In recent years, China has emerged as the dominant player in the production of nickel, a critical mineral used in electric car batteries.
This shift in power has significant implications for the global energy transition and poses challenges for the India and the United States’ efforts to reduce their dependence on China.
Indonesia, with its vast deposits of nickel ore, has become the world’s largest source of the mineral for electric vehicle (EV) batteries. Just five years ago, there were no industrial plants in the country processing nickel ore for this purpose. So, what changed?
Chinese companies played a crucial role in this transformation by taming a once-unwieldy refining process. They developed a method called high pressure acid leach (HPAL) that made Indonesia’s nickel deposits viable for the nickel-hungry EV industry. This breakthrough allowed China to establish dominance over the world’s largest source of nickel.
China’s success in unlocking Indonesia’s nickel resources gives it a competitive advantage in securing critical minerals for the global energy transition. It also deals a blow to US efforts to diversify energy supply chains and reduce dependence on China. The Biden administration has been actively pushing for supply chain diversification, but China’s control over nickel poses challenges to these efforts.
Chinese companies have set up several EV-focused processing plants in Indonesia in recent years, and more are on the way.
Some of these projects involve partnerships with international companies like Ford Motor and South Korean steel giant Posco Holdings, but ultimately, Chinese companies are at the forefront.
Indonesia’s rise as a major supplier of nickel for EV batteries is impressive. In 2017, it was a marginal supplier, but by 2022, it accounted for about half of the global supply, according to CRU, a London-based commodities business-intelligence firm.
The geological history of Indonesia has contributed to its nickel abundance. Millions of years ago, tectonic plate collisions brought up the mineral-rich ocean floor, resulting in the nickel deposits found in the country today.
However, Indonesia’s variety of nickel ore, known as laterite, was considered challenging to process for use in EVs and was mainly refined for stainless steel production in the past.
Chinese companies changed the game by successfully applying the HPAL method. While HPAL had been around for decades, it had a reputation for being troublesome and costly due to the extreme heat and pressure involved, often resulting in equipment damage and laborious repairs. Previous HPAL projects in other countries faced significant delays and cost overruns, and global players have stayed away from it.
However, a Chinese-run plant in Papua New Guinea paved the way for success. China ENFI Engineering, the plant’s designer, and its production partners made gradual improvements and fixes to stabilize the facility. Although the changes were incremental, they provided a blueprint for running such plants without major breakdowns.
Chinese companies replicated this model, even bringing experienced technical support staff from the Papua New Guinea site to Indonesia.
The Chinese ability to transfer skills and knowledge played a pivotal role in this process. Companies like China’s Lygend Resources and Technology joined forces with Indonesian mining companies to build Indonesia’s first HPAL plant for EV materials. Collaboration with ENFI, the designer of the successful Papua New Guinea facility, contributed to their achievements.
Chinese-led ventures quickly followed suit, despite initial concerns about HPAL’s track record. The projects progressed rapidly, with the usual development phases taking place in record time.
According to analysts, China demonstrated its ability to execute HPAL projects quicker and at a lower cost compared to the West.
While China’s dominance in nickel production benefits Western automakers by ensuring a steady supply of the mineral, it also introduces potential complications in an increasingly contentious geopolitical environment.
Environmental analysts have raised concerns about the carbon-intensive and waste-intensive nature of HPAL facilities. Such facilities produce substantial waste that poses challenges for safe storage, particularly in countries like Indonesia prone to heavy rainfall and earthquakes. In 2019, untreated solution from the Papua New Guinea plant contaminated nearby waters.
Harita Group, an Indonesian company involved in the HPAL process, claims to store its waste safely on land, and the Indonesian government asserts that HPAL waste is not allowed to be deposited in the ocean.