Rise of China: the battle is trade, the war is technology?

China’s pace of technology development is now 6x faster than the US, as measured across 40M patent filings, contrasted back to 1920 in this short, 7-page note. The implications are frightening. Questions are raised over the Western world’s long-term competitiveness, especially in manufacturing; and the consequences of decarbonization policies that hurt competitiveness.

Our conclusions are presented in this short note from tabulating 40M patents in the US and China back to 1920.

China first filed more patents than the US in 2007, and filed 6x more in 2019. Our charts compare the US versus China across multiple industrial categories, presenting implications for trade and energy policy.

The long-term history of patent filings is also compared globally, for the US, for China and for Japan. In some countries, the pace of patent filings has been 90% correlated with GDP growth.

US Shale: the second coming?

Future US shale productivity can still rise at a 5% CAGR to 2025, based on evaluating 300 technical papers from 2020. The latest improvements are discussed in this 12-page note, and may spark more productivity gains than any prior year. Thus unconventionals could grow by 2.6Mbpd per annum from 2022-25 to quench deeply under-supplied oil markets. But hurdles remain. The leading technologies are also becoming concentrated in the hands of fewer operators and an emerging group of oil services.

Our production forecasts for US shale are outlined on pages 2-3. Volumes must double by 2025 to rebalance future oil markets, which hinges on productivity gains.

Our outlook for shale productivity is explained on page 4, including our methodology, which considers the pace of progress in technical papers.

Headline comparisons are presented on pages 5-6, between the technical papers filed around the shale industry in 2018, 2019 and 2020.

The latest improvements are summarized across each category, drawing on the most interesting technical papers and the companies that have filed them. This includes petrophysics (page 7), completion designs (page 8), optimizing completion fluids (page 8), Shale-EOR (page 9) and a step-change in machine learning algorithms (page 10-11).

The leading companies are highlighted on page 12, ranked according to the numbers of technical papers they have filed in each year. Some are stepping up, and gaining an edge, while others are clearly pulling back on shale R&D.

Biofuels: better to bury than burn?

The global bioethanol industry could be disrupted by a carbon price. Between $15-50/ton, it becomes more economical to bury the biofuel crop, rather than convert it into biofuels. This would remove 8x more CO2 per acre, at a lower total cost. More conventional oil could be decarbonized with offsets. Ethanol mills and blenders would be displaced. The numbers and implications are outlined in this 12-page report.

Nature-based solutions to climate change need to double annual CO2 uptake from plants in our models of decarbonization, using forests and fast-growing grasses (pages 2-3).

We profile the bioethanol industry, which is already using fast-growing grasses to offset 2Mbpd of liquid fuels. But our models suggest the economics, efficiency and CO2 intensities are weak (pages 4-6).

A first alternative is to reforest the land used to grow biofuels, which would carbon-offset 1.5x more oil-equivalents than producing biofuels (pages 7-8).

A more novel alternative is to bury the biomass, such as sugarcane or other fast-growing grasses, which could sequester 8x more CO2, with superior economics at $15-50/ton CO2 prices (pages 9-11).

Company implications are summarized, suggesting how the ethanol industry might be displaced, and quantifying the CO2 intensity of incumbents (page 12).

US shale: the quick and the dead?

It is no longer possible to compete in the US shale industry without leading digital technologies. This 10-page note outlines best practices, process by process, based on 500 patents and 650 technical papers. Chevron, Conoco and ExxonMobil lead our screens. We profile where they have an edge, to capture upside in the industry’s dislocation and recovery. Disconcertingly absent from the leader-board is EOG, whose long-revered technical edge may now have been eclipsed by others.

COVID-19: what have the oil markets missed?

This 15-page note outlines our top three conclusions about COVID-19, which the oil markets may have missed. First, global oil demand likely declines by -11.5Mbpd YoY in 2Q20 due to COVID-19. This is over 15x worse than the global financial crisis of 2008-9, and too large for any coordinated production cuts to offset. Second, once the worst of the crisis is over, new driving behaviours could actually increase gasoline demand, causing a very sharp oil recovery. Finally, over the longer-term, structural changes will take hold, transforming the way consumers commute, shop and travel. (Please note, our oil supply-demand numbers have subsequently been updated here).

Pages 2-7 outline our new models of global oil demand and US gasoline demand, underpinning a scenario where oil demand likely falls -11.5Mbpd in 2Q20, and -6.5Mbpd YoY in 2020. In a more extreme downside case, declines of -20Mbpd in 2Q20 and 10Mbpd in FY20 are possible.

Pages 8-10 illustrate how gasoline demand could actually increase in the aftermath of the COVID crisis, once businesses re-open and travel resumes. The largest cause is a c25% potential degradation in developed world fuel economy per passenger, as lingering fears over COVID lower the use of mass transit and vehicle load factors.

Pages 11-15 outline our top three structural trends post-COVID, which will persist for years, transforming retail, commuting, leisure travel and the airline/auto industries.

Please don’t hesitate to contact us, if you have any questions or comments…

New Diverter Regimes for Dendritic Frac Geometries?

The key challenge for the US shale industry is to continue improving productivity per well, as illustrated repeatedly in our research. Hence, this short note reviews an advance in fracturing fluids, which has been patented by BP. Diverter compositions are optimised across successive pressurization cycles, to create dendritic fracture geometries, which will enhance stimulated rock volumes.

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Machine Learning on Permian Seismic?

Pioneer Natural Resources is improving the accuracy of its Midland basin depth-models by up to 40%, using a machine-learning algorithm to re-calibrate its seismic from well logs. Faster drilling and better production rates should follow.

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Who else wants more shale?

The Majors’ deepening interest in shale was illustrated by Chevron’s $50bn acquisition of Anadarko. Consolidating in the Permian fits our ‘Winner Takes All‘ thesis.

But who else wants more shale in their portfolio? This is not to speculate on M&A, but simply looking at the companies’ research activity last year…

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If you would like to read our latest deep-dive note on shale-technology it is linked here. The full database, covering all 300 technical papers is available here.

U.S. Shale: Winner Takes All?

Shale is a ‘tech’ industry. The technology keeps improving at an incredible pace. But Permian technology is improving fastest, extending its lead over other basins.

These are our conclusions from assessing 300 technical papers across the shale industry in 2018. They are outlined in a new, 10-page note.

Across the board, we found 30% of our 300 technical papers should improve future economics. 60% were highly digital, and thus tended to be more impactful. Advanced analytics are still in an early innings.

The Permian stood out, extending its lead over other basins. It produced c25% of all the research; 25% higher-impact research and 40% more data-driven research.

Why the Thunder Said?

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.