Scaling up natural gas is among the largest decarbonisation opportunities on the planet. But this requires minimising methane leaks. Exciting new technologies are emerging. This 30-page note ranks producers, positions for new policies and advocates developing more LNG. To seize the opportunity, we also identify c25 early-stage companies and 10 public companies in methane mitigation. Global gas demand should treble by 2050 and will not be derailed by methane leaks.
This overview note was first published in 2019, then updated in Feb-2021 and September-2022, to add further case studies, companies and market updates. It contains all our latest views on methane mitigation, in a single, comprehensive resource.
Pages 2-5 explain why methane matters for climate and for the scale up of natural gas. If 3.5% of methane is leaked, then natural gas is, debatably, no greener than coal.
Pages 6-9 quantify methane emissions and leaks across the global gas industry, including a granular breakdown of the US supply-chain, based on asset-by-asset data.
Pages 10-11 outline the incumbent methods for mitigating methane, plus our screen of 34 companies which have filed 150 recent patents for improved technologies.
Pages 12-13 outline the opportunity for next-generation methane sensors, using LiDAR and laser spectroscopy, including trial results and exciting companies.
Pages 14-15 outline the opportunity for next-generation methane sensors, using AI and other ambient data, with a case study that likely offers detection costs below $10/ton CO2e.
Pages 16-18 cover the best new developments in drones and robotics for detecting methane emissions at small scale, including three particularly exciting companies.
Pages 19-20 outline next-generation satellite technologies, which will provide a step-change in pinpointing global methane leaks and repairing them more quickly.
Pages 21-27 cover the changes underway in the oilfield supply chain, to prevent fugitive methane emissions, highlighting interesting companies and innovations.
Pages 28-29 screen methane emissions across the different Energy Majors, and resultant CO2 intensities for different gas plays.
Page 30 advocates new LNG developments, particularly small-scale LNG, which may provide an effective, market-based framework to mitigate most methane.
Our underlying data-files into methane mitigation are also available to be viewed individually, in chronological order, covering company screens, technology reviews and leakage rate data.
It is often said that Oil Majors should become Energy Majors by transitioning to renewables. But what is the best balance based on portfolio theory? Our 7-page note answers this question, by constructing a mean-variance optimisation model. We find a c0-20% weighting to renewables maximises risk-adjusted returns. The best balance is 5-13%. But beyond a c35% allocation, both returns and risk-adjusted returns decline rapidly.
Pages 2-3 outline our methodology for assessing the optimal risk-adjusted returns of a Major energy company’s portfolio, including the risk, return and correlations of traditional investment options: upstream, downstream and chemicals.
Page 4 quantifies the lower returns that are likely to be achieved on renewable investment options, such as wind, solar and CCS, based on our recent modeling.
Pages 5-6 present an “efficient frontier” of portfolio allocations, balanced between traditional investment options and renewables, with different risk and return profiles.
Pages 6-7 draw conclusions about the optimal portfolios, showing how to maximise returns, minimise risk and maximise risk-adjusted returns (Sharpe ratio).
The work suggests oil companies should primarily remain oil companies, working hard to improve the efficiency and lower the CO2-intensities of their base businesses.
Precision-engineered proteins are on the cusp of disrupting the meat industry, according to an exceptional, 75-page report, published recently by RethinkX. The science is rapidly improving, to create foods with vastly superior nutrition, superior taste and superior costs, by the early-2020s.
The energy opportunities are most exciting to us, after reading the report. If RethinkX’s scenarios play out, we estimate: direct CO2 savings of 400MTpa, enough to offset 10% of US oil demand; 2bcfd of upside to US gas demand; and enough land would be freed up to decarbonise all of US oil demand, or increase US biofuels production by 6x to c6Mbpd.
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RethinkX Re-Thinks Food and Agriculture
ReThinkX argues “we are on the cusp of the deepest, fastest, most consequential disruption in food and agricultural production since the first domestication of plants and animals ten thousand years ago”. The disruption is producing proteins via precision fermentation (PF), which programs microorganisms to produce complex organic molecules in a fermenter.
It is a classic “tech disruption”. Individual molecules are now being engineered by scientists and uploaded to databases. Constant iteration is improving the process. Hence as Impossible Foods’ CEO has said: “unlike the cow, we get better at making meat every single day”. Eventually this will result in a superior product at a far lower cost than today’s cow-based meat industry.
