In a sudden move, Portugal's long-serving Prime Minister Antonio Costa announced his resignation, a decision directly linked to allegations of corruption involving the granting of lithium mining exploration licenses and green hydrogen production concessions. Prior to this announcement, Portuguese police had conducted searches at Costa's residence and the Ministry of Environment and Infrastructure.
The Portuguese Prosecutor's Office disclosed that Costa's chief of staff, Vítor Escária, the mayor of Sines, Nuno Mascarenhas, and Costa's personal adviser, Diogo Lacerda Machado, were among those arrested. While expressing shock at the corruption and denying involvement, Costa, who has not been named as a suspect, declared through a televised address that he would resign immediately and not seek re-election as prime minister.
Portugal's New Energy Dream at Risk
The alleged corruption involves projects critical to Portugal's energy strategy, including the issuance of exploration licenses for lithium mines in Barroso and Monatelgre in the north, and significant investments in a hydrogen production plant and data center in Sines in the south. It is known that the suspects handled contract-related processes in Costa's name, but whether Costa was aware or involved in passive corruption or influence peddling remains to be determined by the country's Supreme Court.
These projects have shaken the Portuguese political landscape due to the increasingly important role of new energy industries, such as lithium and hydrogen, in Portugal's economy.
According to the U.S. Geological Survey, Portugal has the largest lithium reserves in Europe and the eighth-largest globally, with at least 60,000 tons confirmed. Portugal has already begun small-scale lithium mining and is currently the leading lithium producer in Europe.
With the EU's strategy to diversify its critical raw materials supply, lithium has become a focal point. The EU has introduced legislation such as the Critical Raw Materials Act and the EU Battery Directive, aiming to limit the annual consumption of strategic materials from a single third country to no more than 65% of the EU's annual consumption. Currently, about 60% of the EU's lithium processing comes from China.
The EU is actively supporting strategic projects involving critical materials. The Barroso lithium mine, at the center of the current storm, is the largest and most advanced of such projects in Portugal.
Since the British mining company Savannah took over the Barroso lithium mine in 2017, the project has been considered one of the most important lithium projects in Western Europe. Dale Ferguson, the former CEO of Savannah, had stated that the project could produce 25,000 tons of lithium hydroxide annually, enough to supply batteries for 500,000 electric vehicles. Additionally, the Barroso lithium mine is only 145 kilometers from Porto, Portugal's second-largest city and port, offering logistical advantages over lithium mines in Chile and Canada.
The Montalegre lithium mine in northern Portugal, with exploration and mining rights held by the Portuguese company Lusorecursos, plans to invest 650 million euros to establish a production base capable of producing 15 to 30 million tons of lithium hydroxide annually.
In support of the two major lithium mines, Portuguese energy giant Galp Energia, in partnership with Swedish battery manufacturer Northvolt, plans to invest 700 million euros to build Europe's largest integrated lithium conversion plant in Sines in the south of Portugal, with an expected annual output of 35,000 tons of battery-grade lithium hydroxide, sufficient for the batteries of 700,000 electric vehicles.
Sines is also the location of another project implicated in the corruption scandal - a green hydrogen production base.
Similar to its natural endowment of the largest lithium reserves in Europe, the Iberian Peninsula's abundant sunlight gives Spain and Portugal a unique advantage in the hydrogen energy field.
Hydrogen can be categorized by the source of electricity used for electrolysis, resulting in green hydrogen from renewable sources, blue hydrogen from steam methane reforming of natural gas, yellow hydrogen from nuclear power, and grey hydrogen from fossil fuel-generated electricity. The EU's European Hydrogen Strategy, announced in 2020, prioritizes green hydrogen as a key project.
Given that hydrogen can theoretically be transported through existing natural gas pipelines, Spain and Portugal, already integrated into the European natural gas pipeline network, have an advantage over North African countries with better sunlight conditions. Consequently, Spain, Portugal, and France established the H2Med project at the end of 2022 to connect their hydrogen networks and lay the groundwork for a future pan-Mediterranean pipeline network.
