Hey, What's Big Oil Doing in That Electric Car?

Dig deep enough in a greentech field and you’ll often strike Big Oil. But fossil fuel behemoths have dipped their toes into algae fuels, solar panels, ethanol and other technologies that could help us kick the oil habit. In a new supply deal between ConocoPhillips and A123 Systems (whose batteries are slated to power upcoming plug-in vehicles from Fisker Automotive and Chrysler), Big Oil meets little lithium-ion.

A123 Systems, a Massachusetts-based upstart in an industry dominated by manufacturers in China, South Korea and Japan, has closed a deal to buy a key material for its lithium-ion cells and batteries from ConocoPhillips Specialty Products, according to a regulatory filing (h/t Cleantech Blog).

This isn’t the first link between the two companies. In April 2009, Conoco joined General Electric, CMEA, Qualcomm, Sequoia, MIT and others in a $69 million financing round for A123. A123 has since then launched a successful $378 million IPO. And recently, the battery maker invested $23 million in Fisker, striking a deal to supply battery systems for the Fisker Karma and collaborate with the startup on its next-gen vehicle.

Under the agreement disclosed in an SEC filing last week, ConocoPhillips will sell graphite powder to A123 at a set price through April 1, 2014. The oil refiner and energy giant markets this anode material (derived from petroleum coke) under its CPreme brand for use in high-power energy storage, including automotive, aerospace, power tool and utility grid management applications.

ConocoPhillips boasts on its website that vehicles from General Motors, BMW, Daimler, Volvo Trucks and Chrysler “likely will be powered by lithium-ion batteries that utilize” CPreme anode materials.

Lithium-ion batteries generate electricity through an electrochemical reaction in which a lithium ion moves between the battery cell’s anode (negative electrode) and cathode (positive electrode). In A123 batteries, the anode consists of “a graphite powder coated onto both sides of a copper foil and then bonded to the foil during baking,” according to documents that A123 has filed as part of the application process for federal funds.

Importantly for A123, Conoco produces its graphite in the U.S. A123’s expansion is being fueled in part by a $249 million Department of Energy grant, which the agency says is meant to “help build an American battery manufacturing infrastructure, with key equipment and materials suppliers in the United States.”

A123 has locked in to buy a minimum amount of graphite powder from ConocoPhillips for each of the next four years (the calendar years 2010-2013 ). If the company fails to buy the agreed-upon volume for a given year, it will have to pay Conoco for the difference, though that payment will count toward the next year’s purchases.

If A123 wants out of the deal, it has to give Conoco at least one year’s notice. Conoco, on the other hand, has to give A123 at least two years’ notice in order to terminate the supply agreement. According to A123’s filing, however, the deal cannot be killed before the end of 2014. By then, A123 expects to have enough capacity to supply batteries for a new generation of plug-in vehicles numbering in the tens of thousands and running on electricity, but probably still carrying a product from Big Oil.

Image courtesy of A123 Systems

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