Methanol is becoming more exciting than hydrogen as a clean fuel to help decarbonize transport. Specifically, blue methanol and bio-methanol are 65-75% less CO2-intensive than oil products, while they can already earn 10% IRRs at c$3/gallon-equivalent prices. Unlike hydrogen, it is simple to transport and integrate methanol with pre-existing vehicles. Hence this 21-page note outlines the opportunity.
The objectives and challenges of hydrogen are summarized on pages 2-3. We show that clean methanol can satisfy the objectives without incurring the challenges.
An overview of the methanol market is given on pages 4-5, to frame the opportunity, particularly in transportation fuels and cleaner chemicals.
Conventional methanol production is described on 6-8. We focus upon the chemistry, the costs, the economics and the CO2 intensity.
Bio-methanol is modelled on pages 9-10. We also focus upon the costs, economics and CO2 intensity, including an opportunity for carbon-negative fuels.
Blue methanol is outlined on pages 11-15. Converting CO2 and hydrogen into methanol is fully commercial, based on recent case studies, which we also use to model the economics and CO2 credentials.
Green methanol is more expensive for little incremental CO2 reduction, and indeed some routes to green methanol production are actually higher-CO2 (pages 16-18).
Companies in the methanol value chain are profiled on pages 19-20. We focus upon leading incumbents, technology providers and private companies commercializing clean methanol.
Our conclusion is that methanol could excite decision-makers in 2021, the way that hydrogen excited in 2020. This thesis is spelled out on page 21.
The unmitigated costs of climate change would likely reach $1.5trn per year after 2050, exerting an enormous toll on the world. However, the costs of the energy transition will exceed $3trn per year. This might seem to undermine the economic justification for combatting climate change. Does this paradox matter? And what does it mean?
Our lowest cost roadmap to reach ‘net zero’ CO2 by 2050 is outlined on pages 2-3, re-capping the work we published at the end of 2020 (note here). We estimated that the best route to net zero will be costing an incremental $3trn per annum by the 2040s.
Polarized perspectives on our roadmap are discussed on pages 4-6. Some decision-makers argue that costs are irrelevant when it comes to saving the planet. Others fear energy transition initiatives are overly expensive and will achieve very little.
Hence we have estimated the costs of unmitigated climate change in the latter half of the 21st century, using a framework derived from the International Panel on Climate Change (IPCC). Our estimate for $1.5trn per annum of cost is explained on pages 7-10.
It gets worse. Climate change is not fully prevented by reaching ‘net zero’ by 2050. There are also risks of creating geopolitical imbalances. These issues are explored on pages 11-12.
What does it mean? Thunder Said Energy is a research consultancy focused upon economic opportunities that can drive the energy transition. There is still good justification for this objective. Hence we conclude the note with six possible resolutions to our paradox, discussed on pages 13-14.
Resolving the paradox? We would welcome your own opinions on our paradox in a new survey, linked here. We will share anonymized responses with all those who contribute.
Our lowest cost route to an energy transition was spelled out in December-2020 (note below), looking across 90 prior research reports and 270 data-files. It is fully possible to reach ‘net zero’ by 2050. The economic costs ratchet up to $3trn per annum.
However, based on the latest disclosures from the IPCC, we estimate that the unmitigated costs of climate change are only $1.5trn per year. So paradoxically, the energy transition appears to cost 2x more than climate change itself (note below).
Thank you for participating in our survey below. We are very grateful for your opinions and intuitions on resolving this paradox…
This 25-page note outlines our top ten themes for 2021. We fear Energy Transition will continue building into an investment bubble. But also appearing on the horizon this year are three triggers to burst the bubble. We continue to prefer non-obvious opportunities in the transition and companies with leading technologies.
(1) Climate policies are at an increasing risk of blowing ‘investment bubbles’ (pages 2-4)
(2) Renewables’ grid volatility is also reaching new levels, creating a new opportunity to absorb excess power supplies (pages 5-7)
(3) Nature-based solutions are continuing to find favor, and may start displacing higher-cost transition technologies from the cost curve (pages 8-9).
