From Oilfield To EV: Petrolithium Could Hold Key To Creation Of Battery Manufacturing Sector

This is part of an ongoing DOB series, titled New Directions, New Possibilities, which examines energy innovation, sustainability challenges and opportunities.


As the world sits on the precipice of a new low-carbon economy, built on renewable energy and energy storage, there may be few other countries as well positioned to take advantage of the transition as Canada. And one of the potential avenues to exploit the wave could be sitting in plain sight in Alberta’s oilfields.

Oil and gas are not the only prized substances pumped to the surface by tens of thousands of wells — many of which produce many times more wastewater than petroleum. Contained within that brine are other valuable commodities like heat energy and minerals — including lithium.

The vital ingredient in today’s most common rechargeable battery — making up about 10 per cent of a lithium-ion battery — the lightest metal is found in high enough concentrations in oil and gas well produced water to foster an early stage petrolithium sector based on direct lithium extraction technology.

Emergent production from Alberta oilfields (see Alberta Startups In Global Race To Grab A Piece Of Booming Lithium Supply Chain), and from hard rock mining in Eastern Canada, could be the lure to build a whole new sector devoted to lithium-ion battery production — a sector expected to explode with the transition to electric vehicles (EVs) and utility scale energy storage.

And the higher up the supply chain ladder producers can climb — potentially even integrating with Canada’s existing auto sector as EVs become mainstream — the higher the value of the sector to the economy.

Not only does Canada possess the raw materials — in addition to lithium it is one of only two countries to possess exploitable deposits of all the materials required to produce cathodes, which account for roughly half of a battery’s value — but it possesses the prospect of producing the “greenest” lithium in the world.

But time is of the essence as more countries rise to the realization battery production is of strategic importance and move to establish their own presence in the sector. Fear of losing control over their own battery production, the French and German governments recently announced a major initiative to build European-owned battery factories in both countries — ones designed to “set new standards in their CO2 footprint,” according to a German government statement.

The two factories alone represent investment of about 4 billion euros ($5.74 billion). “We need to be able to produce our batteries; this is a matter of industrial sovereignty and the reduction of CO2 emissions,” French president Emmanuel Macron said. Auto companies like Volkswagen AG are investing billions in their own battery cell factories while also signing supply deals with major manufacturers like Panasonic Corporation and LG Chem.

Last June, McKinsey & Company said the predicted “dramatic increase in EV numbers means that the potential battery market is huge.” In Europe alone, it projects that by 2040 battery demand from EVs will reach a level to support 80 new “gigafactories,” supporting a battery cell market valued at 90 billion euro per year and the creation of about a quarter million jobs.

National plan

Canada is waking up to the opportunity as well. It launched an initiative last year to investigate “how increased economic activity could be generated across the value chain to position Canada as a globally competitive manufacturer of green battery metals and sustainable value-added goods made with them.”

In a draft report produced after consultation with industry, it recommends moving up the battery value chain to establish a leadership position in advanced battery production, stationary energy storage and battery recycling (a deluge of used batteries will hit the market later this decade as EVs reach end-of-life battery capacity).

“Canada has all the minerals and metals required to produce advanced batteries. Establishing a robust supply of these materials through exploration, mining and mineral processing will help attract investment further downstream in battery component manufacturing,” states the report, titled From Mines to Mobility: Seizing Opportunities for Canada in the Global Battery Value Chain.

Leveraging the presence of the raw materials could attract a leading battery manufacturer — which are few in number and mostly based in Asia — to Canada, which could act as an anchor to support both the growth of upstream materials production and downstream development of EV assembly and stationary storage technologies, it states.

“An electric vehicle assembly plant would bolster the future of Canada’s automotive industry while fuelling the growth of a domestic battery industry… Canada must embrace a strategic ‘mines to mobility’ approach if it is to be an integral part of the global battery industry.”

EVs driving rapid growth

It’s not just the meteoric rise in leading EV maker Tesla Inc. that is driving growth. Virtually every other major auto manufacturer has announced plans to shift to low- to zero-emission vehicles as costs fall and emissions regulations tighten. Numerous jurisdictions will ban the sale of internal combustion engine light vehicles in the next 15-20 years, including B.C. and several European countries, while tightening emissions regulations further incentivize EVs.

EVs represent about 70 per cent of the anticipated demand for lithium-ion batteries through 2030, with grid scale energy storage making up much of the rest. The International Energy Agency (IEA) forecasts EV sales could soar to 43 million units per year by 2030, up from just two million in 2018, with production valued at more than US$567 billion annually. The supply of batteries will need to jump more than tenfold by 2030, according to BloombergNEF.

