Chile Moves to Nationalize Lithium Industry

Plus U.S. renewable and fossil fuel industries align on permitting reform, China increases investment in Middle East O&G, Poland's nuclear energy plans, and American-Chinese partnerships face pushback

Lithium brine pools of an SQM mine in Chile’s Atacama desert (Source: Reuters/Ivan Alvarado)

Key trends this week include the growing push by emerging economies to nationalize critical mineral industries, with Chile taking steps to require state-owned enterprise involvement in their lithium sector.  China has moved forward with investing in the upstream oil and gas space in the Middle East as part of a growing presence in the region, but is facing pushback on investments in the U.S. clean energy sector. As the push for next-generation nuclear power grows (except in Germany), Poland has signed an agreement for potential support from the U.S. to build a fleet of small modular reactors. And finally, issues with energy infrastructure permitting in the U.S. has led to a rare alliance between the fossil fuel and renewables industries to push for federal permitting reforms.

Chile Seeks to Nationalize Lithium Industry

DRIVING THE NEWS: Chilean President Gabriel Boric has released plans to partially nationalize the country’s lithium industry in the name of growing economic benefits and environmental protection.

• In a statement, the president said: “the state will participate in the whole [lithium] production cycle and create a National Lithium Company to do so”. He added separately, “This is the best chance we have at transitioning to a sustainable and developed economy… We can’t afford to waste it.” (Financial Times)

WHY IT MATTERS: Chile is the world’s second largest producer of lithium (after Australia), which would mean a major shake up to the global lithium supply chain if nationalization moves forward.

• While Chile is currently a leader in lithium production and reserves, strict environmental regulation and political uncertainty have made it difficult for companies to grow investment in the space.

• JPMorgan predicts that Chile’s share of the global lithium market will fall from 28% today to just 10% by 2030 under the current system.

Figure 1: Global lithium mine production by country, in metric tons (Source: Statista)

THE DETAILS: The plan calls for partial nationalization, wherein Chile would have majority state-owned partnerships with the private sector for exploration and production.

• The proposal would require negotiations with the two existing lithium miners operating in the country, SQM¹ (Chilean) and Albemarle (U.S.), to determine state participation in their current operations.

• State-owned copper company Codelco (the world’s largest copper producer) would be put in charge of creating the model for the new state-owned lithium company and for negotiations with SQM and Albemarle. (Foreign Policy)

NEXT STEPS: The proposal will need to go before the Chilean congress later this year in order to gain approval. President Boric lacks a majority in the current congress, and recently suffered defeat on a major tax reform bill. It is likely that major changes will be made to the proposal before making it to a congressional vote.

THE BROADER TREND: Chile is the latest in a series of mineral producing nations seeking to centralize more control over their industries. Last year Mexico nationalized its lithium industry (White & Case), and countries like Zimbabwe and Indonesia have put in place export controls for critical minerals.

• Amid increasing nationalization, there is also concern about the potential for OPEC-style supplier coordination. Governments of Chile, Bolivia, Argentina, Mexico, and Peru have at different times been in communication about coordination, but no progress has been made to date.

U.S. Renewable and Fossil Fuel Industries Coordinating on Permitting Reform

DRIVING THE NEWS: Many political and industry stakeholders are looking to the federal debt ceiling negotiations as a possible path to achieving much-needed permitting reform for the energy sector.

• With mutually aligned priorities for permitting reform, the renewables sector has been working more closely with the fossil fuel industry.

• “In the last several months all the key associations looked across the table and realized we were arguing for the same thing,” said Jason Grumet, head of the American Clean Power Association. This was echoed by Mike Somers, head of the American Petroleum Institute who said: “We want to make sure when the time comes for a deal, we are united in our goals.” (Financial Times)

• Gregory Wetstone, CEO of American Council on Renewable Energy, added: “I think there could be a middle ground, but there is a fundamental driver for this larger effort — it’s about climate change…. And so that’s going to mean that there are some elements that are going to be more complicated than others.”

WHY IT MATTERS: Permitting reform that streamlines the project approval process is a critical component of enabling the clean energy transition and realizing the full benefits of the Inflation Reduction Act. This is an interesting case of political alignment across both sides of the aisle in recognition of a system failure, which may pave the way for meaningful reform.

• As discussed in prior newsletters, although the U.S. has passed major spending bills for clean energy deployment, it risks falling behind Europe and other competitors in the energy transition and market leadership if it cannot actually deploy projects in a reasonable time frame.

THE CONTEXT: This latest push for permitting reform builds upon a growing recognition that the current U.S. permitting processes for energy infrastructure are creating a bottle neck for both renewable deployment and fossil fuel development.

• One of the main concerns is the 1970 NEPA law, which can lead to long review times and provides many pathways for litigation that can considerably slow or stop energy projects.

• Several proposals have been put forward from both Democrats and Republicans on this issue, though all have failed to pass the House and Senate. This includes two bills which failed last fall, House Republican’s H.R.1 (“Lower Energy Costs Act”), and H.R.277 (“REINS Act”). (E&E News)

NEXT STEPS: House Republicans are looking to roll passage of the failed “Lower Energy Costs Act” and “REINS Act” into their negotiations for the raising of the debt ceiling. Democrats are showing little willingness to negotiate on these particular proposals, but recognize that reform is needed whether it happens through the debt ceiling process or separately.

China Accelerates Investment in Middle East

DRIVING THE NEWS: Last Week China’s state owned Sinopec took in a 1.25% share of the $30 billion North Field LNG project, Phase I in Qatar. (Wall Street Journal)

• China became the world’s largest LNG importer in 2021 (a title it continues to trade back and forth with Japan), and has begun to focus on lessening its reliance on the U.S. and Australia as suppliers.

