Our research identifies economic opportunities in the energy transition. To do this, we have now drawn upon 20M patents. This 14-page note illustrates the six ways that patent analysis can give decision-makers an edge. It includes detailed examples in renewables, electric vehicles, capital goods, conventional energy and hydrogen.
The objective of our research is to find economic opportunities that can drive the energy transition. This note outlines how patents feature in our research and why they matter.
What are patents? A brief history and overview of patent filings is given on pages 2-3.
Charting challenges? By definition, patents must explain the precise technical challenges that they aim to overcome. Page 4 illustrates the point, presenting our top conclusions from reviewing 100 patents into lithium ion batteries for electric vehicles.
Gauging the pace of innovation? The average energy technology sees 600 patents filed per year and has been accelerating at a 5% CAGR. It is exciting when progress accelerates and somewhat less promising it slows. Different themes are ranked on pages 5-6.
Competitive pressure? China now files 70% of all global patents, the largest share of any country in history. Some sectors are also intensively competitive. Pages 7-8 explain how we help to flag these risks.
Finding moats? To generate superior returns, it is necessary to have superior technologies. Pages 9-10 show how patent filings correlate with ROACEs and costs. Technology leaders in the conventional energy industry are ranked on page 11.
Company snapshots? We give two examples on page 12-13, assessing how Tesla and Vestas’s technical edge stacks up against peers’.
Avoid bubbles? Sometimes the emperor has no clothes, and companies’ promises are unrealistic. It shows up in their lack of IP. For example, earlier this year, we questioned Nikola’s hydrogen truck patents, as is recapitulated on page 14.
We aim to help our clients avoid the bubbles and find non-obvious opportunities that can earn returns and drive the transition forwards. Please let us know if we can help you.
Carbon capture is cursed by colossal costs at small scale. But blue hydrogen may be its saviour. Crucial economies of scale are guaranteed by deploying both technologies together. The combination is a dream scenario for gas producers. This 22-page note outlines the opportunity and costs.
The mechanics of carbon capture and storage projects are explained on pages 2-4, assessing the costs of CO2 capture, CO2 transport and CO2 disposal in turn.
However CCS faces challenges, which are outlined on pages 4-5. In particular, CO2 has three ‘curses’ at small scale, which dramatically inflate the costs.
We quantify the three curses’ impacts. They are diffuse CO2 concentrations (pages 6-8), high fixed costs for pipelines and disposal facilities (pages 8-10) and difficulties gathering CO2 from dispersed turbines and boilers (pages 10-11).
The rationale for blue hydrogen is to overcome these challenges with CCS, as explained on page 12.
Different blue hydrogen reactor designs are discussed, and their economics are modelled on pages 13-15. Autothermal reforming should take precedence over steam methane reforming as part of the energy transition.
Midstream challenges remain. But we find they are less challenging for blue hydrogen than for green hydrogen on page 16.
A scale-up of blue hydrogen is a dream scenario for the gas industry. The three benefits are superior volumes, pricing power and acceptance in the energy transition, as explained on pages 17-19.
Leading projects are profiled on page 20, which aim to combine blue hydrogen with CCS.
Leading companies in auto-thermal reforming (ATR) are profiled on page 21, based on reviewing technical papers and over 750 patents.
Aker Carbon Capture’s technology is profiled on page 22. Patents reveal a technical breakthrough, but it will only benefit indirectly from our blue hydrogen theme.
Overbuilding renewables may have unintended consequences, making power grids more expensive and less reliable. Hence more businesses may choose to generate their own power behind the meter, installing combined heat and power systems fuelled by natural gas. Modelled IRRs already reach 20-30%. Capturing waste heat also boosts efficiency to 70-80%, which can be 2x higher than grid power, lowering total CO2 by 6-30%. This 17-page note outlines the opportunity and who might benefit.
Overbuilding renewables could make grids more expensive and less reliable. The mechanics of this challenge are modelled out and explained on pages 2-9.
Expensive and unreliable grids have historically been the main motivator for installing combined heat and power systems behind the meter. The theory, technical details and rationale for these CHP systems are explained on pages 10-11.
Economics of combined heat and power and reviewed in detail on pages 12-14, focusing upon IRRs and their sensitivity to input variables.
Examples of CHP installations are presented on page 15, to identify details and characteristics of prior projects.
Companies that may benefit from the theme are discussed on pages 16-17. They range from mega-cap turbine manufacturers to small-cap stocks and private companies with novel technologies.
