Power Surge: Lithium Outshines Fossil Fuels as WA's Second Most Valuable Resource

Australia: WA's Lithium industry is about to surpass the combined worth of its oil, gas, and coal industries. From a meager $24 million in 2016-17, Lithium royalties have surged to almost a billion dollars per year under Labor's leadership. The latest state budget papers reveal that Western Australia is set to earn $910 million from Lithium by the end of this financial year and is projected to reach $928 million in the next. The McGowan government's seventh economic blueprint suggests a prosperous future for WA's Lithium market.

Nickel, a metal essential to the advancement of green energy, is experiencing a surge in value as royalties are projected to increase from $104 million this year to almost $200 million by 2025-26. In contrast, funding from the North West Shelf gas plant is expected to reach its pinnacle at $1.3 billion this year due to the premium international gas prices, only to reduce by half to an estimated $660 million in 2023-24.

Although some may perceive these distinct accounts as too peculiar to have a significant impact in a wider context, it's worth noting that oil and gas revenue has reached unprecedented heights, especially in 2022. This was due to a confluence of factors such as Russia's invasion of Ukraine and limited supply, ultimately leading to skyrocketing prices. Conversely, some argue that these occurrences indicate a turning point- the inevitable decrease in value of one commodity (fossil fuels) and the corresponding surge of another (Lithium and critical minerals). It's apparent that WA Treasury is inclined towards the latter notion.

According to the Treasury's commentary on the budget, the rising demand for Lithium is largely driven by electric vehicles, which is a trend that is only going in one direction. With 80% of the world's Lithium used in EV batteries, the demand is highly influenced by China's EV sales, which make up almost 60% of the global market. The demand for Lithium is projected to continue growing rapidly, thanks to clean energy initiatives in various advanced economies. For example, the US Inflation Reduction Act offers incentives for EV purchases as part of its efforts to promote clean energy usage.

WA's reliance on iron ore is being reduced thanks to the tantalizing benefits of Lithium. Despite a significant $633 million decrease in iron ore royalties compared to last year, the budget remains unaffected due to the higher-than-anticipated receipts from Lithium. In fact, it is estimated that royalty income from all other commodities, excluding iron ore, will increase by $700 million in 2022-23, primarily due to the surge in Lithium royalties. With nearly half of the world's Lithium supply provided by WA in 2021, the state is a key player in the global Lithium industry.

Additionally, the leading provider of Lithium Hydroxide, which is the preferred type for electric vehicle (EV) manufacturers due to its superior energy storage capacity and range, is ramping up production. This has led major global players like Albemarle from the US and Tianqi from China to quickly invest in building manufacturing plants for Lithium Hydroxide.

Albemarle has announced its intention to double the size of its Lithium Hydroxide plant in Kemerton, located 150 kilometres south of Perth. This expansion would increase Albemarle's investment in the area to $4 billion. Meanwhile, Tianqi spent approximately $1 billion developing the first Lithium plant in Australia at Kwinana, situated on Perth's industrial strip. With multiple miners and chemical companies competing to secure larger percentages of the industry, there is a flurry of activity taking place. These developments reflect the abundance of minerals and the availability of investor funding in Western Australia, making it a favourable situation for the region.

As the demand for electric vehicles (EVs) continues to escalate, driven by evolving consumer preferences and government incentives, few regions are better positioned to reap the rewards than Western Australia (WA). However, while there are significant benefits to be gained from mining and royalty collection, some experts are urging caution. They argue that for WA and Australia to fully capitalize on the EV boom, they must focus on other areas of the battery supply chain. Specifically, many industry insiders believe that China is currently leading the way in terms of financial and geopolitical advantages further along this chain.