Thursday, April 1, 2010

Argentina, Bolivia and Chile: The ABCs of Lithium

Argentina, Bolivia and Chile: The ABCs of Lithium

Sean Goforth | Apr 2010

With growth in Asia increasing the long-term demand for oil, the quest for energy conservation has increasingly focused attention on lithium, the key resource needed for the manufacture of energy-efficient ion batteries powering hybrid cars. Demand for lithium carbonate doubled from 2003 to 2007, and a report by Credit Suisse states (.pdf) that the market for lithium-ion batteries may expand to 14 times its 2009 size by 2030.

Lithium is typically recovered from high-altitude desert areas, chiefly in the Andes Mountains, with roughly 80 percent of the world's known lithium reserves found in Argentina, Bolivia, or Chile. Alone, the salt flats of southwestern Bolivia contain more than half of the world's recoverable supplies, making it "the Saudi Arabia of lithium." But after two decades of piquing foreign interest in Bolivia's reserves, the country's natural resource policies, regional posture and poor infrastructure have caused investment in lithium recovery to increasingly favor Chile and Argentina.

Shortly after riding a wave of indigenous populism to office in 2005, Bolivia's President Evo Morales made good on his vow to re-appropriate the country's natural resources from foreign commercial interests by nationalizing Bolivia's oil and natural gas industries. Morales views lithium, too, as a valuable resource that can help transform Bolivia into a modern society, which explains his insistence that, "The state will never lose sovereignty when it comes to lithium." Comibol, the state agency that oversees mining projects, is busy putting Morales' plan for lithium mining into action, with the goal being to eventually treat foreign industries as direct clients, thereby cutting out the extraction middlemen. This desire to keep foreigners out of the country's salt flats is widely supported in Bolivia, especially among indigenous groups and the rural poor.

Another prominent, if less-covered, feature of the "Morales factor" is Bolivian revanchism. On March 23, Morales led the country in its national Sea Day Celebration, which commemorates the end of the 19th-century War of the Pacific that resulted in Chile annexing half of Bolivia -- including its Pacific coast. The celebration's recently adopted slogan, "Motherland or Death: We Shall Overcome," is just the latest reminder that Bolivians are still smarting from their territorial losses dating back more than a century.

Ignoring such sentiment can be politically hazardous in Bolivia, as former President Gonzalo Sánchez de Losado discovered in 2001. To cover budget shortfalls, Sánchez de Losado decided to sell natural gas to the U.S. and Mexico via Chilean ports. Public outrage at the perceived capitulation to Chile led to widespread rioting, driving Sánchez de Losado -- as well as his interim successor -- to resign. Morales' tenure has coincided with louder calls for Bolivia to regain a Pacific coast, and while tolerating such sentiment may be a matter of political survival in Bolivia, it raises eyebrows in Santiago, adding to La Paz's isolation.

If Bolivia's political environment is hostile, its geography is daunting. Landlocked since the war with Chile, most roads are steep and unpaved, making commercial trucking in Bolivia two to three times as expensive as it is in neighboring countries. Additionally, most workers are unskilled, and many don't speak Spanish. The cost of improving Bolivia's infrastructure to where it could reliably export lithium is estimated to be $600 million, roughly the yearly value of all lithium sales worldwide, giving credence to Parag Khanna's assertion that, "Independence without infrastructure is futile."

As a result, foreign enterprise has begun to bypass Bolivia for its neighbors. Chile became the world's largest exporter of lithium more than a decade ago, a reflection not only of its large lithium deposits, but also of the sophisticated trade ties of firms like the Chemical & Mining Company of Chile, which exports to more than 100 countries. Incoming investment to Chile quadrupled from 2003 to 2008, based on strong business operations and close ties between Chile and the United States.

Argentina has also become a force in the lithium market, albeit more recently. In January, Ford and Toyota announced separate ventures amounting to more than $110 million. Even before these investments begin operation, several other promising sites -- including a salt-flat mine in Jujuy Province that will become operational later this year -- are sure to swell Argentina's presence in the global lithium market. Industry scuttlebutt has it that Argentina will surpass Chile as the world's largest lithium exporter by 2012.

Meanwhile, the window for cashing in on lithium is narrowing, as recovered supplies pace market demand. Though lithium is often likened to oil, the fact is that, unlike a barrel of oil, ion batteries last a long time, and relatively small amounts of lithium are needed per unit. For instance, manufacturing the new Chevy Volt's 400-pound battery pack requires less than 4 pounds of lithium. Another wild card likely to affect the long-term demand for lithium is recycling, as advances in ion battery recycling may greatly dampen the need for new supplies.

Nevertheless, Bolivian policymakers seem to feel sure that their prodigious lithium reserves will remain in demand long into the future. They have signaled their intent to harvest the element according to the government's "own timetable," in order to ensure that the state retains utmost control. Currently, only one small-scale lithium recovery project -- whose funding has been variously estimated from roughly $6 million to $8 million, is under way.

Weighing the political and logistical barriers to Bolivia's supplies, many business projections now sideline the country altogether. Lucie Bednarova Duesterhoft, of GM's Global Energy Systems, says, "Two countries -- Argentina and Chile -- could supply the whole world with cheap lithium past 2060." Fear of foreign exploitation, no matter how well-founded considering Bolivia's history, is putting the Bolivian government on track to deprive its people of a tremendous, albeit time-sensitive, opportunity for development.

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