Almost 1% of global CO2 comes from distillation to separate crude oil fractions at refineries. An alternative is to separate these fractions using precisely engineered polymer membranes, eliminating 50-80% of the costs and 97% of the CO2. We reviewed 1,000 patents, including a major breakthrough in 2020, which takes the technology to TRL5. Refinery membranes also comprise the bottom of the hydrogen cost curve. This 14-page note presents the opportunity and leading companies.
The CO2 intensity of refining and the need for economic decarbonization of the sector are quantified on pages 2-4. The discussion focuses upon the CO2 intensity of distillation, including the thermodynamics and costs.
The opportunity to use membranes in lieu of conventional distillation is presented on pages 5-6. We draw on economic models to present respective costs and CO2 intensities of membrane processes.
Hence we screened 1,000 patents to identify leading companies exploring refinery membranes. The findings are presented on pages 7-8. There are three key reasons why the technology has been slow to gain traction.
The most active patent filer in refinery membranes is profiled on page 9, a publicly listed conglomerate with headquarters in the US.
ExxonMobil has made a breakthrough in 2020, deriving permeate streams from a synthetic polymer membrane that resemble the output from a distillation column. We have reviewed the technical disclosures on pages 10-13, highlighting the commercial opportunity and remaining challenges.
Membranes can also unlock the lowest cost hydrogen in the world, recovering hydrogen that is currently wasted or purged in the effluent streams from refinery units. An industry leading example of this technology is explored on page 14.
China’s pace of technology development is now 6x faster than the US, as measured across 40M patent filings, contrasted back to 1920 in this short, 7-page note. The implications are frightening. Questions are raised over the Western world’s long-term competitiveness, especially in manufacturing; and the consequences of decarbonization policies that hurt competitiveness.
Our conclusions are presented in this short note from tabulating 40M patents in the US and China back to 1920.
China first filed more patents than the US in 2007, and filed 6x more in 2019. Our charts compare the US versus China across multiple industrial categories, presenting implications for trade and energy policy.
The long-term history of patent filings is also compared globally, for the US, for China and for Japan. In some countries, the pace of patent filings has been 90% correlated with GDP growth.
Whale oil was a dominant, albeit barbaric, lighting fuel in the 19th century. But what happened to pricing as the industry was disrupted by kerosene and ultimately by electric lighting? We find whale oil pricing maintained a 25x premium to rock oil and outperformed other commodities as the whale oil market collapsed. As whaling declined, the prices of by-products (e.g. whale bone) also rallied very sharply. This 8-page note presents our analysis of the whaling industry from 1805 to 1905 and draws implications for the future of the oil and gas industry.
The rise and fall of the whale oil industry is put into its historical context on pages 2-3, including data on the industry’s productivity and the timing of its disruption.
The relative pricing performance of whale oil is discussed on pages 4-5, in comparison to rock oil and a basket of long-term commodity prices.
A rally in whale bone prices (a by-product of whaling) and the premiumization of whale oil supplies are found on pages 6-7.
Implications for the oil and gas industry are presented on page 8, as the historical analogy shows prices could rise sharply if future supply falls faster than future demand. Side-products such as lubricants, plastics and jet fuel could rally if EVs and renewables disrupt core oil and gas markets.
The full database underlying our analysis is available for download here.
Energy policies currently act as kingmakers for a select few transition technologies. But they offer no incentives for other, lower cost and more practical alternatives, which could economically decarbonize the whole world by 2050. Hence this 14-page note presents the top five arguments for a simple, transparent, economy-wide CO2 price. We also illustrate who would benefit versus which bubbles may burst.
The need for a level playing field in the energy transition is outlined on pages 2-4. Current policies are overly complex, arbitrary and may even stifle progress.
New technologies would emerge with a CO2 price, as energy transition broadens across every sector. Examples are presented on pages 5-8.
CO2 prices accelerate the pace of progress, as shown on pages 9-11. This matters as past energy transitions took 70-100 years and a faster transition is needed today.
CO2 prices unlock the most economic transition, as the lowest-cost technologies can compete. Pages 12-13 quantify the importance of economics.
CO2 prices can work, as shown on page 13-14. We model that a CO2 price of $40-75/ton can decarbonize the entire United States by 2050, while also unlocking $3.5trn new investment and creating 500,000 new jobs.
Our mission is to find economic opportunities that can drive the energy transition, substantiated by transparent data and modelling. Therefore, we have looked extensively for opportunities in hydrogen, but somewhat failed to find very many.
More pessimistically stated, we fear that the ‘green hydrogen economy’ may fail to be green, fail to deliver hydrogen, and fail to be economical. We see greater opportunities elsewhere in the energy transition.
