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8 months ago
Arkansas Lithium: Strategic Discussions, Part 2
by Brian Umberson February 13, 2024
(Editor’s note: This is the second of a two-part commentary on the lithium play in south Arkansas.)
This week’s Arkansas Lithium Innovation Summit serves as an excellent opportunity to let the rapidly growing US battery industry know that Arkansas is the “Lithium State” and is open for business. The idea for this event was first instigated by Arkansas native and Director of Government Relations for Standard Lithium, Jesse R. Edmondson, who is a critical minerals geologist passionate about establishing sustainable domestic supply chains. Mr. Edmondson detailed his goals, “The two goals of this event are to: 1) Plant the flag of Arkansas into the middle of the US lithium-ion battery and EV supply chain, so that this entire industry sees that Arkansas should be considered a top state for building out this new industry, leveraging the globally significant lithium resource from the Smackover Formation, and 2) To get the state internally firing on all cylinders so that our federal/state/local officials, academia, infrastructure managers and existing industries are working together to seize this incredible opportunity and moment in time.”
Hugh McDonald serves our great State as the Secretary of our Department of Commerce and has been an integral part of the Arkansas Lithium Innovation Summit. Secretary McDonald masterfully captured the value of the Lithium Summit, “In Arkansas, we have the raw materials that will make our state a focal point for the lithium industry. Prominent companies, like Albemarle, Standard Lithium, Tetra, and ExxonMobil, have already established operations in Arkansas and are continuing to build out with production dates set at the end of the decade. Arkansas is on the verge of being a major player in this industry, which will have global implications and impact. We look forward to more companies doing business in our state, and they will find a favorable business environment with low taxes, pro-industry public policy and a strong workforce. During the Arkansas Lithium Innovation Summit, global experts, policymakers and industry experts will highlight the opportunities that our state has in the lithium industry and will show the advantages of doing business in Arkansas.”
As a refresher, Arkansas provides environmentally responsible lithium that supports the production of batteries for use in homes and cars. Our lithium boom goes beyond batteries in homes and EV cars, because it ties into our national security, military industry, energy security, electric distribution, etc.
I hope this 2nd part of a 3-part series provides a view of what is at stake and the strategic issues for leaders to discuss in productive conversations at this important Summit. Strategic discussion and even difficult subjects have to be on the table when this many of our state’s leaders are in the same room. We must take advantage of this opportunity so that we do not allow another FedEx to slip through our fingers.
Part 2 Overview
ExxonMobil, Tetra, Albemarle, Lanxess and SLI have all set their sights on the unique Lithium resources found within the Smackover formation in South Arkansas. As an Arkansan with roots back to 1828 in our state, I am thankful Lanxess and Standard Lithium partnered to prove a new technology would provide environmentally responsible access to the lithium in South Arkansas.
Exxon, Tetra and SLI are at a point of critical mass within the Arkansas Lithium opportunity as we establish a royalty structure. The Nation is watching us pioneer a new market segment, new technology, new production model, and new royalty structure. There is no precedent for us to copy, so we must be objective and fair so Arkansas can benefit from a new economic engine. The whole Nation can benefit from our impact upon national security, defense weaponry, battery supply chain, power grid, geothermal, etc.
Market Correction
Lithium demand and supply reached record levels that created a spike in pricing that reallocated priorities and investment. The lithium market price dropped most of last year, which has corrected to a transition of multiple reallocations. Many technology and investment decisions were made when Lithium was considered a supply chain risk and very expensive.
Lithium pricing and product allocation will reposition after more domestic supply creates stable prices that should redirect or reduce alternative materials investments. The behaviors of China and Russia raised additional red flags about supply chains and National security issues tied to lithium. Record high prices and supply concerns created the following dynamics:
Raised the price of the EV cars to levels that decreased sales growth but expanded Hybrid car sales.
Increased investment in Sodium and Zinc based alternatives to Lithium batteries.
Developers of new products that utilize battery power shifted their designs to accommodate sodium or zinc batteries.
Damaged Lithium processors in free market countries while Chinese state-run companies were protected.
