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Why this carbon capture technology may change the oil sector, but not the way you think...

Canadian company Carbon Engineering demonstrated last year, what it claims to be, a scalable and effective carbon capture technology, and major oil and coal producers are among its investors. So, some in the alternative energy sector might arguably be unnerved, as may be those who have started to see oil and coal as a good short, where its short-ability is largely driven by the stranded asset hypothesis. Even some car makers, which only recently and with reticence started investing seriously in electric car (EV) technology, may view this as an excuse to stall just for a little longer to preserve the status quo. Carbon Engineering is not alone. Swiss company Climeworks is currently shipping commercial scale carbon capture devices and aims to capture CO2 at $100 per metric ton by 2025.

However, in my view this misses an important perspective. Yes, this could artificially prolong the carbon period of the Anthropocene and stifle innovation in the alternative energy and transport sectors, yet, I doubt it will. Here is why:

Cheap direct from air carbon capture could usher in an age of inexpensive, fully carbon neutral, synthetic fuels. With the right regulatory framework and government incentives in place, this could vastly speed up our transition to low emission transportation in areas where battery technology is either not yet viable, or asset lives are so long that "in place" improvements are desperately needed to provide rapid and impactful change.

As Carbon Engineering points out, one of the interesting aspects of its process is, that with heat, the CO2 bound as calcium carbonate (chalk to you and me) can be released in concentrated form and used in a catalytic process to create synthetic sulfur free fuel. The same is true for Climeworks' reusable filter method. This then allows for the creation of "designer fuel" that can be perfectly matched to, and used in, combustion and aviation engines or turbines -- fuel that burns much cleaner than its dinosaur based "organic" cousin.

It is also fuel that, while not emissions free, can be carbon neutral if all input energy is derived from renewable sources. Using renewable energy makes sense not just from an environmental perspective, but also an economic one. Currently, solar electricity at ~1.7c per KW/h is by far the cheapest power source -- cheaper than the next competitive option of 8-10c per KW/h for natural gas or wind. Although some offshore-wind mega projects are soon going to almost cut that cost in half. Both wind and natural gas in turn are less expensive than the actual cancer causing coal option. So you'd obviously not over pay for one of the major inputs in your synthetic fuel production by using electricity from non renewable sources.

Right now, and I will continue digging for the numbers, the company (Carbon Engineering) has not provided any firm cost estimates for the capture cost per metric ton of CO2 when its process operates at large scale. But it seems confident that its plants will become part of urban infrastructure just like water treatment is today. This at least suggests that the cost should be "very cheap". Also consider the fact that Audi achieved synthetic fuel production at parity prices with diesel in Germany in an experimental setup in Berlin a few years ago, in a country with much higher electricity prices, and a new picture emerges.

Synthetic fuel produced from the output of the capture process from Carbon Engineering's plants will most likely be cost competitive with crude produced from oil fields with the lowest production costs in the world (and those are diminishing every year). Add to that the lack of refining and long distance transportation costs, because some of it could be produced closer to the consumer, and synthetic fuel will kill conventional oil production far quicker than any climate regulation. As for coal, that (un)fortunately won't make a comeback one way another. The economics are simply no longer viable, even before factoring in emissions pricing, as the multitude of coal plant closure demonstrates. We will still use it in industrial processes sure, but coal power is dead just like coal fired steam ships have become confined to the history books.

So what about cars? I am still very confident that electric propulsion will conquer the majority of the market share, because it is a nicer more relaxing driving experience and ownership is a simpler, less expensive, experience due to lack of oil and belt changes or regular emissions testing requirements. Also, as battery cost is coming down the simpler assembly process of EVs will pay dividends even for traditional car makers. Sure some may still enjoy the roar of a combustion engine, but when they do it will at least be with cleaner fuel, and likely not be for daily driving in traffic choked urban environments, esp when a cheaper, cleaner, more quiet and comfortable alternative exists. To squeeze hydro carbons out of personal transportation should be aided by a mix of government incentives and anti pollution regulation to turbo charge EV adoption. Norway provides the text book example of how to do this.

I am conflicted on trucking. I think we will have alternative fuel, long haul, trucking transitioned off hydro carbons with the decade, just based on the amount of research and start up activity in that sector. Furthermore, there are massive opportunities for well integrated electrified rail freight in a world where emissions pricing is taken seriously.

Aviation would probably be the largest beneficiary of a swift transition from fossil to synthetic fuels. Here government regulation for other pollutants such as NOx has an important role to play to keep up the pressure for ever more efficient jets. Eventually electric flight, particularly for high cycle short haul travel in otherwise infrastructure poor regions, will also enter the mainstream.

My lay person's knowledge makes less confident about long haul air travel, as we will need to solve a number of issues first.