One of the project's initiating companies, Spanish Enagás, estimates that by 2030, H2Med could transport 2 million tons of hydrogen annually from the Iberian Peninsula to other European countries. Germany, the largest consumer of hydrogen, has agreed to accept all the hydrogen for its manufacturing industry. By 2030, Germany is expected to consume up to 130 terawatt-hours of hydrogen, with 50% to 70% needing to be imported, which H2Med could cover entirely.
As the core of Portugal's future hydrogen manufacturing base, the Sines production base cluster has attracted three groups of investors planning to establish three hydrogen facilities, including a 1 billion euro investment by Canadian renewable energy company NeoGreen and Portuguese developer Frequent Summer, another 1 billion euro investment by the Copenhagen Infrastructure Fund, Portuguese developer Madoqua Renewables, and Dutch consultancy Power2X, as well as additional investment by wind power giant Vestas and Portuguese energy giant Galp.
The three investment plans correspond to two 500-megawatt and one 100-megawatt electrolyzers, producing at least 100,000 tons of hydrogen annually. Considering Portugal's hydrogen strategy aims to build at least 1 gigawatt of green hydrogen production facilities by 2030, the Sines production base cluster alone would contribute more than 110% of the country's hydrogen production target.
The Political Future of Portugal
Portugal's ambitions in lithium and hydrogen energy are not without challenges. The mining of the two northern lithium mines, in particular, has been difficult.
Although the Portuguese Environment Agency (APA) has conditionally approved the two projects, this has not quelled the strong resistance from environmental organizations and local residents. For instance, the local administrative head of Barroso, Fernando Queiroga, has expressed concerns that the region would be destroyed if lithium mining were approved. Queiroga fears that mining would severely impact the local livestock and honey industries and that the ecological effects would be irreversible once the lithium is depleted in ten years.
With lithium mining being controversial, both the current and former Portuguese Ministers of the Environment, Duarte Cordeiro and João Pedro Matos Fernandes, are under close scrutiny by oversight bodies. However, there is no concrete evidence yet of the Environment Ministry pressuring the APA to greenlight the projects.
The Sines hydrogen energy base, on the other hand, is suspected of being fast-tracked by the Portuguese government, which established a consortium composed of French electric utility EDF and Portuguese energy giant Galp. The consortium eventually disbanded due to allegations of financial fraud involving the two companies.
Although Costa's resignation is unlikely to diminish Portugal's focus on the new energy sector, it does not rule out the possibility of the northern lithium mines' exploration permits being temporarily frozen and the investment in the Sines base evaporating. However, given that the village near the Barroso lithium mine has only 100 residents and the investment in the Sines base is more diversified, the probability of the entire project series collapsing is not significant.
Costa's resignation has a more significant impact on the political level.
Since taking office in 2015, Costa and his Socialist Party have dominated Portuguese politics. Although the Socialist Party still controls the absolute majority of seats in parliament, and Portuguese President Marcelo Rebelo de Sousa could theoretically ask Costa to continue as caretaker prime minister or directly select a successor within the party, the reality is that many members of Costa's cabinet and staff have been caught up in the corruption scandal, making it difficult for de Sousa to find a qualified successor.
If de Sousa is forced to dissolve parliament and call for early elections, the largest opposition party, the right-wing Social Democratic Party, is likely to win.
Unlike Costa, who led Portugal out of an economic crisis and turned it into a European economic hotspot, the Social Democratic Party and its leader, Luís Montenegro, have significantly different economic policies from the Costa government. The party has been striving to escape the pressure of maintaining the fiscal austerity policies imposed by the EU.
According to a survey by the Portuguese news agency Lusa aimed at economists, Portugal's economy is expected to grow between 1.7% and 2.4% year-over-year in the third quarter, outperforming core European economies like France and Germany. As for the once-criticized debt issue, Portugal's debt-to-GDP ratio is expected to fall from a peak of 134.9% to 106% by the end of this year.
