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Wall Street bullish on Exxon's lithium push: 'In their wheelhouse'

ExxonMobil’s plans to extract lithium in southern Arkansas highlights the oil giant’s ambitions to take its expertise in oil drilling and apply it to the lithium market to become a key supplier of the critical element used for electric vehicle batteries.

"What were trying to do in Arkansas — there is not one commercial facility like this on the planet today. This is really breaking new ground," Patrick Howarth, lithium global business manager at ExxonMobil, told Yahoo Finance.

On Tuesday ExxonMobil announced it will drill its first lithium well in Arkansas, targeting production in 2027. The oil giant aims at producing enough lithium to supply the manufacturing needs of automakers for more than 1 million EVs per year by 2030.

“The way they’re going about this to extract lithium is in their wheelhouse,” CFRA analyst Stewart Glickman told Yahoo Finance.

“That’s very similar to the typical well drilling and processing that they would be doing anyway when you’re going after crude oil," he added.

FILE - A truck is parked between brine evaporation ponds at Albemarle Corp.'s Silver Peak lithium facility, Oct. 6, 2022, in Silver Peak, Nev. The Energy Department is making a push to strengthen the U.S. battery supply chain, announcing Wednesday, Nov. 15, 2023, up to $3.5 billion for companies that produce batteries and the critical minerals that go into them. (AP Photo/John Locher, File)
A truck is parked between brine evaporation ponds at Albemarle Corp.'s Silver Peak lithium facility, Oct. 6, 2022, in Silver Peak, Nev. (John Locher/AP Photo, File) (ASSOCIATED PRESS)

The initiative, called Mobil Lithium, will use conventional oil and gas drilling techniques to access salt water about 10,000 feet underground.

It will separate the lithium from the salt water via a technology called direct lithium extraction, or DLE. The element will be converted to a battery-grade material, and the remaining salt water will be re-injected underground.

Earlier this year Goldman Sachs analysts called DLE a “potential game changing technology" with "the potential to significantly increase the supply of lithium ... though with the added bonus of offering ESG/sustainability benefits."

ExxonMobil says its technology will be two-thirds lower in carbon intensity than hard-rock mining.

“This is arguably more environmentally friendly. So I think maybe this wins over some converts to folks that say Exxon isn’t doing enough from a carbon perspective,” said Glickman. “It probably wins some brownie points from the green crowd”

EVs are expected to compose up to 29% of all new vehicle sales in the US by 2050. The Biden Administration's Inflation Reduction Act which gives tax credits for battery manufacturers using critical metals from the US and domestically made EVs is expected to accelerate their adoption.

Lithium batteries have been dubbed by Tesla's CEO Elon Musk (TSLA) as "the new oil." The EV giant is building a lithium refinery near Corpus Christi, Texas, targeting production by 2025.

The soft, silvery-white metal is in high demand, according to one lithium supplier whose customers include Tesla and LG Chem.

"We currently in the US produce around 20,000 tons of lithium hydroxide refined in the US. We think we need over 700,000 by the second half of this decade. So, 35 times more," Keith Phillips, CEO of Piedmont Lithium, told Yahoo Finance in an interview earlier this year.

"All of this is a little more future-facing — and the question I think is, where is all the material going to come from?" he added.

Exxon's announcement comes at a time when legacy automakers are scaling back EV plans amid signs of slowing demand and lithium prices have plummeted.

"We take a very long term view about market fundamentals," said ExxonMobil's Howarth. He added, "[We’ve got] great relationships with automakers and battery manufacturers," noting that "we’re fielding inquiries from them about how they can access the material that we’re planning to produce.

The company hasn’t revealed how much it's investing in its lithium initiative, or when it will see a return on investment. For now, Wall Street is willing to wait it out.

“It’s not earnings significant in this decade for them," said Peter McNally, global sector lead for industrials, materials, and energy at Third Bridge. "But it’s a company that has a lot of time to wait."

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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