Precision engineered proteins “will be superior in every key attribute – more nutritious, healthier, better tasting, and more convenient, with almost unimaginable variety”. Every aspect can be optimised, in a way impossible with animal-based meat, to yield better taste, more nutrients, higher purity, yet less salt, fat and no need for antibiotics. You could even, in principle, replicate meat proteins from extinct animals, if you want to eat mammoth or giant moa burgers.
The cost of producing PF molecules is deflating: from $1M/kg in 2000 to $100/kg today, on course to hit $10/kg in 2025. The descent matches genome sequencing, which now takes a few days and costs c$1,000, compared with 13-years and $1bn in 2000; and it matches computing, which now costs $60 per teraflop, down from $50M per teraflop in 2000.
The cost of producing meat. Today, animal beef costs c$4.5/kg. PF beef costs $7/kg. RethinkX expects cost parity in 2021, $2/kg pricing in 2024 and $1/kg pricing in 2030. The same trend holds for milk, where just 3.3% of the content is protein, the rest water and sugar. PF production times are also likely to be 100x faster than rearing animals.
More recent context. The number of new US food products with added protein doubled from 2013 to 2017. Protein-enriched milk is becoming popular with baristas as it’s easier to froth. Halo Top was the most popular new consumer product in 2017, an ice cream with 2x more protein than normal. Soylent’s breakfast-replacement costs $3.25 and has the equivalent of a grande latte’s caffeine, three eggs’ protein, 6 Oz tuna’s omega-3s and all 26 essential nutrients. $17bn has been invested in plant-based foods in 2013-18. Disrupting agriculture is already on the ascent.
The consequences. It is argued that “product after product that we extract from the cow will be replaced by superior, cheaper, modern alternatives, triggering a death spiral of increasing prices [for the cattle farming industry], decreasing demand, and reversing economies of scale”. RethinkX’s report explores potential savings of $100bn for families across the USA by 2030; and potential downside for the $1.25 trn per annum US livestock industry. We recommend the report. It is linked here.
Thunder Said Energy Re-Thinks Food and Agriculture Energy
PF energy economics are transformative. The rumen of cow is a 40-50 gallon reactor, with c4% feedstock efficiency, responsible for 70-120kg pa of methane emissions per year, which is in turn, a 23-36x more potent greenhouse gas than CO2. However, an industrial fermenter is a 50-10 thousand gallon reactor, with 40-80% feedstock efficiency and no methane emissions.
Implication 1. 400MTpa of Direct Decarbonisation. The US currently contains 93M cattle, which in turn account for 530MTpa of CO2-equivalent emissions, or c8% of total US greenhouse emissions. RethinkX sees cow numbers reducing 50% by 2030, as the US needs 70% fewer cow products (90% less dairy, 70% less ground beef, 30% less steak); rising to 80-90% by 2035. By 2035, the data imply 400MTpa of CO2-equivalents could be saved, which is equivalent to offsetting c2Mboed of oil consumption.
Implication 2. Incremental Gas Demand of 2bcfd? Although fermentation reactors are c10-20x more thermally efficient than cows, they will still require incremental energy. We believe natural gas is emerging as best placed to provide heating and electric energy for industrial processes. Modern foods in the US could require c2bcfed of incremental gas consumption, 2.5% upside on current US demand, and stoking our expectations for the long-run rise of gas.
Implication 3. Decarbonising US Oil? We recently analysed seven major themes, which could eliminate 45Mbpd of global oil demand by 2050 (note here). But even on this aggressive scenario, we foresee US oil demand at 16Mbpd in 2035 and 11Mbpd in 2050. How can we decarbonise this oil? One solution is provided by re-purposing the 835M of land acres currently associated with US livestock farming: 655M for grazing, and 180M to grow crops. 60% will be freed for other uses by 2035, equivalent to 485M acres, or the entire Louisiana Purchase of 1803. If all of this land could be repurposed to grow forests, at a yield of c5.4T CO2 sequestation per acre, then we estimate enough CO2 could be absorbed to decarbonise 14Mbpd of oil demand. It is unlikely that all of this land can be repurposed in practice, but CO2 offsets could nevertheless be very large.
