LITHIUM DEMAND OUTPACING NEW SUPPLY
The lithium market is ever complex. Higher prices and upward trending demand have brought plenty of attention to the space. However, global production in terms of tonnage is still quite small in comparison to other essential and valuable minerals.
Sell-side types will insist that demand is growing at a clip of 12-15% annually. Even the conservative-minded among us forecast growth at 8%.
While 8% doesn't sound huge, assuredly it is.
Current global demand is 170,000 tonnes annually. At 8% growth, that puts us at 370,000 tonnes of lithium carbonate needed by 2025.
That's less than 10 years for the sector to make up 200,000 tonnes, or an addition of 20,000 tonnes per year.
To put that in perspective, Albemarle's Clayton Valley lithium production facility (the only lithium producer currently operating in North America), is only contributing 6,000 tonnes per year.
In order to keep up with demand, lithium is going to need to be produced in places we're not looking at right now.
LOOKING OUTSIDE THE ROCK AND PONDS
Far outside of the oligopoly that currently runs the lithium market, a new proposal is piquing interest in a sector that's at the same time being pushed aside by everything lithium represents.
The idea is to produce lithium from past-producing Albertan oil fields, from the brine that comes up with the faint amount of oil still being produced from uneconomic wellheads across the province.
In order to properly create a visual of what is being proposed, let's label it in a way to make it better to visualize: "Petrolithium."
Essentially, a well producing only a dozen barrels of oil or so may also be producing 25 to 250 times that volume in previously unwanted mineral water. If one could separate out those minerals, and sell them on the open market, the economics of the play can once again make a lot of sense.
It sounds simple. The process itself is not.
LITHIUM AT THE PUMPS
On a straight oil play, water production is normally a bad thing. Too much water coming up with your oil is not only a logistical headache, but can make wells uneconomic by most standards.
The problem for many oil producers, major to minor, is that there are wells on their books which produce less than 15 barrels per day, which put them on the cusp of being shut-in.
However, high abandonment and reclamation costs can be enough to encourage producers to keep their archaic micro-producing wells pumping, kicking the can down the road even further.
But if that water contained a slurry of valuable minerals that could be zipped out and sold, would we be so quick to throw it away?
What if Alberta could transition towards the rapidly changing green economy by producing essential minerals at the wellheads of already established oil and gas infrastructure?
BRING ON THE BRINE
A pilot program being proposed by junior explorer MGX Minerals [CNSX – XMG] aims to not only produce crude oil, but also valuable minerals and salts, such as lithium, magnesium, potash, sodium chloride, bromine, and others.
If successful, a series of plants could start feasibly be springing up in multiple regions of the province, processing all types of valuable materials which play off of each other to increase profitability of each well.
It could not only be a potential game-changer in the production of lithium, but also a potentially vital second life for hundreds to thousands of uneconomic Alberta oil wells.
It may sound like a long shot, but there are a few factors that make this more intriguing than so many other lithium stories out there.
Upon completion of the first plant, increasing production would be a lot faster and easier than constructing a new hard rock mine (like what's going on in Australia), or setting up several evaporation ponds to produce lithium from brine (like Nevada's Clayton Valley, or any Chilean or Argentine operation).
For a petrolithium operation, new source brine could easily be trucked or piped in to increase output. If the price of lithium or one of the other minerals being produced went up significantly, MGX would undoubtedly have an advantage of timing.
Next, the big question is the capital side.
Is this cheaper to produce than hard rock or solar evaporation?
Typically, the hard rock operation has a cheaper capex, but requires more expenditure to operate. Whereas, the solar evaporation ponds are pricier to install and setup, but are far cheaper to produce from.
Where does MGX's plan fit in on that spectrum?
That answer hasn't come officially yet. But we can speculate. Likely it'll fall somewhere between a hard rock mine and a solar operation, but possibly could beat both on operating expense (although likely evaporation will still hold that edge).
What we do know is that the process isn't simple. It's quite the complex series of industrial and chemical processes to separate well water brine into the sum of its parts.
"This is not a magic process," says Jared Lazerson, President and CEO of MGX. "It's a very complex industrial process."
"The key is to use highly mineralized brine, which would be a problem if you were trying to exclusively take out the lithium. With our operation, that brine now becomes a highly valuable mineralized brine, because we can take out the major minerals and sell them too. Remember SQM and FMC generate more revenue from other brine minerals than lithium alone."
The mix from the brine depends on the deposit, but Lazerson is confident that his group can separate out the most valuable commodities, and use them as a hedge off of each other.
"On their own, salts in the brine like sodium chloride and calcium chloride could somewhat hold their own as a business model, but you wouldn't really want to put the effort in for something like that to just generate a nominal profit," says Lazerson.
"Especially when you have to factor in a significant capex. But with the lithium in the mix, and the price it is getting, the economics start to look a lot better. One could also look at it as the lithium paying off the opex, and the rest of the minerals are the profit. It really stabilizes the economics."
It's important to point out that none of the current oligopoly of lithium producers (SQM, FMC, and Albemarle) are solely lithium companies. They're fertilizer and chemical companies, leveraging their exposure to lithium, while also producing salts and fertilizers onto the market.
So in theory, MGX would become a multi-mineral producer as well (along with the revenues from the minimal oil production).
The turnaround time for a typical solar evaporation pond is 18 months. What MGX is proposing is an over 99% reduction in that timing, down to a day.
THE ALBERTA ADVANTAGE
Unlike a solar operation, MGX could much more quickly respond to price deviations, being able to crank up or crank down production when appropriate. Whereas a solar evaporation project doesn't have that luxury.
As well, most solar evaporation producers do-so because they have to. A remote operation in the Andes doesn't have the luxury of easily bringing in sufficient reagents or power to produce with MGX's method.
Instead, MGX gets to operate within an already existing infrastructure of power lines, roads, pipelines and other important inputs including low cost energy.
It's important to note that no one is expecting Albertan lithium to take the place of the productivity of the salars in Chile and Argentina, or the Greenbushes assets in Australia.
However, MGX might be onto something here, by deriving as much value as possible from already established wells, perhaps increasing the $/bbl equivalent value on each well in the ballpark of an additional $150-$200 per barrel on high brine / low oil production wells.
If they can prove this science project works, then they'll have an enormous selection of old wells to take off the hands of majors and mid-size producers across Alberta, and contribute their "petrolithium" to feed into the growing global hunger for more lithium.
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