PEAK OIL - EPOCHAL EVENT OF OUR LIVES

[HowardHughs]

Will Lithium Sink OPEC?

https://www.valuewalk.com/2018/11/absolute-return-november-2018-lithium-triangle/

"When I began to research the topic a couple of years ago, I got the impression that commercialization of fusion energy is still decades away with the consensus settling around 30 years. However, the insider view now is that we may only be 15 years away from delivering fusion-generated electricity to the grid, such is the momentum."

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Investment implications
Whether fusion energy ever happens or not, the outlook for lithium producers seems bright. That view is predicated on a firm belief that the world is moving towards electrification of all transportation and heating, which seems to be a reasonable assumption.

Firstly, fossil fuels are very much responsible for our greenhouse gases and secondly, there is a strong desire in the OECD to reduce its dependency on OPEC. The fact that the fossil fuel industry is a monumental user of freshwater and that it ties up ever larger amounts of capital to produce the energy we need to spin the wheels every day doesn’t make that desire any smaller.

As far as electrification is concerned, think about the ongoing electrification of the global car fleet. Lithium is a significant component in electric car batteries so demand for lithium will, as a result, increase for many years to come.

Alternatively, think of the electrification theme and combine it with another of ‘our’ mega-trends – The Rise of the East. The growing middle classes of Asia will want to go digital unless they have fundamentally different desires than the rest of us; hence demand for laptop computers, tablets and smartphones, all of which are big users of lithium, will grow for many years to come.

Another implication of the electrification theme is that commercial banks may ultimately cease to exist. Just like Amazon has disrupted retailers all over the world in recent years, a new technology called blockchain (which was invented to support cryptocurrencies) may disrupt commercial banks in the years to come. The main caveat is that everything needs to be electrified before we can take full advantage of this new technology, but the writing is on the wall.

All of the above may unfold long before fusion energy is rolled out. When that eventually happens, the implications for fossil fuel prices are severe. Coal and natural gas prices will most likely go to zero, as there will be no need whatsoever for either coal or natural gas any longer. Demand from the chemical industry (mostly to produce plastic products) will ensure that oil prices won’t go to zero, but they will almost certainly settle at levels dramatically below current levels.

It is impossible to say precisely when all of this will happen. When I began to research the topic a couple of years ago, I got the impression that commercialisation of fusion energy is still decades away with the consensus settling around 30 years. However, the insider view now is that we may only be 15 years away from delivering fusion-generated electricity to the grid, such is the momentum.

Given the dramatic impact fusion energy is likely to have on everything, investors are presented with a once-in-a-lifetime opportunity. Having said that, economic growth between now and the day fusion energy is finally available on the grid will almost certainly drive fossil fuel prices higher in the short to medium term.

I don’t for one second believe you can simply go short fossil fuels today and then sit back and wait for fossil fuel prices to implode, and I will warn you strongly against shorting fossil fuels more systematically anytime soon.

Finally, in terms of the bigger picture, bear in mind that this is only the tip of the iceberg. Countries that are dependent on the fossil fuel industry for its continued economic growth – and no OECD country is more dependent on the fossil fuel industry than the US – will most likely run into strong head winds for a period of time.

Talking about OPEC, political priorities in the OECD will most likely change as OPEC’s powers begin to fade. And, as that happens, other countries – those rich on lithium – will move to the forefront. I have even (half) joked that OPEC at some point in the future may be replaced by OLEC - the Organisation of Lithium Exporting Countries.

With the biggest lithium reserves in the Lithium Triangle, and with Chile being a price-setter, could Chile become the new Saudi Arabia? Not as far-fetched as you may think. At the very least, the South American continent’s prominence and political influence will most likely grow as fusion energy becomes more than a distant vision.

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What happens if you take half a bathtub of water - seawater will do – and the amount of lithium that goes into one laptop battery? The purists will probably say “not a lot” and, at first glance, that is indeed correct.

However, imagine that the ongoing research into fusion energy is a few years further down the road, and scientists find a way to commercialise a technology that has already been proven in research laboratories all over the world. A lot will now happen.

As I said last month, the fusion process - converting hydrogen to helium - releases about 10 million times more energy than what is released when burning the same amount of hydrogen. While a 1000 MW coal-fired power plant requires 2.7 million tonnes of coal per year, a fusion plant which is geared to deliver the same output will only require 250 kilos of fuel per year.

Only a few grams of fuel are present in the plasma at any point in time. This makes the fusion reactor incredibly economical in its fuel consumption, and it adds important safety features to the process. In plain English, combining the half-filled bathtub of water and the lithium from the laptop battery will lead to about 200,000 kWh of electricity – about 30 years of UK per capita electricity consumption

Technically, what happens is that you make two hydrogen isotopes, deuterium and tritium, collide, and the fusion produces a heavier element, helium, and a neutron. Lithium is the fuel that operates the fusion power plants. You can read more about it here:

https://www.iter.org/sci/FusionFuels