The world will need far less lithium to achieve its carbon reduction goals than thought just a year ago, but miners will still struggle to meet demand, according to modeling conducted in the International Energy Agency's World Energy Outlook for 2022.

The IEA said lithium demand will have to grow 26-fold by 2050, far less than the hundredfold increase predicted in 2021. The agency's scenario for net-zero emissions by 2050 shows lithium rising steepest among the minerals needed for decarbonization, with demand forecast to surge 26 times higher, the Paris-based agency said Oct. 27 in its 2022 World Energy Outlook.

Its 2021 outlook estimated a hundredfold increase in lithium demand to meet the 2050 target. However, IEA energy analyst Tae-Yoon Kim told S&P Global Commodity Insights that behavioral changes and battery size assumptions contributed to the sharp cut to the long-term lithium demand outlook.

"This year, we assumed that policies moderate consumers' preference on large cars/batteries, so the scale of increase in battery size is notably smaller than in [the 2021 World Energy Outlook]," Kim said. "This is the single-largest factor in downward revisions, which means that policies to moderate the increase in battery size can play a major role in curbing material requirements.

"Despite the downward revision, the scale of demand growth is still significant, and today's project pipeline looks insufficient to serve growing demand in the net-zero emissions by 2050 scenario."

While high costs, shipping issues, labor shortages and regulatory pressures are reducing miners' benefits from record lithium prices, the demand picture is also becoming blurred by complex supply chains for renewable energy and electric vehicles that rely on the raw material for rechargeable batteries.

Lithium supply lags battery capacity

"Announced capacity expansions and potential new projects would boost current production capacity by [3.5] times, but another tripling of current [lithium capacity] would be required to meet the level seen in the [net-zero emissions] scenario in 2030," the IEA's 2022 outlook said. The scenario requires reducing annual emissions to 23 gigatonnes by 2030 and becoming net-zero by 2050 to limit global warming by 1.5 degrees C.

"While some parts of the chain are moving ahead almost in line with the net-zero emissions scenario, others are lagging," the IEA report said. "For example, while almost 85% of the battery manufacturing capacity needed in the [net-zero emissions] scenario in 2030 is already in place or in the pipeline, the lithium supply chain faces a much bigger stretch."

The IEA also revised down its material intensity assumptions for lithium, Kim said. It now assumes a higher share of lithium iron-phosphate, which has a smaller material intensity than nickel-manganese-cobalt-based chemistries.

At 2021 prices, the IEA sees the value of the minerals used in clean energy technologies rising more than fivefold to about $400 billion by 2050 in both its "announced pledges" scenario and the net-zero emissions scenario, according to the report.

Forecasting global lithium demand five years out with certainty is difficult, let alone 28 years out, Argentina-focused lithium developer Lake Resources NL Executive Chairman Stuart Crow said in an interview.

"One thing is certain: We are already in a supply deficit, with exponential demand growth and linear-at-best supply growth that comes nowhere near that of growth in demand, creating a deficit [and] forcing higher prices of the raw materials," Crow said.

S&P Global Commodity Insights' Metals and Mining Research team sees the lithium carbonate 99.2% CIF Asia price hitting $41,318 per tonne by 2026, when the lithium chemicals deficit will be six times current levels.

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