LITTLE ROCK, Arkansas (Reuters) -Arkansas faces stiff Chinese competition, sagging market prices and technological challenges as it vies to become the hub for U.S. lithium production, obstacles that state officials and industry executives said this week are surmountable.

The southern state, the birthplace of former U.S. President Bill Clinton, sits atop the Smackover, an underground geological formation stretching from Florida to Texas filled with salty brines containing more than 5 million metric tons of lithium, according to the U.S. Geological Survey.

That is enough lithium to make millions of electric vehicle batteries and other devices if the metal can be filtered using direct lithium extraction (DLE), something that has never before been done at commercial scale.

LITHIUM PRICES PLUNGING

Beyond technical challenges, Arkansas must contend with a lithium price drop of more than 80% in the past 18 months, according to Benchmark Mineral Intelligence, a fall fueled by oversupply from Chinese rivals.

"What we're all trying to do is make Arkansas as competitive as it possibly can be," Patrick Howarth, who runs Exxon Mobil's ( XOM ) lithium business, told the Arkansas Lithium Innovation Summit in Little Rock. 

Exxon, which has delayed by at least a year its lithium production plans to 2028, Standard Lithium ( SLI ) and Chevron ( CVX ) are among the companies rushing to prove DLE can work in Arkansas despite low prices. 

Arkansas is betting its workforce's industrial expertise, electricity rates among the lowest in the U.S. and a permissive regulatory scheme will help it become the country's lithium hub. The only U.S. lithium mine is in Nevada, operated by Albemarle. 

"We spend a lot of time persuading people outside of Arkansas that this opportunity is real, that it can be low cost in terms of production, that it can become a credible supply of lithium chemicals for North America for decades to come," said Andy Robinson, president of Standard Lithium ( SLI ), which is developing an Arkansas DLE project with Equinor. 

GOVERNOR SEES DLE SUCCEEDING IN STATE

Roughly 860 people attended the summit, an increase of 15% from a similar event held last year.

Arkansas Governor Sarah Huckabee Sanders said in an interview she is confident DLE can succeed.

"Big companies like that don't put hundreds of millions of dollars into things if they don't feel like they see a path forward," said Sanders, who was press secretary for President Donald Trump during his first term and elected as governor in 2022.    

The governor said she does not believe the state's lithium industry needs government to guarantee a minimum price for its product - something Trump officials have discussed for critical minerals.

Sanders added she does not think it is a disconnect that she wants Arkansas to be a major lithium producer but does not own an EV. 

"I don't own rockets, but it's still something we're really good at manufacturing," Sanders said, referring to the state's rocket industry. 

"I don't think you have to own a product to be able to make it in your state, to be able to sell it and to create an environment where those businesses can really do well."