This short note summarizes half-a-dozen deep-dive research notes, plus over a dozen models and data-files into the commercialization of hydrogen. There may be opportunities in the space, but they must be chosen very carefully.
An overview of different hydrogen pathways?
We start with an overview of hydrogen pathways. In 2019, c70MT of hydrogen was produced globally. 95% of it was grey, meaning it was derived from steam-methane reforming of natural gas. The cost of this process is around $1.3/kg ($11.5/mcf-gas- equivalent) and efficiency is c70%, which means that replacing 1 kWh of gas with 1kWh of hydrogen actually increases both gas demand and CO2 emissions.
Capture 80-100% of the CO2 from SMR using CCS and you have ‘blue hydrogen’, a fuel that costs c$2/kg ($18/mcfe), with a production efficiency of c60%, and a CO2 content that is 75-100% lower CO2 than combusting the natural gas it is derived from.
Finally, use renewable energy to hydrolyse water, and you have ‘green hydrogen’, which is truly zero carbon. But it currently costs $6-8/kg ($55-70/mcfe) and has 60-90% production efficiency, which is far worse than the best batteries we have researched.
Can hydrogen be economic: in heat, power or transportation?
Costs matter for consumers in the energy transition. For example, we estimate that using blue hydrogen to decarbonize heat would raise an average household’s heating bill by c$670 per year, while green hydrogen would increase it by c$2,600. By contrast, our preferred solution of nature based solutions and efficient natural gas decarbonizes home heating at an incremental cost of $50 per household per year.
Green hydrogen in the power sector does not look viable to us. We have modelled the green hydrogen value chain: harnessing renewable energy, electrolysing water, storing the hydrogen, then generating usable power in a fuel cell. Today’s end costs are very high, at 64c/kWh. Even by 2040-2050, our best case scenario is 14c/kWh, which would elevate average household electricity bills by $440-990/year compared with the superior alternative of decarbonizing natural gas.
This is despite heroic assumptions in our 2040s numbers, such as a 1.5x improvement in round trip energy efficiency, 80% cost deflation, c40% “free” renewable energy, in situ hydrogen production and use, and nearby salt caverns for low cost storage (so green H2 retails at $3/kg). All of this analysis is based on transparent data and modelling, as shown below. We welcome pushbacks and challenges if you have different numbers.
Three challenges are raised about green hydrogen in our work. First, processes fuelled purely by renewables (i.e., electrolysis reactors) will tend to have 30-40% utilization rates at best (half the US industrial average), which amortizes high capital costs over less generation. Second, storage is complex and could be 4-10x more expensive than we assumed, if salt caverns are not nearby. Finally, costs estimates in our models are tabulated from multiple commentators and sources, showing a very wide range, which in turn connotes uncertainty and risk.
Green hydrogen in trucking may offer more promising inroads, particularly in well-chosen niches. Trucking consumes 10Mbpd of diesel globally and emits c1.5bn tons of CO2 per year, which is 3.5% of the global total. Current full-cycle costs of hydrogen trucks are c30% higher than diesels. This is based on $150k higher truck costs, 85% higher maintenance and $7/kg green hydrogen plus $1.5/kg retail margins.
But a full and rapid switch to hydrogen trucks in Europe would cost an incremental $50bn per year (equivalent to a 0.3% off Europe’s GDP, plus multipliers). 2040s green hydrogen truck costs could become competitive with diesel, in Europe, but again, this is incorporating some heroic assumptions. In particular, fuel retail margins for hydrogen may need to be c20x higher than for conventional fuels in remote locations with little traffic.
Immutable midstream issues: an anomalous commodity?
All of the value chains and models above assumed hydrogen was generated in situ, via electrolysis, at its point of use. However, in order for hydrogen to scale up, it would need to be transported, like other commodities.
Transporting hydrogen may be more challenging than any other commodity ever commercialised in the history of global energy. Costs are 2-10x higher than gas value chains. Up to 50% of hydrogen’s embedded energy may be lost in transit. We find these challenges are relatively immutable. They are due to physical and chemical properties of H2, plus the laws of fluid mechanics, which cannot be deflated away through greater scale.
For example a hydrogen pipeline will inherently cost 2-10x more than a comparable gas pipeline. This is down to fluid dynamics, as the hydrogen line, all else equal, will flow 25% less energy (due to the gravity, energy density and compressibility of hydrogen gas), but require c30% more expensive reinforcement and materials (due to hydrogen’s lower molecular mass and proneness to causing embrittlement and stress cracking in high-pressure lines).
