As the energy transition picks up speed, strategic minerals are increasingly in demand. Lithium is one such mineral – a “critical mineral” on Canada’s Critical Minerals List.
Lithium is the lightest metallic element on earth, and an essential component of batteries for existing and emerging products and technologies.
Depending on the relevant geology, lithium may be either traditionally mined (e.g., hard rock mining) or extracted from brine, either from salt lakes or underground formation water. There are current and potential lithium hard rock exploration and mining opportunities in Manitoba and British Columbia. In addition, a significant potential source of lithium in Western Canada is from brine from underground formation water in northeast British Columbia, central Alberta, southern Saskatchewan and southwest Manitoba, including from active and abandoned oil and gas wells, and geothermal and other formations.
While lithium exploration companies in Alberta and Saskatchewan generally first considered extracting lithium from the produced water from oil wells, which is still a possibility, this has evolved into drilling directly for the highest concentrations of lithium via standalone wells. It’s possible that these wells may be producing from formations bearing other economic resources (e.g., oil and/or natural gas, or helium) or useful for other purposes (e.g., carbon capture, utilization and storage — CCUS).
This article focuses on current developments, the relevant regulatory framework, incentives and items to consider in relation to brine-based lithium exploration and development in Alberta and Saskatchewan.
Current developments, regulatory framework and incentives
Lithium exploration in Alberta and Saskatchewan has been intensifying in recent years.
E3 Lithium Ltd. (E3) has drilled test wells in east-central Alberta, which could lead to the development of a production facility in the near future. E3 has partnered with Imperial Oil with respect to potential lithium production from the Leduc field, and has received up to $27 million in funding from the federal government’s strategic innovation fund.
In Saskatchewan, there are currently three companies drilling for lithium: Prairie Lithium Corporation (Prairie Lithium), Grounded Lithium Corp. and Hub City Lithium Corp. Several other companies have acquired subsurface mineral rights for lithium but are not yet drilling. Prairie Lithium is the first company in Saskatchewan to convert a portion of its Crown lithium permits into Crown lithium leases, and has recently been acquired by Arizona Lithium Limited, an Australian public company.
The legislative and regulatory framework in Alberta and Saskatchewan for lithium exploration and production has its genesis in subsurface mining laws. This is primarily overseen (just recently, as noted below) in Alberta by the Alberta Energy Regulator (AER) and in Saskatchewan by the Ministry of Energy and Resources (MER). This can be contrasted with oil and gas, helium and CCUS development in those jurisdictions, which are generally governed by oil and gas laws but also overseen by the AER and MER, respectively.
In Alberta, the Mineral Resource Development Act (the Act) and corresponding regulations came into effect on March 1, 2023, governing brine-hosted mineral development, including lithium from formation water. Advancing Alberta’s critical minerals strategy, the Act centralizes the AER’s authority over minerals such as lithium along with other traditional energy resources like oil and gas. This centralization, along with the specifics of the Act and its regulations, will provide more certainty for potential critical mineral industry investors and stakeholders while assuring the public of responsible resource development.
On March 2, 2023, and in connection with the Act, the AER released Directive 090: Brine-Hosted Mineral Resource Development (Directive 090). Directive 090, along with the Brine-Hosted Mineral Resource Development Rules, outline processes and requirements unique to developing brine-hosted mineral resources, while incorporating applicable oil and gas regulatory instruments and concepts (including in relation to a holistic liability management framework and specific licensing requirements for wells, facilities, and pipelines). MER has also released a corresponding guide in Saskatchewan, providing a general overview of conducting lithium exploration and operations in Saskatchewan: Guidebook for Lithium from Formation Water (mineral brine) Exploration and Operations.
Crown royalty rates for lithium in Alberta and Saskatchewan are currently set on a lease-by-lease basis, but this is expected to be subsumed by applicable regulations in the near future.
With respect to specific incentives for lithium development, the Saskatchewan Government has expanded both its Oil and Gas Processing Investment Incentive (OGPII) and the Saskatchewan Petroleum Innovation Incentive (SPII) programs to include eligible lithium projects. OGPII provides eligible value-added lithium projects with transferable oil and gas royalty/freehold production tax credits worth 15% of eligible costs up to a maximum of $75 million per project. SPII provides eligible lithium innovation commercialization projects with transferable oil and gas royalty/freehold production tax credits worth 25% of eligible costs up to a max of $5 million per project.
Considerations
As with any emerging area, there are a number of considerations in relation to the lithium industry and the advancement of lithium projects in Western Canada.
One such consideration is that commercialization requires development and implementation of direct lithium extraction (DLE) technologies to become viable. E3 and Prairie Lithium continue to advance their own respective, proprietary DLE processes.
As noted above, the lithium sector in Alberta and Saskatchewan is generally governed by applicable mines and minerals legislation and regulations. While this has some potential for disconnect as it relates to the development of other resources (e.g., those governed by oil and gas legislation and regulations) in both Saskatchewan, and more recently, Alberta, resource project proponents can now primarily look to the same regulator to advance their respective projects, which is a key step for consistency and transparency; somewhat of a “same store, different aisle” approach.
Lithium project proponents must also be mindful of the potential for conflict among subsurface participants; including that economically viable lithium formations may also be targeted for CCUS projects. Related, increased competition for subsurface rights from other commodities and uses could crowd out lithium developments. With all the potential subsurface rights uses (including oil and gas, CCUS, helium, lithium, hydrogen and geothermal), jurisdictions will need to adapt and design the necessary regulations in an attempt to avoid future rights conflicts and management issues.
Despite the potential for conflict among subsurface participants, there is also the potential for co-development opportunities and cooperation for different resources. The area of mutual interest arrangement in southeast Saskatchewan between Prairie Lithium and DEEP Earth Energy Production Corp. relating to lithium and geothermal development is an excellent example of subsurface rights holders effectively working together.
MLT Aikins has advised on numerous mining and energy projects and has extensive experience in advising clients on the regulatory and commercial/legal aspects relating to such projects, including lithium. If you’re interested in advancing a lithium project, we would be delighted to advise you. Contact us to learn how we can help.
We recently published the Energy Playbook 2022 Year in Review which highlights key developments in Western Canada and discusses some of the risks and opportunities for the energy sector. Download the e-book now.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.