Could Arkansas’ Lithium Boom Be Over Before It Begins?

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

Exxon is not alone in seeking to exploit the considerable estimated lithium resources in Arkansas, a former oil region. The Biden administration is prepared to provide generous financial support to build domestic supply chains for the transition. However, it looks like the boom may be over before it even begins.

Last month, prices for lithium carbonate and lithium hydroxide — the metal’s two most popular market forms — fell below $10,000 a tonne. This was the first time they had dipped into four-digit territory in three years as electric vehicle demand slowed in key markets, even falling quite substantially across Europe. For context, at the end of 2022, lithium prices reached nearly $80,000 per ton, based on expectations of explosive growth in electric vehicle sales.

That could be bad news for residents of lithium-rich areas in Arkansas, who are looking forward to the jobs the new critical mineral industry is supposed to create. Even environmentalists aren’t too upset about the potential mining boom, as Exxon and other lithium mining hopefuls plan to use a much more economical extraction technology than the most commonly used one.

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It’s called direct lithium mining, and it doesn’t need the huge evaporation ponds that have already given lithium mining a bad name because of the amount of water – and chemicals – involved in the production process. This process involves injecting water into a lithium-rich aquifer, filtering out the metal, and returning the water to the aquifer.

Of course, environmentalists aren’t perfectly happy with direct lithium extraction either, because the filtration part can’t just focus on the lithium, meaning there’s waste after the process, Grist said in a detailed report on lithium in Arkansas. It may be time, however, for environmentalists to recognize that there are no perfect solutions to the problems they define as existential—as recent trends in the electric vehicle space have demonstrated.

Last month, CNBC reported on Arkansas’ nascent lithium mining industry, saying Exxon, Albemarle and a company called Standard Lithium were locked in a race to tap the state’s sizable 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 EV demand is growing at any significant rate. The latest data from Rho Motion showed that sales of electric vehicles in the largest market for that industry gained 42% in August. However, the data includes both battery electric vehicles and hybrids.

Another thing to note is that China has increased the subsidy for electric vehicle purchases, while in much of Europe governments are reducing subsidies due to lack of money. This is reflected in sales, which in August fell for the fourth consecutive month, according to the European Automobile Manufacturers Association. That drop, however, came amid a general decline in car sales, another reminder that the collective EU is not doing too well. And this has implications for future demand for electric vehicles.

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. However, with electric vehicle sales already falling, including affordable Chinese models due to tariff policies, the outlook for this key region looks uncertain. That could be part of the reason why lithium prices are down, along with oversupply.

This oversupply is already causing mine closures in Australia, the world’s largest hard rock lithium miner, according to a recent BBC report. Last year, the report said, Australian lithium accounted for 52% of total global production. And this production continued to rise while demand fell. As a result, prices are now down 75% from June 2023 levels and at least three lithium facilities have been shut down.

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

Indeed, the long-term outlook is fantastic – and this outlook is based on forecasts that increasingly lose touch with reality. A lot of organizations insist that EV sales will grow again, failing to recognize that the problems holding back the EV revolution aren’t the kind that can be solved in two weeks. These issues, including lack of chargers, range issues, insurance costs, and lifetime costs, are fundamental and must be resolved before this fantastic long-term outlook for lithium materializes. Increasingly frequent reports of battery fires aren’t helping either.

By Irina Slav for Oilprice.com

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