The extraction and refining of battery metals like lithium and nickel are increasingly constrained by water availability, with production costs rising due to water stress in key mining regions. Lithium brine operations and nickel laterite processing are particularly water-intensive, requiring large volumes for extraction, leaching, and purification. As water scarcity grows in critical production zones, operators face higher costs for securing water rights, implementing treatment systems, and complying with stricter environmental regulations.
Lithium production from brine sources relies heavily on water for evaporation ponds and chemical processing. In Chile’s Atacama Desert, one of the world’s richest lithium reserves, mining operations compete with local communities and ecosystems for limited freshwater resources. The hyper-arid climate receives less than 15 millimeters of rainfall annually, forcing companies to either pump groundwater or desalinate seawater. Both options significantly increase operational costs. Groundwater extraction is tightly regulated due to concerns over aquifer depletion, while seawater desalination requires substantial energy input, adding to production expenses.
Similarly, nickel laterite processing, particularly in Indonesia, demands vast amounts of water for high-pressure acid leaching (HPAL) and hydrometallurgical refining. Indonesia’s tropical climate does not face absolute water scarcity, but seasonal droughts and competing agricultural needs create localized shortages. Discharging acidic wastewater also raises environmental risks, necessitating advanced treatment systems to prevent contamination. These measures add to capital and operating expenditures, with some estimates suggesting water-related costs can account for 10-15% of total nickel refining expenses.
Regional water stress factors vary but share common economic impacts. In Chile, lithium producers must invest in closed-loop water recycling systems to minimize freshwater withdrawals, while also paying premiums for desalinated water transported inland. The energy required for desalination alone can increase production costs by 5-8%. Meanwhile, in Indonesia, nickel refiners face stricter effluent standards, requiring investments in neutralization plants and sedimentation ponds. Non-compliance risks fines or operational shutdowns, further elevating financial risks.
Water rights acquisition has also become more contentious. In Chile, lithium companies must negotiate with local authorities and indigenous communities, often leading to higher fees or compensatory projects. In some cases, delays in securing permits have stalled expansion plans. Indonesia’s government enforces water usage quotas, compelling refiners to optimize consumption or seek alternative sources. Both scenarios introduce uncertainty into long-term cost projections.
Climate change exacerbates these challenges. Prolonged droughts in South America and shifting rainfall patterns in Southeast Asia threaten to further strain water supplies. Lithium operations in Argentina’s Salar de Hombre Muerto have already reported reduced brine concentrations due to declining groundwater levels. In the Philippines, another nickel-producing region, erratic monsoons disrupt steady water availability for refining. Such variability forces companies to incorporate costly adaptive measures, including larger storage capacity or diversified sourcing.
Technological solutions offer partial relief but come with trade-offs. Direct lithium extraction (DLE) methods promise to reduce water usage by eliminating evaporation ponds, but they remain energy-intensive and chemically complex. Nickel refiners are exploring dry stacking of tailings to cut water needs, yet this requires significant upfront investment. Neither approach fully eliminates dependence on water, meaning cost pressures will persist even with innovation.
The economic implications extend beyond individual operations. Higher water-related expenses contribute to rising lithium and nickel prices, influencing battery manufacturing costs. Producers in water-stressed regions may lose competitiveness compared to those in areas with abundant resources, reshaping global supply chains. Investors increasingly factor water risks into project evaluations, favoring jurisdictions with stable regulatory frameworks and reliable infrastructure.
Regulatory trends point toward stricter oversight. Chile’s proposed National Lithium Strategy emphasizes sustainable water management, potentially mandating further reductions in freshwater use. Indonesia’s nickel industry faces pressure to adopt cleaner technologies amid international scrutiny of its environmental record. Compliance with evolving standards will require continuous capital allocation, embedding water costs as a permanent feature of production economics.
In summary, water scarcity is becoming a critical cost driver in lithium and nickel production, with regional stressors dictating operational strategies. From the Atacama Desert to Indonesian laterite deposits, securing and treating water adds layers of expense that ripple through the battery supply chain. While technological and regulatory adaptations may mitigate some challenges, water-intensive processes will remain vulnerable to climatic and geopolitical uncertainties, sustaining upward pressure on production costs.