This note contains our ‘Top Five’ conclusions about the Oil Majors’ research partnerships, drawing off our database of 3,000 oil company patents. Different companies have importantly different approaches. We can quantify this, by looking at the number of patents co-filed with partners (chart above).
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(1) Working with Academia. TOTAL stands out as collaborating most closely with academic institutions, by a wide margin. In 2018, it filed 75 such patents, of which two-thirds were with French institutions. Aramco was next with c40 patents co-filed with Academia. Eni and Repsol filed c4-5 each.
(2) Working with Services. Chevron stands out as working most closely with the Services industry, as it is co-developing two particular technologies: “electro-crushing drilling” with Halliburton, and distributed acoustic sensing with Silixa. We expect Chevron to have a lead in both technologies, before they are licensed out to the broader industry.
(3) Working with Customers. Exxon has co-filed most patents with its customers: advanced lubricants with Toyota and advanced plastics with packaging companies. The moat around Exxon’s IP in both areas is extremely impressive.
(4) Working Internationally. Aramco runs the most global research collaborations, with 5-10 patents filed in each of 5 international countries. This is unusual, as most other companies confine their research partnerships to their home countries (below).
(5) Working Independently. Shell and Equinor run the most independent research processes, filing 96% and 98% of their patents solo. We have been impressed with the technical specialisations both organizations have built up in-house.
Our full database of 3,000 patents is exclusively available to TSE’s subscribers, including short summaries of each patent. For further information, please email us, contact@thundersaidenergy.com
Global energy investment will need to rise by c$220-270bn per annum by 2025-30, according to the latest data from the IEA, which issued its ‘World Energy Investment’ report this week. We think the way to achieve this is via better energy technologies.
Specifically, the world invested $1.6bn in new energy supplies in 2018, which must be closer to $1.8-1.9bn, to meet future demand in 2025-30– whether emissions are tackled or not. The need for oil investment is most uncertain. More gas investment is needed in any scenario. And renewables investment must rise by 15-100%.
Note: data above includes $1.6trn investment in energy supplies and c$250bn in energy efficiency measures
Hence the report strikes a cautious tone:“Current market and policy signals are not incentivising the major reallocation of capital to low-carbon power and efficiency that would align with a sustainable energy future. In the absence of such a shift, there is a growing possibility that investment in fuel supply will also fall short of what is needed to satisfy growing demand”.
We do not think the conclusions are surprising. Our work surveying 50 investors last year found that fears over the energy transition are elevating capital costs for conventional energy investments (below).
Meanwhile, low returns make it challenging to invest at scale in renewables.
We argue better energy technologies are the antidote to attracting capital back into the industry. That is why Thunder Said Energy focuses on the opportunities arising from energy technologies. Please see further details in our recent note, ‘What the Thunder Said’. For all our ‘Top Technologies’ in energy, please see here.
References
IEA (2019). World Energy Investment. International Energy Agency.
We categorised 300 of the Oil Majors’ technologies according to their technical maturity. We find the most exciting examples are not the most technically mature, but those on the cusp of commercialisation. Majors that work on earlier-stage technologies also have better overall technologies (c50% correlation coefficient). Hence, to create value, it is important to maintain a constant funnel of technology opportunities.
When we assess an energy technology, we score it on four dimensions: how far does it advance the industry-standard? How large is the potential economic impact? How proprietary is it? And finally, is it “ready”?
To quantify the final category, we use the industry-standard conceptual framework of ‘Technology Readiness Levels’ (TRLs), which are summarised below. It is worth being familiar with this categorization, as it recurs throughout our work.
But when do technologies get exciting?
To some extent, “excitement” depends upon your perspective. Venture funds may find most value on the earlier rungs of the ladder. But most companies and investors get excited in the later stages. We can measure this. The results are surprising.
Below, we have summarised our “TSE Technology Scores” for 300 technologies, used by the 25 oil and gas companies that we follow. The highest scores appear to be for technologies at Readiness Level Seven (chart below).
