State-Centered Lithium Production Plan is Also an Energy Issue
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State-Centered Lithium Production Plan is Also an Energy Issue

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Cas Biekmann By Cas Biekmann | Journalist and Industry Analyst - Mon, 10/25/2021 - 15:22

Seemingly unrelated to other parts of the constitutional electricity reform proposal, the government included a provision that would grant it the exclusive right to extract lithium moving forward. At first glance, extracting the ‘white gold’ is a mining issue, yet lithium is firmly tied into the modern energy industry.

After Canadian mining exploration company Bacanora discovered the world’s largest lithium deposit, with approximate reserves totaling244 million tons, the discussion of lithium extraction has accelerated significantly. For now, lithium is still considered a specialty metal rather than a commodity. Traditionally, it has been used in the production of glass and ceramics and serves to treat bipolar disorder and depression. Regardless. lithium’s importance for the energy transition is clear as a central component used in rechargeable batteries in anything ranging from laptops to electric vehicles (EVs) and battery storage.

Anticipating its importance for the expanding energy transition, private companies have looked to extract Mexico’s significant lithium potential. But these plans go against the vision of an independent energy sector pushed by Mexico’s government, spearheaded by President López Obrador. During his regular morning press conference, the president repeatedly emphasized that lithium deposits should be exclusively developed by the public sector. To this end, the executive–has included a provision that would put any future lithium concessions in the government’s hand along with his controversial proposal to reform the energy sector. Even if the reform were not to pass, which is a realistic scenario noting  that the administration needs significant support from outside of its benches to pass it through Congress for a critical first step, López Obrador said he would deny any potential private lithium concessions. So far, it does appear that the government will respect previous concessions of which 27 are currently active: “An important point is what appears in the transitory: all previous contracts will be respected under the terms to which they were agreed, but the future part is what is most important, which is what is covered by the Mexican state,” says Gonzalo Monroy, director of Mexican energy consultancy GMEC to El Pais. What exactly the government plans to do with the lithium is still hazy, but some analysts suggest that López Obrador could benefit from private industry expertise. Countries such as Bolivia have similarly nationalized lithium production but struggle to get it out of the ground.  

Analysts expect that there is much to gain from lithium deposits: a 2015 discovery and subsequent project development by Bacanora has been valued at US$22.6 billion by S&P Global Market Intelligence Data. Nevertheless, such projects face exceptional perils because the technology to extract lithium from clay stone is still unproven in the market. What is more, the project is located in cartel-controlled territory and therefore liable to experience violence. Other looming risks such as water shortages and chemical spills pose further risks.

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