Building the new order Entry 8

There has been a coup d’état in Niger. It is the issue of the “signing” of countries for each bloc, which I have talked a lot about and will discuss more in this entry. With this, and after other coups d’état, a corridor of countries related to the Chinese bloc has been formed in Africa, where Wagner/Russia has a very active presence during the last decade.

Kissinger (at 100 years old) has visited China, and has met with Xi Jinping (news here). They say it is an “informal” meeting, but I do not believe that Kissinger, with his age and experience, would get into such trouble without authorization from the White House, nor that Xi Jinping would allow himself to be handled by “private affairs”. Hopefully, this is a step forward in the search to create a new world order without reaching WWIII.

There is an evolution of the war. Ukraine has started to attack Moscow with drones (news here). It is a novelty, and seeks to scare the Russian population to put pressure on Putin.

Another development of the war is the Ukrainian attacks with marine drones on Russian ships and bases (news here). The result is the closure of the Black Sea for grain transport. That hurts many countries.

Putin has made a peace proposal at the Russian-African summit in St. Petersburg (news here). He makes it conditional on being allowed to keep the Donbas. It is not a very generous offer, but the road to dialogue can be started.

There has also been a summit in Saudi Arabia for peace in Ukraine in which many countries participated, including Ukraine, USA, EU, and China. Russia was absent. Nothing concrete has been approved, except the intention to meet again. Ukraine presented its 10-point proposal for peace, which envisages not giving up any of its territory (news here).

The two peace proposals are far apart from the agreement, but both countries are talking about peace and looking for allies.

Meanwhile, there is new news of corruption in Ukraine. It is not the best time to ask for international aid (news here).

*****

Some country will change bloc.

In the world of two blocs of countries that is taking shape, there are countries to which it is obvious which of the blocs they belong, except in the case of major and unexpected changes of circumstances. This is the case of the USA, China, the EU, Russia, …

On the other hand, there are many countries in which, although they might have a greater initial closeness to one of the blocs, it is not unthinkable that they might “sign up” for the opposite bloc.

These “transfers” can take place by means of a coup d’état, as in the case of Niger mentioned above, or by means of high-level diplomatic agreements that seek reciprocal utility.

A first “alignment” of blocs may be something similar to the outcome of the UN votes on the Russian invasion. Faced with it, the bloc leaders have to analyze the shortcomings in their bloc.

Each block may have shortages, for its proper functioning with a minimum interaction with the other block, due to demographic issues, as we have seen in the previous entry, but also for energy reasons, or raw materials, or sufficient food capacity, or the need for transportation routes.

Once the shortcomings of the bloc have been detected, a list of countries that could solve them should be made. Then, this list will have to be ordered according to the greatest feasibility of a change of bloc for these countries. And then, it will be necessary to decide what can be offered to these countries for their change. We will even consider convincing them by force (invasion or coup d’état).

Once the process of “signing” of countries has been completed, and the blocs have more or less guaranteed their capacity to be autonomous, we would be at the moment when the pacts can be signed to start the new world order (the new Breton Woods, and the new Yalta Conference). That is why I consider it very important to try to know how easy or difficult it may be to get there.

In this entry (and the following ones) I will try to find out the shortcomings of the blocs and identify the countries that could be “transfered”.

In any case, it may happen that there will end up being countries that are not so aligned. These would be the equidistant ones, capable of trading with the two blocs. The candidate countries for this “bloc” are those that have the raw materials necessary for the other two blocs.

Of course, I know I don’t have anywhere near the detail information to do the exercise accurately. But I think that the data resulting from the “aprox numbers” may be useful.

As I have already discussed demographics, I will continue the study with energy and its associated raw materials.

Energy: raw materials required.

The first thing I am saying here is that, now, I am looking at energy from the point of view of the availability of the raw materials needed to produce it and use it in each block of countries. I am not looking at it from price criteria, nor from efficiency, nor from environmental issues.

It should also be noted that energy is highly dependent on research. A technological breakthrough can greatly improve access to energy, and may require different raw materials. But even if that happens tomorrow (which will not be the case), it will take a long time, and large investments, to create the entire infrastructure for the use of this breakthrough on a large scale. In other words, we will have to live for a long time with the energies we use today. For this reason, I am not going to look here at the raw materials for these new energies (in addition to not knowing what raw materials they require).

Of course, I mention that it will be a big change the day that nuclear fusion energy, which is clean energy, is achieved on a large scale. And we are not that far away (news here). Also a milestone will be the issue of superconductors, which are being researched a lot. In this case, superconductors do not generate energy, but save all the energy losses in their transport, which are estimated at 30%, which would greatly change the needs.

