Category: Cutting Edge

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.

(6) Non-obvious opportunities. Other novel technologies have a vast role in the route to Net Zero. The non-obvious opportunities are best, and are not at risk of becoming bubbles. Our research has covered many examples in 2020: deep geothermal, supercapacitors eclipsing batteries, industrial efficiency initiatives such as fully subsea offshore or next-generation refining; and backing up renewables with CHPs, PCMs and smart energy systems. If you read one research note into a non-obvious opportunity, we recommend this deep-dive below into additive manufacturing, which will re-shape every industry globally.

(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).

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 efficiency 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 proppant.

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.

Unprecedented high-grading is now occurring in the US shale industry, amidst challenging industry conditions. This means 2020-21 production surprising to the upside, and we raise our forecasts +0.7 and +0.9Mbpd respectively. Conversely, when shale activity recovers, productivity may disappoint, and we lower our 2022+ forecasts by 0.2-0.9 Mbpd. This 7-page note explores shale productivity data, and the causes and consequences of this whipsaw effect.

Global mean sea levels will rise materially by 2100, irrespective of future emissions pathways. This note contains our top ten facts for decision makers, covering the numbers, the negative consequences and the potential mitigation opportunities.

(1) Sea levels are rising, at an accelerating pace. Global mean sea levels increased by 1.4mmpa from 1901-1990, 2.1mmpa from 1970-2015, 3.2mmpa from 1993-2015 and 3.6mmpa from 2006-2015. We know this from satellite altimetry measurements, which are highly accurate and started in 1992; while older data are derived from tidal gauges and are less accurate. c40% of the recent increase is due to the thermal expansion of water as global temperatures rise, and c60% is mass gain from melting ice caps and glaciers.

(2) Sea levels are expected to rise by 0.84m by 2100 versus the 1986-2005 baseline, if global CO2 emissions keep rising and we fail to achieve an energy transition (i.e., this is the base case expected under the IPCC’s RCP 8.5 Scenario). This is driven by a continued acceleration of annual sea level rises, to 10-15 mm per year by 2100.

(3) Sea level could rise by as much as 2.5m by 2100 in the most pessimistic studies we have seen (chart below). The uncertainty between studies arises because of feedback loops that are difficult to model. For example, rising sea levels deform the Earth’s lithosphere and subtly alter the Earth’s rotation and gravitational field; we also know 90% of global warming ultimately gets stored in the oceans, but the degree of thermal expansion depends on precisely where the heat ends up being distributed.

(4) Sea levels could rise by >10m by 2500. The IPCC states that gross mean sea levels will “continue to rise for centuries” after 2100, due to lag effects in the deep ocean and in ice melt. As historical precedents, gross mean sea levels were 6-9m higher in the Last Interglacial period, 129-116ka ago, when temperatures were 0.5–1.0ºC warmer than today; and up to 6-30m higher during the mid-Pliocene Warm Period, 3.3-3.0Ma, when temperatures were 2–4ºC warmer than today. Total potential sea level rises are much larger again: The Antarctic “ice cap” covers 14M sq km, contains 26.5M cubic kilometers of ice, and would raise sea levels by 58m if it melted entirely. But modelling the long-term future of the Ice Caps remains controversial. In 2015, NASA published data showing the Antarctic Ice sheet was actually still gaining mass, as warmer air was carrying in more moisture and depositing more snowfall on the Continent, which is presently outweighing melt losses at the edge of the Western Antarctic Ice Sheet. The IPCC disagree with NASA. The University of California also finds that melt rates on the WAIS are accelerating, from 40GTpa in the 1980s to 250GTpa in the 2010s (here). 

(5) Sea levels will still rise even if we reach ‘Net Zero’. A goal in our research is to find economic opportunities that can help meet the world’s energy needs while reaching ‘net zero’ CO2 by 2050 (models below), while limiting atmospheric CO2 to 450 ppm (also below). But even if we do this, sea levels are still expected to rise by 0.43m by 2100, and continue rising thereafter, due to the same lag effects described above. 0.43m by 2100 is the latest official estimate from the IPCC, but academic estimates range from 0.3-0.7m. This is an important and surprising conclusion. All of the Herculean efforts, policy measures and novel technologies being considered today will not avert sea level rise. They will merely slow it down.

