There are a number of oil and gas majors putting a lot of time...

There are a number of oil and gas majors putting a lot of time and attention into how they can become big in lithium,” said Brian Menell, chief executive of TechMet, a mining investment fund backed by the US government.

TechMet has a stake in EnergySource Minerals, a lithium developer backed by oilfield services giant Schlumberger.

“It’s a natural evolution for oil companies. Lithium brines are an obvious one as unlike charging networks and wind farms, where they have no skills besides project management, they are skilled at subsurface pumping and fluids.”

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The potential push into lithium comes as producers from Exxon and Chevron in the US to Equinor and BP in Europe try to remain profitable amid a global effort to curb emissions and transition from fossil fuels to cleaner energy.

Oil majors’ drive into lithium would reassure car makers that rely on small, unproven miners to deliver the vast quantities of lithium needed to electrify their vehicles in the coming decade as Western countries ban sales of new petrol and diesel cars and as electric vehicle use soars in China.

Rise of brine

But the oil companies’ activity to date has been speculative, involving a small fraction of the capital spent on fossil fuel production each year and limited to buying rights to prospective lithium resources, taking minority stakes in lithium companies through venture arms and licensing extraction technology.

ExxonMobil recently paid more than $US100 million ($149.5 million) in cash to acquire oilfield brines containing lithium in the Smackover area of Arkansas, fending off interest from Schlumberger and Equinor, according to two sources.

Equinor took a stake in developer Lithium de France in 2021, while US shale producer Occidental jointly owns TerraLithium, a lithium technology group, and Chevron’s chief executive has also expressed interest in the battery metal.

Supply growth of lithium in recent years has been driven by the rise of Australian and Chinese hard-rock resources, which have added to Latin America’s brines that are the other key source of the battery metal.

However, brine’s future contribution – and the involvement of the oil majors – hinges on the commercial development of direct lithium extraction (DLE), a technology unproven at scale that selectively takes the silvery-white mineral out of salty mixtures using membranes, filters or beads.

At present, lithium found in the brine beneath salt-encrusted land, known as salar, in South America is extracted through evaporation ponds that in effect strip out every element besides lithium.

DLE does the opposite and Goldman Sachs says it is a “potentially game-changing technology” – lithium’s equivalent of fracking for oil. It would speed up lithium extraction from months to days, while average recovery rates of 60 to 80 per cent compared with 40 to 60 per cent for ponds could make lower concentration resources economically viable.

Success for DLE, which has been used in Argentina by Livent since 1998 and in a handful of projects in Qinghai, China, would open the possibility of oil majors extracting lithium from wastewater at oilfields and at geothermal energy projects that have brine on site.

Oil consultancy Enverus recently described the “potential multibillion [dollar] bonanza” awaiting DLE investors in the Permian Basin in Texas and New Mexico, which is already the world’s most prolific oilfield.

In one section alone, wastewater used in shale fracking could produce 225,000 tonnes of lithium carbonate a year, worth $US19 billion of revenue, Enverus calculated.

DLE projects are also under way in Nevada and Utah. In western Canada’s oil-rich Alberta, Imperial Oil, majority owned by Exxon, has joined a DLE venture with E3 Lithium.

Growing market

Investors in US lithium mining and processing would qualify for subsidies included in the Inflation Reduction Act passed last year. Canada has also allocated generous tax breaks to the nascent sector.

Despite the natural transfer of oil companies’ skills to such resources, the complexity of getting battery-grade materials approved by the car makers and the small size of the market might not make it worth the effort.

Even on optimistic growth and pricing assumptions, lithium could grow to $US150 billion a year by 2030 versus the current $US2.6 trillion oil market, according to Financial Times calculations.

With the exception of Rio Tinto, the small market size has even been a hurdle for mining majors making a big bet on the lithium sector. The potential market for the oil majors would be a slither of the total lithium market.

Ahmed Mehdi, an adviser at Benchmark Mineral Intelligence who consults oil and gas companies on their lithium strategies, said DLE’s contribution to lithium supply could grow from 10 per cent at present to 15 to 20 per cent by 2030.

Some industry insiders predict that the early-stage activities could pave the way for a bigger leap into significant production of the battery metal.

“There are a couple of companies looking to establish a much stronger foothold in the lithium space through M&A, greenfield projects or doubling down on the resources of produced water they do have,” said Eric Spomer, chief executive of ESM, which plans to supply Ford.

Oil companies’ interest goes beyond the brine produced as a byproduct of oil production. Equinor said it was “closely” following the technology and market developments for lithium extraction from geothermal brines, another renewable energy business that oil companies want to invest in.

Vulcan Energy Resources, backed by Peugeot owner Stellantis, is developing a geothermal lithium project in Germany’s Rhine Valley and is in talks with oil and gas companies to partner on the geothermal and DLE parts of the project.

“Whether it’s BP, Shell, Eni, Exxon or Equinor – they are all looking at it,” said Vulcan deputy chief executive Cris Moreno of the lithium sector.