Implication 4. 5Mbpd of incremental biofuels. Another possibility is that some of the liberated land could be diverted into producing biofuels: Let us assume 250M acres can be devoted to growing corn, at a yield of c120 bushels per acre, and 2.8 gallons of ethanol per bushel. Multiply through and the total ethanol production would be 80 bn gallons per annum, equivalent to c5Mbpd of oil: 5x larger than current US biofuels production. Here is a positive opportunity for the energy industry, including the companies with the leading biofuels technologies.
Implication 5. Venture Opportunies? Finally, we have noted leading Energy Majors’ diversification into new energy technologies in their recent venture investments (chart below). Natural partnerships may emerge in PF companies. Indeed, we already saw BP deploy $30M investing in Calysta in June-2019, an alternative protein producer, for the aquaculture industry. Companies in the space are numerous: Beyond Meat went public in 1Q19. Impossible Foods is private, but valued at $2bn, having sold 13M units since 2016, and Burger King is introducing an Impossible Whopper in 2019, initially costing $1 more than the conventional Whopper. In March 2019, Geltor announced HumaColl21, the first human collagen created for cosmetics. We will tabulate other companies in a future screen.
Tubb, C. & Seba, T. (2019). Rethinking Food and Agriculture 2020-2030. RethinkX Sector Disruption Report. Full report linked here.
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We would be delighted to introduce clients of Thunder Said Energy to the reports’ authors, Catherine Tubb and Tony Seba. Please contact us if this is useful.
What if there were a technology to sequester CO2, double shale productivity, earn 15-30% IRRs and it was on the cusp of commercialization? Promising momentum is building, at the nexus of decarbonised gas-power and Permian CO2-EOR…
First, this week, we finished reviewing 350 technical papers from the shale industry’s 2019 URTEC conference. The biggest YoY delta is that publications into EOR rose 2.3x. CO2-EOR is favored (chart below). Further insights from the technical literature will follow in a detailed publication, but importantly we do not see underlying productivity growth in shale to be slowing.
Second, we re-read Occidental Petroleum’s 2Q19 conference call. More vocally than ever before, Oxy hinted it could take the pure CO2 from decarbonised power plants and use it for Permian-EOR; with its equity interest in NetPower, 1.6M net Permian acres, and leading CO2-EOR technology. Quotes from the call are below:
On CO2-EOR: “We are investing in technologies that will not only lower our cost of CO2 for enhanced oil recovery in our Permian conventional reservoirs, but will also bring forward the application of CO2 enhanced oil recovery to shales across the Permian, D.J. and Powder River basins”
On decarbonised gas power: “What it does is, it takes natural gas combines that with oxygen and burns it together, and that’s what creates electricity and it creates that electricity at lower costs… one of our solutions is to put that in the Permian… for use in our enhanced oil recovery… It will utilize our gas that that if we sold it would make nearly as much”.
On the opportunity: “We are getting calls from all over the world, with people wanting our help to — figure out how to capture CO2 from industrial sources, and then what to do with it and oil reservoirs”.
Our extensive work on these themes includes two deep-dive reports linked above. Our underlying models can connect c10% IRRs on oxy-combustion gas plants (first chart below) with 15-30% IRRs at Permian CO2-EOR (second chart below). On these numbers, the overall NPV10 of an integrated system could surpass $10bn.
EOR remains one of the most exciting avenues to boost Permian production potential. So far, our shale forecasts assume little direct benefit (chart below). But an indirect benefit is implicit, as we assume 10% annualized productivity growth to 2025, which would underpin a very strong ramp-up (chart below). 2023-25 currently look well-supplied in our oil market model, due to falling decline rates, but this could be compounded by CO2-EOR.
We are more positive on the ascent of gas, stoked by increasing usage in decarbonised power. We see potential for gas demand to treble by 2050.
Decarbonisation is often taken to mean the end of fossil fuels. But it is more feasible simply to de-carbonise them, with next-generation combustion technologies.
This 19-page note presents our top two opportunities: ‘Oxy-Combustion’ using the Allam Cycle and Chemical Looping Combustion. Both can provide competitive energy with zero carbon coal & gas.
Leading Oil Majors are supporting these solutions, to create value while advancing the energy transition.
Carbon capture remains an “orphan technology”, absorbing just c0.1% of global CO2. The costs and challenges of current technologies are profiled on pp2-4.
Energy penalties are particularly problematic. Paradoxically, the more CCS in our models, the longer it takes to de-carbonise the energy system (see pp5-6).
