Exxon Mobil signs non-binding lithium supply deal with LG Chem

LG Chem

20/11/2024 11:00

* 
      Preliminary deal for 100,000 metric tons over several
years
    

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      Arkansas must first set lithium royalty rate
    

        * 
      Exxon sees lithium demand rising despite Trump's EV
comments
    

        * 
      Exxon still deciding on which direct lithium extraction
technology to use
    

  
    By Ernest Scheyder
       HOUSTON, Nov 20 (Reuters) - Exxon Mobil  XOM.N  said on
Wednesday it has signed a non-binding lithium supply deal with
battery parts maker LG Chem  051910.KS , the oil giant's second
agreement to supply the electric vehicle battery metal from its
proposed Arkansas project.  
    Exxon last year announced plans to extract lithium from the
Smackover Formation, an underground deposit of salty water known
as brine that stretches from Florida through Arkansas and into
Texas, using at least one type of direct lithium extraction
(DLE) technology.
     Exxon and other oil companies such as Occidental Petroleum
 OXY.N  and Equinor  EQNR.OL  are increasingly investing in
lithium projects, partly due to their belief that extracting the
metal from brine involves similar processes as petroleum
extraction.
    The LG Chem agreement, which would require Arkansas
officials to set a state lithium royalty rate to be finalized,
is for up to 100,000 metric tons of the ultralight metal over
several years. 
    The move allows Exxon - which plans to self-fund its
Arkansas project - to incorporate LG Chem's lithium quality
specifications into its design plans. South Korea-based LG Chem
plans to use the lithium at its Tennessee cathode facility,
slated to open next year. 
    "This is about building a relationship with a company that
has the same ambitions as building out the North American
(battery) supply chain as us," Patrick Howarth, head of Exxon's
lithium business, told Reuters. 
    Exxon expects lithium demand to rise despite U.S.
President-elect Donald Trump's campaign vow to end the "EV
mandate," Howarth said.
    "We know that the world's going to need a lot more lithium
than it's producing today," he said.
    Financial terms of the deal - including the price per metric
ton of lithium that LG Chem would pay Exxon - would be
negotiated as part of any final contract. SK On, a unit of SK
Innovation  096770.KS , signed a non-binding lithium supply deal
with Exxon in June.    
    Despite recent lithium market turbulence, Howarth said Exxon
has "seen really strong support from our potential customer
base."      
    
    ROYALTY
    Arkansas officials earlier this month rejected a proposed
lithium royalty rate of 1.82% from Exxon and others.     
    Officials have been debating a lithium royalty since at
least 2018, with tension centering on how the metal should be
valued given the cost for equipment to filter it from brine,
which unlike oil typically has no intrinsic market value. 
    Landowners want a higher rate, noting that most U.S. oil
royalties pay between 8% and 12%.
    "It's one of the key regulatory issues that we need to
resolve to bring these projects to market," Howarth said, adding
that Exxon could leave Arkansas - where it has invested more
than $100 million - if the rate was too high.
    Officials hinted a 2.5% rate could be acceptable, which
Howarth said would be "in the range that we would be able to
move forward." Exxon would need to formally propose a new rate,
which is likely in the near future, he added. 
    Exxon declined to say how much lithium it expects to produce
annually in Arkansas, although the amount would depend on which
DLE technology it chooses. 
    "We're definitely narrowing down the selection," Howarth
said. "But we're still keeping multiple providers in play."

 (Reporting by Ernest Scheyder; Editing by Jamie Freed)
 ((ernest.scheyder@thomsonreuters.com; X: @ErnestScheyder;
+1-469-691-7667; Reuters Messaging:
ernest.scheyder.thomsonreuters.com@reuters.net))