Category: Report

Posted on

Electric Vehicles Increase Fossil Fuel Demand?

EVs increase fossil fuel demand

It is widely believed that electric vehicles will destroy fossil fuel demand. We find EVs will increase fossil fuel demand by 0.7Mboed from 2020-35.  EVs only start lowering net fossil fuel demand from 2037 onwards. The reason is that 3.7x more energy is consumed to manufacture each EV than the net road fuel it displaces each year; while the manufacturing of EVs is seen growing exponentially. The finding is a strong positive for natural gas, as outline in our new 13-page note.

Pages 2-3 outline our oil demand forecasts out to 2050, reflecting the rise of electric vehicles and six other game-changing technologies.

Pages 4-5 lay out the energy costs manufacturing EVs, based on new, granular details from the recent technical literature.

Pages 6-9 model the exponential rise of electric vehicles, and how rapidly increasing manufacturing energy could outweigh slowly increasing fuel savings.

Pages 10-13 consider pushbacks to our thesis that EVs increase fossil fuel demand, including the use of renewable technology, battery innovations or vehicle autonomy.

Posted on

MCFCs: what if carbon capture generated electricity?

Molten Carbonate Fuel Cells

Molten carbonate fuel cells (MCFCs) could be a game-changer for CCS and fossil fuels. They are electrochemical reactors with the unique capability to capture CO2 from the exhaust pipes of combustion facilities; while at the same time, efficiently generating electricity from natural gas. The first pilot plant was due to be tested in 1Q20, by ExxonMobil and FuelCell Energy, but was deferred. Economics range from passable to phenomenal. The opportunity is outlined in our 27-page report.

Pages 2-4 outline the market opportunity for more efficient carbon separation technologies, which can be retrofitted to 4TW of pre-existing power plants, without adding $50/T of cost and 15-30% of energy penalties per traditional CCS.

Pages 5-13 outline how MCFCs work, including their operation, development history, how recent patents promise to overcome reliability problems, and their emergent adaptation to carbon capture.

Pages 14-18 assess the economics, both in absolute terms, and by comparison to new gas plants and hydrogen fuel cells. CCS-MCFC economics range from passable to phenomenal, at recent power prices.

Pages 19-23 suggest who might benefit. Fuel Cell Energy has received $60M investment from ExxonMobil, hence both companies’ prospects are explored.

Appendix I is an overview of incumbent CCS technologies, and their limitations.

Appendix II is an overview of six different fuel cell types, comparing and contrasting MCFCs.

Posted on

Shell: the future of LNG plants?

Shell LNG Pipeline

Shell is revolutionizing LNG project design, based on reviewing 40 of the company’s gas-focused patents from 2019. The innovations can lower LNG facilities’ capex by 70% and opex by 50%; conferring a $4bn NPV and 4% IRR advantage over industry standard greenfields. Smaller-scale LNG, modular LNG and highly digitized facilities are particularly abetted. This 16-page note reviews Shell’s operational improvements, revolutionary greenfield concepts, and their economic consequences.

Pages 2-3 outline Shell’s rationale for radically re-thinking LNG project designs, and how we have assessed its progress, across c300 patents from 2019.

Pages 4-6 outline operational improvements, described in Shell’s patents, which can reduce opex by up to 50% and uplift IRRs by c3%.

Pages 7-13 outline novel LNG plant designs, based on Shell’s patents: including advanced materials, alternatives to cryogenics (which can abet small-scale LNG) and next-generation modularization. Thether these can cut capex by c70%.

Pages 14-16 outline the economic opportunities, describing how Shell’s patented innovations affect our project NAVs at LNG Canada and the US’s Lake Charles.

Posted on

Ten Themes for Energy in 2020

Ten Themes for Energy in 2020

Energy transition is maturing as an investment theme. ‘Obvious’ portfolio tilts are beginning to look over-crowded. Non-obvious ones are over-looked. This 26-page note outlines the ‘top ten’ themes that excite us most in 2020, among commodities, drivers of the energy transition, market perceptions and corporate strategies.

Theme #1 is that investors are seeking non-obvious ways to drive the energy transition, as obvious opportunities start to look over-concentrated.

Theme #2 presents an example of an ‘obvious’ renewable energy theme, which is on the cusp of slowing down.

Theme #3 outlines the maturation of the ESG movement, as new sectors and new opportunities come into its purview.

Theme #4 explains how leading oil companies are likely to present their low carbon credentials in order to re-attract capital and potentially re-rate.

Theme #5 is our outlook for the US shale industry in 2020, following on from Themes 2-4.

Theme #6 is our outlook for the downstream industry as IMO 2020 finally arrives, with a focus on second-order consequences and opportunities.