(4) Conventional energy demand recovers post-COVID, and will lead to eventual under-supply in conventional oil and gas markets (pages 10-13).
(5) Shale productivity is likely to disappoint during the recovery, albeit temporarily (pages 14-15).
(6) Project FIDs will need to accelerate, but we think new energies projects will still outpace conventional energy projects (pages 16-17)
(7) Relativism ramps. The market will become increasingly discerning between low-CO2 and high-CO2 companies within different industrial sub-segments (pages 18-20).
(8) Geopolitical flashpoints are going to flare up around climate policies (pages 21-22).
(9) Non-obvious opportunities in the Energy Transition are most exciting, hence we re-cap most salient examples from our work to-date (page 23).
We published 250 new research notes and data-files on our website in 2020. The purpose of this review is to highlight the ‘top ten’ reports. This includes our economic roadmap to reaching ‘Net Zero’, the greatest risks and opportunities that we have found in the transition, and the analysis that has most shaped our views.
(1) The single most powerful decarbonization option in all of our work is reforestation. Costs are as low as $3-10/ton. There is 15GTpa of carbon-offsetting potential (note here). But this is not an investment. It is an act of charity. It matters because increasing numbers of decision-makers are choosing to restore nature and offset their CO2 at low cost, rather than purchasing higher-cost new energies, which could make them uncompetitive.
(2) Restoring soil carbon is equally powerful, and surprisingly fascinating. Agricultural soil has lost three-quarters of its carbon since pre-industrial times. Restoring it could offset another 3-15GTpa of CO2. With a $30/ton CO2 price, mid-Western farmers could make more money farming carbon than corn. The theme would also disrupt the global fertilizer industry.
(3) Is energy transition becoming a bubble? If you read a single piece of research on energy transition this year, I would recommend this one. We fear an “investment bubble” is forming in the energy transition space. Half of all transition technologies we have evaluated are on the “wrong” side of the cost curve and may be displaced by the nature based solutions we described above.. Deflation and profitability are often antagonistic. And some spaces have seen incredible run-ups despite challenging economics and overlooked technical challenges. The purpose of this note is to suggest pragmatic responses.
(4) The green hydrogen economy may be the largest bubble. Our work this year has assessed the theme in detail, both in power markets and as a transportation fuel. Costs are immutably high. This is due to the laws of physics and thermodynamics. Transporting green hydrogen will also be more challenge than any other commodity in history (note here). The note below is the best overview of our work. Many expect c80% deflation in the total costs of electrolysers. Our data suggest this is impossible. We welcome challenges to these numbers, but so far, have not received any from our contacts in the hydrogen industry.
(5) The green hydrogen bubble will give way to blue. Blue hydrogen is not just a low-carbon fuel. More importantly, it is the most economic and practical route to establishing large-scale carbon capture and storage. Economics are 80-90% superior to green hydrogen. Risks are materially lower. Our research note ends by identifying projects that should reach FID in 2021, and a public company with a clear ‘moat’ in the space.
(7) Patent analysis can give you an edge identifying opportunities in the energy transition and, and avoiding hidden risks, particularly as bubbles build. Our note below lays out six themes, including worked examples, based on reviewing over 1M patents.
(8) Our most economic roadmap to Net Zero ties together all of our work. We find it is possible to decarbonize global energy by 2050, even as global energy demand rises by 65%. The total cost of decarbonization is $50trn, which is almost halved versus last year’s estimate in December-2019. The fully decarbonized energy system still contains 85Mbpd of oil and 375TCF per year of natural gas.
(9) Oil and gas are heading for devastating under-supply if our analysis is correct. This is historically precedented during technology transitions. Below we have evaluated supply-demand and pricing in the whale oil industry from 1805-1905, as it was disrupted by rock oil and later by electric lighting. Whale oil prices outperformed over this timeframe, as supply peaked before demand. Our latest our oil market outlook is here, and our gas market outlook is here.
(10) The optimal strategy for incumbent energy companies is thus suggested in our research note below. We argue that Energy Majors embracing these principles can uplift their valuations by c50% (assuming flat commodity prices).