Even though these technologies are less mature than TRLs 8-9, we think they are more exciting. This is unexpected. As discussed above, our “Technology Scores” specifically award higher marks to more mature technologies, and penalise those that are less mature.
On the other hand, maybe it is not so surprising. Opportunities at TRL7 are, by definition, new and cutting-edge. Conversely, the shine tends to wear off for more mature technologies, that have already spread around the industry.
What does it means for companies?
If the most exciting technologies are the ones on the cusp of commercialisation, it is important that leading companies can embrace them. We think the answer is to maintain a rich funnel of opportunities, including those at earlier stages. Our data suggest that the technology-leaders around the industry are doing exactly this…
Below, we rank the 25 oil and gas companies that we follow. We find a 50% correlation between the companies that are working on ‘earlier stage’ technologies and those that have better overall technologies.
“Technology Scores” across 25 Oil and Gas companies, which are tracked by TSE
Investable insights. To develop a lead in technology, you have to be involved in developing technology. If your sole approach is to buy mature technologies off the shelf, you will only access them later, and with less theoretical context than the leaders. We think this explains the correlation above. We also think it matters for investing in the best energy companies, where technical capabilities are starkly different (below).
“Technology Scores” across 20 Oil and Gas Companies, which are tracked by TSE
How can we help? For our full database of 300 technologies, scores by company, or by industry sub-segment, please contact us. We can also provide consultancy services on your company, highlighting areas where there is most scope for improvement, by reference to peers’ best-practices.
An exciting aspiration in wind technology is to obviate large, expensive “towers”, and unleash tethered kites into the skies. They can access 2-4x more wind-power at greater altitudes, and at 50-90% lower costs. Intriguingly, we have discovered Exxon and Shell are at the forefront of pursuing this new wind opportunity offshore, based on their patents and filings.
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Oil Majors & Wind Energy
If you search the internet for Exxon’s “wind power” business, you are most likely to encounter its range of lubricants for wind-turbines. Its largest public foray so far is a 250MW commitment to offtake wind power into its Permian operations from Orsted’s Sage Draw wind farm.
For Shell, the narrative is around scaling up today’s wind turbines, under its $1-2bn new energies capex commitment. Its most recent bid was for a 2.5GW wind consortium, 8-miles off Atlantic City; off the heels of its 730MW Borssele III-IV project from the Netherlands.
Yet we have found new evidence that both of these Super-Majors are actively looking to a novel offshore wind technology, with potential to unlock larger quantities of energy at materially lower costs.
The theory: aiming higher?
Wind power in the earth’s atmosphere increases with altitude, as shown below. At 300m, it should be possible to access 2x more power than at 80m, based on global average wind speeds, modelled here.
The challenge for conventional wind is how to access these higher wind speeds. The 4,000m foundation and 700T tower already comprise c35% of a typical, 80m wind-turbine’s overall cost.
Hence there is an entire green-tech industry dedicated to “flying wind”. These are airborne drones that submit their power back down to ground level via a tether. The academic literature estimates costs per-kW could be 10-50% the level of conventional wind turbines. “Technology Readiness” ranges from Level 3 to Level 7.
The most famous example would be Makani, which tested a 600kW capacity vehicle in 2017, with the backing of Google (video below). Scroll half-way through the video, to 17-minutes, and you see the tethered craft mid-flight, conducting a looping series of nose-dives: when the vessel surpasses 85mph, according to our calculations, its on-board propellors could be beaming a full 600kW of power back down the tether-cable, towards the base-station. The glider is then carried back up to altitude like a kite, before commencing another dive.
https://www.youtube.com/watch?v=CKFlMDUHtLg
Exxon and Shell are examining what to do with this technology
ExxonMobil has filed a series of patents to deploy tethered kites offshore, “opening up a resource system which is four times greater than the electrical generation capacity of the entire United States” (in the patents’ own words).