(6) Regional variations. Sea level rises are not the same everywhere. For example, Scandinavia, Northern Europe and the US Great Lakes region are still decompressing from the last Ice Age, 11,000 years ago. With the weight of these former glaciers removed, they are rising between 3-9mm per year through the process of ‘isostatic rebound’. Conversely, the US East Coast is subsiding, by c2mm per year, as it was previously a ‘glacial forebulge’, lifted up by the weight of ice pressing down on lands to the West. The steepest subsidence is in areas of rapid groundwater extraction to irrigate marginal lands. For example, much of the Nile Delta is subsiding at 0.4-3.4mm per year.

(7) Danger zones. Low lying areas are going to be inundated with rising sea levels within our lifetimes, irrespective of how the world’s energy system changes. Some of us run DCFs that go out to 2050 or even 2100. Some of us are also making decisions whose lasting impacts will stretch 30-80 years into the future. If you wish to consider the impacts of rising sea levels, then there are excellent online mapping tools such as Surging Seas showing how coastlines are expected to change over time.

(8) Negative consequences? To state the obvious, homes are prone to becoming unlivable and industrial assets are prone to becoming inoperable when they are suddenly underwater. High tides will become higher. Storm surges will reach further inland. Thus, annual flood damages are expected to be 2–3 orders of magnitude higher by 2100 (Hurricane Sandy (2012, $19bn of damage) and Typhoon Winnie (1997, $3.2bn damage) are already considered the largest recorded historical flood events for New York and Shanghai, respectively). In low-lying Bangladesh, oilseed, sugarcane and jute cultivation has now stopped as rising salinity levels have impaired growing conditions. Similarly, the Nile supports 40% of Egypt’s population, but large portions are only 1.5m above sea level, subsidence is running at 0.4-3.4mmpa, and salinisation will trouble traditional agriculture. This evokes fears over very large ‘displaced populations’.

(9) Large-scale coastal defences. New York City recently considered spending $119bn on a giant concrete Sea Wall, which would span 6-miles from the Rockaways in Queens, across New York Harbor, to New Jersey (the price tag is equivalent to $15k per New Yorker). Miami is also spending $2M per block to raise its roads by 2-ft. This measure needs to be combined with stormwater pumps, to ensure the roads do not channel flood waters into buildings at lower elevations. One wonders whether a vast new market will emerge for construction materials and aggregates in coastal defences (e.g., Vulcan Materials, Martin Marietta). But there is also something woefully circular about using carbon-emitting building materials (1 ton of cement emits 1 ton of CO2, charts below) to alleviate the negative consequences of CO2 emissions.

(10) Nature based solutions? Blue carbon ecosystems, such as mangroves (13.8-15.2M ha), salt marshes (2.2-40M ha) and sea grasses (17.7-60M ha) make up 2% of the total ocean area, but 50% of the total carbon sequestered in ocean sediments (here). Studies have found that mudflats and interior mangroves can accrete 4-10mm per year of elevation (here), which could help counteract rising sea levels. 30 mangrove trees per square meter can also reduce the maximum flow of surge tides by 90%, studies have found, and areas with dense mangrove cover were less affected by the 2004 Boxing Day tsunami. Those who follow our research will also know we have found nature based solutions, such as planting trees, to be among the most cost-effective ways to offset CO2 emissions. Companies including Danone, Apple, Henkel, Toyota and a French consortium have thus started planting vast numbers of mangroves as part of their environmental protection programs. Charities such as Eden Reforestation, One Tree Planted and Sea Trees offer similar opportunities for individuals.

Sources, Acronyms & Terms

Oppenheimer, M., B.C. Glavovic , J. Hinkel, R. van de Wal, A.K. Magnan, A. Abd-Elgawad, R. Cai, M. Cifuentes-Jara, R.M. DeConto, T. Ghosh, J. Hay, F. Isla, B. Marzeion, B. Meyssignac, and Z. Sebesvari. (2019). Sea Level Rise and Implications for Low-Lying Islands, Coasts and Communities. In: IPCC Special Report on the Ocean and Cryosphere in a Changing Climate.

GMSL = global mean sea level, on average, smoothing waves, surges and tides

RSL = relative sea level rises.

ESL = extreme sea level events

RCP = Representative Concentration Pathway emissions scenario.

RCP2.6 assumes Net Zero in the late 21st century and <2C of warming.

RCP8.5 is a ‘worst case scenario’ where emissions keep rising to 2100.

GIS = the Greenland Ice Sheet

AIS = the Antarctic Ice Sheet

SMB = surface mass balance, the gain or loss of ice from ice sheets

Ice Shelves = the floating extensions of grounded ice flowing into oceans