This 26-page report aggregates all of our work in 2020 and presents the best route to reach ‘net zero’ CO2. The global energy system can be fully decarbonized by 2050, for an average CO2 cost of $42/ton. Remarkably, this is almost half the cost foreseen one year ago. 85Mbpd of oil and 375TCF pa of gas are still required in this 2050 energy system, together with efficiency technologies, carbon capture and offsets.
Our modelling framework for the decarbonization of global energy is explained on pages 2-6, looking across 90 thematic research reports and 270 models, which have featured in our work to-date. The aim is to find the lowest-cost route to meeting global energy demand, while removing all of the CO2.
How can this be a decarbonized energy system if there is still 85Mbpd of oil and 375TCF of gas? Our bridge includes carbon capture and carbon offset, as shown on page 9.
Nature based solutions are profiled in detail on pages 10-14. This includes data into the CO uptake rates in reforestation and soil carbon projects, and quantification of the land that is available for both.
Carbon capture technologies are profiled in detail on pages 15-18. This is not simple CCS, but an array of 35GTpa potential, spanning a dozen themes, evaluated in our work.
Why not rely more on renewables in the roadmap? Our work already assumes the ascent of wind and solar will double in speed, and reach 17% of total global energy by 2050. This would be a monumental achievement. But it is challenging to do more, as outlined on pages 19-24.
The best demand-side and efficiency technologies are presented briefly on page 25, including links to detailed research reports, underlying each theme.
What has changed? The report closes by comparing our latest decarbonization roadmap, in December-2020, with the roadmap we laid out in December-2019. The outlook has improved most for nature-based solutions, efficiency technologies and backing up renewables’ volatility.
A fully decarbonized energy system may still require 85Mbpd of oil and 375TCF of gas. Hence a focus of our research is to find improved technologies that can improve the efficieny and lower the CO2 intensity of oil and gas production. This note profiles the exciting new prospect of ‘wet sand’ for hydraulic fracturing in shale plays. It can reduce breakeven costs up to $1/bbl and CO2 intensity up to 0.6kg/bbl.
Wet sand is defined as having a moisture content between 1% and 10% by weight. This is opposed to the 43MTpa of dry sand supplied in the Permian in 2018, where all the moisture has been burned away in a kiln, shortly after the washing process.
Wet sand has reached technical maturity. In a December-2020 technical paper, PropX described a patent pending process to “screen, transport, deliver and meter wet sand from local mines to the frac blender, bypassing the drying process altogether”.
A full trial of wet sand has also been undertaken at a 10-well pad in Oklahoma, implied to have been operated by Ovintiv. Over 4Mlbs of sand per day was delivered and pumped downhole. The system was reliable and consistently flowed wet sand with 4-8% moisture content.
The advantages: cost and CO2 savings?
Cost savings from pumping wet sand are estimated at $2-10/ton. The largest capital component is in potential capex savings, as the kiln at a sand mine usually comprises $20-50M (including associated drying, storage and conveyance) out of a $180M total budget at a 2.5MTpa mine. A second saving is in opex, as labor costs average $5/ton across 15 surveyed sand mines (chart below), and the drying unit requires one-third of the labor force. Finally, there are fuel savings, likely around $1/ton.
After modelling the economics below, our base case estimate is that a greenfield sand mine can lower its total production costs by $5/ton, with a shift from dry to wet sand.
To test the economic impacts of a $5/ton reduction in sand costs, we turn to our economic model below. At a large, sand-intensive well, we estimate $0.1M of potential savings. This flows through to a $0.5/bbl reduction in the well’s NPV10 breakeven. However, the savings will be lower at industry average wells, which only consume 10-20M lbs of proppand.
CO2 savings are realized by cutting out fuel demand in the drying kilns at sand mines, typically at 0.3-0.4mmbtu per ton of dried sand, requiring 0.4mcf of gas, whose combustion would release 20kg of CO2. Again, we can run the savings through our models (below) and estimate CO2 could be reduced by up to 0.6kg/boe, which is not bad against a baseline of 26kg/boe of total upstream Scope 1 and Scope 2.