The image below shows Exxon’s concept for an offshore wind farm, with 25 kites (each with 20kW-5MW capacity), arranged in 5 rows of 5. Each row of kites has its own umbilical, electrical module and distribution cable.
The patent includes some comprehensive considerations: the tether system, its connection to a floating structure, the anchor piles, a quick-disconnect system, and offshore maintenance procedures.
Exxon’s floating offshore wind concept?! (150) is a local electrical distribution cable, (146) is an underwater electrical module and (152) is an offshore substation.
Exxon continued refining these patents in 2018, with at least three further filings (in the jurisdictions of Argentina and Taiwan… read into that what you will). We have contacted the company for a comment on any plans to test or pilot the technology, and will update this article with any answers.
Meanwhile, Shell is also stepping up its interest in offshore wind kites. In February-2019, it signed its own partnership with Makani, saying that it “plans to kick-off testing of this new floating offshore system with demonstrations in Norway later this year”. Previously, Shell also invested €6M in Kite Power Systems, another aerial wind concept.
So we have here, an intriguing secret race between two of the largest Oil Majors, at the cutting edge of offshore wind-tech.
Sources & References
Zillman, U., (2015). The Trillion Dollar Drone. Airborne Wind Energy Conference 2015
Hart, C., & Bushby, D. (2017). Airborne Power Generating Crafts Tethered to a Floating Structure. Patent WO2017218118.
Goldstein, L. (2015). Theoretical analysis of an airborne wind energy conversion system with a ground generator and fast motion transfer. Energy Volume 55, 15 June 2013
It would be unwise to under-estimate the complexity of creating a new LNG province, with a 50MTpa prize on the table in Mozambique. After the first two trains are in motion, the longer-term opportunity is potentially “another Qatar”. But only if Mozambique can compete for capital with US greenfields and brownfield expansions.
Hence we have reviewed 200 of Chevron’s patents from 2018. The company’s ability to develop a new, deep-water LNG province is notable. Ten examples are tabulated below.
It was interesting how many of the patents were filed in Australia and may have derived from learnings at Gorgon and Wheatstone.
For a primer on different LNG process technologies, please see our data-file (here).
Find this work interesting? If so, please sign up for our distribution list.
We have assessed whether gas is a competitive trucking fuel, comparing LNG and CNG head-to-head against diesel, across 35 different metrics (from the environmental to the economic). Total costs per km are still 10-30% higher for natural gas, even based on $3/mcf Henry Hub, which is 5x cheaper than US diesel. The data-file can be downloaded here.
The challenges are logistical. Based on real-world data, we think maintenance costs will be 20-100% higher for gas trucks (below). Gas-fired spark plugs need replacing every 60,000 miles. Re-fuelling LNG trucks requires extra safety equipment.
Specially designed service stations also elevate fuel-retail costs by $6-10/mcf. Particularly for LNG, a service station effectively ends up being a €1M regasification plant (or around $250/tpa, costs below).
We remain constructive on the ascent of gas (below), but road vehicles may not be the best option.
To flex our input assumptions, please download our data-model, comparing LNG, CNG and other trucking fuels across 35 different metrics .
The Majors’ deepening interest in shale was illustrated by Chevron’s $50bn acquisition of Anadarko. Consolidating in the Permian fits our ‘Winner Takes All‘ thesis.
But who else wants more shale in their portfolio? This is not to speculate on M&A, but simply looking at the companies’ research activity last year…
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Hence the chart below summarises 300 technical papers into shale, published across a representative sample of companies in 2018.
Shell has been the most active shale researcher by a wide margin — half in the Permian, half internationally.
The companies who are not on this list may also be more interested in corporate M&A. This is a technology industry. And if you don’t have your own technology, you will need to buy it…
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If you would like to read our latest deep-dive note on shale-technology it is linked here. The full database, covering all 300 technical papers is available here.
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