Another OPEC? Indonesia hopes for battery metals cartel | CNN Business

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Indonesia produces more nickel than any other country. As demand for batteries to power the energy transition soars, this presents a huge opportunity, and the archipelago nation of 276 million is intent on taking advantage of it.

With the electric vehicle revolution driving up demand for key battery metals such as nickel, Indonesia has started lobbying for the creation of an OPEC-like group – but instead of governing the export of oil, it would unite the best miners, allowing them to align their policies.

The offer looks like a long shot. Canada, another major producer, said it would be “highly unlikely” to participate. The nickel market is also structured very differently from the crude oil market, with private companies rather than national companies that run the show.

“I’m not convinced it will lend itself as well to a producer cartel,” said Richard Bronze, an analyst at Energy Aspects, a research firm.

But Indonesia’s campaign is an indication of how the clean energy transition could reshape geopolitics, as countries with high-value nickel, cobalt and lithium reserves seek to leverage their access to commodities. base in demand.

“It’s a way they think they could be more relevant to the global energy market and geopolitics, and be part of this emerging energy economy,” said Jane Nakano, senior researcher specializing in energy security. and climate change at the Center for Strategic and International Studies.

In the 62 years since its inception, the Organization of the Petroleum Exporting Countries, better known as OPEC, has at times played a crucial role in shaping the global oil market, especially when its members Arabs banned exports to the United States and other countries. on their support for Israel in 1973. He drew the ire of the White House in October for deciding to cut production, a policy he reaffirmed in a closely watched meeting on Sunday.

But with global demand for fossil fuels set to peak, its political position is less certain, while countries with access to metals and minerals essential to the clean energy transition could increase their influence.

“The transition to clean energy means moving from a fuel-intensive system to a material-intensive system,” the International Energy Agency said in a 2021 report, noting that a typical electric vehicle requires six times more minerals than a conventional car. It predicts that electric vehicles and battery storage systems will be the main end consumers of nickel by 2040, supplanting the stainless steel industry.

Indonesia should benefit from this change. After banning nickel ore exports in 2020 – triggering a trade dispute with the European Union – it quickly developed its own downstream processing capacity with the help of foreign investors. The country now accounts for more than 38% of the world’s refined nickel supply, according to data from market intelligence firm CRU Group. Its share continues to increase.

The country “is expected to be the biggest source of growth in the coming years,” said Ewa Manthey, commodities strategist at ING. “Nickel production is increasing to meet growing demand from the electric vehicle battery industry. »

Indonesia left OPEC in 2009 and again in 2016 due to disagreements over production cuts. But government leaders are now arguing that a similar nickel cartel could be beneficial, strengthening coordination with other major producers. Russia accounts for nearly 20% of the world’s supply of battery-grade nickel, according to Manthey. Canada and Australia are also big players. The latter competes with Indonesia for the world’s largest nickel reserves.

By joining forces with other producers, Indonesia could, in theory, have more control over prices. Despite the promising demand outlook, nickel prices on the London Metal Exchange can be very volatile. After peaking earlier this year following the invasion of Ukraine – at one point forcing the LME to halt trading – they have fallen sharply. There is now an oversupply as the global economic outlook has darkened, leading to lower demand from stainless steel fabricators.

“If they can control supply a little better, they could inflate the price of nickel a little better,” said Alistair Ramsay, vice president of energy metals at Rystad Energy.

People who follow the nickel market are skeptical about the feasibility of such an arrangement. It’s partly because of the way the industry is organized. While supply is concentrated in a few countries, individual companies control production. This is different from oil production in countries like Saudi Arabia, Russia or the United Arab Emirates, for example, which is dominated by state-owned companies.

“We believe that Indonesia’s idea of ​​creating an OPEC-like group for battery metals such as nickel would be difficult to achieve because, unlike OPEC countries, the mining operations of major nickel producers are controlled by various private companies,” said Jason Sappor, a senior metals and mining analyst at S&P Global Commodity Insights.

Indonesia also has no political membership at the moment. A government source told Reuters that Canada is “highly unlikely” to join the effort.

Moreover, Nakano of the Center for Strategic and International Studies is not convinced that this would help Indonesia in the long run, as it could scare away foreign investors that the country is courting to develop its mining sector.

OPEC’s influence has gone up and down over the years. The emergence of the United States as a major producer of shale over the past decade has weakened its position. But the cartel has been back in the spotlight since the pandemic and Russia’s war in Ukraine rocked energy markets, magnifying the consequences of its sourcing decisions.

For countries taking the measure of the clean energy transition, this seems to present an attractive model. The Guardian newspaper has reported that Brazil, Indonesia and the Democratic Republic of Congo are considering creating an “OPEC for Rainforests” to govern conservation efforts. There has also been talk that South American countries such as Argentina, Bolivia and Chile could create a lithium association.

It remains to be seen whether these organizing efforts will yield results. But the proposals underscore how the hunt for resources that will fuel the shift away from fossil fuels is likely to create new political alliances.

This is especially true as competition for resources between the United States and China intensifies. But other countries that have direct access to battery metals and other important minerals also want a say.

“The metals market and its importance to the energy transition is something we are all waking up to and adapting to how it’s going to work in practice,” Bronze said.