March 25 (Reuters) - Washington's drive to make the

United States a major global lithium producer is being held back

by a confusing mix of state regulations that are deterring

developers and hampering efforts to break China's control of the

critical minerals sector.

Across Texas, Louisiana and other mineral-rich states, it's

unclear who owns the millions of metric tons of lithium locked

in salty brines underneath U.S. soils, how the battery metal

should be valued by regulators and who ultimately should pay to

process it into a form usable by manufacturers.

These legal ambiguities are the latest impediment -

alongside technical challenges and sagging commodity prices - to

America's plans to produce more of its own lithium and wean the

country off foreign supplies, according to interviews with

regulators from seven U.S. states, legal experts, politicians,

landowners, investors, royalty firms, industry executives and

consultants.

U.S. federal officials in Washington are largely powerless

to force states to change regulations, leaving the Biden

administration's aggressive electrification targets beholden to

the pace at which local officials update outdated statutes.

Global lithium demand is expected to outpace supply by

500,000 metric tons annually by 2030. Unless the United States

boosts its own production, the country's manufacturers will find

themselves reliant on China and others for supply as the end of

the decade approaches, analysts warn.

The Texas legislature, for example, last year approved a law

- supported by Standard Lithium ( SLI ) and Chevron ( CVX ) -

that instructed the state's oilfield regulator to craft

regulations for lithium extraction from brines. But the

regulator, known as the Railroad Commission of Texas, told

Reuters is has no timeline for when it will finish that task.

"I don't even know where to start in terms of working with

the local authorities to get brine mineral rights in Texas. It's

confusing," said Brady Murphy, CEO of Tetra Technologies

, which aims to produce lithium with partner Exxon Mobil ( XOM )

.

The Railroad Commission of Texas told Reuters it plans

to release its rules for public comment once they are

formulated, and then the three commissioners will vote on them.

While the 1972 U.S. Clean Water Act gives Washington

regulatory power over water extraction and reinjection across

the country, state officials have autonomy to govern other parts

of the process.

Tetra, which also produces chemicals for water treatment and

recycling, has tested more than 200 brine samples from Texas,

but so far has opted not to do business in the Lone Star State

due to legal uncertainty, Murphy said.

Koch Industries-backed Standard Lithium ( SLI ) said last October it

had drilled a Texas brine well with lithium concentrations

nearly as high as those found in parts of Chile, which has the

world's largest lithium reserves. But Standard can't touch that

lithium until regulations are set.

"We're taking a measured approach to Texas," said Robert

Mintak, Standard's CEO.

REGULATORY RISKS

In Oklahoma, which has several brine deposits, the Oklahoma

Corporation Commission - which oversees oil and gas development

- said it has no jurisdiction over lithium production and

royalties, and referred comment to the state's Department of

Mines, which said it also does not oversee lithium.

In Utah, the state legislature and governor approved a bill

last year aimed at preventing water levels from dropping in the

lithium-rich Great Salt Lake. That led Compass Minerals ( CMP )

to abandon plans last month to produce lithium for Ford in

the imperiled lake and disband its entire lithium team, saying

"regulatory risks have increased significantly around this

project."

And in Louisiana, the lack of state guidelines is fueling

concerns from legal experts that producers could trespass on

neighboring land when they reinject brine after filtering out

lithium. Reinjection is a key step to preserve underground water

table levels.

"There'll likely need to be a court fight about whether they

have the right to do that," said Keith Hall, director of the

Louisiana State University's Mineral Law Institute.

The Louisiana Department of Energy and Natural Resources

told Reuters it does not have existing statutes related to

lithium.

The path is even murkier for water that is extracted

alongside crude oil. Oil companies for decades have paid to

dispose of that produced water, which contains lithium that

could be sold for a profit.

With lithium demand now on the rise, landowners, oil

producers, and companies that oversee water disposal are

tussling over ownership.

A Texas state appeals court last year ruled that COG

Operating controls such water that it extracts alongside crude

oil, but the ruling only applied to that specific case. And not

all oilfield leases include clauses for who owns other minerals

extracted alongside oil, sparking questions as to whether

lithium is covered by existing leases or if companies need to

negotiate new contracts with landowners.

"That is going to have a chilling effect on capital

investments until it's resolved," said Jamie Rhymes, an attorney

specializing in minerals contracts at the Liskow & Lewis law

firm.

ARKANSAS

Legal experts told Reuters that it's unclear how lithium

will be valued for royalty payouts given the cost for equipment

to filter the battery metal from brine, which unlike oil

typically has no market value itself.

In Arkansas, where Tetra, Exxon, Albemarle and

Standard Lithium ( SLI ) hope to produce the battery metal within a few

years, state officials have been debating a royalty structure to

compensate landowners since 2018.

Shane Khoury, who oversees the body that will set the

royalty rate in his role as secretary of the Arkansas Department

of Energy and Environment, said the state may charge different

rates depending how much lithium is in a brine deposit.

Albemarle, the world's largest lithium producer with

operations in the United States, Chile, Australia, China and

elsewhere, plans to open a pilot facility in Arkansas by the end

of the year and said it has chosen not to - for now - submit a

royalty proposal while it watches Standard's royalty review

process.

"We're waiting to see how (the Arkansas royalty

situation) evolves," said Netha Johnson, the Albemarle executive

overseeing the company's Arkansas lithium project. "There's a

couple of fundamental differences between the way that brine

royalties could be calculated."

Exxon also has not submitted a royalty proposal despite

spending more than $100 million in Arkansas and on a Houston

test facility as part of an aggressive move into lithium, but

said it hopes the state's royalty will be uniform across the

state.

California, which has giant lithium reserves in its Salton

Sea region east of Los Angeles, last year imposed a flat-rate

tax for each metric ton of lithium. The move has pushed back

development of projects slated to supply General Motors ( GM )

and Stellantis ( STLA ). California's governor and legislators

have defended the tax as a necessary way to ensure all residents

benefit from the energy transition.

Nevada, which has the only commercial U.S. lithium

operation - a small mine operated by Albemarle - has taxed

minerals for more than 100 years, but at a rate based on each

facility's revenue.

Industry analysts expect regulations to be eventually set in

various states, but predicting when is anyone's guess.

"The uncertainty is the scariest part," said the owner of

lithium-rich acreage across several states who declined to be

named so as not to offend regulators. "How do you develop these

projects and muster financial support without a regulatory

structure in place?"