  • Power density and weight for batteries
  • Low noise propeller driven designs suitable for fast high altitude flight (look at the noise signatures for counter rotating prop designs in Russia of the early post war years)
  • No really, we need new propulsion tech that can work at speed and altitude without the additional thrust benefit of exhaust gases
  • New more efficient aerodynamic shapes that depart from the aluminum can with wings template we've perfected over the past 90 years

While there's been research in each of these areas and some solutions are more mature than others, integrating it all into a commercially viable package will still likely take at least twice as long as developing a new conventional design. Thus, optimistically speaking, my guess is a decade to solve the problems and another to integrate and package. So if we have electric long haul capable planes by 2040 it will probably take at least another decade before they have replaced a meaningful percentage of the existing fleet, given that long haul aircraft have a useful service life of 20-30 years.

Yet a switch to a synthetic fuel based aviation sector could be completed within half a decade with strong global regulatory support and coordination between certification authorities. This would get us to low emissions flight one generation earlier than currently planned, without the need to drastically reduce the global exchange of goods and people. Arguably the current pandemic has made this seemingly less a priority, at least as far as the exchange of people is concerned (there has been a recent boom in air cargo). But the dip in demand for long haul passenger air travel, which some project will last for several years, also holds potential for an even more accelerated transition to synthetic fuel. Now the ramp up for their production to satisfy the aviation industry's demand, may no longer be quite so troublingly steep.

Finally, absent the possible but yet requiring more work, switch to next generation nuclear propulsion, marine shipping is another sector that would hugely benefit from a switch to synthetic fuel. Ships would massively benefit from the sulfur free nature of the synthetic feed stock. Marine engines currently run on what uncharitably could be described as a mix of bitumen and sulfur. With horrendous consequences for air quality in port regions. Yet ships also have a relatively long asset life. Depending on the kind, half a century or more are possible. So providing a drop-in replacement fuel would clean up the global fleet far more rapidly than any incremental upgrades to alternative propulsion systems.

While breakthrough technologies for air and sea transport applications are being worked on, right now these breakthroughs still seems to be much further away than the breakthrough in synthetic fuel production, which this blog post is notionally about. Even then, synthetic fuel could clean up quickly the extended transition period, which could still be several decades to electric long haul flight or intercontinental marine shipping. Lastly, it will also enable cleaner supersonic flight and space launches, two areas where known methods of electric propulsion run into limitations of our current technological abilities as a civilization. Although switching to giant electric rail guns for space launches could in deed be a game changer.

So why does this all change the valuations of of the Chevrons and Aramcos of this world? While stranded assets may at first glance be saved by a cheap carbon capture technology, they will actually be killed more quickly by a cheap synthetic fuel production process. Oil companies which are producer-centric with large reserves in the ground or under sea will be hardest hit (looking at you Aramco). Distribution-centric companies on the other hand with few resources in the ground but massive networks of petrol stations and supply contracts to the aviation and marine sector (Shell being an example of that) could flourish to some extent in such an environment. They may still need to rely more on aviation and marine fuel revenue and be content with shrinking sales from their petrol/gas station network due to a vanishing fleet of internal combustion engine cars and trucks. But with the right strategy, those distribution-centric companies could benefit from early market dominance and be with us for yet quite some time.

This is also the reason why I believe conspiracy arguments that posit Big Oil will control the capture tech to prevent synthetic fuels from scaling out holds no merit. If you can produce a barrel of refined synthetic fuel for 10-20 dollars, you will reap the economic benefit and competitive advantage over other market players that, at best, can extract a barrel of traditional unrefined crude for 40 or 50 dollars. Thus it makes sense to invest in and secure access to a cheap source of readily processable CO2.

I should also add that I am aware that some people may object to the use of MORE energy just to create what they consider a fuel of the past. To which my response is that for us as a civilization to flourish, we need more energy that is cheaper and cleaner than what the current fossil based economy affords us. While efficiency is an important goal in itself and also makes economic sense, if we want to live in a world where automated factories generate cheap high quality customized products while other robotic plants fully recycle our waste, where transportation at any distance is cheap, fast, and clean and where AI and connectivity are useful and omnipresent, then our global energy generating budget will inevitably have to go up.

I understand that some would like us to return to a romanticized version of a pre-industrial society where we all tend to the organic tomatoes in our gardens. This, however is a luxury that those living in abject poverty, without access to clean water, sanitation, electricity, education, medical care, and a stable food supply can ill afford. As such these aspirations are anti human, arrogant and should be rejected. So our global energy consumption will need to grow if we want to create a better world for all of humanity, and the only viable sources for this are solar and wind right now (augmented by storage), molten salt nuclear in the mid-term and fusion in the long run. Against this backdrop synthetic fuels, made from captured CO2 and renewable energy, are just another niche but useful energy carrier that will help hasten the transition away from fermented dinosaurs.

Good day to you all.