HSE advantages are also noted in the technical paper. Fugitive silica dust is materially reduced, as wet sand particles adhere to one-another. This helps meet OSHA’s 2016 silica exposure limits, below 50mg/m3 of air, averaged over an 8-hour shift.
The challenges: is wet sand more difficult to pump?
The challenge of wet sand is that wet san grains cohere to one-another, which impedes their smooth flow and can cause sand to “clump together”. In cold climates (but probably not Texas!) the water molecules can also freeze. Hence, PropX notes three areas where it has needed to innovate the sand supply chain.
Last-mile. It is recommended to use containers (rather than trailers) to transport sand to well-sites. These can be lifted from trucks onto the wellsite with “the fewest touch points and the least modification”. A typical container system carries 23,000-27,000lbs of sand, with a capacity of 28,500 lbs. These volumes have been emulated by PropX, by enlarging the container opening (from 20” diameter to 6’x6’, and covering it with a tarp, as is widely used in transportation of agricultural products.
Emptying containers is easy with dry sand as it flows naturally, emptying in c60-seconds. Wet sand containers need to be emptied into a blender hopper. This likely takes 120-seconds, via a 100bpm slurry rate carrying 2.7ppg of sand. PropX has undertaken successful trials placing the sand containers on a vibration table, with a sloped discharge cone, silicon-inserts to lower friction and a larger discharge exit gate.
Sand delivery to the well must occur at a rate of 16,800 lbs of sand per minute, for example, comprising 80-100bpm of slurry carrying 0.5-4.0ppg of sand. A unique belt has been designed which can carry up to 7.9ppg at up to 100bpm. It includes a metering system and screwless surge hopper, also on vibrating tables, to enable accurate, reliable and continuous pumping of wet sand without the risk of bridging.
Sand has undergone huge changes in the past, which suggests this supply chain is not ossified. For example, back in 2017, 90% of sand was shipped by rail to the Permian from Minnesota, Illinois and Wisconsin. Today there are 50 “local” sand mines in the Permian basin, with 107MTpa of capacity. This has reduced transload cost, and allowed sand pricing to run as low as $20/ton recently. Further deflation may lie ahead.
Why it matters: deflation and CO2 reduction?
A fully decarbonized energy system may still require 85Mbpd of oil and 375TCF of gas, as per the conclusion of our research to date. Hence a focus of our research is to find improved technologies that can improve the efficieny and lower the CO2 intensity of oil and gas production.
We still see great productivity enhancements ahead for the shale industry, after reviewing over 1,000 technical papers. A 5% CAGR is possible from 2019’s baseline.
There is also great potential for shale to lower its CO2 intensity, potentially towards zero (Scope 1 and 2 basis), as argued in our recent research (below). The potential is further enhanced by using waste water to cultivate nature based solutions (also below).
Shale thus sets the marginal cost in oil markets, as our numbers require of 2.5Mbpd of shale growth each year from 2022-2025 (models below).
But nearer-term we see risks, that sentiment will sour around shale capex, while productivity could temporarily disappoint during the COVID recovery.
2.3bn hectares of land have been deforested, releasing c25% of all anthropogenic emissions. This 19-page note reviews the technical literature, gathers detailed data and concludes 1.2bn hectares can be reforested. Consequently, there is room for 85Mbpd of oil and 400TCF of gas in a decarbonized energy system, while half of all ‘new energies’ technologies are overly expensive and may not be needed in the transition.
Scale matters for nature based solutions to climate change, as the ultimate running room for reforestation will determine how much oil and gas can be permitted in a fully decarbonized energy system; and how many high-cost technologies will be displaced from the abatement curve. These arguments are outline on pages 2-4.
Our models suggest a 15GTpa CO2 sink through reforestation, which is disaggregated on pages 5-6, including detailed data into the CO2 absorption rates of trees. Hence our models require 1.2bn hectares to be reforested.
How are the world’s 15bn hectares of land used? We present detailed data on pages 7-8. Criteria are suggested to prioritize the most effective lands for reforestation.