• The investment connects back to fall 2022 , when TotalEnergies, ExxonMobil, ConocoPhillips, ENI and Shell all invested in staked of this project to raise Qatar’s LNG export capacity.

• "Sinopec has become the first Asian shareholder of the project, which will be another model of bilateral cooperation between China and Qatar," Sinopec said. (S&P Global)

THE BROADER TREND: Sinopec’s recent stake in the Qatar LNG project is part of a broader trend of investment by China in upstream energy infrastructure and geopolitical influence in the Middle East.

• Last November China signed a 27 year, 4 million ton LNG purchase deal with QatarEnergy—the longest term contract QatarEnergy has signed to date.

THE GEOPOLITICS: The energy investments are being made in tandem with political engagement, including the China’s recently brokered agreement between Saudi Arabia and Iran last month, and its offer to be a mediator between Israel and Palestinians.

• China’s international relations approach of non-interference in domestic affairs of other countries likely offers an appealing alternative for many Middle Eastern states than the traditionally more involved U.S. approach.

WHY IT MATTERS: From an energy perspective, China’s increased involvement in the Middle East bring up two notable points:

• First, although China is a major importer of Middle Eastern energy (roughly half of Chinese crude oil comes from the region), Western oil and gas majors have continued to dominate in the region due to technology advances and long-standing relations with Middle Eastern governments. This dynamic, however, is starting to be challenged as China eyes more investment in the upstream space. The involvement also supports the buildup of Chinese industrial and technical capacity in upstream operations, which it can use to help develop LNG supply projects elsewhere in the world.

• Second, as mentioned in previous newsletters, China and other Asian countries are notably more willing to agree to long-term supply contracts with the Middle East than Europe. As Asian and European countries continue to look for more oil and gas supply in the near-term, the willingness to sign 20+ year contracts will surely provide a strategic advantage for China and other countries. QatarEnergy CEO Saad Al-Kaabi said that the company is: “prioritizing long-term strategic partners from China.” (Bloomberg)

U.S. to Help Poland Develop Nuclear SMRs

DRIVING THE NEWS: Last week the Polish energy company Orlen signed letters of interest with the U.S. Import-Export Bank (up to $3 billion, EXIM.gov) and the U.S. International Development Finance Corporation (up to $1 billion) for the Orlen Sythos Green Energy project.

• The agreement aims to develop roughly 20 BWRX-300 small modular reactors (SMR) designed by GE Hitachi Nuclear Energy, to launch in 2029.

• “We recognize the strategic importance of this project and are eager to receive ORLEN Synthos Green Energy’s application in order to begin due diligence on this potential opportunity,” said U.S. Export-Import Bank President and Chair Reta Jo Lewis. (Washington Post)

WHY IT MATTERS: The potential investment from the U.S. would play a major role in Poland’s energy transition, and–more broadly–solidify America’s position as a next-generation nuclear power provider to international partners².

• The agreement involved U.S. Ambassador Mark Brzezinski, and was quickly promoted by Polish Prime Minister Mateusz Morawiecki.

THE CONTEXT: Poland currently relies on domestically sourced coal for 70% of its energy use. With climate concerns and EU regulations aimed at phasing out coal, the country is looking for viable alternatives. Orlen CEO Daniel Obajtek said only nuclear can provide the security and clean energy requirements.

U.S. Citizens Express Concerns about Chinese Climate Tech

DRIVING THE NEWS: A growing trend of anti-China sentiment is fueling local and national backlash against U.S. clean energy projects that incorporate Chinese technology and companies. (Wall Street Journal)

• As one example, Gotion High-Tech Co., a Chinese-based company, is planning to invest $2.4 billion in a battery component manufacturing facility in Grand Rapids, MI. But the company has faced broad accusations that it will spread communism, among other things, which is now galvanizing opposition to the project. The company argues that they should be seen as a multinational company rather than just Chinese.

• This also relates back to Ford’s announcement to partner with Chinese CATL³ for manufacturing services and technology on a $3.5 billion battery manufacturing facility in in the Michigan. Ford has had to defend the decision, promising that no tax credits will go to CATL and explaining, “that no American company can deliver [the needed technology] at scale.”

WHY IT MATTERS: Chinese companies are the dominate players in much of the clean energy manufacturing space, and domestic opposition to partnerships and Chinese investment could slow the U.S. energy transition.

• Many of the concerns stem from possible connections to Beijing and the CCP, soft power issues of influence through investment, great power competition, etc. Projects that involve Chinese partners are now working to downplay their connections wherever possible.

• From a political perspective, this opposition could potentially lead to restrictions on Chinese involvement. Senator Marco Rubio last month introduced his Restricting Electric Vehicle Outlays from Kleptomaniac Enemies Act, which aims at preventing Chinese companies from reaping any tax benefits such as those in the Inflation Reduction Act. (Rubio.Senate.gov)

1. Note that SQM was originally a state-owned enterprise, and privatized in the 1980s under the Pinochet government. Chinese Tianqui Lithium acquired a 23.77% stake of SQM in 2018.

2. This connects in with the issue of Europe’s current dependence on Russian nuclear power, both for uranium supply and technology. Rosatom, Russia’s state-owned nuclear power company, plays a major role in the global nuclear supply chain (see briefing from March 13^th).

3. CATL is the world’s largest battery producer and has specific technical knowledge on certain technologies that Ford needs to scale its EV production.