In addition, regarding energy, I recommend rereading what I said in a previous entry (here), in the section “The transition to the new equilibrium”. And keep in mind that, in addition to the different technologies, the best energy is the one that is not necessary to spend because of the good design of things (insulation of buildings, for example).

The numbers that I will be making in this and following entries refer to current energy consumption. Given that, with much logic, someone can say that future energy consumption will be higher, both for greater world population, as well as for improvement in the quality of life of many. That is true, but I believe that these increases in consumption will be offset by optimizations due to technological advances (savings from having superconductors, better insulation of buildings, or more efficient energy production technologies). Therefore, I believe that these calculations may be valid for the “aprox number” I am looking for.

Having said the above, in terms of energy-relevant raw materials, the first general ideas are:

For fossil energies, of course, the raw materials are coal, gas, and oil.

For hydropower, there are no specific raw materials needed, except for river water in an area of slopes, and construction materials. Of course, the dam will have to be made with something, but it can be adapted to the availabilities (concrete, loose materials, …).

For fission nuclear power, the basic material is uranium.

For solar energy, it is silicon. Many other raw materials are needed, but they are relatively easily substitutable.

For wind energy, the special raw materials needed are fiberglass (in the blades), cobalt (in the turbines), and dysprosium and neodymium (in the turbine magnets).

For geothermal power, it is high quality steel, as well as some titanium and molybdenum (for corrosion resistance).

For electric car batteries, the main material is lithium, although others such as nickel and cobalt must also be considered.

For the hydrogen fuel cell, there are different ways to make them. The most conditioning material, for now, is platinum, along with graphite and lithium.

After these first considerations, I will try to see, in each case, what are the future possibilities of each type of energy, and which countries have the necessary mining resources. With this, we will be able to know the type of energy that some of the blocks should renounce (because they do not have mining possibilities), or the countries that should be “signed up”.

Since we have to start somewhere, and because it’s very fashionable, I’m going to start with the electric car.

Electric car – lithium.

Preliminary considerations.

The first thing to make very clear is that the lithium battery is not a source of energy. As its name suggests (battery), it is a place to “store” energy, specifically electrical energy. But that energy has had to be produced somewhere else, and with some energy source. Moreover, it has had to be stored where it was produced until someone demands it by plugging in their electric car (i.e., other batteries are needed in the electrical grid).

From the above it follows that, if the original energy source, with which electricity is produced to charge the battery, is oil, or gas, the result is that, even if all cars in the world are electric, … we continue to consume the same oil. We would even consume more than before, because there are losses in the conversion of oil to electricity, and in the transport through the electricity grid.

If, on the other hand, we make that original source of energy renewable, there will be no more CO2 pollution, but many new renewable energy infrastructures will be needed, which will consume a lot of raw materials in their production (I discuss this elsewhere in these entries).

From the above we can deduce a concept issue in the design of electric cars. It turns out that we would need fewer batteries if they were all standardized and of easily removable design, and what we did when we got to the “electric-station” was “change the batteries”.

That “electric-station” could be a place with solar, wind and geothermal energy where batteries would be continuously charging and, when we get there, they put a full one and we leave the empty one. Of course, this standardization is easier said than done, plus we would lose the convenience of charging the car at home.

Having clarified these very important issues of the original source of energy, and of double storage, let’s look at the raw materials involved.

Raw materials required.

With current technology, lithium batteries, in addition to lithium and many other materials in smaller proportions, also require nickel, cobalt and graphite.

Looking at the availability of these materials to convert all the cars in the world into electric cars, there is a pretty good study here. In that article, the author do the numbers (based on current technology, and today’s known deposits), and comes to the following conclusions:

To make all the cars in the world electric, there is enough lithium in the known deposits.

To make the necessary batteries on the grid, it is doubtful that it is possible if they are all lithium based. But there are other ways to store, then there would be a solution, although not easy or immediate.

In any case, since batteries have a useful life of about 10 years, there is no lithium in the world to repeat the process every 10 years. We had better learn how to recycle it (which is not impossible).

As for nickel, there are sufficient reserves in the world. However, it must be taken into account that nickel must also be used for other purposes. But batteries can also be designed by replacing nickel with another material.

It is worse for cobalt. There are not enough (known) reserves in the world to do so. But there is technology to make batteries without cobalt (Tesla is moving to lithium-iron-phosphate batteries, replacing nickel and cobalt).

