STUDY NO.

198
JANUARY 2022

ECONOMIC ASSESSMENT OF
LITHIUM PRODUCTION
POTENTIAL FROM CANADIAN
OIL AND GAS OPERATIONS

www.ceri.ca | info@ceri.ca

@ceri_canada

Canadian Energy Research Institute

Economic Assessment of Lithium Production Potential from Canadian Oil and Gas Operations xiii

Executive Summary
Rechargeable battery systems for use in electric vehicles, and energy storage related to renewable energy
generation, are garnering significant attention across the globe as a potential pathway towards supporting
decarbonization efforts of the transportation and energy generation sectors. Lithium-ion batteries, which
encompass a variety of battery chemistries including lithium iron phosphate, lithium manganese oxide,
lithium-ion polymers, and lithium nickel manganese cobalt oxide amongst others, hold a majority share
of the rechargeable battery market and are expected to continue to do so for the foreseeable future.
Significant demand growth in these markets is expected to put pressure on the battery supply chain
including the necessary raw lithium minerals and refined lithium chemicals. Forecast estimates suggest a
600% growth in lithium material demand through 2030 for lithium-ion battery production, increasing to
approximately 300,000 tonnes of lithium mineral (~1,597,000 tonnes of LCE), and up from the 3-year
trailing average of approximately 50,000 tonnes demand per year.

Presently, there are three main raw lithium mineral producing nations, including Australia, Chile, and
China, while China dominates the refined lithium chemical market. Mineral ore-based lithium minerals
make up much of the global raw material production, while brine-based production follow closely behind,
with small production quantities via recycling operations. Concentrated market shares and global supply
chain concerns, coupled with the necessity of lithium in the transition to a clean economy and economic
security, have resulted in lithium’s placement on Canada’s critical minerals list. From this, domestic
production of lithium could be prioritized over other international sources.

This Canadian Energy Research Institute (CERI) study provides an assessment of the technical and
economic potential for lithium mineral mining and lithium chemical production sourced from deep aquifer
brines located in Western Canada. The deep aquifer brines located in Alberta, British Columbia, and
Saskatchewan, are often found in association with or related to current or former oil and gas operations.
Lithium mineral production from Canadian Deep aquifer brines differ from other international lithium
from brine sources typically known as salars. Research and development into direct lithium extraction
(DLE) processes are unlocking the potential of these lower lithium concentration brine resources, with
selective ion‐exchange adsorbents, and selective membrane filtration with electrochemical
enhancements appearing to be the most advanced.

Two project investment base cases in each of the Western Provinces were compared to other lithium
production developments including mineral ore from Quebec and Australia, and brine from China and
Chile. The analysis output assessed the overall strength of potential lithium from deep aquifer brine
developments in Western Canada to support economic and investment decisions for new developments.
The two base cases considered within Western Canada were a standalone production scenario, where
brine and lithium production is the sole purpose of the development, and a by-production scenario, where
lithium enriched brine fluids are a secondary product of an existing process, in this case, brine fluids
produced during active oil and gas developments. A detailed lithium extraction process analysis was not
conducted in this assessment, as each potential development will have distinct process requirements.

January 2022
xiv Canadian Energy Research Institute

Information from numerous sources was utilized to understand the range of capital and operating
expenses associated with the various developments.

Detailed data on lithium process technologies, deep aquifer brines chemistry, capital and operating costs
were used to develop a Discounted Cash Flow (DCF) model. Output responses from the model include
Internal Rates of Return (IRR), Payback Periods, Profitability Index’s, After-Tax Supply Cost, Before Tax and
Royalties Supply Cost, and combined Tax and Royalty Costs. Variations of the lithium feedstock
concentrations, discount rates, and lithium chemical pricing scenarios were considered within the
evaluation. Under the base case model inputs, Figures E.1 and E.2 present the comparative IRR and
Profitability Index results of the various scenarios considered. Under both the by-production and
standalone production scenarios, developments within Alberta, British Columbia, and Saskatchewan,
were competitive with other developments located in Quebec and Chile, while less competitive as
compared to developments in Australia and China.

In each of the Western Canadian deep aquifer brine scenarios, the electrical energy requirements were
determined to be a significant contributor to the overall operating costs. With standalone production
significantly more so due to the energy required to pump the required brine volumes from the subsurface.
Project developers that can source low-cost electricity sources, through independent power purchase
agreements or deregulated markets will see their respective competitive advantage increase overall.
Further, given the early-stage development of DLE technologies, increases in extraction efficiency, and
overall operating costs should also be expected to improve over time as the technologies are advanced,
thus once again increasing their overall competitive advantage.

Figure E.1: Summary of Base Case After-Tax IRR

60.00%
49.38%
50.00%
40.64%
40.00% 34.15%
31.89% 32.62% 32.91%
29.16% 30.82%
IRR (%)

28.17% 28.86%
30.00%

20.00%

10.00%

0.00%
New Facility

New Facility

New Facility

New Facility
By-production

By-production

By-production

Standalone

Standalone

Standalone

AB BC SK AB BC SK QC AU CH CI

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Economic Assessment of Lithium Production Potential from Canadian Oil and Gas Operations xv

