Exxon Mobil signs non-binding lithium supply deal with LG Chem

By Ernest Scheyder

HOUSTON, Nov 20 (Reuters) - Exxon Mobil XOM.N said on Wednesday it has signed a non-binding lithium supply deal with battery parts maker LG Chem 051910.KS, the oil giant's second agreement to supply the electric vehicle battery metal from its proposed Arkansas project.

Exxon last year announced plans to extract lithium from the Smackover Formation, an underground deposit of salty water known as brine that stretches from Florida through Arkansas and into Texas, using at least one type of direct lithium extraction (DLE) technology.

Exxon and other oil companies such as Occidental Petroleum OXY.N and Equinor EQNR.OL are increasingly investing in lithium projects, partly due to their belief that extracting the metal from brine involves similar processes as petroleum extraction.

The LG Chem agreement, which would require Arkansas officials to set a state lithium royalty rate to be finalized, is for up to 100,000 metric tons of the ultralight metal over several years.

The move allows Exxon - which plans to self-fund its Arkansas project - to incorporate LG Chem's lithium quality specifications into its design plans. South Korea-based LG Chem plans to use the lithium at its Tennessee cathode facility, slated to open next year.

"This is about building a relationship with a company that has the same ambitions as building out the North American (battery) supply chain as us," Patrick Howarth, head of Exxon's lithium business, told Reuters.

Exxon expects lithium demand to rise despite U.S. President-elect Donald Trump's campaign vow to end the "EV mandate," Howarth said.

"We know that the world's going to need a lot more lithium than it's producing today," he said.

Financial terms of the deal - including the price per metric ton of lithium that LG Chem would pay Exxon - would be negotiated as part of any final contract. SK On, a unit of SK Innovation 096770.KS, signed a non-binding lithium supply deal with Exxon in June.

Despite recent lithium market turbulence, Howarth said Exxon has "seen really strong support from our potential customer base."

ROYALTY

Arkansas officials earlier this month rejected a proposed lithium royalty rate of 1.82% from Exxon and others.

Officials have been debating a lithium royalty since at least 2018, with tension centering on how the metal should be valued given the cost for equipment to filter it from brine, which unlike oil typically has no intrinsic market value.

Landowners want a higher rate, noting that most U.S. oil royalties pay between 8% and 12%.

"It's one of the key regulatory issues that we need to resolve to bring these projects to market," Howarth said, adding that Exxon could leave Arkansas - where it has invested more than $100 million - if the rate was too high.

Officials hinted a 2.5% rate could be acceptable, which Howarth said would be "in the range that we would be able to move forward." Exxon would need to formally propose a new rate, which is likely in the near future, he added.

Exxon declined to say how much lithium it expects to produce annually in Arkansas, although the amount would depend on which DLE technology it chooses.

"We're definitely narrowing down the selection," Howarth said. "But we're still keeping multiple providers in play."

(Reporting by Ernest Scheyder; Editing by Jamie Freed)

((ernest.scheyder@thomsonreuters.com; X: @ErnestScheyder; +1-469-691-7667; Reuters Messaging: ernest.scheyder.thomsonreuters.com@reuters.net))