Companies target royalty rate for Arkansas lithium extraction

A coalition of would-be lithium extractors recently filed an application with the Arkansas Oil and Gas Commission to establish a royalty rate for landowners.

Why it matters: Deciding the rate will help companies assess the potential for profit before they start investing in infrastructure to draw the mineral from brine water found throughout the Smackover Formation.

State of play: The group is made up of Albemarle Corp., Saltwerx ( ExxonMobil ), SWA Lithium ( Standard Lithium ), LANXESS Corp. and TETRA Technologies, all of which have some stake in the budding industry.

• The proposed royalty would be calculated by the volume of lithium carbonate produced from an extraction project, times its market index price, times a 1.82% royalty rate, times mineral-rights owners' acreage.

Context: Lithium carbonate is a measure of how much of the mineral is in derivatives like lithium chloride and lithium hydroxide, which are processed for use in rechargeable batteries.

The big picture: Nearly all lithium, a key ingredient in rechargeable batteries, comes from abroad. Since the most expensive part of an electric car is its batteries , U.S. consumers are stuck with high-priced EVs until raw materials and manufacturing are on-shored.

• As consumer adoption of electric cars accelerates, global demand is expected to grow at a compounded rate of 25% annually through 2030.

One estimate suggests there's enough lithium in the Smackover Formation to power 50 million EVs .

By the numbers: Royalty rates vary widely by mineral, concentration and location. The minimum rate for oil and gas in Oklahoma is 12.5%, for instance, but oil is a very different product.

• India last year set its lithium royalty rate at 3% , and in Australia, it's 5% of the lithium concentrate used to make chloride and hydroxide.

What they're saying: "Developers will need to invest significant capital and operating costs into processing facilities, for the conversion of raw materials into final products, and in technology development," the application states.

• "Along with their enormous investment into emerging technology, the developers will also take on significant risk and uncertainty."

What's next: The Arkansas Oil and Gas Commission will hold a public hearing at 9 a.m. Sept. 24 to hear the application.