Energy transition: the top ten commodities?

This data-file summarizes our latest thesis on ten leading commodities with upside in the energy transition. We estimate that the average commodity will see demand rise by 3x and price/cost appreciate or re-inflate by 100%.

The data-file contains a 6-10 line summary of our view on each commodity, and ballpark numbers on the market size, future marginal cost, CO2 intensity and pricing.

Covered commodities include aluminium, carbon fiber, cobalt, copper, lithium, LNG, oil, photovoltaic silicon, sulphuric acid, uranium.

Energy economics: an overview?

Overview of Energy Economics

This data-file provides an overview of energy economics: 90 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.

Renewables stand out. Despite high capital intensity (34% of revenues, 2x the average), once constructed, they also have the highest cash margins (76%, also 2x the average).

Low-carbon fuels and manufacturing/materials are similar. Both tend to have c20% average EBIT margins, after deducting 70-75% opex and c5-10% capex shares. This makes sense, as low-carbon fuels are effectively “manufactured” energy products.

The most exciting opportunities can also be picked out. They are clustered in the top-left of the chart, with high EBIT margins, low capital intensity and low costs once they are up-and-running.

Full data are available in the data-file below. To read the overview of energy economics send to our distribution list, please see our article here. All of the underlying economic models that feed into this data-file are available here.

Mining: crushing, grinding and comminution costs?

Mining crushing grinding costs

Mining: crushing-grinding costs. Extracting useful resources from mined ores requires comminution. This is the integrated sequence of crushing and grinding operations, which breaks down mined rubble (3-10 cm diameter), effectively into talcum powder (30-100µm), which can in turn enter the metal refining process with sufficient surface area to extract the valuable materials.

The purpose of this data-file is to tabulate typical cost estimates for crushing-grinding processes, which consume 1-2% of all the energy in the world and 20-50% of the energy in some mining processes. Our numbers are shown per ton of ore, so clearly lower ore grades translate into higher costs per unit of extracted material (guide here).

Energy economics. A good rule of thumb is that an integrated mining crushing-grinding plant will have capex costs of $20/Tpa of capacity and consume 20kWh of energy per ton, while total full-cycle costs will run close to $10/ton of ore that is processed. (Numbers can be stress-tested in the ‘model’ tab).

Our capex estimates are informed by evaluating a dozen actual project disclosures and technical papers, spanning across the gold, silver, iron, copper and limestone quarrying industries (see the ‘capex’ tab).

Our energy intensity estimates are informed by mine disclosures and technical papers, but we have also derived our own bottom-up numbers using the Bond Equation. The suggested work index for this model depends on rock hardness, and varies from 9kWh/ton in soft rocks (barites, bauxites, fluorspars, phosphates) through to 13kWh/ton at harder rocks (copper ores, hematites, limestones) and higher again at volcanics (see ‘Bond’ tab).

Please download the data-file to stress-test mining crushing-grinding costs, across capex, opex, maintenance, labor, electricity prices, CO2 prices, uptime & utilization and ore grades.

Our 5 conclusions on the crushing-grinding industry are highlighted in the article sent to our distribution list here.

Manufacturing methods: an overview?

Overview of manufacturing methods

An of overview of manufacturing methods is given in this data-file, covering different means of upgrading, separating, heat-treating, drying, depositing, shaping and assembling different manufactured products.

In each case, we have aimed to quantify the relative costs, energy intensity, typical throughput volumes, an explanation of the process, and examples for how it is used.

Energy intensity varies vastly, and is 70% correlated with costs of the processes. But as a rule of thumb, a manufacturing process with <0.3 MWH/ton energy use is energy-light, while a process with >7MWH/ton energy use is energy-intensive.

Some of the lowest-cost methods are associated with the mining industry, where they are deployed at enormous scale (multi-MTpa), such as crushing, flotation and leaching; while screen-printing is one of the lowest cost assembly processes.

