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Largest Lithium Deposit in the World Suspends Output

  • Chile's SQM has announced that it has suspended operations at the Atacama salt flat due to widespread protests by an indigenous community.
  • Local groups have taken to the streets demanding to be included in talks between SQM and the government.
  • Some Indigenous leaders are open to supporting lithium extraction at a fair price.

Chile’s lithium mining giant, Sociedad Química y Minera de Chile S.A (NYSE:SQM), has announced that it has suspended operations at the Atacama salt flat due to widespread protests by an indigenous community. About 500 protesters of the indigenous Toconao community have blocked six different spots on public roads in the southern area of the salt flat, the world's largest lithium deposit, disrupting the movement of workers and mining equipment. Local groups have taken to the streets demanding to be included in talks between SQM and the government, claiming they were sidelined in an agreement that was recently signed between SQM and state-run copper firm Codelco. Chile is home to the world's largest lithium reserves, 90% of which are in the Atacama desert. 

Chile's millennial President Gabriel Boric has unveiled plans to nationalize the country’s lithium sector in a bid to boost the economy and protect biodiversity. Boric has pledged to achieve this by pioneering environmentally-friendly technology as well as engaging personally in talks with local Indigenous communities. He envisions expanding mining with public-private partnerships controlled by a new state lithium company. The Chilean government has opened negotiations with SQM for state control and plans to do so with Albemarle before its contract expires in 2043.

But local communities living around the salt flats, once tightly grouped under a regional council, are skeptical and are proving harder to work with. Some community leaders are demanding more profits be channeled their way, while others are strongly opposed to any new lithium mining within their lands. Related:Iran Turns to Dirty Heavy Fuel Oil amid Gas Shortage

"We're in the most arid desert and to exchange what we have in water and vegetation for a lithium battery is going to leave us with nothing," Francisco Mondaca, a civil engineer and head of the environmental unit of the Atacama Indigenous Council, has told Reuters.

"The Chilean government starts selling this lithium without asking us native people, the people who live here, the homeowners, the Lickan Antay people. This method of the Chilean state dealing with native communities never changes. When they want to install new mining operations, they roll over communities,"  Cristian Espindola, a  Toconao security officer on the Tara flat, has told Reuters, calling the move "irresponsible" and a continuation of previous policy.

Some Indigenous leaders are open to supporting lithium extraction at a fair price. Since 2017, Albemarle Corp. (NYSE:ALB) has given 3.5% of its sales each year to the Atacama Indigenous Council, divided evenly among the 18 member communities. That has frequently led to disagreements, "There are communities with ten people who get $2 million and communities with 3,000 who get the same," Alonso Barros, a lawyer for the council, has told Reuters. Some communities now plan to hold individual negotiations with the government, bypassing the council altogether. SQM has already adopted this model, striking individual deals with communities closest to its operations.

Ecuador’s NOC Declares Force Majeure 

Disruptions by local communities are becoming increasingly common in Latin America’s energy sector. Last month, Ecuador's state-run oil company, Petroecuadordeclared force majeure on three oil blocks following protests by the indigenous Kichwa community. The three blocks were producing ~142,000 barrels of oil equivalent before production fell to about 122,500 after the disruption. Petroecudor produces ~ 362,000 barrels of crude per day.

The community has accused Petroecuador of breaching agreements, though the company says it’s open to dialogue.  

This comes as yet another blow to Ecuador's beleaguered oil and gas sector. Last year, Ecuador’s energy minister Fernando Santos revealed that fuel imports have now surpassed exports for the first time in more than 50 years.  Ecuador's crude and fuel oil exports clocked in at $2.9bn during the first six months of 2023, $100m lower than imports. This marked the first time Ecuador’s fuel imports have exceeded exports ever since the country started exporting oil in 1972.

And, it’s becoming increasingly difficult to drill for more oil. Last year, Ecuadorians voted against drilling for oil in Yasuni National Park, home to the Tagaeri and Taromenani who live in self-isolation. Designated a world biosphere reserve by UNESCO in 1989, Yasuni encompasses a surface area of over 1 million hectares (2.5 million acres) and is home to 610 bird species, 121 reptiles species and139 amphibian species.  Ecuadorian President Guillermo Lasso has been desperately trying to advocate for oil drilling in Yasuni in a bid to boost the country’s flagging oil exports. Unfortunately, last year’s referendum means that Petroecuador will have to look elsewhere.S&P Global has projected that Ecuador's crude production will grow slightly to 510,000 b/d in the current year before gradually declining.

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By Alex Kimani for Oilprice.com

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