Could lithium become the new oil?

I recently spoke with a group of Nigerian leaders who were visiting Yale. I expressed to them my confidence in the long-term outlook for oil demand. A booming middle class in the emerging markets, I argued, would consistently demand more fuels. They were engaged throughout my talk and cared about many different topics, but kept returning to one.

“OK, but Vikram, what will oil prices be next year?” I answered honestly, “I don’t know.”

Several other questions came up, but then another person asked, “OK, very compelling presentation, thank you. But do you think oil prices will be higher or lower next year than they are today?” Again, I pleaded ignorance.

The process continued, and eventually, everyone was laughing about the persistent focus on oil prices.

Oil has long been a source of geopolitical and economic power. It’s driven countries to war; it’s propped up dictatorships. There’s a lot riding on the price of oil, and it rightfully garners disproportionate attention. Some observers stress about whether OPEC will try to manipulate oil prices, while others predict its demise. But this focus may be concealing another very important development, one in which you are personally involved.

Have a cordless land-line (remember those?) or a smartphone? A tablet? Well, they all depend on batteries. Batteries suffuse our lives on an everyday basis, even if we only notice them when they run low on charge. In fact, the “Low Battery” warning generates enough angst that a rechargeable charger industry has rapidly sprung up and is today thriving. Of course, we may soon need to have rechargeable chargers to recharge the rechargeable chargers once they run low, and heaven help us, we’re 10 minutes away from a traditional outlet… But I digress. My point is very straightforward: We have an insatiable thirst for stored and easily transported power.

The devices that allow us to function would themselves not function without our trusty portable sources of power. Lithium is a crucial ingredient in these batteries and may one day eclipse oil as a source of geopolitical and economic power.

Unsurprisingly, with the proliferation of consumer electronics, global lithium production has been growing at a rapid clip, doubling in the decade leading up to 2012. Some expect the amount of lithium used in batteries could quadruple by 2020. And 2014 was also the first year in which over 30 percent of annual lithium output was directed toward consumer battery production. The price for a ton of lithium has tripled to $6,500 over the last ten years, even as the price of lithium batteries has fallen every year since 2007 by almost 15 percent.  Were it not for consistent innovation, I suspect lithium prices would have risen higher faster.

Demand for lithium is sure to increase in the coming decades — it’s expected to double over the next ten years — especially with the rise of fully electric vehicles. The poster child of this development is Elon Musk’s Tesla Motors. His multi-billion dollar Nevada “gigafactory” is slated to produce 500,000 vehicles per year by 2020. Goldman Sachs estimated that this one operation alone could demand 17 percent of the world’s lithium output. And that’s not including all the other firms that are getting in on electric cars, including the Warren Buffet-backed car company Build Your Dreams, which has ambitions on a similar scale to Musk’s Tesla.

Where will all this lithium come from? Unfortunately, the world’s lithium reserves are extremely concentrated, with the vast majority — possibly as much as 70 percent — in the Andes Mountains of Chile, Bolivia and Argentina. Other deposits are found in the U.S., China and Australia. But most of these other deposits are more expensive to mine than the Andes deposits that lie on the surface.

From 2010 to 2013, the United States imported 96 percent of its lithium from either Chile or Argentina. The renewable energy consultant Tam Hunt recently asked whether we could end up seeing a 21st century cartel of the “Lithium Producing and Exporting Countries.” It seems highly likely that the Andes countries (the “Lithium Triangle”) will amass vast economic and political power through the control of a resource critical to the functioning of the modern economy.

Others, though, are less pessimistic, noting that newfound demand is already leading to new discoveries of lithium reserves — like the motherlode discovered in Afghanistan a few years ago — and that lithium is recyclable. However it shakes out, lithium is very likely to be a centrally important global commodity worthy of everyone’s attention.