Shell: the future of LNG plants?

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 note reviews Shell’s operational improvements, revolutionary greenfield concepts, and their economic consequences.

Illustrative LNG Economic Model

This simple, illustrative model for an LNG project’s economics, facilitates stress-testing of economic assumptions, and their impact on IRRs and NPVs.

The InputsOutputs tab allows you to flex key variables such as: LNG sales price, Capex/tpa, Opex/mcf, Utilization, Thermal Efficiency, LNG shipping distance, LNG tanker rates, and liquids cuts.

A base LNG case project is likely to earn a c7% real, unlevered IRR. The economics are most sensitive to gas pricing and capex; and somewhat less sensitive to the other variables.

European Natural Gas Demand Model

This model estimates European gas demand in the 2020s, as a function of a dozen input assumptions, which you can flex. They include: renewables’ growth, the rise of electric vehicles, the phase out of coal and nuclear, industrial activity, efficiency gains and LNG-transport fuel.

Our conclusion is that European gas demand will likely grow at its fastest pace since the early-2000s, largely driven by the electricity sector.

The data-file also contains granular data, decomposing gas demand across 8 major categories, plus 13 industrial segments, going back to 1990 (albeit some of the latest data-points are lagged).

Please download the model to run your own scenarios…



Carbon Offset Costs?

This data-file tabulates the costs of carbon offsets that are being offered to consumers and commercial customers, by 17 companies. Offered carbon offset costs are surprisingly low.

Are they real? The file also tabulates 1,600 carbon offset projects which are assured by agencies such as the ‘Verified Carbon Standard’, Gold Standard and Green-E. This helps lend credibility to the companies in the data-file.

However, we estimate only c10-20% of the projects directly offset CO2 through planting new forests, another c15-30% are spent on forest conservation, and the remaining 50-70% are broader (i.e., charitable donations to finance renewable energy projects).

Oil Sands CO2 Intensity

This data-file quantifies the CO2 intensity of oil sands production: disaggregating averge emission factors for both mining operations and SAGD. Emissions are estimated for running trucks, bitumen extraction, steam-flooding, upgrading, methane leaks, flaring, et al; based on real-world data.

A CO2 curve can also be derived from the data, ranking c2.5Mbpd of production across Alberta, in order to compare different facilities and different operators. Steam-oil-ratios explain c60% of the variance in SAGD assets’ emissions.

Battery Patents: Lithium Deflation, New Breakthroughs?

This data-file tabulates the number of patents filed into different types of batteries, by year and by geography.

Continued deflation in lithium ion battery costs is suggested by the 26,000 patents filed in 2019, which has doubled in the past 5-years, led by China (two-thirds of the patents).

Redox flow batteries are emerging as the most exciting new technology, with patent activity doubling since 2014, to 894 in 2019, also led by China, followed by the US. Hence we include notes on ESS Inc.

Interest has been waning in solid state batteries (-57% since 2014) and liquid metal batteries (-67%).

A description of each battery type is shown in the ‘battery types’ tab. Download the data-file for a break-out of the data by country.

Global CCS Projects Database

This data-file captures 65 carbon capture and storage (CCS) facilities around the world, of which c30 are currently running, with capacity to sequester 40MTpa of CO2. Capacity should rise 2.5x by 2030.

As costs deflate, CCS is expanding to more countries, more industries and away from EOR towards dedicated geological storage (charts above).

The full data-file includes each facility, its location, involved companies, construction status, volumes (MTpa), CCS process, industrial source of CO2, start-up, storage type, capex ($M where available), capex cost ($/ton where available) and 2-3 lines of notes per facility.

EOG’s Digitization: Pumped-Up?

EOG patented a new digital technology in 2019: a load assembly which can be built into its rod pumps: to raise efficiency, lower costs and lower energy consumption (i.e., CO2). This short note reviews the patent, illustrating how EOG is working to further digitize its processes, maximise productivity and minimise CO2 intensity.

Variable Power Tariffs Exacerbate Social Inequalities?

This data-file tabulates the impacts of variable electricity tariffs, after switching 4.622 households over from fixed electricity tariffs, across a large-scale sample in the United States. This theme is increasingly important as intermittent renewables reach saturation in developed world power grids.

Residential electricity demand is inelastic, with a 20% price-increase yielding a mere 1% reduction in end-demand. Peakload demand fell by 4%.

However, socially “vulnerable” consumers suffered disproportionately, only achieving a 2% decrease in peakload demand. Hence, while monthly power prices rose by 18% for non-vulnerable consumers, they rose by 22% for vulnerable consumers. The results, data and study are in the data-file.

Blockchain in the Oil & Gas Supply Chain

This datafile tabulates ten examples of deploying Blockchain in the oil and gas industry from 2017 onwards; including the companies involved, the use cases, and our estimates of the cost savings.

Most prior examples have been in oil and gas trading, where cost savings tend to run at c35%. More niche applications are gaining traction in downstream, B2B applications.

For 2020, we are particularly excited by the broadening of Blockchain technologies into the procurement industry by a particular company, Data Gumbo.

c10% cost savings may be achieved for fragmented supply chains, such as US shale, by analogy to other digital procurement platforms we have evaluated in the past.