Degraded lands are the best opportunity for reforestation, as quantified and described on pages 9-10. Our work includes a case study of successful reforestation efforts.
Agriculture is now the largest land use on the planet, but changing habits, policies and technologies could liberate vast areas, as explored on pages 11-13.
Natural non-forests are feasible reforestation candidates, but they are the least preferable, as the goal is to ‘restore nature’, not convert one natural ecosystem into another (page 12).
Urban forests are also of high value, but too small to move the needle (page 13).
Precise bottom-up estimates of reforestation potential are made in the academic literature. Pages 16-18 cover the key studies in the field, and our own impressions on heated debates within the scientific community.
What if we are wrong? Nature is never certain, hence we consider this question on page 19, but we still believe our reforestation estimates are conservative.
Our roadmap towards ‘net zero’ requires 20-30GTpa of carbon offsets using nature based solutions, including reforestation and soil carbon. This short note considers whether the task could be facilitated by bio-engineering plants to sequester more CO2. We find exciting ambitions, and promising pilots, but the space is not yet investable.
What is bio-engineering? In 2016, scientists at DuPont gene-edited maize to grow more effectively in dry conditions. In 2017, researchers at the University of Oxford introduced a maize gene into rice plants, to increase the number of photosynthetic chloroplasts surrounding leaf veins. In 2019, scientists at Huazhong Agricultural University gene-edited rice to tolerate higher soil salinity. These are examples of bio-engineering: modifying the genetic code of plants for practical purposes.
How could it help? The world’s land plants absorb 123GTpa of carbon each year through photosynthesis. 120GTpa is re-released through respiration and decomposition. The result is a net sink of 3GTpa. For contrast, total anthropogenic carbon emissions are 12GTpa. It follows that small changes in the natural carbon cycle could materially shift carbon balances, per our climate model below.
The limitations of photosynthesis. Photosynthesis uses sunlight to convert CO2 into plant-sugars. It is only 1-5% inefficient, suggesting great potential for improvement. It is also vastly complex, comprising over 170 separate sub-stages. Amidst the complexity, RuBisCO is the most crucial limitation.
The limitations of RuBisCO. RuBisCO is an enzyme that catalyzes the reaction between CO2 and RuBP during photosynthesis. However, the RuBisCO enzyme is imprecise. It evolved at a time when the world’s atmosphere contained much lower oxygen concentrations. Unfortunately, under present atmospheric conditions, 20-35% of RuBisCO’s catalytic activity reacts O2 with RuBP, instead of CO2. The resultant products cannot continue their biochemical journey into becoming sugars. Instead, they are broken down in the process of photorespiration. Photorespiration uses up c30% of the total energy fixed by photosynthesis, and re-releases CO2 into the atmosphere. Photorespiration lowers agricultural yields by 20-40%.
What if RuBisCO could be helped to fix more CO2 and less oxygen? One way to do this is to increase the atmospheric concentration of CO2 in greenhouses, which can increase crop yields by c30%, per our note below. Another way is through bio-engineering.
Realizing Increased Photosynthetic Efficiency (RIPE) is a research institute funded by the Bill and Melinda Gates Foundation, UK foreign aid, the USDA and academic institutions. It aims to generate higher crop yields per unit of land, using bioscience. After ten years of research, RIPE has recently modified tobacco plants with genes from green algae and pumpkin plants to reduce the energy penalties from photorespiration. The result is that these modified tobacco plants grew 40% larger. A follow-up study may achieve plants that are 60% larger. Similar modifications are also being tested on soybeans and cowpea plants.
Researchers at the University of Wurzburg have also modelled metabolic pathways that may increase the photosynthetic efficiency of plants, potentially by as much as 5x, with results published in 2020. The work uses synthetic CO2-fixating carboxylases, RuBisCO from cyanobacteria, and additional methods of preventing fixed CO2 from being re-released. Experiments are planned to test the work in tobacco plants and thale cress.
Increasing photosynthetic efficiency and crop yields could be a crucial help, lowering the land intensity of crop production, which covers 1.7bn hectares of the globe today (data below). For comparison, our target of 15GTpa of reforestation will require 1.2bn hectares of land, hence any material reductions in cropland requirements will be helpful.