Theme #7 finds a new up-cycle beginning to form in the global gas industry (LNG), a theme that increasingly excites us, to drive the energy transition.

Theme #8 is our oil outlook, where we expect markets may be re-shaped (perhaps even surprised) by the shedding of “unwanted” and high-carbon barrels.

Theme #9 outlines which companies we expect to lead the industry with growth and acqusitions.

Theme #10 argues the case for new, technology-focused investments.

Posted on

Global gas: catch methane if you can?

methane leaks

Scaling up natural gas is among the largest decarbonisation opportunities on the planet. But this requires minimising methane leaks. Exciting new technologies are emerging. This 30-page note ranks producers, positions for new policies and advocates developing more LNG. To seize the opportunity, we also identify c25 early-stage companies and 10 public companies in methane mitigation. Global gas demand should treble by 2050 and will not be derailed by methane leaks.

This overview note was first published in 2019, then updated in Feb-2021 and September-2022, to add further case studies, companies and market updates. It contains all our latest views on methane mitigation, in a single, comprehensive resource.

Pages 2-5 explain why methane matters for climate and for the scale up of natural gas. If 3.5% of methane is leaked, then natural gas is, debatably, no greener than coal.

Pages 6-9 quantify methane emissions and leaks across the global gas industry, including a granular breakdown of the US supply-chain, based on asset-by-asset data.

Pages 10-11 outline the incumbent methods for mitigating methane, plus our screen of 34 companies which have filed 150 recent patents for improved technologies.

Pages 12-13 outline the opportunity for next-generation methane sensors, using LiDAR and laser spectroscopy, including trial results and exciting companies.

Pages 14-15 outline the opportunity for next-generation methane sensors, using AI and other ambient data, with a case study that likely offers detection costs below $10/ton CO2e.

Pages 16-18 cover the best new developments in drones and robotics for detecting methane emissions at small scale, including three particularly exciting companies.

Pages 19-20 outline next-generation satellite technologies, which will provide a step-change in pinpointing global methane leaks and repairing them more quickly.

Pages 21-27 cover the changes underway in the oilfield supply chain, to prevent fugitive methane emissions, highlighting interesting companies and innovations.

Pages 28-29 screen methane emissions across the different Energy Majors, and resultant CO2 intensities for different gas plays.

Page 30 advocates new LNG developments, particularly small-scale LNG, which may provide an effective, market-based framework to mitigate most methane.

Our underlying data-files into methane mitigation are also available to be viewed individually, in chronological order, covering company screens, technology reviews and leakage rate data.

Posted on

Shale growth: what if the Permian went CO2-neutral?

making Permian production carbon neutral

Shale growth has been slowing due to fears over the energy transition, as Permian upstream CO2 emissions reached a new high in 2019. We have disaggregated the CO2 across 14 causes. It could be eliminated by improved technologies and operations, making Permian production carbon neutral: uplifting NPVs by c$4-7/boe, re-attracting a vast wave of capital and growth. This 26-page note identifies the best opportunities.

Pages 2-5 show how fears over the energy transition have slowed down shale growth in 2019.

Pages 6-10 disaggregate the CO2 intensity of the Permian, by source and by operator, based on over a dozen models we have constructed.

Pages 11-15 argue why increased LNG development is the single greatest operational opportunity to reduce Permian CO2 intensity.

Pages 16-18 summarise advances in methane mitigation technologies and their impacts.

Pages 19-23 outline and quantify the best opportunities to lower CO2 from digital initiatives, renewables, lifting and logistics.

Pages 24-25 quantifies the sequestration potential from CO2-EOR, which could offset the remaining CO2 left after all the other initiatives above.

Our conclusion is to identify three top initiatives that companies and investors should favor. Industry leading companies are also suggested based on the patents and technical literature we have reviewed.

Posted on

Ramp Renewables? Portfolio Perspectives.

optimal portfolios transitioning to renewables.

It is often said that Oil Majors should become Energy Majors by transitioning to renewables. But what is the best balance based on portfolio theory? Our 7-page note answers this question, by constructing a mean-variance optimisation model. We find a c0-20% weighting to renewables maximises risk-adjusted returns. The best balance is 5-13%. But beyond a c35% allocation, both returns and risk-adjusted returns decline rapidly.

Pages 2-3 outline our methodology for assessing the optimal risk-adjusted returns of a Major energy company’s portfolio, including the risk, return and correlations of traditional investment options: upstream, downstream and chemicals.

Page 4 quantifies the lower returns that are likely to be achieved on renewable investment options, such as wind, solar and CCS, based on our recent modeling.

Pages 5-6 present an “efficient frontier” of portfolio allocations, balanced between traditional investment options and renewables, with different risk and return profiles.

