China’s moves to restrict graphite exports are a concern for battery manufacturers worldwide. How serious is the threat?

Ed Crooks, Vice-Chair, Americas, Wood Mackenzie

This month marks 50 years since Arab members of OPEC imposed an embargo on oil sales to the US and other allies of Israel during the 1973 Yom Kippur War. The tactic was dubbed “the oil weapon”, and that weapon has been wielded at intervals, with varying degrees of effectiveness, ever since.

As the world begins its long transition away from oil, with a plateau in global demand coming into view, on Wood Mackenzie’s projections, in the early 2030s, there has been mounting speculation about whether other resources might create similar vulnerabilities for consuming countries. This month China raised concerns about the world’s reliance on a mineral that has until now not been discussed much, but is critical for electric vehicle batteries: graphite.

Starting from December 1, Chinese companies will need to obtain new permits to export graphite, a move that the government said was intended to protect national security. China has a large share of the global market for graphite and a near-total monopoly on one key form of it, so export restrictions could potentially have a significant impact.

However, the graphite market is far from an ideal tool for exerting strategic leverage. In a note giving an immediate reaction to China’s announcement, Wood Mackenzie analysts commented that they expected the new export licence system to cause only short-term disruption. “We do not envisage any substantial impact on battery output,” they wrote. “We judge a long-term curb or complete ban on graphite exports to be unlikely.”

Graphite is a good example for illustrating some of the wider issues about security and critical minerals in the energy transition. It would be foolhardy to say there is nothing to worry about: some short-term disruption is certainly possible. But it is usually also wrong to try to draw direct parallels with dependence on imported oil and gas.

The details of China’s graphite export controls do suggest an attempt to use the market to pursue broader strategic goals, possibly linked to US controls on semiconductor and IT exports. Graphite can have some directly military applications, in the nose cones of missiles, for example, but the new Chinese regulations cover both the specialised varieties used for armaments and the types used for largely civilian purposes, including batteries.

Lithium ion batteries can use a variety of materials — often including either nickel, manganese and cobalt, or iron and phosphate — for the cathode, and graphite or a graphite / silica matrix for the anode. Changing battery chemistries can limit reliance on materials that are in short supply. For some uses, including lower-performing EVs, lithium iron phosphate batteries have been taking a growing share of the market, curbing demand for cobalt and nickel. But for graphite there is no readily available alternative.

China has 70% of the world’s production capacity for raw graphite flakes, and more than 99% of global capacity for spherical graphite, a key intermediate material for batteries. Reserves of naturally occurring graphite are distributed quite widely around the world, but extraction and processing can lead to local pollution through run-off and dust, which has tended to limit operations outside China.

That means a drop-off in Chinese exports caused by the new licensing requirements can be expected to put upward pressure on prices. “If there were to be a complete halt to exports, battery producers would struggle,” says James Willoughby, Wood Mackenzie’s senior research analyst for graphite.

That complete halt seems unlikely, however. If China were to end all exports, over time alternatives could be found. China has only about 16% of the world’s natural graphite reserves, and given enough time, money and political will, production capacity could be built up in other countries.

Synthetic graphite, typically produced as a by-product from oil refining, is also an alternative source of supply. China’s share of global production last year was 56%, Wood Mackenzie estimates; still high, but also leaving some significant alternative sources, including Japan and the US.

The graphite used in batteries has to meet extremely demanding specifications, so it would not be possible for battery and EV manufacturers to replace Chinese supplies overnight. Testing and qualification times could be lengthy, and while that work was under way, “the electric vehicle market would be brought to a standstill,” Wood Mackenzie’s Willoughby says. But eventually those replacement supplies would come.

Just the suggestion of disruption to China’s exports because of the new regulations has already prompted buyers around the world to focus their attention on other potential sources of supply. If the threat materialises, those efforts will be redoubled. It is not in the interests of Chinese graphite producers to encourage their rivals in other countries by threatening an interruption of international sales, much less to actually implement one.

And of course, even if production of new EVs were to be held up while new sources of graphite were found, the vehicles that are already on the roads will be able to keep running indefinitely. The same could not be said of internal combustion engine vehicles if all sources of oil supply were cut off.

For all those reasons, a complete and lasting ban on graphite exports seems unlikely to serve China’s interests. The oil weapon is still very much with us today. The graphite weapon carries a much less potent threat.

Some better news for offshore wind

A week ago I wrote about how the offshore wind industry in the US was at a pivotal moment, following the decision by New York State’s Public Service Commission (PSC) not to allow additional funding for four large projects. Soon after that note was published, the state announced a package of renewable energy awards, including support for three more large offshore wind projects with total capacity of about 4 gigawatts.

