Should fuel retail stations sell carbon credits: the economics?

This model calculates the uplift in FCF and NPV for a fuel-retail station that offers CO2-offsets at the point of sale, alongside selling fuel. The rationale, and the different models that could be employed are outlined in our recent deep-dive research note.

In both models shown above, annual FCF can be uplifted by 15-30%, while fuel retail stations’ NPV can be uplifted by 15-25%, depending on the portion of consumer that purchase the carbon credits.

Gross profits from selling $50/ton carbon credits may be around 3x the typical EBIT margins of retail stations, hence we explore a particular sales model that can at least double fuel retail NPVs.

Aerial Vehicles: Which Ones Fly?

We have compiled a database of over 100 companies, which have already flown c40 aerial vehicles (aka “flying cars”) and the number should rise to c60 by 2021.

The data substantiates our conclusion that aerial vehicles will gain credibility in the 2020s, the way electric vehicles did in the 2010s. Our latest updated in early-2020 shows strong progress was made in 2019 (chart below).

The database categorizes the top vehicle concepts by type, company, year-founded, company-size, company-geography, backers, fuel-type, speed, range, take-off weight, payload, year of first prototype, target commercial delivery date, fuel economy and required battery weights.

Some vehicle concepts are extremely impressive and credible; but a few may find it more challenging to meet the ranges they have promised at current battery densities…

Carbon Offsets vs Renewable Diesel?

This short model compares different options for decarbonising diesel, either by substituting it with renewable diesel, or by offsetting its CO2 with carbon credits from reforestation.

We conclude that offsetting the CO2 of diesel fuel could cost 60-90% less than purchasing advanced biofuel, at current pricing. Economically justified premia for biofuels are calculated.

Please download the model to interrogate numbers and run your own scenarios. For more information on our input assumptions, please see our biofuels overview data-file.

US Refiners: CO2 cost curve?

Which refiners are least CO2 intensive, and which refiners are most CO2 intensive? This spreadsheet answers the question, by aggregating data from 130 US refineries, based on EPA regulatory disclosures.

The full database contains a granular breakdown, facility-by-facility, showing each refinery, its owner, its capacity, throughput, utilisation rate and CO2 emissions across six categories: combustion, refining, hydrogen, CoGen, methane emissions and NOx (chart below).

Assessed companies include Aramco, BP, Chevron, Citgo, Delek, ExxonMobil, Koch, Hollyfrontier, Marathon, Phillips66, PBF, Shell and Valero.

Carbon Costs of IMO 2020?

CO2 intensity of oil refineries could rise by 20% due to IMO 2020 regulations, according to the estimates in this data-file, if a refinery chooses to convert all its high-sulphur fuel oil into low-sulphur diesel.

The drivers are an extra stage of cracking, plus higher-temperature hydrocracking and hydrotreating, which will also have the knock-on consequence of increasing hydrogen demands.

Higher CO2 intensity conflicts with the industry’s aim of lowering its net emissions, and a 20% increase would effectively undo 30-years of prior efficiency gains in the refining industry.

Upgrading Catalysts: lower refinery temperatures and pressures?

Catalysts matter for refinery energy and CO2 intensity, as is shown in this data-file: It tabulates temperature and pressure conditions, disclosed for different refinery units, based on over 50 patents from leading energy Majors.

The average refinery process takes place at 450C. But variability is high. Hence our data-file explains the variations as a function of the different catalyst compositions, being pioneered by the different companies.

Combining all the best-in-class new catalysts in the datafile, we think the average refinery could save 5kg/bbl of CO2 intensity: across hydrocracking, FCCs, steam cracking, coking, dewaxing, hydrotreating, alkylation and reforming.

US Refining: energy and CO2 intensity

This data-file tabulates the energy intensity and resultant CO2 intensity of the US refining industry, source by source, year by year, back to 1986.

Emissions of refining a barrel of crude in the US have fallen at a 0.5% CAGR over the past c30-years, from 36kg/boe in 1986 to 31kg/boe in 2018.

US refineries are increasingly fueled by natural gas and merchant steam, while own use of oil, coal and oil products have been phased out.

Carbon Capture Costs at Refineries?

This model calculates the costs of post-combustion carbon capture at a world-scale refinery, using today’s commercially available CCS technologies. The aim is to see whether the process could be economically competitive, as oil refineries emit c1bn tons of CO2 per annum.

Carbon capture costs vary unit-by-unit, as a function of the unit’s size and the CO2-concentration in its flue gas. Hence we estimate that c10-20% of refinery emissions can be eliminated for $XX/ton, the “middle 50%” will cost c$XX-XX/ton, while the final 20% will cost $XX-XX/ton. Calculations can be flexed in the model, using alternative input assumptions.

Our estimates are informed by an excellent technical paper from Shell, which is also summarised.

Overview of Downstream Catalyst Companies

This data-file tabulates details of the c35 companies commercialising catalysts for the refining industry.  Improved catalysts are aimed at better yields, efficiencies and energy intensities. This is the leading route we can find to lower refining sector CO2 emissions.

In particular, we find five early-stage companies are aiming to commercialise next-generation refining catalysts.

We also quantify which Majors have recently filed the most patents to improve downstream catalysts.

If you would like us to expand the data-file, or provide further details on any specific companies, then please let us know…

Shipping in batteries: the economics?

What if it were possible to displace diesel from high-cost, high-carbon “island” electricity grids, by charging up large batteries with gas- and renewable power, then shipping the batteries?

This model assesses the relative economics and relative CO2 emissions of such a possibility. The model is sensitive to oil prices, battery prices, hurdle rates and alternative power prices.

Economics should improve as battery prices fall. But costs are already competitive for several island grids, while CO2 intensity can be halved. Our numbers have been informed by disclosures from Gridspan Energy, a leading company in this space.