Companies budgeted more money to explore lithium deposits in the US than in any other country in 2022, a year that had the most money allocated to lithium exploration in the last decade, according to S&P Global Market Intelligence data.

Despite high labor costs and strict environmental safeguards, the US has taken the lead in the search for lithium due in part to the Inflation Reduction Act (IRA), signed into law in August 2022, which contains incentives to produce critical minerals like lithium domestically, experts told S&P Global Commodity Insights.

"Specific regulations might incentivize an uptick in exploration in specific regions; I think that is to a certain extent what we already witnessed in North America in the wake of the IRA," said Michel Foucart, an associate partner focused on clean technology materials at consulting firm McKinsey.

The total lithium exploration budget in the US, which holds the second-largest lithium reserves and resources in the world, hit $93.5 million in 2022, up 93.2% from $48.4 million in 2021, data from Market Intelligence shows. Australia ranked second, allocating $92.5 million to exploration during the year, a 264% increase compared to 2021. Global lithium exploration budgets, meanwhile, rose 87.9% to $467.4 million, the highest ever in a decade.

The US was also the top destination for lithium exploration in 2020, although exploration budgets that year were less than half of 2022 levels as COVID-19 pandemic concerns weighed on the commodities sector.

Miners are searching for more lithium amid forecasts of a prolonged deficit starting in 2024. Estimates show that lithium demand will grow 161.3% by 2027 from 2022, according to Market Intelligence data.

"There is an expectation that in all the geographies ... in the coming years, lithium resources will significantly increase as the world has become much more interested in lithium and as additional exploration activities are taking place," Foucart said.

Policies drive lithium demand

The IRA will boost lithium companies with US operations.

"The Inflation Reduction Act has been helpful globally. North America is slowly becoming a choice of operation because of this reform as manufacturers want to gain more control and oversight over their supply chain," said a spokesperson for Lithium Americas Corp., which owns the Lithium Nevada, or Thacker Pass, project. The site hosts the third-largest primary reserves and resources among US lithium projects, according to Market Intelligence data.

"We have already seen a significant uptick in investment or partnership interest across the battery supply chain as a result of the IRA," the spokesperson said.

However, the IRA is not the only driver of the US budget uptick.

While there is "definitely opportunity within the US" for building battery supply chains related to the IRA, Stuart Crow, nonexecutive chairman of lithium producer Lake Resources NL, said lithium producers globally are also motivated to find more battery metals.

"Something that I've never seen in nearly 40 years in the financial markets is you've had a change in technology forced upon the wider population and then have that applied globally," said Crow, referring to electrification requirements, such as a ban on the sale of gas-powered cars by 2035 in the EU.

State policies are also driving the hunt for lithium. "In California in 2035, allegedly, they're going to ban the sales of petrol-driven vehicles. That's aggressive. And for the industry, it's quite challenging because we've got to then adapt and deliver to ensure that these legislations are adopted," Crow said.

Permitting times to stunt growth

Despite the recent jumps in lithium exploration budgets, production in the US may be limited by permitting times, industry analysts said. Miners have long complained that extended permitting timelines in the US slow the transition from discovery to production.

Keith Phillips, CEO and president of Piedmont Lithium Inc., said the IRA spurred interest in US lithium, but permitting and other challenges will constrain production.

"It generally takes 10 to even 20 years from first discovery to become an asset-producing lithium operation — just as it does for most commodities," said Phillips. "Building out resource projects is challenging in terms of permitting, production development, the supply chain and capital investment."

Trade groups like the National Mining Association have backed permitting changes, including those proposed by policymakers such as Sen. Joe Manchin (D-W.Va.) and House Republicans.

Despite obstacles, exploration in the US and elsewhere will need to continue to meet the growing demand for lithium.

"The current reserves that are in production that we can be utilizing for battery production in the next three to five years is not even close to enough [to meet demand]," said Will McDonough, CEO of EMG Advisors, an asset management company focused on energy transition commodities.

"We need to take a long view, and we need to start now so that 10 years from now, we have diversity [of supply], but that doesn't change the fact that the next few years here are going to be really hard."

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