Pre DLE-Decisions
In the last 6 months, Arkansas’ Lithium resource was proven to be credible as Standard Lithium (SLI) validated the efficacy of their new Direct Lithium Extraction (DLE) technology to extract Lithium from Smackover brine. SLI’s validation is so new that very few of the current market researchers include the new lithium resource in Arkansas. As you can see in the map below, we are not included in a map of projects and offtake agreements. from Dec 22, 2023. Like other outlets, the article is using old data or sales agreements that don’t consider Arkansas. SLI’s definitive feasibility study published just over two months ago on Nov. 20, 2023. Additionally, we are still two years away from SLI’s Arkansas lithium impacting the market. We are at a delineation of what I call the Pre DLE or Post DLE periods.
Corner the Market?
The intentional actions or ineptitude of outside forces have damaged markets to protect their position or damage competition. OPEC was not happy about the growth of US oil production via shale fracking, so they dropped oil prices below the break-even point of shale fracking to decimate our shale boom. China controls a large amount of the critical minerals in the battery supply chain. China has proven to flood the steel market with cheap steel to hurt US and European steel sectors. Why should we allow China’s state-controlled lithium companies to influence the lithium price?
Unfortunately, the market uses the Chinese price for lithium carbonate, which is marred by lack of transparency, China’s own desire to control the market, unreliable information, inconsistent quality and simple cornering of the market. US and European incentives spiked record demand for a limited supply of lithium and other battery supply chain minerals controlled by China. Market speculation then poured gas on the fire as you can see in the price chart below. The Chinese price reached record levels in 2022 but the price of lithium carbonate dropped almost 80% in 2023.
Many researchers speculate that China could use the volatility to hurt their competition and expand their control of the lithium market. Some outlets are reporting that Chinese state-run companies are buying up lithium feed stocks during this low-price cycle. Arkansas’ new domestic supply will eventually protect our Nation from supply disruptions, possible wars, price spikes, etc.
Lithium based products have become far too expensive because of the record high prices, so their sales have been terribly impacted. Lithium based product companies changed strategies and commitments when the market reached $60k-80k a ton for lithium carbonate from 2021 to 2023. Current lithium carbonate pricing is very low, but many lithium processors and battery manufacturers still have higher priced inventory to sell.
We should see another transition from high priced to lower priced inventories that will eventually lower the price of lithium-based products. Our current low lithium prices will lower the cost of lithium-based products because the battery will be much lower in cost. This transition provides the following impacts:
Increase the sales of Utility scale storage (high volume lithium use)
Increase the sales of powerwalls for home energy storage.
Increase the sales of EV (battery = 40-50% of cost) and hybrid cars
Increase market stability and customer trust.
Furthermore, the US market for Lithium products could improve because of our commitment to domestic DLE sources that are detailed here and in my previous articles. Wars and national security will lead to priorities that will incentivize domestic sources. We will see market improvement from the adjustment of vehicle manufacturer priorities from over-emphasis of EVs to a combined emphasis of EV and hybrid cars.
SLI details many of the pricing and transitional issues in their quarterly report that ended Dec. 31, 2023. “In 2023, the lithium sector has been under pressure, with lithium prices experiencing a significant decrease from the all-time highs seen in 2022, a situation compounded by the prevailing interest rate environment and other macroeconomic factors,” says Robert Mintak, CEO and Director of Standard Lithium. “Despite the industry-wide market challenge, the long-term fundamentals for lithium continue to be strong, particularly for projects situated in geopolitically stable regions such as the United States, where policy support and other key strategic advantages are enabling for project differentiation. The Smackover region, in particular, is attracting interest from major players in the global energy sector. Discussions around strategic partnerships, joint development opportunities, and long-term off-take are robust and moving forward. In response to these market dynamics, we are taking responsible and appropriate actions that are in the best interests of our shareholders, ensuring that Standard Lithium remains well-positioned to capitalize on what continues to be an exciting sector with extraordinary growth prospects.”
Please review the strategic issues below for part 2 that details the opportunities and threats we can optimize or reduce. Part 1 and part 2 support strategic discussions at the Summit, so that more of Arkansas’ batteries are connected and fully charged to propel us to a better future.