Next generation combustion-technologies are therefore necessary…
Allam Cycle Oxy-Combustion burns CO2 in an inert atmosphere of CO2 and oxygen. We evaluate a demonstration plant and model strong economics (see pp12-15).
Chemical Looping Combustion burns fossil fuels in a fluidized bed of metal oxide. We profile the technology’s development to-date, net efficiency and levellised costs, which are passable (pp8-11).
Oil Majors are driving the energy transition. We count ninety patents from leading companies to process CO2, including 30 to de-carbonise power. The best advances are profiled from TOTAL, Occidental, Aramco and ExxonMobil. (See pp16-19).
Shell is the leading Major in driving new LNG demand, based on patent filings (chart above). As an example, we highlight a leading new technology to promote LNG demand in transportation, by mitigating the problem of boil-off.
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What is limiting LNG in transport?
LNG’s potential upside in transportationis exciting, particularly in shipping, as technologies improve and new sulphur regulation sweeps through the maritime industry (chart below, for full details see our deep-dive note, LNG in Transport: Scaling Up by Scaling Down). But challenges must also be acknowledged.
Most prominent is boil-off of LNG, which inhibits its storage over long time-frames. Boil-off typically runs at 0.15% per day, in a large, 25,000m3 tank, which means that c15% of the cargo would be lost over a 100-day period. For smaller-scale LNG, the rate is steeper, averaging c0.45% per day for a 2,500m3 tank, which in turn would cost c35% of the cargo over a 100-day period (chart below). In extremis, 1% per day boil-off is not unheard of.
Managing boil-off requires a vapor management system. Otherwise, as liquid evaporates into gas, the pressure exerted gradually rises, and eventually there is risk of exceeding the tank’s design pressure. This one one reason for the additional costs of converting a vessel to run on LNG, which can reach $17-35M for the largest tankers.
Gas Weathering is another challenge, less well-known, but crucially important. LNG is a mixture of hydrocarbon gases, all with different boiling points. Lower boiling-point components vaporize more readily. Hence over time, the higher boiling point constituents become more concentrated in the fuel tank, lowering the “methane number” of the fuel (chart below). This causes challenges. Most engine makers specify methane must comprise >80% of the fuel in a gas-fired engine. Below this level, the engine performs sub-optimally, knocking, misfiring, over-heating and potentially damaging components such as piston crowns and exhaust valves.
Shell’s improvements: a sub-cooler
To support LNG’s ascent in transportation, Shell has been the most active Major in developing new technologies. We will be elaborate further, in our upcoming research. But in 2019, one patent stands out, as the company has developed a new ‘sub-cooler’ (pictured below), to met the challenges described above.
The sub-cooler (44) is fluidly connected to the LNG storage tank (42) on a LNG-powered vessel. The tank’s temperature is continually monitored. When it exceeds a predetermined upper threshold, by say 0.25C, a small volume of LNG is pumped out (through 112) , sub-cooled (in 44) then sprayed back into the tank’s vapor space (via 114), until the tank is cooled back below a lower threshold, say, 1C below methane’s boiling point.
The invention’s equipment includes a compressor, a turbine, two heat-exchangers and use of the Brayton Cycle, most likely Air Liquide’s Turbo-Brayton refrigeration cycle using Nitrogen and/or Helium. Its advantage is reliability and low maintenance, which matter for long voyages.
Eight Advantages are Cited
Storage capacity is increased by providing constant and continuous vapor management, using the sub-cooling system.
Weathering is prevented, by sub-cooling and recycling liquefied gas, thus preserving the composition of the liquefied gas.
Fuel economy is thus maximised by avoiding the sub-optimal fuel-consumption caused by weathering. Shell states “Utilization of this system on gas fueled vessels will also allow for greenhouse gas emissions to be optimized”.
Longer journeys are thereby made more feasible.
Capex is saved. By employing Shell’s sub-cooler, no auxiliary consumer is required, lowering the cost of the system, potentially elminating GVU units, control valves, double wall piping, and labor and installation costs.
Opex may improve, due to better fuel economy, and as a larger range of input fuels can be used,
Safety is improved during transfer of LNG from a discharging tank to a receiving tank, providing the ability to lower temperature to 0.5-3C below the gas’s boiling temperature and “thereby limit flashing in the receiving tank during transfer”.
