Case Study 9 - Saudi Aramco's Investment in Lithium

Question 1

Price Determination (1.2.6)

How does “excess supply” explain the downturn in lithium prices, as per the case study?

Answer 1

• Excess supply: Occurs when quantity supplied > quantity demanded at current price.
• Case study example: Lithium prices fell due to oversupply, making it hard for Western firms to compete with China (Page 2: “brutal downturn in lithium prices”).

Question 2

Business Growth (3.1.2)

Why is Saudi Aramco diversifying into lithium production?

Answer 2

• Declining oil demand: Shift to renewables reduces long-term oil reliance (Page 5: “demand for oil… likely to decrease”).
• Rising lithium demand: Global EV growth drives lithium need (Page 1: “demand to surge sevenfold by 2040”).
• Diagram:
  
  • Leftward shift in oil’s AR/MR curves reduces supernormal profit

Question 3

Factors Influencing Growth (4.3.2)

What factors enable Saudi Arabia to grow its lithium industry?

Answer 3

• Energy competitiveness: Cheap energy for processing (Page 2: “energy competitiveness”).
• Infrastructure: Industrial cities and ports (Page 2).
• Global trends: EV adoption and IEA’s Net Zero scenario (Page 2: “sevenfold demand by 2040”).
• Case study data: Saudi lithium demand to grow 20-fold by 2030 (Page 1).

Question 4

Strategies for Growth (4.3.3)

What strategies is Saudi Arabia using to diversify its economy?

Answer 4

• Vertical integration: Partnering with Ma’aden to build lithium supply chains (Page 1: “joint project by 2027”).
• Leveraging expertise: Using oil industry’s chemical knowledge for lithium processing (Page 2: “chemical expertise”).
• Government support: State-backed investments to compete globally (Page 2: “financial muscle”).

Question 5

Price Determination (1.2.6)

How might Saudi Arabia’s entry affect lithium prices?

Answer 5

• Increased supply: Saudi production could worsen global oversupply, lowering prices further.
• Counteraction: High demand growth (Page 1: “20-fold domestic demand”) may stabilize prices long-term.
• Case study link: Current excess supply caused by China’s dominance (Page 1).

Question 6

Business Growth (3.1.2)

How does diversification reduce risk for Saudi Aramco?

Answer 6

Reduced oil dependency: Mitigates volatility in oil markets (Page 5: “falling demand for oil”).
New revenue streams: Lithium for EVs and renewables (Page 1: “110 gigawatts of renewable energy”).
Case study goal: Target 500,000 EV batteries by 2030 (Page 1).