Will China Controls on Graphite Exports Affect Energy Sector?

On October 20, China’s Ministry of Commerce (MOC) and the country’s General Administration of Customs issued an announcement on “optimizing and adjusting temporary export control measures for graphite items”, a statement on China’s MOC website, which was translated from Chinese, showed.

“In accordance with the relevant provisions of the Export Control Law of the People’s Republic of China, the Foreign Trade Law of the People's Republic of China, and the Customs Law of the People’s Republic of China, in order to safeguard national security and interests, and with the approval of the State Council, it was decided to impose restrictions on the Ministry of Commerce, the State Commission of Science, Technology and Industry for National Defense, and the Customs,” the translated statement noted.

What does this mean for energy markets? Well, when Rigzone asked Carole Nakhle, the CEO of consultancy Crystol Energy, if China’s controls on graphite exports will affect renewable energy operations, Nakhle highlighted that “graphite is an important component for electric vehicles’ battery”.

“A curb in the supply of the material originating from an important supplier that is China will increase its price and therefore the cost of production of batteries, particularly for non-Chinese producers,” Nakhle told Rigzone.

“However, it is that same price signal and the concern of customers about security of supply that will also encourage the development of alternatives supplies, which is desperately needed to support security of supply for the energy transition,” Nakhle added.

When asked if China’s controls on graphite exports will affect oil and gas operations, Nakhle highlighted that graphite is also used in oil and gas operations but noted that it is not as critical as for electric vehicles.

“The curb risks slowing down the global expansion of electric vehicles production (by increasing the cost and disrupting production) … [and] electric vehicles are an existential threat to oil demand,” Nakhle told Rigzone.

“But that would require the controls to remain in place for a long period and no alternative supplies are found,” the Crystol Energy CEO added.

According to the Energy Institute’s first, and the overall 72nd, statistical review of world energy, China was the biggest natural graphite producer in 2022 with 850,000 tons. The second largest natural graphite producer last year was Mozambique, with 163,000 tons, and the third biggest was Brazil, with 95,000 tons, the review showed.

Total natural graphite production was 1.391 million tons in 2022, according to the review, which highlighted that this was a 10.5 percent increase compared to 2021. China’s production grew 3.7 percent last year, while Mozambique’s grew 126.4 percent, and Brazil’s stayed flat, in comparison to 2021 figures, the review outlined.

Electric Vehicles Have Taken World by Storm

In a statement posted on Rystad Energy’s website on October 25, the company’s CEO, Jarand Rystad, said electric vehicles have taken the world by storm in recent years, “with Norway leading the way measured in new sales and market penetration”.

“About 90 percent of new cars sold in Norway are now EVs, and several other countries are following suit,” Rystad said in the statement.

“Moreover, electrifying road transportation is a pillar in many countries’ energy transition strategy, with policymakers around the world offering significant incentives to those who make the switch to electric vehicles,” he added.

“The world’s largest oil importer, China, which displays the largest difference between oil produced and oil consumed by a country, is lowering its dependence on oil imports via oil demand destruction thanks to the vast expansion of its electric vehicle fleet. The EU is showing a similar trend,” he continued.

In the statement, Rystad highlighted that the company forecasts that 14.5 million passenger electric vehicles will be sold globally in 2023, “accounting for a 19 percent market share of the total car market”.

“This would represent a 38 percent increase year on year,” he added.

“Does this mean the end of the ICE (internal combustion engine) age is just around the corner? Do we see empirical evidence of gasoline and diesel demand destruction as electric vehicle penetration increases? And are countries ready to introduce bans on the sale of new ICE vehicles from a certain year? The answer to all of those questions appears to be yes,” Rystad continued.

“However, as we approach the target year for banning ICE sales in some regions (2035 in the EU and 2025 in Norway), some countries are looking to opt out of their stated commitments,” he warned.

Rystad noted in the statement that the company is in no doubt that electric vehicle penetration will continue to soar.

“As with most other developments, regional and infrastructure considerations may cause the transition to be non-linear and interrupted, but the longer-term trend is clear,” he said.

“Electrification is growing and with that the proportion of electric vehicles is soaring in the road transportation market. The end of the ICE age is coming. In Rystad Energy, we believe that the world will manage to produce the critical metals, minerals and batteries required to make it happen,” he added.

To contact the author, email andreas.exarheas@rigzone.com