“EVs and in particular passenger electric vehicles are driving volume,” Adam Tuck, program leader – Energy Storage, National Research Council, told a recent workshop in Calgary, titled Alberta’s Lithium Ion Battery Supply Chain Opportunity. It’s not just Canada, he said, “it’s China, Europe, Australia, Japan, the U.S. Everybody is investing massively in this space. That’s the opportunity for us, because not all of these countries have the resources and the technologies required to implement this. This is the time we need to do something, and Canada has a number of inherent benefits and reasons why we should participate in this.”

Leading battery and automotive manufacturers are moving quickly to establish production hubs that will be at the centre of the battery storage value chain, and “governments around the globe are recognizing the imperative of being part of this emerging industry and are investing billions to develop domestic battery, electric vehicle manufacturing capabilities,” the report said. “Jurisdictions that can quickly position their competitive advantages will be best placed to attract an outsized share of these coming investments.”

The federal report cites estimates that by 2040, the international market for energy storage will attract US$622 billion in investment. Global demand for the components that make up lithium-ion batteries will increase from 1.3 million tonnes in 2019 to over 10.1 million tonnes by 2030. “Even the most conservative estimates envision a multitrillion-dollar global market opportunity that Canada cannot afford to ignore,” it states.

Climbing the lithium value ladder

Supplying the raw materials is the lowest value step in the process of producing lithium-ion batteries. As with other commodities, the real value-add lies in the processing of the lithium, cobalt, nickel and other elements to final products — battery packs and the products incorporating them.

Lithium must be purified and refined to produce lithium hydroxide and lithium carbonate, and then processed with other materials or solvents to produce battery electrodes or electrolytes to produce battery cells. Most refining today is done in China, though countries like Australia and Chile are looking to wrestle some of that dominance away.

How far Canada steps up the value chain ladder could have an enormous impact on the value of any future battery production sector, as each rung provides increasing levels of economic activity and profit. Refined battery minerals command a significant price premium over the unrefined commodity — in June 2019 the spot price for lithium spodumene ore was just US$600 per tonne, compared to almost US$16,000 fetched for refined battery-grade lithium hydroxide, notes the federal report.

According to the Australia-based Association of Mining and Exploration Companies, the market value for mined lithium raw material could be worth $20 billion by 2025. That more than doubles to $43 billion for the value of refined products and skyrockets almost 10 times to $424 billion for finished battery cells.

While China is expected to remain the leading global battery supplier over the next decade, the industry still expects many of the higher quality batteries needed by the automotive industry in North America and Europe to be produced in those jurisdictions as automakers seek vertical integration through the supply chain, presenting an opportunity for Canada to enter the manufacturing stage of the value chain.

“According to industry data, forecasted market demand in North America could exceed planned supply by up to three times. This results in a gap that will need to be met by new players and by existing players increasing their investment commitments to the region,” the report notes.

The prize that goes to those jurisdictions that attract major players emerging in the clean energy field is a large one. Levels of investment and job creation rivals activity in Alberta’s oilsands. Tesla’s US$5 billion gigafactory in Nevada — the carbon-neutral factory will be the largest building in the world by footprint when completed — promised 3,000 construction jobs and 6,500 permanent jobs (a number now surpassed) and a potential US$100 billion boost to the state’s economy over 20 years. Teck Resources Ltd.’s proposed $20.6 billion Frontier oilsands mine was estimated to require 7,000 construction jobs and 2,500 permanent jobs, while providing $70 billion in government revenue over 40 years.

A strategic resource

National security is also increasingly playing into the conversation in both Europe and North America. Fearing losing access to materials critical to the energy economy of the future, the U.S. in 2018 included lithium in its list of 35 minerals declared “critical to the economic and national security of the United States.”

Canada has followed suit, holding talks with the U.S. administration to discuss ways for the two countries to secure access to minerals including uranium, lithium, cesium and cobalt, and considering defense funding for critical minerals projects and strategic investments in North American processing facilities.

“It is in our interests to ensure that we have reliable supplies of these important minerals for technology, and it’s a conversation that our government is leading on,” Prime Minister Justin Trudeau told a press conference in September. “Canada has many of the rare earth minerals that are so necessary for modern technologies.”

Less well known is that Tesla made a commitment to source material from North America for its North American gigafactories, Tuck said, of which it has two and has recently hinted a third could be built in Texas. In addition to EVs, Tesla produces consumer and grid scale battery packs. “That gives us a huge opportunity to be a secure supply for the North American market for [energy] storage, whether it’s vehicle based or grid-based,” he said.

Underappreciated Canadian expertise

While Canada lags in battery manufacturing, it is an international leader in lithium-ion technology development. Renowned lithium-ion battery expert Jeff Dahn and his 25-person research group at Dalhousie University in Halifax were the team of choice for Tesla’s Elon Musk in his holy grail pursuit to produce a million-mile (1.6 million-kiliometre) battery, more than double today’s capacities. Initially scoffed at, the million-mile concept was the subject of recent research papers published by the Dahn team, which is in the latter stages of a five-year strategic partnership with Tesla.

