Decarbonise Downstream?

Refining has the highest carbon footprint in global energy. Next-generation catalysts are the best opportunity for improvement: uniquely, they could cut refineries’ CO2 by 15-30%, while also uplifting margins, which get obliterated by other decarbonisation approaches. Catalyst science is undergoing a digitally driven transformation. Hence this 25-page note outlines a new ESG opportunity around refining catalyst technologies. Industry leaders are also identified.


Pages 2-3 outline the need to decarbonise the refining industry, in order to clean up the world’s future oil production and preserve access to capital.

Pages 4-6 decompose the sources of CO2 emissions across a typical refinery, process-by-process; as a function of heat, utilities and hydrogen.

Page 7-8 outline small opportunities to improve refinery CO2 intensities, via continued process enhancements, changing crude slates and renewable energy.

Page 9 finds green hydrogen can reduce CO2 emissions by c7-15%, but economics are unfavorable, obliterating refining margins.

Pages 10-12 models the costs of post-combustion carbon capture, which could cut CO2 intensities by 25-90%, but also risks cutting margins by $2-4/bbl.

Pages 13-14 present the opportunity for better catalysts, identifying which Energy Majors have the leading refining technologies, based on patent filings.

Pages 15-17 outline the most promising, emerging catalyst technologies from 50 patents we studied. They can reduce refinery CO2 intensities by 5kg/bbl.

Pages 18-21 highlight breakthrough, digital technologies to improve the development of new catalysts, including super-computing and machine learning techniques.

Pages 23-24 screen 35 leading catalyst companies, including Super-Majors, chemicals companies and earlier-stage pure-plays.

Patent Leaders in Energy

Technology leadership is crucial in energy. It drives costs, returns and future resiliency. Hence, we have reviewed 3,000 recent patent filings, across the 25 largest energy companies, in order to quantify our “Top Ten” patent leaders in energy.


This 34-page note ranks the industry’s “Top 10 technology-leaders”: in upstream, offshore, deep-water, shale, LNG, gas-marketing, downstream, chemicals, digital and renewables.

For each topic, we profile the leading company, its edge and the proximity of the competition.

Companies covered by the analysis include Aramco, BP, Chevron, Conoco, Devon, Eni, EOG, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Shell, Suncor and TOTAL.


More information? Please do not hesitate to contact us, if you would like more information about accessing this document, or taking out a TSE subscription.

US Shale: No Country for Old Completion Designs

2019 has evoked resource fears in the shale industry. They are unfounded. Even as headline productivity weakened, underlying productivity continues improving at an exciting pace. These conclusions are substantiated by reviewing 350 technical papers, published by the shale industry in summer-2019. Major improvements are gathering momentum, in shale-EOR, machine learning techniques, digitalization and frac fluid chemistry.


Discussed companies include Apache, BP, Conoco, Chevron, Devon, ExxonMobil, Halliburton, Occidental, Pioneeer & Schlumberger.

Page 2 compares 2019’s shale performance to-date with our January forecasts, identifying that initial-month producutivity has been 20% weaker YoY.

Page 3-4 shows how continued productivity improvements matter, to unlock >20Mbpd of potential US shale output, plus $300bn of FCF by 2025 (at $50/bbl oil).

Pages 5-8 explain away the apparent degradation in resource productivity: it is a function of three alterations to completion designs.

Pages 9-12 outline 350 technical papers from the shale industry in summer-2019. They restore confidence: the industry is not facing systemic resource issues.

Page 12 covers 24 technical papers into “parent-child” issues. We were surprised by the number that were ‘negative’ versus the pragmatic solutions offered in others.

Page 13, 14 & 17 cover leading digitalization technologies: deployment of machine learning increased 5x YoY, while DAS/DTS increased 3x YoY in 2019.

Pages 14-16 cover the maturation of shale-EOR, which was the greatest YoY improvement, reaching 32 papers in 2019. The cutting-edge of EOR is exciting.

Page 18 outlines other technical highlights to drive future productivity higher.

Does Technology Drive Returns?

Technology drives 30-60% of energy companies’ return on capital. This is our conclusion after correlating 10 energy companies’ ROACEs against 3,000 patent filings. Above average technologies are necessary to generate above-average returns.


For the first time, we have been able to test the relationship between oil companies’ technical abilities and their Returns on Average Capital Employed (ROACE).

In the past, technical capabilities have been difficult to quantify, hence this crucial dimension has been overlooked by economic analysis in the energy sector.

Our new methodology stems from our database of 3,043 patents, filed by the Top 25 leading energy companies in 2018. The data cover upstream, downstream, chemicals and new energy technologies (chart below) . All the patents are further summarised, “scored” and classed across 40 sub-categories.

The methodology is to correlate our patent-scores for each company with the ROACE generated by the company in 2018. We ran these correlations at both the corporate level and the segment level…

Results: patent filings predict returns

Patent filings predict corporate returns. In 2018, the average of the Top 10 Integrated Oil Majors generated a Return on Average Capital Employed (ROACE) of 11%, based on our adjusted, apples-to-apples calculation methodology. These returns are 54% correlated with the number of patents filed by each Major (chart below).

Technology leaders are implied to earn c5% higher corporate returns than those deploying industry-average technologies, which is a factor of 2x.

Upstream patent filings also predict upstream returns, with an 85% correlation coefficient. The data are skewed by one Middle East NOC, which earns exceptionally high returns on capital, but even excluding this datapoint, the correlation coefficient is 65% (chart below).

