Why unconventional lithium resources shouldn’t divert focus of the market to address supply shortages

The need for more sustainable lithium production has thrust new resources into the limelight. This should not distract the market from ensuring conventional sources are as efficient and sustainable as possible

Key takeaways

  • There is not enough battery-grade lithium available globally to meet demand from projected electric vehicle (EV) sales
  • Unparalleled demand for lithium from EV sales has moved the market into a deficit and seen lithium prices soar
  • Greater demand for lithium sees new sources and projects come into focus, but these unconventional resources and novel recovery methods are struggling to reach commercial production and viability
  • The market should focus on increasing the efficiency and recovery at traditional sources in order to address supply shortages

Lithium supply gap

Lithium is an essential material in the transition to a low-carbon economy. However, for the remainder of this decade, there is not enough battery-grade lithium available to meet the exponential demand created by projected EV sales. Without addressing this deficit, EV sales will be suppressed, EV prices will remain higher than internal combustion engine (ICE) vehicle prices and EV manufacturers will be forced to compromise on range and performance.

In the most recent full year (2021), available lithium production reached 499 kt LCE. But unparalleled demand of 302 kt LCE from sales of EVs increased by +100%, moving the market into a deficit and contributing to the price of lithium increasing by +437% from the start of the year.

The green economy will create demand for new lithium sources. While these new projects would provide an opportunity to secure regional supply with shorter supply chains, in reality the use of unconventional resources and novel recovery methods will struggle to reach commercial production.

Unconventional resources run into ESG concerns – particularly in relation to water quality and quantity – as well as investment and yield challenges. This turns them from theoretically appealing to impractical. Substitute ‘unconventional’ for ‘low-grade’ and ‘novel’ for ‘risky’ and red flags begin to arise.

Fastmarkets is analyzing the different sources, including geothermal brines, oilfield brines and seawater, to give market participants a more usable view of the opportunities, risks and to understand what will come online in the next 10 years. This includes scrutinizing direct lithium extraction (DLE) technologies, associated ESG credentials and the likelihood of successful implementation.

While these innovations provide the potential for materially increasing lithium supply, their current upside potential is significantly limited and unlikely to be enough to address supply shortages. The market must remain focused on increasing efficiency and recovery at traditional sources supplemented by the advancing recycling infrastructure.

Current status quo not enough to meet demand

United States Geological Survey (USGS) puts global lithium reserves at 22 million tonnes, resources at 89 million tonnes. This is enough to last 68 years at 2030 forecast demand levels – in theory.

Leaders and policy makers often fail to grasp the challenges of producing more metal. A lack of upstream investment has resulted in producers being caught short and ill-equipped to deal with surging raw material demand, leading to astronomical price increases. Fastmarkets lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China, increased from 50,000 yuan/tonne to 512,500 yuan/tonne (+925%) between January 1st 2021 and March 10th 2022.

The slow restart of idled capacity hasn’t helped, with consumers underestimating the time taken for this capacity to ramp up.

It’s a similar story with brownfield expansions at existing producers, while greenfield projects have been hit by permitting delays and difficulty securing capital from traditional sources. We should therefore be prepared for supply to be lower than the market has generally projected, with lithium likely to bottleneck.

Direct lithium extraction – disruptive, defining or deluded?

Unconventional resources are considered necessary to offset the supply/demand deficit, while also promising higher recovery rates and better ESG credentials. Enter DLE. This is not a new technology. Livent has been using absorbent DLE technology for 26 years. However, all but the absorbent technology is in a precommercial stage. The commonality between all five is the promise to increase recovery, lower costs, reduce production times and improve the ESG footprint of lithium production compared to traditional methods.

DLE effectiveness and readiness KcKinsey chart

How these technologies will scale is yet to be seen. If successful, DLE has the potential to unlock 25 million tonnes LCE of unconventional resources, whilst simultaneously lowering the environmental footprint of traditional salar brine resources.

Geothermal and oilfield brines – promising but pricey

DLE technology is a necessity for geothermal and oilfield brines to be successful, as grades are too low to be economically viable and using the expedient and inexpensive method of solar evaporation will not be feasible.

Production from geothermal deposits could be the holy grail of sustainable lithium production, providing both clean geothermal energy and a source of lithium. Fastmarkets estimates put 168 ktpa LCE of geothermal capacity in the pipeline, with potential for a further 280 ktpa LCE from one project alone.

Oilfield brines are a by-product of oil and gas production and exploration, with wastewater potentially providing a lithium resource.

Lithium concentration in water ACS graphic

The technology to recover lithium is expensive. Controlled Thermal Resources’ first plant in the Salton Sea is estimated to cost just shy of $1 billion, a capital intensity of $50,000/tpa LCE, a much steeper price per ton of lithium than traditional hard rock ($4,478/tpa LCE) and salar brine ($12,608/tpa LCE) projects.

The real nail in the coffin could come from the underlying technology. Many feel the assumptions and estimates are unrealistic or over-optimistic at best, especially considering they are still at precommercial stage.

Seawater extraction – technically possible, but at what cost?

Our already strained oceans are estimated to hold some ~200 billion tonnes of lithium but in extremely low concentrations of 0.2 ppm or 0.0002%. Its presence is dwarfed by other ions, making it extremely challenging to economically extract.

The attraction – apart from the sheer quantity – is that seawater provides an evenly distributed global lithium source. This would increase supply security, reducing the current chokehold Australia and Chile have on production.

There is no economically viable method. And the ecological consequences could outweigh the benefits. In a similar vein to harvesting the seafloor for nickel, cobalt and manganese-rich nodules, the long-term impacts are still unknown, and the pushback from an increasingly eco-conscious society is too great for these projects to get off the ground.

Hard rock and salar brine to dominate production, for now

Producers’ focus should be on increasing recovery from traditional sources, where recovery rates are poor – typically 60-70% and 30-50% for hard rock and brine, respectively. Hard rock and salar brine operations will be the prevailing sources of lithium this decade, with DLE technology likely to have the most initial success in increasing recoveries and reducing the carbon footprint at traditional brine operations. Success here would bode well for its application at lower grade unconventional brine projects.

The success in bringing these unconventional resources to market will play a large factor in future price development. Our research indicates a sizeable amount of announced project capacity in the pipeline, with the potential to move the market balance towards surplus. Experience shows that only a small subset will come online, and we expect the market to remain tight and prices elevated for some time.

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See how the price of lithium carbonate 99.5% Li2CO3 min, battery grade, spot price range exw domestic China has changed recently when you click here.

Fastmarkets will continue to provide analysis of the various projects and extraction technologies, so market participants have a clear and practical understanding of what will come online in the next 10 years.

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