Conversely, some of the highest-cost methods are associated with the semi-conductor industry, involving the deposition of very thin and intricately positioned patterned layers on a substrate. These methods include photolithography, sputtering and vapor deposition.

The full data-file gives an overview of different manufacturing methods and is intended as a useful reference file or  ‘cheat sheet’, for decision-makers increasingly exploring new solar cells, battery recycling or materials used in the energy transition.

To read our latest commentary on manufacturing methods, please see our article here.

Recycling: a global overview of energy savings?

Global recycling energy savings

A global overview of recycling is laid out in numbers in this data-file, covering steel, paper, glass, plastics such as PET and HDPE and other metals, such as copper and aluminium. In each case, we cover the market size (in MTpa), the recycling rate (in %), primary energy use (MWH/ton), CO2 intensity (tons/ton) and the possible savings from recycling.

We estimate that 1GTpa of waste material is recycled globally, as 35% of these products’ total markets are sourced from scrap. As a good rule of thumb, recycling saves 5MWH of primary energy and 2 tons of CO2 per ton of material, or around 70% of the footprint of primary production, although the precise numbers vary category-by-category.

In the energy transition, we estimate global CO2 savings from recycling are already around 2GTpa. Rising energy and CO2 prices would incentivize more recycling, and save another 2GTpa of future CO2, we estimate.

Steel is the largest category, as around 30% of the 2GTpa market is sourced from scrap, or c600MTpa, avoiding c80% of the energy and c90% of the CO2 associated with primary production, and saving 1GTpa of global CO2 (models here and here). This is also the area where economic opportunity seems largest: at 6c/kWh average energy prices and a $50/ton CO2 price, these ‘savings’ can avoid half of the typical costs of primary steel production. Leading steel-recycling companies, in electric arc furnaces include Nucor, CMC and Celsa Group.

Paper is the second largest category, as more than half of the world’s 400MTpa paper market is sourced from recycled pulp. Energy, CO2 and energy/CO2 cost savings are around 30-40%, compared with virgin paper (model here). One of Europe’s largest listed paper recyclers is DS Smith, managing 6MTpa of material each year.

Aluminium offers the third largest energy and CO2 savings from recycling, out of the materials in our data-file. Despite a smaller market by mass, at c70MTpa, the energy and CO2 associated with secondary production is around 90-95% lower than primary production (model here), which also helps avoid c40% of production costs (at 6c/kWh energy, $50/ton CO2). The world’s largest aluminium recycler is Novelis, which is owned by Hindalco.

Copper recycling has mixed numbers. In absolute terms, around one-third of the world’s 28MTpa copper demand comes from secondary sources. And, secondary production saves c75% of the energy and CO2 of primary copper production, avoiding 4-5MWH/ton of energy and around 3 tons/ton of CO2 (model here). However, the value of these savings is relatively low in normal times, compared to $7-10/kg copper prices. But higher energy and CO2 prices in the 2020s may increase the relative value of secondary production. One of the world’s largest copper recyclers is Aurubis (TSE note here), while Boliden recycles copper and other metals, such as nickel (TSE note here).

The glass industry comprises over 1,200 companies, across 2,160 sites, outputting over 200MTpa of products. c20% is from recycled material. However, this is likely to be the category with the energy and CO2 savings from recycling, both in absolute and relative terms, at about 25-35% (morel here).

Global plastics only see a c10% recycling rate, which in turn is dominated by PET and HDPE. Energy and CO2 savings in these categories are estimated at 50-60% (models here and here). An array of next generation plastic recycling companies, which can handle a wider variety of feedstocks, has excited us in our research (screen here, note here).

The data-file linked below contains our numbers and workings, to derive the energy, CO2 and cost savings in each category, as a useful reference.

Further research. Our recent commentary on global recycling and energy savings is linked here.

Chlor-alkali process: the economics?

Chlor-Alkali Process Economics

Global production of chlorine reached 80MTpa in 2021, while global production of caustic soda reached 90MTpa. Both are products of the chlor-alkali process, electrolysing sodium chloride solution. This data-file captures chlor-alkali process economics, to derive costs in $/ton of each commodity.