National Security
China is dominating the global battery supply chain. China mines and processes some of the lithium battery components and rare earth minerals used in the battery supply chain. China is the current leader in manufacturing and assembling the lithium batteries. We must increase domestic production of the lithium components required to be able to improve our energy system storage, improve energy security, manufacture advanced military products and manufacture alternative energy vehicles.
Recently, SLI has proven that Arkansas Lithium + DLE + brine wells will increase production of Lithium at surprising quality and quantities. We are now in a Post DLE market but the market still hasn’t officially recognized the positive impacts. The new lithium source in Arkansas, reopening of Albemarle’s mine in North Carolina, and the massive deposits recently found in the Western US have changed the supply chain risk dynamic. Most of the world has been using mines or evaporation ponds to extract Lithium, but now SLI has proven DLE is very productive in South Arkansas. DLE is much faster than evaporation process models that require up to an 18-month production cycle. Wars and catastrophes do not wait 18 months to ramp-up.
Modern warfare utilizes high-tech weapons that require remote power via batteries. In the 1970s, lithium batteries were first utilized in military equipment, space equipment and communications equipment of the US military. Now light weight lithium batteries with high density energy enable the US Military to have the best weapons used in land, sea and air operations. A critical application uses lithium batteries to protect encamped soldiers by replacing gas engine generators to keep the troops from being targeted via detection of sound and radiant heat from the gas engine generators. Numerous weapons that use lithium batteries range from drones, all electric drone ships, underwater unmanned mine searchers, night vision, tactical radios, thermal imagers, portable computing, missiles, video surveillance, lasers, acoustic, sensors, etc.
Strategic applications need mobile power so Lithium can improve our military superiority. “Current solid-state batteries that have high energy density have limited charge/recharge cycles …… in aggressive performance environments,” said Vishnu Sundaresan, MINT program manager in DARPA’s Defense Sciences Office. “The teams we’ve selected will develop and demonstrate novel morphogenic interface materials to enable long-lasting and high-performance solid-state batteries that power everything from warfighter battery packs to unmanned aerial and ground vehicles.”
Defense Advanced Research Projects Agency (DARPA) has been very concerned about the strategic issues and risk tied to critical minerals controlled by China and other bad actors. Our government agencies like DARPA have been funding expensive research to find alternatives for Lithium since it was considered to be very limited in supply. The recent validation of Arkansas Lithium confirms a large domestic supply of high-quality Lithium, which reduces the need for our government to invest in Lithium alternatives. Now domestic Lithium enables DARPA to firmly position Lithium as the strategic energy storage now and use the funds elsewhere.
A new DARPA program seeks to develop near-zero-power technologies that exist reliably for years and support growing network of mobile connected devices. State-of-the-art military sensors use “active electronics” to detect vibration, light, sound or other signals. The always-on status constantly consumes battery power which limits a sensor’s lifecycle to a few weeks or months. The constant need to redeploy power-depleted sensors is expensive, time-consuming and increases warfighter exposure to the enemy. Stable domestic sources and lithium that is now lower cost, enables DARPA to invest in higher performance Lithium and further improve weaponry by reducing active power requirements.
“It is the waiting for a specific event or activity that constrains mission life and drains the battery energy of these essential electronics,” said Troy Olsson, DARPA program manager. “By cutting reliance on active power and enhancing battery life, N-ZERO aims to enable wireless, ubiquitous sensing that is energy efficient and safer for the warfighter. Our goal is to use the right signal itself to wake up the sensor, which would improve sensors’ effectiveness and warfighters’ situational awareness by drastically reducing false alarms.”
Dr. Kathleen Hicks, Deputy Secretary of Defense, is the second person in command of the Department of Defense (DOD) as she oversees the operations and personnel of the entire U.S. military. According to the Deputy Secretary in a November 8, 2021, speech that, “…a healthy battery supply chain is essential to the military. When it comes to batteries, America needs to lead the world. That means innovation, but it also means manufacturing, ensuring we have healthy supply chains to get what we need, when we need it. It is estimated that investment committed to the global lithium-ion battery supply chain is approaching $1 trillion. The problem, however, is that China presently dominates that supply chain.”
