Will the Marcellus Save Elon Tesla?

Electric Cars, Energy Investing, Income Investing

This article covers one of my favorite news items from the last month. A new significant source of lithium has been discovered. The source is in the U.S., and the lithium is easily recoverable. The rub is that the new lithium source is closely tied to hydrocarbon energy production.

Here is a quote and graphic from an article on carboncredits.com:

Lithium is crucial for decarbonization efforts, especially in the EV sector. The global demand can surpass 2.4 million metric tons of lithium carbonate by 2030, doubling the 2025 forecast. BloombergNEF projects nearly a 5x increase in global lithium demand by the end of the decade, driven by rising battery demand for electric vehicles.

Note the predictions for a 500% increase in lithium demand in just a few years. Mining for anything is a long-term process, making a rapid ramp-up in lithium production an impossibility.

However, last week, this news hit the wires: “Researchers at the University of Pittsburgh found a goldmine of lithium in Pennsylvania.”

The researchers discovered that the wastewater from natural gas well fracking in the Marcellus Shale has significant amounts of lithium suspended in the water. The researchers estimate that lithium could supply up to 40% of the lithium needed in the U.S.—just from drilling operations in Pennsylvania’s Marcellus natural gas production. The shale and natural gas production extends into Ohio and West Virginia, so it’s possible there’s more lithium to be found.

Fracking of oil and gas wells involves pumping water and sand-like substances into the laterally drilled wells to crack open the shale and release hydrocarbons. The sand particles prop open the cracks, and the water is pumped out to be processed, reused, or disposed of. Fracking in the Marcellus uses a tremendous amount of water, and so there is a tremendous amount of potential lithium to be extracted from the fracking water.

The processes that can be used to remove lithium from the fracking water are not yet proven, but I have to believe that it’s a lot easier to extract the mineral from water than it is to dig it out of the side of a mountain.

Lithium production from wastewater seems likely to become another profit source for Marcellus-based natural gas producers and midstream companies. Among these, I am a fan of the management teams of Antero Resources (AR) and Antero Midstream (AM); I look forward to their comments during the second quarter earnings season.

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