At current mining rates, it would take 100 years to extract what is needed to make the total change. As this is unacceptable, these rates will have to be greatly accelerated, which means putting many more mines into operation, which entails large investments. And that with the associated technical and permitting difficulties, in addition to the pollution generated by mining.

As long as we do not achieve the change, with today’s known oil reserves we can still guarantee 46 years of supply (but not of avoiding CO2 emissions).

In other words, he concludes that it can be done, but we have difficults. We need to improve technologies, look for more reserves, accelerate mining extraction, and achieve recycling, in addition to putting in a lot of money.

Of course, I would like to clarify that these numbers are for cars. If we also talk about trucks, tractors, and other machinery (including mining machinery that needs to be accelerated), things get pretty messed up. But, if at least we have managed to stop cars from emitting CO2, something will improve.

Countries for mining

As I said at the beginning that I am trying to know how the current blocks of countries are to face these changes, let’s look at the countries where the main lithium and cobalt deposits are concentrated. I do not look at nickel, because there is more quantity and because it is substitutable. I do look at cobalt because there is little, and even if it is substitutable, it must be available until it is replaced by the technology.

It is not easy to know the current and future needs of each of the two blocs of countries, but it is diplomatic, and probably not very incorrect, to assume that each will need half of the total available.

Lithium:

In terms of current production, the following countries are key:

Australia produces 44 % of
Chile produces 34 % of
Argentina produces 13

As I said above, current production is almost irrelevant to future needs. That said, it is the one that gives immediate availability.

On the other hand, identified lithium reserves are summarized in the following chart.

This leads us to the fact that, if we consider the initial alignment of countries in each bloc according to the UN vote on Russia on February 23, 2023 (see my previous entry 12), the Western bloc would not find it difficult to access half of the resources, given that Australia, Chile and Argentina voted this way (evidently, also the USA). This is not the case of Bolivia, but the numbers come out without it.

Cobalt:

As can be seen here, the reserves in million tons are:

Democratic Republic of the Congo – 3.6

Australia – 1.4

Cuba – 0.5

Philippines – 0.26

Russia – 0.25

Canada – 0.22

Considering the alignment of country blocs in the UN vote, the Western bloc is clearly wrong, since neither Congo, Cuba nor Russia voted with the West.

There is no way to get access to half of the global cobalt without Congo’s support. Although it is not impossible to promote a change of allegiances, today Congo has them with China, so it has contracts that lead to China’s control of cobalt.

Source: Bloomberg

How China controls cobalt (along with other metals, is nicely seen in the following chart from VisualCapitalist….

In this situation, and given that technology exists to make lithium batteries without cobalt, it seems the best option (for the West) to go that way. Otherwise it would have to “buy” the loyalty of the Democratic Republic of Congo.

Result.

From the above, the result with respect to the electric car is that the West would have access to its targets without needing special “signings” of countries for its bloc. It is enough to maintain and encourage the loyalty of Australia, Chile and Argentina (for lithium), and to avoid the use of cobalt (or to seek pacts with the Congo).

However, despite belonging in theory to the Western bloc, these countries currently have strong trade agreements with China with respect to lithium, so it will be necessary to force the renegotiation of such agreements.

Moreover, the West should be careful not to lose its ability to trade and price these commodities. That is, the futures markets. The fact is that the success of the new Chinese stock exchange is recent news (news here).

*****

Readings that have interested me.

In the process of writing this entry I have come across many issues in other subjects that I would like to share:

There is a very interesting dynamic chart from VisualCapitalist (here). It compares the GDP of the G7 countries with that of the BRICS countries from 1992 to 2028. The result is that, from 2020, that of the BRICS is higher. So, the West had better realize that its power is no longer what it used to be.

VisualCapitalist also provides another graph of GDP projections by country. It is interesting to see how the positions change over time. It can be seen here.

Because of the sanctions, Russian oil brokering has moved from Geneva to Dubai (news here). In other words, Russian trade has not been eliminated, the West has simply lost power in its negotiation.

Another American bank has fallen. It is small, but it is clear that the risk continues (news here).

Ray Dalio is back to writing. It is always a pleasure to read him. In this case he is very concerned about the stability of the dollar and central banks. It is because of the loss of value of bonds following inflation. It can be seen here. He talks about how there has been a transfer of value from public to private. That today the private sector is doing well, and the public sector is doing very poorly.

That’s as far as I go for today. In the next entry I think I will address the issue of solar energy.

As always, I welcome comments on my email: pgonzalez@ie3.org