She added that the DOD sustainability plan will be focused upon developing an electrified non-tactical vehicle fleet, “Electric vehicles are quiet. They have a low heat signature, and incredible torch, and because they tend to be low maintenance with fewer moving parts. They have the potential to reduce logistics requirements, all with these attributes can help give our troops an edge on the battlefield.” Additionally, Dr. Hicks stated, “currently the Department of Defense has about 170,000 non-tactical vehicles. The cars and trucks we use on our bases. That’s the largest fleet in the Federal government, next to the U.S. Postal Service.”
Deputy Secretary Hicks further detailed the importance of non-tactical vehicles in the military and the connection with other military elements, “The Army center, for instance, is developing a vehicle centric micro-grid, designed to provide on the go power for our next generation combat capabilities. At General Motors, I also had the opportunity to tour their battery lab. Battery technology and lithium-ion batteries specifically, are the lifeblood of electrification and the future auto industry, but batteries are also essential to thousands of military systems from handheld radios, to unmanned submersibles and to future capabilities like lasers, directed energy weapons and hybrid electric tactical vehicles.”
Deputy Secretary Hicks added that DOD wants to work with industry to develop our domestic supply chain which add more validity to the Arkansas lithium opportunity, “Improving the U.S. competitive position will create resilience of our domestic supply chains, and this will bring jobs to America and ensure our national security. DOD is committed to working with industry to increase resiliency in the supply chain, which strengthens our industrial base. The department has joined the Federal Consortium for Advanced Batteries, which is interested in ensuring a domestic supply of lithium batteries and is committed to accelerating the development of a robust and secure domestic industrial base.”
The DoD has published the Lithium Battery Strategy 2023-2030 which includes the primary recommendation for improving battery security as outlined in Securing Defense-Critical Supply Chains. The James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 started the initiatives to pursue internal DoD, industrial, interagency, and international opportunities and objectives. It also created the DoD Lithium Battery Science and Technology Strategy, as well as DoD investments in test and evaluation infrastructure, analytics and battery standardization.
Last October, the Office of the Assistant Secretary for Industrial Base Policy, through its Manufacturing Capability Expansion and Investment Prioritization (MCEIP) office, entered into an agreement with Albemarle Corporation to support the expansion of domestic mining and production of lithium.
“The agreement with Albemarle demonstrates the DoD’s ongoing commitment to meeting the needs of our warfighter, today and in the future,” said Mr. Anthony Di Stasio, MCEIP Director. “This investment directly supports President Biden’s April 2022 Presidential Determination for Critical Materials in Large-Capacity Batteries.”
The $90 million agreement under the Defense Production Act augments the MCEIP five-year investment plan to secure supply chains for minerals and materials critical to the DoD and the commercial sector. There is further evidence of DOD supporting industry to create better batteries for its war fighters, and it’s partnering with private companies like NanoGraf. “Just like we civilians are increasingly relying on cell phones and tablets and everything else, the modern soldier is also transitioning towards these really power heavy devices in the field, [like] night vision goggles, weapon optics, all of the communications devices, GPS,” said Chip Breitenkamp, NanoGraf vice president of business development. “All of those things require more and more power.
“If you take a look at what the soldier has to bring on the field already, between guns, ammunition, water, food, right now the best estimate that I’ve seen […] is that every soldier for every mission goes out with somewhere between 15 and 25 pounds of batteries just to power all of this stuff,” he continued. The Military benefits greatly from a Post DLE market. The DOD needs Arkansas to provide lithium for energy dense batteries to power high tech weapons, possibly missile systems made in Camden, logistics, and to reduce weight so soldiers have less fatigue and can operate longer before recharging their batteries.
Arkansas Can Improve the Power Grid, Energy Storage and Energy Efficacy in Vehicles
Vertical integration creates additional value that reduces the risk of investing in Arkansas. As I detailed in a previous article, “The Arkansas Advantage” is our unique vertical integration that positions our state as a major player in energy storage that provides another unique advantage.
We are uniquely positioned with lithium and electrical grade steel in an excellent location to make batteries and frames for powerwalls, hybrid cars and electric vehicles (EV). Arkansas is a major producer of the Advanced High Strength Steel (AHSS) that is used to build EV and Hybrid cars as well as battery frames for powerwalls (buildings), utility scale battery modules, and batteries for Hybrid & EV cars.
