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.

Paper production: energy economics?

Paper is made by chopping down trees, shredding the logs, boiling this sawdust in a cocktail of chemicals (e.g., sodium hydroxide, sulphides) at 150-175ºC for several hours to extract the cellulose fibers, refining this fibrous slush, then rolling it out into sheets, pressing out some of the water and heating out the rest.

Our model captures the energy intensity, cost breakdown and economics of this process. We think a large new integrated paper mill must charge around $700/ton for a 10% IRR.

The controversy is CO2 intensity. Total energy intensity is usually around 5-6MWH per ton of paper, coming one-third from external energy sources (e.g., electricity, gas, coal) and two-thirds from burning bark and other waste wood residues. IPCC protocols only count the emissions from external energy, suggesting CO2 intensity around 0.4 kg per kg of paper. However, if you believe that chopping down a tree and burning two-thirds of the wood does in fact release CO2 into the atmosphere, then the total CO2 intensity is closer to 2.6 kg CO2 per kg of paper (and actually more than plastic).

We are all somewhat complicit in these emissions, as the average Western person consumes 200kg of paper per year in various forms, underpinning around 0.5 tons of CO2 emissions per person per year from consuming paper products alone.

Fuel retail: economics of a petrol station?

This data-file captures the economics for a typical fuel-retailing “petrol station” to earn a 10% unlevered IRR, based on data from companies in the space, into capex, opex, margins and costs.

A typical EBIT margin is around 17c/gallon. This is derived from a c6% margin on direct fuel sales; but in addition, around 10-20% of revenues are from selling convenience retail products at a higher, c25-30% margin.

Economics are more attractive at larger service stations with higher throughput volumes, which in turn, allows for lower fuel retail margins. Please download the data-file to stress test the economics.

LNG regasification: the economics?

This data-file captures the economics for a typical LNG regas facility. We estimate that a fixed plant with 75-80% utilization requires a spread near to $0.8/mcf on its gas imports, in order to earn a 10% IRR.

However, infrastructure-like investments, such as regas facilities typically get financed off lower return expectations, and $0.6/mcf is sufficient for a 6% IRR.

The main input is cost, which we have appraised based on past projects, company disclosures and technical papers (chart below).

Most interesting for the 2020s is the asymmetric upside that could result from extreme gas market tightness. In times of weak pricing, downside is capped, as you can idle the facility. But recent history shows that during times of gas shortages, gas prices effectively have uncapped upside, and this can easily add 3-10% to full-cycle IRRs.

Glass fiber: the economics?

This data-file models the economics of producing glass fiber, the key component in fiberglass, which is used in wind turbine blades and the light-weighting of transport; but also an insulation material used in the construction industry.

We have broken down the costs across a dozen different input variables, such as capex, opex, energy and materials, based on technical papers, in order to calculate the economics and CO2 intensity of the material.

Some Chinese-made product can undercut Western-made product by c50% on price, but it will likely also embed about 2x more CO2.

Backup data, market sizing and notes from technical papers follow in the subsequent tabs of the Excel.

Steel production: the economics?

This data-file captures the economics and CO2 intensity of producing iron/steel by the reduction of iron ore, in an integrated facility with a blast furnace and basic oxygen furnace.

Our base case is a marginal cost of $550/ton and 2.4 tons of CO2 emitted per ton of steel. Although the results are sensitive to input assumptions, which are backed up by technical data, but can also be stress-tested.

The data-file also allows some evaluation of decarbonization options, including electrification, blue hydrogen and green hydrogen, both as reducing agents and as heating sources.

CO2 liquefaction: the economics?

The purpose of this data-file is to model the economics of liquefying CO2 for transportation in a ship, rail car or truck, in order to facilitate the rise of CCS, especially at smaller scales.

Our baseline is a cost of $15/ton, using c100kWh of energy per ton of CO2, which is approximately equivalent to a c3% energy penalty on the combustion process that generated the original CO2. There is scope for optimization, including from demand shifting.

Our calculations are based on a literature review of technical papers, and aggregating data into the energy costs of CO2 liquefaction, across different pressures and temperatures.

Coal mining: the economics?

This data-file aims to approximate the economics of a new coal mine, using simple rules of thumb and data from past projects, capex (in $/Tpa) and opex (in $/ton).

Coal is ridiculously cheap, providing thermal energy at around 1c/kWh while also generating a 10% IRR on the new investment. 1 MWH pa of new energy can be produced for an up-front investment of around $10.

A high CO2 intensity of 0.55kg/kWh is also quantified in the data-file, including combustion emissions, methane leaks, diesel fuel and electricity usage at the mine.

Please download the data-file to stress test the economics and sensitivity to coal prices in $/ton.

Variable frequency drives: the economics?

This data-file aims to capture the economics of variable frequency drives, which precisely adjust the operating speeds of electric motors.

We reviewed 10 case studies and found an average energy saving of 34%, and 15 past projects with an average cost around $250/kW.

Our modelling calculates a 15% IRR installing a VFD at a typical industrial motor. Sensitivity analysis shows how the returns and payback periods vary with power prices and CO2 prices.

Overall, we think economics are excellent and VFD installations will likely accelerate.

Copyright: Thunder Said Energy, 2022.