Sequestering more of the CO2. 50-95% of the carbon that is stored in natural eco-systems is not stored in biomass above ground, but in the soil. An emerging set of agricultural practices that restore soil carbon are explored in our research note below. But another option is to ‘program’ plants to grow deeper, larger roots, which push more carbon into soils.
The Land Institute in Salina, Kansas has developed a grain called Kernza. It is derived from an ancestor of wheat. It is perennial, rather than requiring yearly replanting. Its roots reach 3-6x further into the soil than conventional wheat, which connotes 3-6x more carbon storage, and also promotes drought resistance. It is being grown across 2,000 acres today.
The US Department of Energy also has a Laboratory of Environmental Molecular Sciences, aiming to increase carbon transfer into the soil. One team has developed a strain of rice that emits less methane, as it contains a gene from barley, reducing the carbon that the plant moves underground, which in turn reduces the carbon that can be metabolized by anaerobic bacteria. Studies are underway to reverse the process and increase the carbon that crops move underground.
The Salk Institute for Biological Studies is based in La Jolla, California. It is undertaking the most elaborate program to bioengineer crops and other plants, to sequester up to 20x more CO2 than conventional crops. Deploying these plants across 6% of the world’s agricultural lands are said to potentially offset 50% of global CO2 emissions.
Salk’s Harnessing Plants Initiative started in 2017 and aims to grow “ideal plants” with greater efficiency at pulling CO2 from the air, deeper roots that store more carbon underground, and other superior agricultural properties. One pathway is to promote production of suberin, the carbon-rich polymer in cork (but also found in melon rinds, avocado skins and plant roots). This is a waxy, water-resistant compound that degrades very slowly, thus remaining in the soil for centuries.
In 2019, Salk’s team discovered a gene, which determines whether roots will grow shallow or deep. It is called EXOCYST70A3, and affects the distribution of the PIN4 protein. PIN4 modulates the transport of auxin, a hormone that regulates root architecture. Different alleles of EXOCYST70A3 can increase root depth and plant resistance.
Technical readiness is the challenge for all of the bio-engineering methods discussed above. We generally begin integrating technologies into our models (first with high risking, later with lower risking) once they have surpassed TRL7. No bio-engineering method is there yet. Salk received a $35M grant in 2019, to accelerate its work, but prototype crop variants (corn, soybean, rice) are still not foreseen for five years. More pessimistically, scientists at RIPE have said it could take 15-years to deploy enhanced crops in the field. So while we will track this technology, it is not yet moving our models.
UK wind power has almost trebled since 2016. But its output is volatile, now varying between 0-50% of the total grid. Hence this 14-page note assesses the volatility, using granular, hour-by-hour data from 2020. EV charging and smart energy systems screen as the best new opportunities. Gas-fired backups also remain crucial to ensure grid stability. The outlook for grid-scale batteries has actually worsened. Finally, downside risks are quantified for future realized wind power prices.
This rise of renewables in the UK power grid is profiled on page 2, showing how wind has displaced coal and gas to-date.
But wind is volatile, as is shown on page 3, thus the hourly volatility within the UK grid is 2.5x higher than in 2016.
Power prices have debatably increased due to the scale-up of wind, as shown on page 4.
But price volatility measures are mixed, as presented on pages 5-6. We conclude that the latest data actually challenge the case for grid-scale batteries and green hydrogen.
Downside volatility has increased most, as is quantified on pages 7-8, finding a vast acceleration in negative power pricing, particularly in 2020.
The best opportunities are therefore in absorbing excess wind power. EV charging and smart energy systems are shown to be best-placed to benefit, on pages 9-10.
Upside volatility in power prices has not increased yet, but it will do, if gas plants shutter. The challenge is presented on pages 11-13, including comparisons with Californian solar.
Future power prices realized by wind assets are also likely to be lower than the average power prices across the UK grid, as is quantified on page 14. This may be a risk for unsubsidized wind projects, or when contracts for difference have expired.
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