In Short:
BP and Shell are investing in renewables like solar and wind, while ExxonMobil focuses on traditional oil and is now betting on lithium for electric vehicle batteries. Exxon plans to produce enough lithium for one million EVs by 2030, seeing it as a high-return opportunity. Other oil companies also pursue lithium, leveraging their expertise in extraction.
The New Horizon: Big Oil Shifts to Lithium
In an era where shifts are expected, **BP** and **Shell**, two prominent players in the British oil scene, are putting their bets on **solar** and **wind farms**. Meanwhile, their competitors, particularly across the pond, are sticking to the familiar ground of drilling. Surprisingly, this single-minded approach has paid off handsomely. Take **ExxonMobil**, for instance. This American juggernaut, firmly rooted in oil, boasts a valuation of **$510 billion**, which is significantly higher than the combined worth of the British giants. Over the past five years, ExxonMobil’s share price has surged by an impressive **50%**, while Shell climbed a mere **10%** and BP even fell by **13%**.
ExxonMobil’s Strategic Bet on Lithium
It’s important to note that **ExxonMobil** isn’t entirely ignoring the renewable energy wave. Instead of diving headfirst into generation, they’re strategizing a more indirect approach. On June 25th, they inked a preliminary agreement to supply lithium to **SK On**, a leading South Korean manufacturer. These **lithium-ion batteries** will charge up electric vehicles from **Ford** and **Hyundai**. Just a few months back, ExxonMobil also embarked on drilling its first lithium well in **Arkansas**. Their ambitious plan involves allocating a substantial part of their **$20 billion** investment into low-carbon initiatives (between 2022 and 2027) toward lithium, as noted by Dan Holton, the project lead. By the year 2030, they expect to produce enough lithium for a whopping **1 million electric vehicles** annually, and **Darren Woods**, their CEO, views lithium as a “high-return” venture.
Big Oil Joins the Lithium Surge
Other oil executives share this enthusiasm. Back in June, **Occidental Petroleum** teamed up with **BHE Renewables**, a subsidiary of **Berkshire Hathaway**, to create a lithium joint venture. Just a month earlier, **Equinor**, Norway’s state-owned oil titan, announced a partnership with **Standard Lithium**, a U.S. mining firm. Even the giants of oil, like **Saudi Aramco** and **ADNOC** from the **United Arab Emirates**, are stepping into the lithium arena.
The Case for Lithium: Opportunities Ahead
The growing appetite for lithium makes perfect sense, as more and more machines worldwide transition to electric power. Interestingly, oil companies possess valuable expertise that translates well into lithium mining. The process involves extracting lithium from **saltwater brine**, often sourced from underground reserves. This endeavor requires meticulous mapping of reservoirs and precise drilling—skills that oil professionals have refined over years of extracting crude oil (where brine is frequently a byproduct). Plus, the regulatory approvals needed are more akin to those for oil and gas than the more complex processes associated with conventional mining.
Innovative Approaches to Lithium Extraction
**ExxonMobil**, **Occidental**, and **Equinor** are eager to enhance their lithium operations using cutting-edge technologies designed to directly separate lithium ions from brine through physical membranes or chemical solvents. This innovative approach requires significantly less land, water, and time compared to the traditional method that relies on vast evaporation ponds, not to mention it’s less environmentally damaging. Analysts at **Goldman Sachs** project that these advancements could revolutionize lithium extraction, much like fracking did for oil. Currently, brine holds almost two-thirds of the globe’s known lithium reserves, yet it only accounts for **40%** of production.
Cautious Stance from Big Miners
On the contrary, major mining companies have been more hesitant about making bold investments in lithium. Their shareholders currently favor cash returns over reinvestments, and the upfront costs for the new technology are estimated to be at least **33%** higher than traditional methods, according to **Goldman Sachs**. Additionally, the fluctuating valuations of specialist lithium producers can be quite daunting, as miners with smaller investments have often faced severe setbacks. For example, **Rio Tinto** completed an **$825 million** acquisition of a lithium project in Argentina in 2022, only to see exploration and evaluation expenditures double by the following year.
The Commitment Question
With their robust profits and healthy balance sheets, big oil is certainly equipped to tackle these capital-intensive projects. But do they truly have the commitment? Interestingly, **Exxon** had dabbled in battery technology as far back as 1973, during the oil embargo that sparked global interest in alternatives to fossil fuels. One of their standout researchers back then was **Stanley Whittingham**, who later shared the Nobel Prize in chemistry in 2019 for his contributions to lithium-ion battery development. Unfortunately, Whittingham left Exxon in 1984, around the period when the company decided to abandon its exploratory ventures into this realm.
© 2024, The Economist Newspaper Limited. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com