Our location between the Missouri, Texas and I-65 Auto assembly zones is an advantage when you consider the shipping costs of Steel and Lithium. Our advantage is even more pronounced for the assembly of powerwalls and vehicle battery modules, because the assembly’s percentage of steel and lithium are much higher than that in the high component mix assembly of a car. Arkansas is the superior location for assembly of powerwalls, utility scale and vehicle battery modules.
There is an element of our population that dislikes EV cars, but despite the recent media hype, EV cars really aren’t for everyone. The recent messaging forced the tried-and-true hybrid to take a back seat to the over emphasized EV product. Finally, the EV smoke cleared to expose the truth that EVs are great for metropolitan commuters that return home each night to re-charge. Now the hybrid is selling to the non-commuter market again.
Car buyers have already shifted to more hybrid vehicles instead of EVs. Hybrids will still create lithium demand, but they have smaller lithium-ion batteries than EVs. Ford doubled production plans for the hybrid F-150 pickup trucks for 2024. As a result of their new hybrid plans, Ford’s January 2024 sales reported an impressive 43% jump in Hybrid sales, which offsets an 11% drop in EV sales. They also reported a 2.6% sales increase of traditional vehicles in January. Ford’s recent sales increases do not include lower pricing for vehicles via the current low lithium prices.
Tesla built Giga Factories in very expensive San Francisco CA, Austin TX, Sparks NV and Buffalo, NY. Tesla could benefit greatly if they had a Giga Factory in Arkansas, which would improve their efficiency and logistics cost. The heaviest components of an EV car are the steel and lithium battery, which is uniquely available in Arkansas. Tesla is also dropping their prices to compete with the new EV competitors, so a better cost structure would allow them to create lower cost cars. It would also allow them to create entry level EVs to expand the great brand loyalty into a younger demographic. Tesla has tried to reduce costs by controlling more of the lithium supply chain – Would Tesla still decide to create their own lithium processing facility if the decision was made Post DLE with domestic sources at today’s lithium prices? As stated above, we are the superior location for assembly of Tesla’s powerwalls, vehicle battery modules and the large batteries for electric utility scale systems.
Tesla Megapack for utility-scale projects
Speaking of utilities, the Energy Grid is a critical element of our American infrastructure. Our leaders have recognized we can stabilize the grid with lithium-ion batteries, thus utility-scale storage is predicted to grow 15-fold by 2030. Energy storage is going to redefine tomorrow’s energy grid with lithium-ion batteries for daily load balancing to reduce volatility from energy fluctuations. For example, load balancing switches between direct solar power and battery storage for evening power. The concept can apply to residential, commercial, or utility scale battery applications. Some reports predict that load balancing will comprise 61% the new energy storage systems by 2030.
Batteries are an important component of storage-as-a-transmission asset (SATA) for decentralized placement of customer-sited batteries and utility scale batteries to augment the current electricity grid. The use of SATA as neighborhood, local and regional batteries will initially upgrade the grid to capture and store alternative power generation in a “crawl-walk-run” scenario. It will require much more investment to progress to the “walk and run” phases. It is expensive to build a decentralized grid with upgraded transmission lines to safely manage renewable power in both directions.
The utility scale battery system implementations slowed when $60k-80k per ton lithium carbonate prices forced a lot of utilities to reduce their utility storage commitments over the last 2 years. Pre DLE supply chain disruptions will subside as Arkansas lithium hits the market. Utility scale battery systems require far more lithium than other applications. Now the lithium prices have dropped so much that Utilities can renew their commitments and implementation plans.
Unique Steel further sets Arkansas apart from the competition. Lee Morgan is CEO of The Systems Group in El Dorado that supplies both of Arkansas’ steel giants. Lee is glad the Arkansas steel companies could provide more value for Arkansas Lithium companies. Lee was proud to declare that, “after U.S. Steel opens our state’s 3rd AHSS mill, Arkansas will have the largest concentration of AHSS mills in the Nation and should become the largest flat rolled steel State in the Nation.”
https://armoneyandpolitics.com/arkansas-lithium-discussions-part-2/
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