The three projects that secured awards are Attentive Energy One, developed by TotalEnergies, Rise Light & Power and Corio Generation; Community Offshore Wind, developed by RWE Offshore Renewables and National Grid Ventures; and Excelsior Wind, developed by Vineyard Offshore, backed by Copenhagen Infrastructure Partners.

The weighted average strike price over the life of the contracts is US$96.72 per megawatt hour in real terms, or about US$145/MWh in nominal terms. That is higher than the US$140/MWh that Ørsted and Eversource had requested from the New York PSC as the new strike price for their project, Sunrise Wind, but less than the US$191/MWh that Equinor and BP had requested for their Empire Wind 1 and 2 and Beacon Wind projects.

New York State also this week launched an expedited process for agreeing new awards for offshore wind and other renewables. The New York State Energy Research and Development Authority is issuing two Requests for Information, one for offshore wind and one for land-based renewables, and the responses will inform “next steps to launch accelerated land-based and offshore wind procurements.”

Anne Reynolds, executive director of the Alliance for Clean Energy, said in a statement that the move sent “an excellent signal” to the industry that New York really was committed to an expedited and simplified solicitation process for wind and solar projects.

Søren Lassen, Wood Mackenzie’s head of global offshore wind energy research, highlighted another positive development for the industry last week: the European Commission’s European Wind Power Action Plan, intended to accelerate deployment through reforms including faster permitting, improved auction design, and better access to finance.

The moves showed that policy momentum around the world still supported growth in offshore wind, he said, adding: “The sector now needs to capitalise on this to drive investment decisions on both projects and supply chain facilities, to maximise the renewables buildout in the 2020s and 2030s and the jobs and green power that come with it.”

For more details, check out Søren’s analysis of the latest developments in the industry on Woodmac.com.

Signs of the slowdown in EV sales growth

Vehicle manufacturers have been warning about slower-than-expected sales of electric vehicles, and pushing back plans and goals for growth. General Motors dropped its target of building 400,000 EVs from 2022 to mid-2024, and has shelved its plan to work with Honda to develop smaller lower-cost electric cars.

Mary Barra, GM’s chief executive, said in her letter to shareholders that the company was “moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable.”

Ford reported a growing loss of US$1.3 billion in its electric vehicle division, blamed on “continued investment in next-generation EVs and challenging market dynamics.” The company said “many North America customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles, sharply compressing EV prices and profitability.” Ford is postponing about US$12 billion in planned investment in new EV manufacturing capacity.

LG Energy Solutions, the South Korean battery manufacturer warned that “EV demand next year could be lower than expectations.”

Hertz reported “higher incidents of damage” among rideshare drivers using its EVs. Diverting the electric cars away from rideshare drivers and into its leisure fleet created an oversupply, cutting its revenue per day. The company is now working on addressing those issues, stepping up provision of EVs for experienced rideshare drivers, who are generally enthusiastic about them, while in the leisure market “more accurately matching the fleet to demand”.

Hertz had previously targeted having 25% of its fleet as EVs by the end of 2024, up from 11% today. But Stephen Scherr, the company’s chief executive, told analysts on a call that “I'm not out to achieve a fixed percentage of our fleet being electric by date and time”.

Akio Toyoda, the chairman and former chief executive of Toyota, and current head of the Japan Automobile Manufacturers Association, who has been a long-standing sceptic about EVs, claimed vindication. “People are finally seeing reality,” he said. “There are many ways to climb the mountain that is achieving carbon neutrality.”

In brief

Eavor Technologies, a company with an innovative technology for geo-thermal energy that uses horizontal drilling, has raised US$182 million in financing from OMV, the Austrian energy group, and other investors including Microsoft’s Climate Innovation Fund. The company said the capital raising “confirms Eavor as the leader in scalable geothermal.” Unlike conventional geothermal energy, which generally relies on the availability of specific conditions in the sub-surface, Eavor’s closed-loop systems are intended to be deployable “virtually anywhere on earth”.

The UK government has said it will back a moratorium on deep-sea mining, reversing its previously supportive stance.

PETRONAS of Malaysia plans to invest US$1.6 billion in a green ammonia venture in India. The venture, called AM Green, is targeting production of 5 million tons per year of green ammonia, equivalent to I MTPA of green hydrogen, by 2030. Reaching that level would make it one of the world’s largest green ammonia producers. The partnership will set up production “across multiple locations in India”, and aims to begin exports to key OECD markets, including Germany, Japan and South Korea, in late 2025. AM Green says its electrolysers will run on “round-the-clock renewable energy” supplied via offtake agreements with reputable power producers.

KeyFacts Energy Industry Directory: Wood Mackenzie