The curve is relatively flat, with the exception of two outliers, implying that it is hardest to improve general upstream returns using technology. This may be because upstream portfolios are vast, spanning many different asset-types and geographies.

Downstream patent filings predict downstream returns, with an 80% correlation coefficient (chart below). However, our sample size is smaller, as we were unable to dis-aggregate downstream ROACE for all the Majors.

The curve is very steep, indicating that downstream technology leaders can surpass c20% returns on capital, versus c10% using industry-standard technologies.

Chemical patent filings predict chemical returns, with a 57% correlation coefficient (chart below). Again, our sample size is smaller, as we could only estimate chemicals ROACEs for some of the Majors.

The curve is also steep, with technology leaders earning c10-20% returns, versus low single digit returns for less differentiated players.

Overall, the results should matter for investors in the energy sector, for capital allocation within corporates, and for weighing up the benefits of in-house R&D. We would be delighted to discuss the underlying data with you in more detail.

Shale: restoring downstream balance? New opportunities in ethylene and diesel.

We have all heard the criticism that shale oil is “too light”, so its ascent will create a surplus of natural gas liquids and a shortage of heavier distillates. Less discussed is the opportunity in this imbalance. Hence this note highlights one such opportunity, based on an intriguing patent from Chevron, which could convert ethylene into diesel and jet fuel, to maximise value as its shale business ramps up.


Please log in to view this content

Conclusions and Further Work?

Shale’s light product slate may create opportunities for integrated companies. Chevron’s ethylene-to-diesel patents are one example. But we have also seen a surprising uptick among other Oil Majors in patent filings for GTL, for oxidative coupling of methane and for a process to convert C3-4s into gasoline and diesel range molecules.

Our positive outlook on shale is best illustrated by our deep-dive note, Winner Takes All, but also be recent work focusing on the emerging opportunities with Fibre-Optic Sensing and Shale-EOR.

Can we help? If you would like to register any interest in the topics above, to guide our further work, then please don’t hesitate to contact us.

Oil Companies Drive the Energy Transition?

There is only one way to decarbonise the energy system: leading companies must find economic opportunities in better technologies. No other route can source sufficient capital to re-shape such a vast industry that spends c$2trn per annum. We outline seven game-changing opportunities. Leading energy Majors are already pursuing them in their portfolios, patents and venturing. Others must follow suit.


Pages 2-3 show that today’s technologies are not sufficient to decarbonise the global energy system, which will surpass 100,000TWH pa by 2050. Better technologies are needed.

Pages 4-6 show how Oil Majors are starting to accelerate the transition, by developing these game-changing technologies. The work draws on analysis of 3,000 patents, 200 venture investments and other portfolio tilts.

Pages 7-13 profile seven game-changing themes, which can deliver both the energy transition and vast economic opportunities in the evolving energy system. These prospects cover electric mobility, gas, digital, plastics, wind, solar and CCS. In each case, we find leading Oil companies among the front-runners.

IMO 2020. Fast Resolution or Slow Resolution?

The downstream industry is currently debating whether IMO 2020 sulphur regulations will be resolved quickly or slowly. We think the market-distortions may be prolonged by under-appreciated technology challenges.

Please log in to view this content

Opportunities amidst the Challenge?

So if the market-distortions of IMO 2020 have longevity, who will stand to benefit? We are maintaining a data-file of the ‘Top Technologies for IMO 2020’ around the industry, which give specific companies an edge. The data file now contains over 25 technologies across 7 Majors.


References

Al-Shahrani, F., Koseoglu, O. R. & Bourane, A. (2018). Integrated System and Process for In-Situ Organic Peroxide Production and Oxidative HeteroAtom Conversion. Saudi Aramco Patent.

Koseoglu, O. R., (2018). Integrated Isomerisation and Hydrotreating Process. Saudi Aramco Patent CN107529542

Hanks, P. (2018). Trim Alkali Metal Desulfurisation of Refinery Fractiions. ExxonMobil Patent US2018171238 

Patent Partners: Pairing Up?

This note contains our ‘Top Five’ conclusions about the Oil Majors’ research partnerships, drawing off our database of 3,000 oil company patents. Different companies have importantly different approaches. We can quantify this, by looking at the number of patents co-filed with partners (chart above).

Please log in to view this content

Mozambique LNG: Can Chevron create more value?

It would be unwise to under-estimate the complexity of creating a new LNG province, with a 50MTpa prize on the table in Mozambique. After the first two trains are in motion, the longer-term opportunity is potentially “another Qatar”. But only if Mozambique can compete for capital with US greenfields and brownfield expansions.

Hence we have reviewed 200 of Chevron’s patents from 2018. The company’s ability to develop a new, deep-water LNG province is notable. Ten examples are tabulated below.

It was interesting how many of the patents were filed in Australia and may have derived from learnings at Gorgon and Wheatstone.

For a primer on different LNG process technologies, please see our data-file (here).

Find this work interesting? If so, please sign up for our distribution list.

Our Top Technologies for IMO 2020

So far we have reviewed 400 patents in the downstream oil and gas industry (ex-chemicals). A rare few prompted an excited thought — “that could be really useful when IMO 2020 comes around”.

Specifically, from January 2020, marine fuel standards will tighten, cutting the maximum sulphur content from 3.5% to 0.5%. It will reduce the value of high-sulphur fuel oil, and increase the value of low-sulphur diesel.

This note summarises the top dozen proprietary technologies we have seen to capitalise on the shift, summarised by company (chart below).

Please log in to view this content