From Black Gold to White Metal: Oil Giants Bet Big on Lithium

 

The entry of oil giants into the lithium market signifies a strategic pivot towards securing a role in the future energy landscape, aligning with the global transition to renewable energy sources and electric vehicles.

The landscape of global energy is undergoing a seismic shift as the world pivots towards renewable energy sources and electric vehicles (EVs). In this context, big oil companies, traditionally synonymous with crude oil extraction, are increasingly investing in lithium, a critical component for EV batteries. This trend underscores a strategic realignment as these companies seek to leverage their existing expertise in resource extraction and secure a foothold in the burgeoning clean energy market.

On June 25, 2024, ExxonMobil announced a preliminary agreement to supply lithium to SK On, a South Korean manufacturer of lithium-ion batteries destined for electric Ford and Hyundai vehicles. This follows ExxonMobil’s drilling of its first lithium well in Arkansas in November 2023. Dan Holton, in charge of ExxonMobil’s low-carbon investments, revealed that a substantial portion of the company's $20 billion low-carbon budget between 2022 and 2027 is earmarked for lithium projects. By 2030, ExxonMobil aims to produce enough lithium to power one million EVs annually. This shift aligns with CEO Darren Woods’s vision of lithium as a “high-return” opportunity.

Similarly, other oil giants are making significant strides in the lithium sector. Occidental Petroleum formed a joint venture with BHE Renewables, a subsidiary of the $900 billion conglomerate Berkshire Hathaway, in June 2024. Equinor, Norway’s state-owned oil firm, partnered with American miner Standard Lithium in May 2024. Even Saudi Aramco and the Abu Dhabi National Oil Company (ADNOC) are exploring lithium opportunities, highlighting a broad industry trend.

The move into lithium mining is not as radical a departure for oil companies as it might first appear. The extraction of lithium often involves tapping into saltwater brine, a process that requires careful mapping of underground reservoirs and precision drilling—skills that oil companies have honed over decades. These techniques are integral to the oil industry, where brine is a common byproduct of crude extraction.

Moreover, the regulatory landscape for lithium extraction is more akin to that for oil and gas, rather than the complex permitting required for solar and wind projects. This familiarity with the permitting process provides oil companies with a competitive edge in navigating the bureaucratic hurdles of new ventures.

Big oil firms are betting on technological advancements to enhance the efficiency and sustainability of lithium extraction. Traditional lithium extraction from brine involves large evaporation ponds, which are land and water-intensive and can take up to 18 months to yield lithium. In contrast, ExxonMobil, Occidental, and Equinor are investing in innovative technologies that use physical membranes or chemical solvents to extract lithium ions directly from brine. This method is less land and water-intensive and significantly faster, potentially reducing the environmental impact and operational costs.

Goldman Sachs predicts that these innovations could revolutionize lithium extraction, much like fracking transformed the oil industry. While brine constitutes nearly two-thirds of the world’s known lithium resources, it currently accounts for only 40% of production. Improved extraction technologies could unlock substantial new supplies of lithium, meeting the soaring demand driven by the global transition to EVs.

One of the key advantages that oil companies bring to the lithium sector is their robust financial health and capacity for capital-intensive investments. Unlike big mining firms, whose shareholders currently prioritize cash returns over reinvestment, oil companies have the balance sheets to support significant upfront costs associated with new technologies and projects.

For example, Rio Tinto’s $825 million purchase of a lithium project in Argentina in 2022 saw exploration and evaluation spending double within a year, reflecting the high financial risks involved. In contrast, oil companies like ExxonMobil and Occidental have the financial resilience to absorb such costs and continue investing in long-term projects.

ExxonMobil’s current foray into lithium is not its first venture into alternative energy technologies. Following the Arab oil embargo of 1973, Exxon experimented with battery technology, employing researchers like Stanley Whittingham, who later won the Nobel Prize in Chemistry in 2019 for his work on lithium-ion batteries. However, Exxon abandoned this research by the mid-1980s, focusing instead on its core oil business. This historical context raises questions about the long-term commitment of oil companies to the lithium sector.

However, the current global emphasis on sustainability and reducing carbon emissions provides a stronger incentive for oil companies to diversify their portfolios. The integration of lithium into their operations represents not only a strategic response to market demands but also a hedge against the declining long-term prospects of fossil fuels.

The entry of big oil into the lithium market signifies a strategic pivot towards securing a role in the future energy landscape. By leveraging their expertise in resource extraction, financial strength, and innovative technologies, oil companies are well-positioned to become significant players in the lithium industry. This move aligns with the broader energy transition, as the world increasingly adopts renewable energy sources and electric vehicles. While challenges remain, the commitment of these oil giants to lithium extraction could play a pivotal role in shaping the future of global energy.