A discovery near the middle of the United States might have ASX lithium share investors sweating this week.
Many companies in the lithium sector have been chewed up and spat back out over the last year. Even while big players are cutting production, the price of the battery-critical element continues to hover around the lowest level witnessed in three years and eight months.
As with all commodities, the price is a function of supply and demand. For the last two years, producers have inundated the market with the electrifying metal, exceeding the muted appetite among electric vehicle manufacturers. A further reduction of supply or a revival in demand is necessary to rejuvenate lithium prices.
However, news earlier in the week hints at further risk of oversupply.
AI-predicted discovery
Arkansas could hold the keys to a sizeable lithium deposit, according to a recent study.
The United States Geological Survey (USGS) teamed up with the Arkansas Department of Energy and Environment's Office of the State Geologist to analyse the Smackover Formation in the southern state. Through the study, the team estimated how much lithium might be contained in the salty brine.
Researchers believe 4.5 million to 17 million tonnes of lithium are trapped in the Smackover Formation. This approximation was made using predictive modelling with the help of artificial intelligence. Samples from the site were fed into an AI model, which was compared with past lithium concentration data to output a best guess.
The outcome of the study was further explained by principal researcher Katherine Knierim, stating:
Our research was able to estimate total lithium present in the southwestern portion of the Smackover in Arkansas for the first time.
We estimate there is enough dissolved lithium present in that region to replace U.S. imports of lithium and more. It is important to caution that these estimates are an in-place assessment. We have not estimated what is technically recoverable based on newer methods to extract lithium from brines.
Just how much lithium are we talking about? According to USGS, the lower figure of 4.5 million tonnes would be more than nine times the global demand from EVs in 2030, which cites projections made by the International Energy Agency (IEA).
For reference, the IEA estimated 531,000 kilotonnes of total lithium demand by 2030.
Will it hurt ASX lithium shares?
Let's cut to the chase. The short answer is no — not right now.
Lithium in the ground does not impact the saleable price because it cannot affect supply. A company would need to conduct further testing and spend millions on construction before whatever is within Smackover can reach the market, a process that can take several years.
Secondly, there's a difference between lithium reserve and refined lithium.
Arkansas' discovery is a 4.5 million to 17 million tonne lithium reserve. For context, the Pilbara Minerals Ltd (ASX: PLS) Pilgangoora operation has an ore reserve of 209 million tonnes. What matters is the grade of the reserve, which determines the actual refinable amount of lithium.
Based on this, ASX lithium share investors probably don't need to worry too much about Smackover.