Figure E.2: Summary of Base Case After-Tax Profitability Index

7.00 6.43

6.00

5.00 4.71
Profitability Index

3.83 3.63
4.00
2.81 2.86 2.93 2.73
3.00 2.62 2.66

2.00

1.00

0.00

New Facility

New Facility

New Facility

New Facility
By-production

By-production

By-production

Standalone

Standalone

Standalone
AB BC SK AB BC SK QC AU CH CI

Notably, the burden of taxes and royalties on lithium mineral production have a significant impact on the
scenario's market competitiveness. Figure E.3 presents the combined financial burden on the various
jurisdictions. The effect on Chilean developments is significant enough to lower its overall
competitiveness to align with Western Canadian by-production and standalone developments, even with
its significantly higher lithium concentration feedstock brines. The combined burden of royalty and taxes
on by-production developments located in Alberta, British Columbia and Saskatchewan were determined
to be $2,008 USD, $2,310 USD, and $1,773 USD per tonne of lithium hydroxide monohydrate produced,
respectively. While the combined burden of royalty and taxes on standalone developments located in
Alberta, British Columbia and Saskatchewan were determined to be $2,150 USD, $2,471 USD, and $1,890
USD per tonne of lithium hydroxide monohydrate produced, respectively. Comparatively, the burden of
royalty and taxes on Chilean production was determined to be as high as $4,742 USD per tonne of lithium
hydroxide monohydrate produced. The lower financial burden placed on Western Canadian
developments allow for potential market entry as DLE technology is advanced.

January 2022
xvi Canadian Energy Research Institute

Figure E.3: Summary of Base Case Discounted Taxes and Royalties

$3,000.00

$2,500.00

$2,000.00

$1,500.00

$1,000.00

$500.00

$-

Existing Facility

Existing Facility

Existing Facility
By-production

By-production

By-production

Standalone

Standalone

Standalone

Model Facility

Model Facility

Model Facility

Model Facility
AB BC SK AB BC SK QC AU CH CI AU CH CI

The study also compared the environmental impacts of the current lithium mineral production and
refining processes, versus that of the DLE processes. As both consumers and battery manufacturers
expand their focus on sustainable manufacturing and ESG performance indicators, environmental impacts
of current lithium mineral production and lithium chemical refining are a key consideration. Western
Canadian DLE from deep aquifer brines can offer several environmental advantages over the currently
dominant mineral ore and evaporative and precipitative production methods. DLE has the potential to
reduce energy and emissions intensity, land-use impacts, and waste generation as compared to open-pit
mining, production, and refining. While the unique environmental conditions, geography, and lithium
concentrations of salar brine resources make it difficult for Western Canadian DLE to compete from an
energy consumption and emissions intensity perspective, DLE can however reduce water consumption,
land use impacts, and waste generation in comparison. Life cycle assessment in early-stage DLE
development should be utilized in the realization and reduction of environmental impacts before
deployment of capital. Further, the potential to utilize brownfield oil and gas infrastructure in a by-
production scenario can help minimize the impact of lithium production for Western Canadian producers.

Analysis of ESG and Sustainability reports from various global lithium producers established a common
focus within the reporting efforts. The common ESG indicators considered material for lithium
production and mining operations included:

• Environmental pillar: GHG emissions, water usage, waste disposal and biodiversity.
• Social pillar: local community engagement and development.

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Economic Assessment of Lithium Production Potential from Canadian Oil and Gas Operations xvii

• Governance pillar: corporate governance, anti-corruption, investment activities, risk

management, and business conduct.

Based on the analysis of the key ESG indicators from reports issued by various operating lithium producers,
the most practical framework for a market entrant would be in the utilization of the Global Reporting
Initiative (GRI) standards, given the coverage of applicable indicators for reporting. Further, the GRI
reporting framework has detailed insight and procedures for reporting ESGs, valuable for Canadian
organizations with lithium extraction and production business models.

There is increased pressure from both battery and automotive manufacturers for transparency across
their entire supply chain. Several manufacturers have recommended that their raw mineral suppliers
participate in the Initiative for Responsible Mining Assurance (IRMA) which has developed guidelines for
the responsible extraction of raw materials requirements to ensure their strict environmental and social
standards are met. The top-down approach from manufacturers regarding sustainability increases the
pressure on miners to report transparent ESG indicators. Lithium producers located in Western Canada
should leverage the jurisdictions transparent regulations and open reporting of environmental, social and
governance issues to the benefit of the respective development. Our analysis showed that lithium
production from deep aquifer brines located within Western Canada can be competitive against other
international producing regions. While more challenged economically at this time, leveraging
comparatively reduced environmental impacts, transparent and reportable ESG metrics, stable
government policies, taxes and royalties, a potential preference for more domestic critical mineral
production, and a lower risk investment environment could provide the necessary boost to develop the
nascent industry within Canada. Short term increases in lithium demand are expected to be fulfilled by
marginal product from existing facility’s available capacity, coupled with strategic facility capacity
expansions, given their lower respective supply costs and ease of supply increases. However, there is
limited capacity for this production profile type, and as such, new facility investment is necessary to fulfill
the medium and long terms demands. The target market for Western Canadian operations should be
designed specifically to address and fulfill new market demand in which significant growth is expected.
As DLE technology can be advanced, with reductions in the associated capital and operating costs
expected the competitiveness of Western Canadian lithium from deep aquifer brines via standalone or
by-production scenarios would be further improved. Existing brine production and associated
infrastructure from oil and gas related by-production could be used to support the advancement DLE
technologies and an understanding of the resources in Western Canada. This is turn could support
standalone lithium developments to create a sustainable industry necessary to fulfill societies growing
demand for rechargeable lithium batteries.

January 2022