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Lithium is a key ingredient in batteries for electric cars and renewable power storage, making it a critical commodity for the energy transition to reduce emissions of greenhouse gases. Most of the world’s lithium supply is currently produced in Australia and processed in China, but that could change during the next decade as new technology such as direct lithium extraction, or DLE, helps ramp up production of this key resource from brine, according to Hugo Nicolaci, an analyst in Goldman Sachs Research.
Lithium is typically extracted through hard-rock mining or from underground brine water. Unlike traditional methods for producing lithium, DLE uses filters, membranes or resin materials to extract the mineral from brine water. And much as shale technologies did for oil, Nicolaci says DLE may significantly increase the supply of lithium, nearly doubling production from the same resource and improving project returns through a process that may be more sustainable. We spoke with Nicolaci about his forecasts for the lithium market and the impact DLE may have on the transition to renewable energy.
Why is lithium important?
Lithium is a big enabler of the energy transition from a battery perspective as we move to electric vehicles and add energy storage to electricity grids, allowing for greater penetration of renewables. As a result, lithium is increasingly being seen as a critical mineral by governments, where they want to secure supplies for that transition, and that has made it an increasingly important commodity in the last couple of years.
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Traditionally, lithium produced from brine water is stored in evaporation ponds. As the water evaporates, the other elements of the brine such as magnesium or calcium precipitate out, leaving the brine more concentrated to produce lithium carbonate. The evaporation process, however, yields only 40% to 60% of the potential lithium in the brine. DLE has the potential to yield 80% to 90% or more. It’s also much faster. The evaporation process can take nine to 18 months depending on the type of project and weather conditions. With DLE, that process can be shortened to days or even hours. And you don’t need all the land for the pond evaporation process. What’s more, you can potentially reinject the remaining brine water after the process, which further reduces the environmental impact.
Late last year, lithium prices soared to a new record. How has that impacted DLE’s potential?
High prices incentivized new technologies for lithium extraction, such as DLE, which extracts lithium from brine. It has the potential to revolutionize the production, timing and environmental impact of lithium extraction. Just like hydraulic fracturing in shale formations unleashed an abundance of oil production, DLE could almost double lithium production from brine resources, while also boosting returns with less harm to the environment than mining.
Is DLE likely to have a near-term impact?
We forecast a lithium surplus for 2024 and 2025, predominantly from new Chinese supply coming to market rather than technology like DLE. But DLE can improve the recovery rates of lithium from a number of projects, increasing the medium- to longer-term supply for the same projects. As DLE moves from emerging technology to commercial implementation, it could really increase lithium production. It also could raise production from smaller or lower-concentration resources that otherwise might not have been economically viable, as well as potentially unlocking less conventional brine resources. At the moment, it’s still very much a China story and the new supply that’s being brought to market there. But beginning in 2025 to 2030, there will be more Latin American brine supply. Our recent trip to Argentina highlighted the sheer number of projects that are in the pipeline, with DLE adding upside risk to our medium- to longer-term supply view, particularly in Argentina and Chile.
What are the challenges for DLE?
Completing these types of projects and getting them into full production tends to take longer than companies expect, and that’s a real concern. But this supply is being brought to market to meet the growing demand that is there. Given the sheer number of projects that are planned, we still see risk that additional supply will help to balance or in some years outweigh demand and have a bigger overall impact on prices.
We’re definitely going to see cycles between now and 2030. It won’t just be a straight line to growing deficits for the lithium market. It’s a commodity after all, and it will have supply and demand fluctuations.
What about the costs?
The economics of DLE are comparable to traditional projects. You might have higher upfront investment, and you must manage it properly. But if you do, it likely has lower unit costs going forward, which offsets the initial costs. There are projects that are already in commercial-scale production for these technologies. One company in Argentina has been in commercial scale construction since 2022 and plans on producing next year, with an upcoming decision to expand. So these technologies are definitely here and emerging, and they will be increasingly prevalent.
Originally published at: Goldman Sachs