Energy economics: an overview?

This data-file provides an overview of 75 different economic models constructed by Thunder Said Energy, in order to help you put numbers in context.

Specifically, the model provides summary economic ratios from our different models across conventional power, renewables, conventional fuels, lower-carbon fuels, manufacturing processes, infrastructure, transportation and nature-based solutions.

For example, EBIT margins range from 3-70%, cash margins range from 4-85% and net margins range from 2-50%, hence you can use the data-file to ballpark what constitutes a “good” margin, sub-sector by sub-sector.

Likewise capital intensity ranges from $300-9,000kWe, $5-7,500/Tpa and $4-125M/kboed. So again, if you are trying to ballpark a cost estimate you can compare it with the estimated costs of other processes.

Capacitor banks: the economics?

This model captures the economics of power factor correction via installing capacitor banks upstream of inductive loads.

Specifically, these capacitors prevent power drops and unnecessary I2R losses by keeping voltage in phase with current, even when power is supplied to components such as motors, electric arc furnaces, LED lights, computing infrastructure.

In our base case scenario, a 10% IRR is derived from a capacitor bank costing $30/kVAR, reducing real power losses by 0.5%, and thus earning its keep through a combination of 8c/kWh electricity prices (75% of savings), $3.5/kW demand charges (15%) and a $20/ton CO2 price (10%).

Therefore rising power prices, demand charges and CO2 prices would all support greater deployment of capacitor banks.

Please download the data-file to stress test the economics….

Recent commentary: please see our report into capacitor banks.

Sulphur recovery units: Claus process economics?

This data-file captures the economics of producing sulphur from H2S via the Claus process, which is an important industrial process cleaning up sour gases from the oil and gas industry, but also in the production of sulphuric acid for phosphate fertilizer and metals/materials production.

Cash costs are likely to be in a range of $40-60/ton. While we think a marginal price of $100/ton should incentivize new Claus units with a 10% IRR. This is assuming H2S inputs are effectively free, as sourced from hydroprocessing or gas sweetening.

Producing sulphur is not energy or CO2 intensive, at 0.1 tons CO2/ton of sulphur. The majority of this is inherited from oxygen enrichment, which improves yields, but in turn requires cryogenic air separation.

If the world’s sulphur and H2SO4 mostly come from 1,000 refineries and oil processing facilities, this might raise a question in the energy transition about coping with future sulphur shortages?

Lithium from brines: the economics?

This data-file approximates the production costs of battery-grade lithium from brines, both via traditional salars, and via the emerging technology of direct lithium extraction.

Costs are c40-60% lower than mined lithium production in ($/ton of lithium carbonate equivalent). CO2 intensity is 50-80% lower (in kg/kg).

The data-file is informed by capex and opex disclosures from companies, and data from technical papers, which also cover the ionic composition of different brines.

Note: compared to other models we have constructed, there are more uncertainties and rounding in this model, because precise chemistries vary brine by brine, and because direct lithium extraction techniques are still not fully mature. Hence we have only attempted a high-level model.

Graphite production: the economics?

This data-file captures simplified economics for producing battery-grade graphite (i.e., 99.9% pure, coated, spheronized graphite) in an integrated facility, from mine to packaged output.

Marginal cost is estimated at around $10,000/ton for a 10% IRR. CO2 intensity is highly variable and debatable. Input assumptions come from technical papers, company disclosures and one detailed feasibility study (see below).

Numbers are more uncertain than other models we have constructed. However, you can nevertheless stress test the impact of changing graphite prices, electricity prices, CO2 prices, capex costs, wage rates, ore grades, processing efficiency and tax rates.

Urea production: the economics

This data-file captures the economics of producing urea, an important fertilizer and intermediate for the materials industry.

We estimate a marginal cost of $325/ton, with the majority of the world’s 180MTpa urea capacity situated in areas with low cost energy inputs, equivalent to $2/mcf.

CO2 intensity averages 1.5 tons of CO2 per ton of urea, which is disaggregated in the file across ammonia inputs, CO2 inputs, electricity inputs and heat inputs. These numbers can all be stress-tested.

Sensitivity matters. At $6-10/mcf gas prices, marginal costs of producing urea increase to $400-500/ton. The model is based on data-points from actual production facilities and technical papers.

Oil storage terminals: the economics?

This data-file captures the economics of constructing an oil storage terminal (aka a “tank farm”).

The storage spread for a 10% IRR depends mostly on utilization. A typical facility that empties to c15-20% than refills to 80-85%, once per month, need only add a spread of $1.5/bbl to earn a 10% IRR.

Cost data are taken from 20 prior projects, a granular bottom-up estimate and published disclosures from industry-leader Vopak. And they are around 97% lower, on a per-kWh basis, than the best renewables-battery storage options.

Economics may get more challenging during the energy transition, as it becomes harder to finance new storage terminals off assumptions for lower future utilization or outright phase-outs.

Formaldehyde production: the economics?

This data-file captures the economics of producing formaldehyde, which is one of the ‘top 50’ commodity chemicals globally.

Formaldehyde is used in making urea-formaldehyde resins, which in turn are used to make fibre-board wood products (e.g., MDF); in other adhesive products (e.g., as might be used in producing wind turbine blades); and in smaller quantities to produce paints and disinfectants.

We think marginal cost of producing formaldehyde in normal times is around $500/ton (of pure formaldehyde), although the costs are a direct linear function of gas prices.

Total embedded CO2 is around 0.75tons/ton of formaldehyde (again on a 100% basis), of which c90% is embedded in producing methanol as a chemical input.

Nickel production: the economics?

This model captures the economics of producing battery-grade nickel (e.g., Class I, nickel sulphate) at a metallurgical processing facility.

Marginal cost is likely around $11,500/ton in order to generate a 10% IRR, in a process emitting 14 tons of CO2 per ton of product.

However, economics can range from $10,000-20,000 tons and CO2 intensity can be as high as 40-80 tons per ton, using alternative processing pathways.

Costs are disaggregated to flex the impacts of nickel prices, cobalt co-revenues, materials costs, ore costs, labor costs, energy costs, CO2 costs, capex, opex, tax and other.

Back-up data are derived from company disclosures and technical papers, which are also summarized in the back-up tabs behind the main model.

Auto manufacturing: the economics?

This data-file is a very simple model, aiming to break down the sales price of a typical mass-market automobile. Our numbers are informed by a survey of typical numbers for specific auto-plants in Europe and the US.

In typical times, a vehicle’s cost is estimated around $30k, of which c25% accrues to suppliers, c20% is sales taxes, c20% is dealer costs and logistics, c10% employees, c10% material inputs, c10% O&M, 1% electricity and c5% auto-maker margins. Numbers and calculations are in the data-file.

Amidst energy and industrial shortages, it is likely that the same vehicle could cost closer to $50k, representing c40% inflation, mostly due higher costs of materials and bottlenecks in supply chains.

Copyright: Thunder Said Energy, 2022.