Energy: differing fortunes for Argentina’s lithium and biodiesel
In the high altitudes of north-western Argentina, more than 60 companies are exploring immense salt flats for lithium, a vital commodity in meeting rising global demand for rechargeable batteries. In the fertile farmlands to the Argentine south, meanwhile, a once roaring biodiesel business is in a bind.
Argentina is one the planet’s richest sources of both biodiesel and lithium, and the world is turning to these products to fuel — or power — buses, cars and trucks in a decarbonised future. But while lithium mining is poised for growth, biodiesel producers, after the country became a top world supplier according to the US Department of Agriculture, have seen their fortunes wither.
Lithium is the next big thing in energy, as biodiesel was a decade ago. Argentina is in a position to capture a large chunk of the growth in lithium demand as part of the so-called lithium triangle with Bolivia and Chile. The area holds by far the largest reserves of the metal on the planet.
While forecasts from investment banks Morgan Stanley and Macquarie suggest a risk of oversupply of lithium, those involved in exploration say the opposite is more likely.
We are entering a period “where there will be insufficient mine supply to meet the demand, which will in turn support healthy prices”, says David Sidoo, chief executive of Advantage Lithium, a Canadian company with a project in Argentina.
Within the lithium triangle, he adds, Bolivia has the toughest working conditions, while Chile has a more complex tariff regime and slower project approval process. Argentina’s national and provincial governments, by comparison, have streamlined their processes to attract business.
“Assets are readily available, and it’s easy to work there,” Mr Sidoo says.
The triangle’s lithium is located in brine and cheaper to extract than from hard rocks such as in Australia, another big source of the metal.
“If you can be the lowest-cost producer, you can know that you will still be in business even when prices are low,” says Tim Goldsmith, chief executive of Australia-based Rincon, another company involved in Argentine lithium. “And when you have high prices, you make very high returns.”
Still, there are problems. Argentina‘s north-west has more rain than in Chile, making the evaporation process slower for extracting lithium from the brine in large ponds built for the purpose. Given that the lithium industry is relatively new, there is also a shortage of the specialised talent to find the best areas of metal and drill them.
“You’ve got to have the right team, the sustaining power to raise capital, and you’ve got to have the right assets,” Mr Sidoo says.
For Emily Hersh, a lithium expert at US-based consultants DCDB Group, many potential schemes in Argentina “will never see the light of day” for lack of knowhow and funding. Circumstances, therefore, are expected to lead to consolidation of the best-equipped contenders in the market to take advantage of the metal’s potential.
“Lithium is very abundant but getting it out of the ground on an economic basis is very challenging,” says John Kanellitsas, executive vice-president of Canada’s Lithium Americas, which also has a project in Argentina.
His company has drawn talent from the energy and petrochemical industry, and from China’s Ganfeng Lithium, a project partner. “You have to look for global solutions,” he adds.
In the heartland provinces, a different story is unfolding. Global commodities companies such as Bunge, Cargill and Glencore poured billions of dollars into building huge plants to make biodiesel from soya, Argentina’s biggest crop and a leading export. Alongside the US and Brazil, Argentina is a top world soya producer.
The industry has grown exponentially since 2007, capturing the market as more countries put in place a required mix in diesel. Its installed capacity of 4.5m tonnes per year is enough to meet a good chunk of the annual demand in the US, estimated at about 6.5m tonnes in 2017 by the US Energy Information Administration.
The industry’s growth is not a surprise. Argentina is a low-cost producer of soya and derivatives, including biodiesel. It has fertile farmlands and the world’s third-largest oilseed crushing industry in the provinces of Buenos Aires, Cordoba, Entre Rios and Santa Fe, as well as river ports for export, says Claudio Molina, director of Argentina’s association of biofuels and hydrogen.
This keeps down costs and makes the biodiesel competitive in global markets, he adds.
Indeed, exports surged to a record 1.7m tonnes in 2017, from production of 2.9m, according to official data.
But the industry has suffered dramatic setbacks. In 2012, the European Commission launched investigations into the alleged dumping of biodiesel by Argentina, leading to increased import duties that pushed Argentine producers out of the market.
Argentina took legal action and finally won after four years, sustaining production in the meantime by exporting to the US, the world’s other big consumer of biodiesel.
But last year, the US imposed anti-dumping measures on Argentina amid arguments that subsidies were behind the low price of its biodiesel. This has triggered similar actions by the EU and Peru, which could bring Argentine imports to a halt this year.
“Argentina has lost all of its export markets for biodiesel,” says Gustavo Idígoras, president of the Argentine Chamber of the Vegetable Oil Industry, a trade group. He says the industry plans to take legal action against the anti-dumping measures but this could take years.
One option for Argentina’s now idle production capacity is to increase demand at home, such as by doubling the required blend in diesel to 20 per cent. In turn, that would double domestic consumption to about 2.2m tonnes, says Mr Idígoras.
Biodiesel can also be used at higher blends — even 100 per cent — in buses, trucks and farm tractors and as a power fuel, helping to reduce diesel imports and greenhouse gas emissions, he says, but that will not be enough to compensate for the trade losses.
To rekindle exports, he adds, the key is to negotiate trade deals with the EU and US, possibly by accepting shipment quotas or a reasonable duty.
“But in the meantime . . . we are in crisis.”