarbonisation.
“That is potentially a $100 billion a year uplift in Australia’s iron ore.”
If Australia decides not to add any value to its raw materials, then there is a real danger of facing some serious economic headwinds as other countries gain market share in the more profitable sectors of the global economy.
“Our trade balance will drop $120 billion in the next two years relative to last year anyway because of commodity prices. But if the world has to be liveable, then that’s going to go to zero in the next 10, 20 or 30 years. So we should plan for that,” Buckley said.
Tim Buckley spoke at the [i3] Luncheon on Critical Minerals, held in November 2023. To see a photo gallery of the event, please click here.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.