London CNN Business —
Indonesia produces more nickel than any other country. As the demand for batteries for the energy transition surges, it represents a huge opportunity and the archipelago of 276 million people intends to capitalize on it.
With the electric vehicle revolution driving demand for key battery metals like nickel, Indonesia lobbying started for creating an OPEC-like group – but instead of regulating oil exports, it would unite the best miners and allow them to do so adjust their policies.
The offer looks like a long shot. Canada, another top producer, said it was “very unlikely” to attend. The nickel market is also structured very differently from the crude oil market, with more private companies than national companies running the show.
“I’m not convinced it’s going to be that amenable 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 sitting on high-grade nickel, cobalt and lithium reserves seek to leverage their access to sought-after commodities.
“By doing so, they believe they could be more relevant to the global energy market and geopolitics and be part of this emerging energy economy,” said Jane Nakano, senior fellow 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 pivotal role in shaping the global oil market, particularly when its Arab members banned exports to the United States and other countries over their support for Israel in the 1973. It drew the wrath of the White House in October for its decision to cut production, a policy it reiterated at a closely watched meeting Sunday.
However, with global demand for fossil fuels set to peak, their political standing is less certain – while nations with access to metals and minerals essential to the clean energy transition could increase their influence.
“The transition to clean energy means a shift from a fuel-intensive to a material-intensive system,” said the International Energy Agency in a report released in 2021, 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 largest end users of nickel by 2040, displacing the stainless steel industry.
Indonesia will benefit from this shift. After blocking exports of nickel ore in 2020 – sparking a trade dispute with the European Union – it quickly built 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 research firm CRU Group. Your share keeps increasing.
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 rapidly to meet growing demand from the battery sector for electric vehicles.”
Indonesia withdrew from OPEC in 2009 and again in 2016 due to disagreements over production cuts. But government leaders are now arguing that a similar cartel could be beneficial for nickel, encouraging coordination with other top producers. According to Manthey, Russia accounts for almost 20% of the world’s supply of the grade of nickel needed for batteries. Canada and Australia are also big players. The latter competes with Indonesia for the world’s largest nickel reserves.
By working with other producers, Indonesia could theoretically have more influence on prices. Despite promising demand prospects, nickel prices on the London Metal Exchange can be very volatile. After spiking earlier this year following the invasion of Ukraine – at a point where the LME was forced to halt trading – they fell sharply. There is now oversupply as the global economic outlook has deteriorated and demand from stainless steel producers has fallen.
“If they can control supply a little better, they could push the price of nickel up a little more,” said Alistair Ramsay, Rystad Energy’s vice president of energy metals.
People who follow the nickel market are skeptical that such an arrangement is viable. That’s partly because of how the industry is set up. 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, which is dominated by state-owned companies.
“We believe Indonesia’s idea of creating an OPEC-style group for battery metals such as nickel would be difficult to achieve because, unlike the OPEC nations, the mining operations of the major nickel producers are controlled by various private companies,” Jason Sappor said , a Senior Metals and Mining Analyst at S&P Global Commodity Insights.
Indonesia also has no political buy-in at the moment. A government source told Portal that it was “very unlikely” that Canada would join the effort.
Also, Nakano of the Center for Strategic and International Studies isn’t convinced it would end up helping Indonesia, as it could scare foreign investors the country is vying for to develop its mining sector.
OPEC’s influence has waxed and waned over the years. The rise of the United States as a major shale producer 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 rattled energy markets and amplified the fallout of its supply decisions.
For countries assessing the clean energy transition, this seems an enticing model. The Guardian newspaper has reported that Brazil, Indonesia and the Democratic Republic of the Congo are trying to set up an “OPEC for rainforests” to oversee conservation efforts. There was also talk that South American countries such as Argentina, Bolivia and Chile could form a lithium association.
It remains to be seen whether such organizational efforts will bring results. But the proposals underscore how the resource hunt that will drive 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 to have 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 will work in practice,” Bronze said.