Pages 6-7 draw conclusions about the optimal portfolios, showing how to maximise returns, minimise risk and maximise risk-adjusted returns (Sharpe ratio).

The work suggests oil companies should primarily remain oil companies, working hard to improve the efficiency and lower the CO2-intensities of their base businesses.

Posted on

Decarbonise Downstream?

Decarbonise Downstream Refining Improved Catalysts

Refining has the highest carbon footprint in global energy. Next-generation catalysts are the best opportunity for improvement: uniquely, they could cut refineries’ CO2 by 15-30%, while also uplifting margins, which get obliterated by other decarbonisation approaches. Catalyst science is undergoing a digitally driven transformation. Hence this 25-page note outlines a new ESG opportunity around refining catalyst technologies. Industry leaders are also identified.

Pages 2-3 outline the need to decarbonise the refining industry, in order to clean up the world’s future oil production and preserve access to capital.

Pages 4-6 decompose the sources of CO2 emissions across a typical refinery, process-by-process; as a function of heat, utilities and hydrogen.

Page 7-8 outline small opportunities to improve refinery CO2 intensities, via continued process enhancements, changing crude slates and renewable energy.

Page 9 finds green hydrogen can reduce CO2 emissions by c7-15%, but economics are unfavorable, obliterating refining margins.

Pages 10-12 models the costs of post-combustion carbon capture, which could cut CO2 intensities by 25-90%, but also risks cutting margins by $2-4/bbl.

Pages 13-14 present the opportunity for better catalysts, identifying which Energy Majors have the leading refining technologies, based on patent filings.

Pages 15-17 outline the most promising, emerging catalyst technologies from 50 patents we studied. They can reduce refinery CO2 intensities by 5kg/bbl.

Pages 18-21 highlight breakthrough, digital technologies to improve the development of new catalysts, including super-computing and machine learning techniques.

Pages 23-24 screen 35 leading catalyst companies, including Super-Majors, chemicals companies and earlier-stage pure-plays.

Posted on

Guyana: carbon credentials & capital costs?

Guyana carbon credentials

Prioritising low carbon barrels will matter increasingly to investors, as they can reduce total oil industry CO2 by 25%. Hence, these barrels should attract lower WACCs, whereas fears over the energy transition are elevating hurdle rates elsewhere and denting valuations. In Guyana’s case, the upshot could add $8-15bn of NAV, with a total CO2 intensity that could be c50% below the industry average.

Pages 2-3 introduce our framework for decarbonisation of the global energy system. Within oil, this requires prioritising lower carbon over higher carbon oil barrels.

Pages 3-6 outline the economic value in Guyana, which is now at the point where it is hard to move the needle with further resource discoveries.

Pages 7-8 show how lower WACCs can be trasnformative to resource value, even more material than increasing oil prices to $100/bbl.

Pages 9-17 outline the top technologies that should minimise Guyana’s CO2 emissions per barrel, including flaring policies, refining quality, midstream proximity, proprietary gas turbine technologies from ExxonMobil’s patents and leading digital technologies around the industry.

Our conclusion is that leading companies must deepen their efforts to minimise CO2 intensities and articulate these initiatives to the market.

Key points on Guyana carbon credentials and oil capital costs are spelled out in the article sent out to our distribution list.

Posted on

Investing for an energy transition

Investing for an energy transition

What is the best way for investors to decarbonise the global energy system? We argue this outcome is achievable by 2050. But a new ‘venturing’ model is needed, to incubate better technologies. CO2 budgets can also be stretched furthest by re-allocating to gas, lower-carbon oil and lower-carbon industry. But divestment is a grave mistake. These are the conclusions in our new, 18-page report.

Download (free)

The global energy system could be decarbonised by 2050 (chart above). Yet today’s renewable technologies are only sufficient to meet c15% of the challenge. The largest component, at c50%, requires new energy technologies: both to economize demand and decarbonise supplies, which will most likely remain fossil-dominated to 2100.

Other routes are dangerous. The ‘divestment movement’ seeks to cut off capital for fossil fuels. This does not yield an energy ‘transition’, but a devastating energy ‘shortage’. Scaling up new technologies requires more capital, not less (see pages 2-7 in the PDF).

Is the investment community configured for energy transition? We fear not.

First, the investment process should favour lower-carbon suppliers across every industry, to incentivise efficiency. Within energy, this includes natural gas, low-carbon oil over higher-carbon oil (saving 500MTpa of CO2) and technology-leaders (see pp 8-11).

A new breed of venture funds is most needed, so investors can allocate capital to economically promising technologies. These opportunities are extremely exciting, based on all of our research. For example, we argue leading Energy Majors should offer up co-investments in their venture funds (see pp 12-16).

Copyright: Thunder Said Energy, 2019-2024.