Oil scarcity leads us to electric cars which leads us to Neodymium scarcity

September 4, 3:49 PMGreen Transportation ExaminerDavid Herron

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Peak Neodymium? A recent Reuters article quotes Jack Lifton, an independent commodities consultant and strategic metals expert, as raising an alarm about the use of rare earth materials (like Neodymium) in hybrid and electric cars like the Prius. The article raises the specter of running out of these rare earth materials dooming the possibility of adoption of electric vehicles and other technologies such as high powered wind turbines. It may not be as dire as Mr. Lifton suggests, however.

Among the many reasons for adopting electric vehicles is the looming shortage of oil. The shortage is predicted by the peak oil theory which is based on observations over decades oil field operation. The peak oil theory says that when an oil field is approximately half full it becomes harder to extract the oil and the production on that field begins to decline. Averaging the observations over all the oil fields on this planet indicates the peak of oil production either has already occurred, or will occur within a few years.

Any nonrenewable resource existing in a fixed quantity will, with continuing use of that resource, obviously face exhaustion of the resource over time. Further it should become harder to extract the resource as the supply runs low. There will be a peak of coal production, a peak of uranium production, and so on. There are lots of resources we use to run our society which exist in a fixed quantity.

Neodymium and other rare earth materials are used in a wide range of electronics gizmos. Neodymium, terbium and dysprosium are key components of an alloy used to make the high-power, lightweight magnets for lightweight powerful electric motors. Lanthanum is a major ingredient for some batteries. Production of both electric vehicles and wind turbines is expected to rise due to the move to green technology.

It's possible to substitute other materials if there is indeed a shortage of these rare earth materials. Prabhakar Patil, CEO of battery-maker Compact Power suggests the car makers could switch to induction motors and other electronics choices that are not dependent on the rare earth materials. Worldwide demand for at least 15 rare earth materials is expected to exceed supply by 40,000 tons per year, according to a recent Reuters report.

There is a China angle to this story in that China largely controls the rare earth material industry. There are several deposits of rare earth materials around the world. However a few years ago most shut down due to China undercutting the prices. China mines more than 95 per cent of the world's rare earth minerals, which mostly come from Inner Mongolia and are a crucial component of numerous technologies. Recently some of the mines outside China began to go back into production. There is an obvious geopolitical danger for any one country (whether or not that country is China) to have tight control over a vital resource.

The Chinese government appears to be planning to tighten export of rare earth materials. Some have seen a draft report titled "Rare Earths Industry Development Plan in 2009-2015" which would limit exports and completely ban export of dysprosium, terbium, thulium, lutetium and yttrium. Recently the United States and the European Union jointly filed a suit with the WTO over China's restrictions on exports of precious metals, claiming their interests are hurt by the restrictive measures taken by China. On their part China says every country has the right to control the exploitation of its resources, and that's all they are doing.