Could The Arkansas Lithium Boom Be Over Before It Starts?

Last November, Exxon announced it had started drilling its first lithium well in Arkansas. At the time, an Exxon executive said, “Lithium is essential to the energy transition, and ExxonMobil has a leading role to play in paving the way for electrification.”

Exxon is not the only one seeking to capitalize on the estimated considerable lithium resources of Arkansas, a former oil region. The Biden administration is ready to provide generous financial support to build domestic supply chains for the transition. Yet it looks like the boom might be over before it even starts.

Last month, the prices for lithium carbonate and lithium hydroxide—the two most popular market forms of the metal—dipped below $10,000 per ton. This was the first time they were down to four-digit territory in three years, as demand for EVs slowed down in key markets, even declining quite substantially across Europe. For context, back in late 2022, lithium prices reached close to $80,000 per ton on expectations of explosive growth in EV sales.

That might be bad news for residents of the lithium-rich areas of Arkansas who are eagerly awaiting the jobs that the new critical mineral industry is supposed to create. Even environmentalists are not too unhappy with the potential mining boom because Exxon and other lithium mining hopefuls plan to use a much more sparing extraction technology than the one most commonly used.

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It is called direct lithium extraction and does not need huge evaporation ponds that have already given a bad name to lithium mining because of the amount of water –and chemicals – involved in the production process. That process involves injecting water into a lithium-rich aquifer, filtering the metal, and returning the water to the aquifer.

Of course, environmentalists are not perfectly happy with direct lithium extraction, either, because the filtering part cannot only focus on the lithium, meaning there is waste after the process, Grist said in a detailed report on lithium in Arkansas. It might be time, however, for environmentalists to acknowledge that there are no perfect solutions to the problems they define as existential—as recently demonstrated by trends in the EV space.

Last month, CNBC reported on the nascent lithium extraction industry in Arkansas, saying Exxon, Albemarle, and a company called Standard Lithium locked in a race to tap the state’s considerable lithium deposits. “This comes at a time when global demand for lithium, driven by electric vehicles and energy-storage needs, continues to grow,” the report said.

However, China is the only place where the demand for EVs is growing at any meaningful pace. The latest data from Rho Motion showed that EV sales in the biggest market for that industry gained an impressive 42% in August. The data, however, includes both battery electric vehicles and hybrids.

Another thing to note is that China increased the subsidy for EV purchases, while in much of Europe, governments are reducing subsidies for lack of money. This is reflected in sales, which in August dipped for the fourth month in a row, according to the European Auto Manufacturers’ Association. That dip, however, came against the background of an overall decline in car sales, as yet another reminder that the collective EU is not doing all too well. And this has implications for future EV demand.

Europe is one of the world’s key lithium markets thanks to its ambitious transition goals, which include a controversial plan to suspend sales of internal combustion engine cars from 2035. Yet, with falling EV sales already, including affordable Chinese models because of tariff policies, the outlook for this key region looks uncertain. That might well be part of why lithium prices are down—along with oversupply.

That oversupply is already prompting mine closures in Australia—the world’s largest miner of hard-rock lithium, per a recent BBC report. Last year, the report said, Australian lithium represented 52% of total global output. And that output kept growing while demand slackened off. As a result, prices are now 75% down from June 2023 levels, and at least three lithium facilities have been shut down.

Some are still optimistic, however. “What we’ve learned historically from lithium pricing is that it can change, and it can change rapidly,” Dale Henderson, managing director of Pilbara Minerals, a local lithium miner, told ABC News as quoted by the BBC. “It doesn’t faze us that much because we know the long-term outlook is fantastic.”

Indeed, the long-term outlook is fantastic—and that outlook is based on forecasts that increasingly lose their touchpoints with reality. A host of organizations insist that EV sales will pick up again, failing to acknowledge that the problems holding the EV revolution back are not the sort that can be solved in a fortnight. These problems, including lack of chargers, range issues, insurance costs, and lifetime costs, are fundamental and need solving before that fantastic long-term outlook for lithium is to materialize. Increasingly frequent reports of batteries catching fire are not helping, either.

By Irina Slav for Oilprice.com

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