Big Australian stays in its lane

Andrew Forrest and BHP have had a number of disputes over the years, ranging from rail and port access in the Pilbara to nickel exploration in Canada.

They do see eye to eye on something, however, in their determination to prove they’re right when almost everyone says they’re wrong.

In BHP’s case, the difference with the rest of the mining world can be found in its refusal to become involved with lithium as its rivals, including Rio Tinto, dip their corporate toes in lithium projects around the world.

In Mr Forrest’s case, the difference with the rest of the mining world can be found in his one-man campaign to replace fossil fuels with hydrogen.

And not just any old hydrogen; it has to be hydrogen made by splitting water molecules using renewable electricity.

Any internal opposition to the hydrogen cause at Fortescue Metals Group, the company Mr Forrest founded more than 20 years ago, has been sidelined.

Doubters have exited and been replaced, while shareholders treat Mr Forrest as a ‘rainmaker’, able to deliver fat dividends and a high share price.

Fortescue’s annual meeting last month was an endorsement of his passion, with most shareholders enthusiastically embracing their leader even as they voted against the generous salaries paid to executives.

It was a different story outside the meeting, as investment bank analysts maintained their sceptical stance with near-universal ‘sell’ recommendations on Fortescue, and warnings that profits from hydrogen will be a long time coming.

Convinced he can repeat the magic of his iron ore success, Mr Forrest shrugs off all criticism while doubling down on his denigration of fossil fuels.

Time will prove whether he’s right, just as it will prove whether BHP is making the right decision in dodging lithium: a metal that is already doing what Mr Forrest wants (working as a replacement for fossil fuels by putting power in the batteries of electric vehicles).

But the refusal of BHP to follow its rivals could prove to be one of its best decisions, rather than a missed opportunity.

Unlike most other mining companies, BHP has a deep understanding of fossil fuels.

And while many in Western Australia see lithium as power storage metal with no connection to the oil and gas industry, it actually does have a number of significant links.

A starting point in understanding BHP’s view of lithium is that it is a form of fuel, something ExxonMobil – BHP’s long-term partner in the Bass Strait oilfields off the coast of Victoria – fully appreciates.

That’s why the world’s second biggest oil and gas company (Saudi Aramco is the biggest) has dipped two of its toes into lithium, not as a WA-style hard-rock mine but as a pure liquid extraction and smart-technology project.

The main game in lithium for ExxonMobil is in the southern US state of Arkansas, where a trial project is under way using proven oil drilling technology to bring lithium-rich brine (salt water) to the surface and then pass it through a process called direct lithium extraction (DLE).

There’s nothing new about DLE.

It’s already being used on several South American lithium projects because it dramatically accelerates the removal of lithium from brine, reducing the months- or years-long process of drying brine in evaporative ponds to days, or even hours.

ExxonMobil’s second DLE interest is in Canada, where a small company, E3 Lithium, is starting a DLE project in an oilfield once worked by Imperial Oil, an ExxonMobil subsidiary.

What ExxonMobil envisions is a time when the US automotive industry – one of its major customers for fossil fuels – becomes a customer for its lithium.

Other big oil companies, including Chevron and Total, recognise the same trend in terms of customer demands, and how technology is making it easier to produce lithium using familiar oilfield handling systems to extract and process liquids.

An added incentive for the world’s big oil companies to become lithium producers is that they are under pressure to phase out their oil and gas interests and develop other businesses.

BHP is aware how the lithium-from-liquid business is developing and is not interested in competing with ExxonMobil or any other major oil producers keen to find a new business that uses their existing skills.

Time will tell whether BHP has made the right decision, just as it will judge Mr Forrest and his hydrogen.