Versatility. The system can be installed in new LNG-powered vessels, new conversion of diesel vessels or retro-fitted onto existing LNG vessels. It can also be deployed in a broad range of LNG-transportation concepts (the patent mentions cruise ships, tankers, container vessels, ferries, barges, tugs… and more exotically, rail, truck, car and even planes!).
Economic Impacts to spur the ascent of gas?
The improvements above may stoke the ascent of LNG for shipping, where we are most positive with 40-60MTpa of upside seen to LNG demand after 2040 (see LNG in Transport: Scaling Up by Scaling Down).
Small-scale liquefaction for shipping is already going to be highly economical after IMO 2020, while bunkered LNG can be rendered as economic if it can harness economies of scale (model here).
The most attractive vessels to convert to run on LNG are cruisers and large container ships (data-file here).
Economics are currently more challenging for LNG trucks (model here). However, this is due to 2.5x higher vehicle costs and 2x higher maintenance costs per mile. But technical progress such as Shell’s will help.
Source: Hutchins, W. R. & Hartman, S. J. S. (2019). Liquid Fuel Gas System and Method. Royal Dutch Shell Patent US2019024847
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.
Global energy investment will need to rise by c$220-270bn per annum by 2025-30, according to the latest data from the IEA, which issued its ‘World Energy Investment’ report this week. We think the way to achieve this is via better energy technologies.
Specifically, the world invested $1.6bn in new energy supplies in 2018, which must be closer to $1.8-1.9bn, to meet future demand in 2025-30– whether emissions are tackled or not. The need for oil investment is most uncertain. More gas investment is needed in any scenario. And renewables investment must rise by 15-100%.
Note: data above includes $1.6trn investment in energy supplies and c$250bn in energy efficiency measures
Hence the report strikes a cautious tone:“Current market and policy signals are not incentivising the major reallocation of capital to low-carbon power and efficiency that would align with a sustainable energy future. In the absence of such a shift, there is a growing possibility that investment in fuel supply will also fall short of what is needed to satisfy growing demand”.
We do not think the conclusions are surprising. Our work surveying 50 investors last year found that fears over the energy transition are elevating capital costs for conventional energy investments (below).
Meanwhile, low returns make it challenging to invest at scale in renewables.
We argue better energy technologies are the antidote to attracting capital back into the industry. That is why Thunder Said Energy focuses on the opportunities arising from energy technologies. Please see further details in our recent note, ‘What the Thunder Said’. For all our ‘Top Technologies’ in energy, please see here.
References
IEA (2019). World Energy Investment. International Energy Agency.
We have assessed whether gas is a competitive trucking fuel, comparing LNG and CNG head-to-head against diesel, across 35 different metrics (from the environmental to the economic). Total costs per km are still 10-30% higher for natural gas, even based on $3/mcf Henry Hub, which is 5x cheaper than US diesel. The data-file can be downloaded here.
The challenges are logistical. Based on real-world data, we think maintenance costs will be 20-100% higher for gas trucks (below). Gas-fired spark plugs need replacing every 60,000 miles. Re-fuelling LNG trucks requires extra safety equipment.
Specially designed service stations also elevate fuel-retail costs by $6-10/mcf. Particularly for LNG, a service station effectively ends up being a €1M regasification plant (or around $250/tpa, costs below).
We remain constructive on the ascent of gas (below), but road vehicles may not be the best option.
To flex our input assumptions, please download our data-model, comparing LNG, CNG and other trucking fuels across 35 different metrics .
Energy transition is underway. Or more specifically, five energy transitions are underway at the same time. They include the rise of renewables, shale oil, digital technologies, environmental improvements and new forms of energy demand. This is our rationale for establishing a new research consultancy, Thunder Said Energy, at the nexus of energy-technology and energy-economics.
This 8-page report outlines the ‘four goals’ of Thunder Said Energy; and how we hope we can help your process…
Pages 2-5 show how disruptive energy technologies are re-shaping the world: We see potential for >20Mbpd of Permian production, for natural gas to treble, for ‘digital’ to double Oil Major FCF, and for the emergence of new, multi-billion dollar companies and sub-industries amidst the energy transition.
Page 6 shows how we are ‘scoring’ companies: to see who is embracing new technology most effectively, by analysing >1,000 patents and >400 technical papers so far.
Page 7 compiles quotes from around the industry, calling for a greater focus on technology.
Page 8 explains our research process, and upcoming publication plans.
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