By Liam Denning / Bloomberg Opinion
America’s energy angst was easier to gauge before the energy transition: You just looked at oil imports. Now it means also fretting about where we get stuff like lithium and … graphite. That’s right, the stuff in pencils is now part of our national neurosis; and it makes the lithium gap look easy by comparison. The electric vehicle industry needs a plan. Fast.
Besides greening the economy, President Biden wants more green stuff mined and made at home, something he reemphasized in this week’s State of the Union speech. Some months before the Inflation Reduction Act passed, Biden also invoked the Defense Production Act to boost domestic sources of battery minerals. The aim is to wrest control of clean technology supply chains away from a country that has been building them assiduously for years: China.
Angst about China’s grip on batteries often focuses on lithium. It is, after all, the defining ingredient, and China accounts for more than 70 percent of the world’s lithium-processing capacity. Yet the average battery contains way more graphite; indeed, it’s the biggest input by weight.
Graphite is the main material for the battery’s anode, which takes in and holds lithium ions during charging and releases them when energy is needed. A form of carbon — ah, the irony — graphite’s combination of high thermal and electrical conductivity with chemical inertness makes it very useful when you want to cycle through lots of energy flows without stuff degrading or blowing up. A typical 60 kilowatt-hour EV battery might hold 160 pounds of graphite compared with perhaps 20 pounds of lithium. And while the exact mix of other metals such as cobalt and nickel in the other electrode — the cathode — may change, graphite’s place in the anode is more or less fixed.
With lithium, China only dominates processing, not mining. In graphite, China is virtually inescapable. It accounts for more than two-thirds of natural graphite mining; about 60 percent of synthetic graphite production (an alternative made from oil by-products); and virtually 100 percent of coated spherical graphite, or CSG, production, the processed form suited to anodes. China also accounts for 98 percent of announced anode-manufacturing capacity expansions through 2030, according to the International Energy Agency.
How much graphite was mined in the U.S. last year? Not enough to fill a pencil. In fact, the U.S. hasn’t mined any since the 1950s. Even if it had, all that raw material would need to be shipped to China for processing anyway.
“There are alarm bells from OEMs, certainly, in North America over that,” says Simon Moores, chief executive of Benchmark Mineral Intelligence, a U.K.-based market research firm (OEMs is shorthand for automakers). Little wonder. Biden’s targets, and automakers’ investment plans, require millions of EVs to be sold each year, ultimately taking over the entire U.S. market within a decade or two. Many millions more will be sold worldwide.
Yet just 1 million EVs, assuming a 60 kilowatt-hour battery in each, requires almost 80,000 tons of graphite. Last year, U.S. demand for natural graphite for all uses, batteries or otherwise, was just 72,000 tons. Global demand for flake graphite — the natural grade best suited for anodes — is projected by Benchmark Mineral Intelligence to rise more than threefold by 2030, to 4.1 million tonnes. Even as the likes of General Motors strike deals to lock in domestic lithium supply, a yawning graphite gap threatens to develop, and quickly; something seemingly not yet reflected in prices, as used to be the case with lithium before fears of shortages took hold. A U.S. Geological Survey of large domestic graphite deposits has indicated a total resource — that is, the most generous estimate — of 11.9 million tonnes. Not enough to put the U.S. in the same league as China (or Brazil), but likely enough to rebuild some production at home.
Besides geopolitics, there is another reason to diversify away from Chinese supply; one tied to the entire rationale for EVs in the first place: emissions.
Processing graphite for anodes, either natural or synthetic, is energy intensive. Coating natural graphite involves blasting it in furnaces at more than 2,000 degrees Fahrenheit. Synthetic graphite, meanwhile, is not only derived from oil but undergoes several high-temperature processes to convert that byproduct into graphite powder.
Mitigating the associated emissions rests largely on using low or no-carbon electricity. So relying on China, whose power sector accounts for a third of the world’s entire coal consumption, is not ideal. Minviro, a United Kingdom firm that quantifies the life-cycle emissions of raw materials, calls graphite the “hidden impactor” of battery emissions, lurking in the shadow of higher-profile emitters such as nickel sulfate. The difference between graphite produced using a carbon-intensive grid and low-carbon grid in terms of embodied emissions can be a factor of nine times, according to Minviro’s modeling.
The first conclusion to draw here is that, in the near term, dependence on Chinese graphite, especially processing the stuff, is baked in.
The second, however, is that this is incompatible with mass electrification of vehicles over time, especially when globalization is going out of fashion. Even discounting the geopolitics, China’s carbon intensity jars with the ultimate goal.
That tension between aspiration and supply-chain realities may be one reason why U.S. tax officials are dragging their heels on defining exactly how domestic content rules for batteries in the IRA will be applied. This allows EV consumer tax credits to be dispensed without them in the meantimel much to Sen. Joe Manchin’s chagrin. Linked to this is Biden’s ongoing attempts to uphold the IRA’s protectionism while avoiding a trade war with nominal allies, and fellow greenies, in Europe. Earlier this week, Germany’s economy minister talked hopefully of forming a “critical minerals club” of like-minded nations.
Regardless of how that goes, the third, inescapable conclusion is that resuming domestic graphite production now has strategic and environmental value. The U.S. Geological Survey has identified 10 sites that either used to produce graphite or have potential, of which the biggest by far is Graphite Creek on the Seward Peninsula in Alaska.
Graphite One, based in Vancouver, B.C., aims to produce around 42,000 tonnes of anode-ready graphite per year; not just by mining the site but then also shipping the resulting concentrate down the coast to a proposed processing facility in Washington state. Besides relative proximity, Washington also happens to host the biggest hydropower resources of any state and generates four-fifths of its electricity from zero-carbon sources. Assuming it all gets developed, this graphite chain would exemplify the interlocking demands of energy, geopolitical and climate security that now define the U.S. critical minerals business.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.
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