And last year, Tesla quietly purchased Richmond Hill, Ontario-based Hibar Systems Limited, a leader in precision manufacturing of small cell lithium ion batteries using a highly mechanized pump injection system. The highly regarded manufacturer operates facilities in China — which represents about half its market — and around the world. The world’s leading EV manufacturer, Tesla is close to adding a pickup truck and long haul semi to its lineup and has long hinted at producing its own advanced battery packs for future vehicles.

Green advantage

Canada is also thought to be in a position to produce the world’s greenest lithium, in terms of land and water use, energy intensity and greenhouse gas emissions. The amount of chemical- and energy-intensive processing entailed in hard rock mining could be avoided with petrolithium production, while the level of land disturbance — roughly equivalent to the conventional oil and gas production footprint — would be a fraction of that disrupted by the massive evaporation ponds needed in salar extraction. (The time frame compared to salar extraction would also be shortened to hours or days compared to 18-24 months.)

Low emissions hydropower available in a number of provinces potentially further advantages Canadian producers, according to the federal report. “Canada has one of the lowest GHG emissions per pound of carbonate or hydroxide that would be produced,” Tuck told the Calgary audience, giving Canada a leg up in an industry whose main purpose is to reduce emissions. “There are a number of opportunities here to really push Canada’s brand as the clean and stable supply of these materials.”

Establishing environmental standards for batteries among like-minded battery manufacturing countries would help, said the report. “Canada has an opportunity to promote a green standard that goes beyond GHG emission reductions to look more holistically at the environmental impacts of battery manufacturing (water, air, soil, energy) in order to position Canadian-made batteries as the clean, green choice.”

Of course the mainstreaming of EVs will have other impacts on the economy, particularly for the energy industry. A recently published EY study of the EV transition in Canada found its most aggressive scenario — with EV adoption at 30 per cent by 2030 — could reduce oil consumption by roughly 252,000 bbls a day. Companies need to “view this transition as an opportunity to differentiate before disruption can make their business obsolete,” states the study, Canadian electric vehicle transition — the difference between evolution and revolution.

Facing serious disruption, those companies “that don’t respond quickly cease to be relevant,” while those that do will need to diversify to focus on clean energy and finding new markets. Some large companies have already moved in that direction: Suncor Energy Inc. built out a fast charging network across Canada, while European oil majors are increasingly investing in renewables, EV charging and energy storage.

Playing catch-up

But for all its strategic advantages, Canada is falling behind in the race to capture a piece of the energy storage value chain pie. Major lithium producing countries like Australia and Chile are already trying to capture more value by marching up the value chain.

Australia has established a Lithium Valley industry cluster co-located with mining projects to leverage its clout as a producer to lure value-add opportunities. A 2018 study for a regional development agency found the country could generate more than $50 billion in annual revenue and support about 100,000 jobs by building a battery materials sector, compared to about $1 billion in annual lithium exports.

And Chile is moving to require companies seeking to increase lithium output to sell a portion at the lowest market price to local refiners as a condition of expansion. Neither country, however, has a vehicle manufacturing industry approaching the size of Canada’s.

 States the report: “The window of opportunity for Canada to realize these opportunities is short as the transformation of the global battery ecosystem is advancing quickly. Given intense competition among governments to capture anticipated private-sector investment, Canada must make a significant commitment to the future of its domestic industry if it is to be part of this important industry.”

Challenges ahead

Among the hurdles to establishing the critical mass needed to develop the sector is the absence of demand from a major EV manufacturer, according to the report. “Attracting international automotive manufacturers in the passenger electric vehicles is likely the most direct option for Canada to enter the automotive value chain. This type of company could then become an anchor firm for other ancillary companies.”

Similarly, the absence of a battery component manufacturer in Canada is limiting investor interest in manufacturing electric vehicles, as batteries represent the most expensive part of the vehicle. Measures to increase business and consumer demand in EVs would stimulate further investment in North American production.

Limited access to risk capital needed to support capital intensive demonstration of unproven technologies is also constraining growth in the petrolithium sector, as is a dearth of government incentives. As a result, “With the exception of a small number of firms, Canada’s energy storage industry is struggling to compete on cost with larger international firms.”

And regulatory uncertainty is holding back the sector (currently there is not even a royalty classification for lithium). Noted Tuck, if permitting processes “aren’t clean and well understood, it certainly limits our opportunity.”

The report also recommends Canada leverage its abundance of renewable power generation and advanced research ecosystem to establish the country as a global leader in stationary energy storage and that it “own specialty markets and battery technologies of the future, including recycling.” Specialty battery manufacturing already exists in the oil and gas industry, which is a leader in niche applications such as for downhole tools.

Concluded Tuck: “We need to work together to make sure that we bring one big critical national effort in this space to make Canada the clean energy material superpower that we know it can be.”