Moving hydrogen as ammonia is another option. Air Products recently sanctioned a $7bn project to produce green hydrogen in Saudi Arabia, convert it to ammonia, then ship the ammonia to Europe or Japan. Its guidance implies hydrogen could be imported at $10/kg while earning a 10% IRR. But we needed to assume several cost lines are budgeted at 50% below recent comparison-points to match this guidance. Our sense is that a comparably complex LNG project might warrant a 20% hurdle rate. Thus to be excited by this project, we would want to see a hydrogen sales price closer to $15/kg.
Is Magic Mystery Deflation a Cure All?
The pushback to our hesitations is that deflation will prevail, costs will fall and green hydrogen will ultimately become economic in ways that are hard to model ex-ante. This is possible, but it is not borne out by our work reviewing over 1M patents. The ‘average’ topic in the energy transition is seeing c600 patents filed per year (ex-China) and accelerating at a 5% CAGR. Hydrogen fuel cells saw 222 in 2019 and are declining at a -10% CADR. Hydrogen trucks and fuelling stations saw c300 patents in 2019 which is flat on 2013.
The patents also flag complexities. How do you safely prevent explosions in the event of a crash? How do you keep a fuel cell hydrated in dry climates, cool under thermal loads and starting smoothly in very cold climates? How do you add odorants to hydrogen to lower the risk of undetected leaks, if odorants poison fuel cells? Who is legally liable if a fuel cell is poisoned by inadvertently selling contaminated hydrogen?
We would be wary of companies that have made extensive promises, especially around future economics, but without having developed the underlying technologies being promised. This creates a high degree of risk.
To help identify technology leaders, we have assessed the patents filed in fuel cells, in hydrogen vehicles and in fuelling infrastructure.
Conclusion. Policymakers are currently aiming to accelerate the development of hydrogen. Our own work into the economics and technical challenges make us nervous that these policies may need to be walked back over time. There may be some interesting use cases for hydrogen in the energy transition. But the history of technology transitions does not suggest to us that a green hydrogen economy could emerge and have any meaningful impact on climate within the required 20-30 year timeframe.
Future US shale productivity can still rise at a 5% CAGR to 2025, based on evaluating 300 technical papers from 2020. The latest improvements are discussed in this 12-page note, and may spark more productivity gains than any prior year. Thus unconventionals could grow by 2.6Mbpd per annum from 2022-25 to quench deeply under-supplied oil markets. But hurdles remain. The leading technologies are also becoming concentrated in the hands of fewer operators and an emerging group of oil services.
Our production forecasts for US shale are outlined on pages 2-3. Volumes must double by 2025 to rebalance future oil markets, which hinges on productivity gains.
Our outlook for shale productivity is explained on page 4, including our methodology, which considers the pace of progress in technical papers.
Headline comparisons are presented on pages 5-6, between the technical papers filed around the shale industry in 2018, 2019 and 2020.
The latest improvements are summarized across each category, drawing on the most interesting technical papers and the companies that have filed them. This includes petrophysics (page 7), completion designs (page 8), optimizing completion fluids (page 8), Shale-EOR (page 9) and a step-change in machine learning algorithms (page 10-11).
The leading companies are highlighted on page 12, ranked according to the numbers of technical papers they have filed in each year. Some are stepping up, and gaining an edge, while others are clearly pulling back on shale R&D.
It takes 15-100 years for a major new technology to ramp from 10% to 90% of its peak adoption rate. But what determines the pace? This 15-page note finds answers by evaluating 20 examples that changed the world from 1870 to 2020. We derive four rules of thumb, in order to quantify the pace at which different energy transition technologies will scale up.
The ascent of new technologies matters both for meeting climate goals around the energy transition and for investors trying to forecast future market sizes, as argued on pages 2-3.
But how can we measure adoption rates? Our methodology is explained on pages 4-6, aggregating data on the adoption rates of twenty technologies that changed the world from 1870-2020.
Infrastructure requirements are the greatest determinant of a technology’s ascent, impacting adoption rates by a factor of 2-3x, as outlined on pages 7-8.
Transformational technologies that improve consumers’ lives are also adopted c2x faster than non-transformational ones, all else equal, as quantified on pages 9-10.
Adoption rates stall when economics are challenged, slowing down by as much as 5-7x, as measured on pages 10-12.
Technology transitions also appear to be speeding up, occurring 1% per year faster in recent decades compared with the early 20th century, as shown on page 13.
What does it mean for energy transition technologies? On pages 14-15, we use our insights to forecast the adoption rates for various energy transition technologies.