Our base case model requires revenues of $600 per ecu (electro-chemical unit), which in turn comprises 1.13 tons of NaOH, 1 ton of Cl2 and 0.03 tons of H2 gas. This generates a 10% IRR of a low cost growth project costing $600/Tpa. Costs would be somewhat higher at pure greenfields, especially in higher-capex geographies (e.g., the US).

Costs matter as chlorine, NaOH and their derivatives are inputs to many of our other economic models for energy transition and broader industrial models, such as paper products, renewable diesel, carbon fiber, refiningbattery recycling, some CCS and Direct Air Capture. HCl is also an input to the Siemens Process, used to make 92% of the world’s PV silicon in 2021.

Energy intensity is middling. Electricity comprises 30% of the total marginal cost, and c45% of cash cost, under our base case assumptions. CO2 intensity is 0.5 tons of CO2 per ton of product.

Interestingly, chlor-alkali plants may be able to demand shift, cutting 20-30% of their electricity consumption in times when renewables are not generating. You can stress-test chlor-alkali process economics in the data-file.

To read more about the chlor-alkali process, please see our article here.

Albemarle: lithium, bromine, catalyst improvements?

Albemarle technology review

Albemarle technology review. Albemarle is a specialty chemicals company, headquartered in North Carolina, with 6,000 global employees and over $3bn pa of revenues, derives 40% of its business from producing lithium, 35% from bromine-based flame retardants, and c25% from catalysts, especially for FCC and cleaner-burning fuels.

Overall, our patent screen de-risks the idea that Albemarle is continuing to improve its product offering, by developing an array of novel fire-proofing bromine compositions, further and better lithium pathways, and longer-lasting catalysts. But the patents are more for incremental improvements than world-changing new technologies.

We think 70% of the patents are for technologies that will advance the energy transition in some way, as discussed in the data-file.

Lithium remains one of the most challenging bottlenecks in the energy transition, with demand set to rise 30x (model here). Our overview of the industry is here. We have not been able to de-risk game-changing new DLE technologies that would disrupt the industry (note here). This helps incumbents, including Albemrarle and other leading companies, which are screened here.

To read more of our Albemarle technology review, please see our article here.

Sulphur recovery units: Claus process economics?

Sulphur recovery unit economics

This data-file captures the economics of sulphur recovery 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?

Recent Commentary: please see our article here for why sulphur recovery unit economics are increasingly important for supply chains in the energy transition, especially for lithium production and fertilizer production.

Tricoya: engineered wood breakthrough?

Tricoya technology review

This data-file serves as a Tricoya technology review, based on evaluating the company’s patents, using our usual framework.

Tricoya is an engineered wood product like MDF, but it has been “acetylated”, in order to confer >50-year longevity, even when exposed to the elements. This could make it one of the most ‘sustainable’ construction materials and wood uses, on a full life cycle CO2 basis, per our recent research here.

Accsys Technologies is the parent company commercializing acetylated wood products such as Accoya and Tricoya. It was founded in 2005, is headquartered in the UK, and is listed on AIM and Euronext Amsterdam. The company generated €100M revenues in FY 2021 and 50,000 tons of CO2 were sequestered in the products that it sold.

This data-file is a Tricoya technology review,  covering its technology and patent library, on our usual patent assessment framework. It is one of the “highest scoring” patent libraries that we have reviewed to date.

Key details on the production process, technology “moat” and challenges are outlined in the technology review.

Recent Commentary: please see our article here.

Wood use: what CO2 credentials?

CO2 intensity in wood

The carbon credentials of wood are not black-and-white. They depend on context. This 13-page note draws out the numbers and five key conclusions. They count against deforestation, in favor of using waste wood, in favor of wood materials (with some debate around paper) and strongly in favor of natural gas.

Copyright: Thunder Said Energy, 2022.