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Mukunda Kaushik on the future of direct air capture, methanol, and sustainable aviation fuel
120 Plays1 year ago
Lux's Mukunda Kaushik joins Anthony and Mike to dig into everything carbon economy: how will direct air capture make money? What's the best use for methanol? And how can the commercial airline industry ever become sustainable?
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Transcript
Introduction to Innovation Matters Podcast
00:00:09
Speaker
hashtag podcast mindset. Hello, and welcome to another episode of Innovation Matters. It's the Sustainable Innovation Podcast brought to you by Lux Research. I'm your host, Anthony Skiavo. I'm joined by my intrepid co-host, Mike Holman. So Mike, probably the most asked about the most requested topic and one of the hottest topics, set of topics that we've been discussing with our clients over the last six months to a year.
Overview of the Carbon Economy
00:00:39
Speaker
has been this big question of the carbon economy, particularly where are we going to get carbons? What kind of energy carriers are we going to use? How are we going to transfer energy around the world? And how are we going to make all the things that we want to make when we get rid of fossil fuels? It's this big lumen question, and it's this big sticking point for
00:01:05
Speaker
the whole sustainable economy in a very real sense and people have a lot of different opinions on it, people have a lot of different approaches, different thoughts about what is going to happen in the future.
00:01:17
Speaker
And I'm delighted that we've got a really, really fantastic guest.
Expert Insights from Makunda Kashuk
00:01:22
Speaker
Lux is on Wakunda Kashuk, who is with us today, senior analyst at Lux, and really the expert on all things carbon, you know, everything from carbon capture to methanol, which we're going to be talking a lot about all the way down into some of the potential applications. Wakunda, how are you? I'm doing good. Thanks for having me. How are you?
00:01:40
Speaker
I'm doing all right. I'm doing all right. I'm excited to, uh, I'm excited to get into it. Makunda is fresh, fresh back from the Houston forum where you had the opportunity to talk about this with a lot of different folks. What was, what was the reception? I'm curious, before we get into it, what was the reception like in Houston? What was the vibe like when it came to, you know, these topics of direct air capture and methanol and sustainable aviation fuel, all this stuff? Are people, you know, really into it or just, yeah, what's the vibe like there?
00:02:11
Speaker
I think what was really interesting in that specific conversation, obviously given it's Houston, the audience is very oil and gas, really thinking about scale and developing these technologies in a way that can actually make a tangible impact. It was nice to see when you talk about director of capture, staff, methanol, and you can talk about kind of ad nauseam in silos.
00:02:34
Speaker
but the audience was really trying to form those connections, right? How does something like DAC fit within the SAF ecosystem as opposed to just looking at directory capture for offsets and things like that. And then when you talk about DAC plus SAF, what is the SAF pathway and methanol is part of the conversation there. So it was really a lot about forming these bridges and what those bridges are. I think that was really interesting and a big focus on
00:03:01
Speaker
at the Houston Forum was also comparing biomass as a feedstock. If you're not using direct capture, where else are you going to get non-fossil CO2 from? And if some of that biomass is going to go towards SAF, what does that mean for the biochemicals industry in the US? So theoretically,
00:03:20
Speaker
It's a lot of demand, but is that translating into actual projects, actual production, and how can competing demand from other industries impact the U.S. ability to meet its staff targets, which was also super interesting.
Understanding Direct Air Capture (DAC)
00:03:33
Speaker
Yeah, so so maybe back up with back up for a second here, because one of the things, starting with that, you mentioned something you said, how are we going to get non-fossil sources of carbon without DAC, right? And biomass is this one option. But I guess I have two points about this.
00:03:50
Speaker
One of my contentions is that we need to be bending, you know, the cost curve down, or not the cost curve, but the emissions curve down as quickly as possible, right? And so you have carbon capture, point source carbon capture. And I guess technically for most things, that's still a fossil source of carbon, right? Because ultimately, the carbons are coming from the ground, whether it's coal or oil and an extra mass, you know, you're burning them or whatever with them, and then you're capturing them again.
00:04:19
Speaker
And why can't that just be our source of carbon in, I guess, maybe the near term and maybe even the long term as well? And for DAC, a lot of DAC, if you look at like a monolith, right, a lot of DAC still requires like higher temperatures, you know, carbon plugged into like a natural gas infrastructure. So, you know, is it really the case that DAC is this non-fossil source of carbon?
00:04:46
Speaker
I guess that's where I want to start. It's like, why is it so important that this whole ecosystem has to be structured this way? This is one of the things that I'm often like, I hear and I don't quite get. So I'm curious to what your read is on this issue. I want to break that down in a couple of different ways. Obviously, DAC has seen a lot of momentum in the last couple of years. And we talk about timeline of adoption, a lot of locks.
00:05:08
Speaker
Right. But what does five years mean for the energy transition? Let's take 2020 to 2025 or 2025 to 2030 and how much can really change macroscopically. I'd say you'd probably need a bit more time to see tangible results. And there's a lot of technologies that are a bit more slow paced, but that hasn't been the case with DAC. Right. So, and covering DSC for a very long time now.
00:05:32
Speaker
The first time I wrote about it was an innovation digest back in 2020, it was four years ago now. I only had three companies to write about and I remember struggling to find anything substantial to actually say about a couple of them as well. But fast forward just four years, you know, we have over 70 DSC companies on our radar.
00:05:54
Speaker
So if we, I didn't realize that it was so explosive in terms of the growth of startups and the growth of scale there. Absolutely. Yeah. And if you put on the hats of our clients during these four years, I'd say it's both really exciting, but it's also really scary, right? So really scary because on one hand you have this very real problem of needing
00:06:17
Speaker
high quality carbon removal, red, because it's just taking time to set up more permanent solutions for scope one, which is where point source comes in. So yeah, there's a problem of needing high quality carbon removal and getting that done in the right way. And I'm going to metaphorically put that in red, bold, underlined. Red, we're not talking about forestry here.
00:06:37
Speaker
And on the other hand, there's this technology that's supposedly very important to reaching carbon neutrality that's growing faster than your ability to keep track of it, let alone take action and engage. Right. So that's a scary prospect as a corporation, you don't want to miss out on this technology if there's an opportunity. Right. So the first message that we really wanted to put out there is that there's a strong difference between and a growing veg between
00:07:04
Speaker
carbon-negative technology is a dietary capture and your traditional carbon capture that's targeting scope one emissions. Neither is really a substitute for the other.
Growth of Direct Air Capture Companies
00:07:14
Speaker
Seeing this in 2024 is a very obvious and cookie cutter statement, but a couple of years ago, it really wasn't the case.
00:07:24
Speaker
You need carbon capture to sort of decarbonize your existing assets and things like that. And something we're looking at with the Brussels Forum right now, carbon capture for the steel industry. Theoretically, you can't really capture all your emissions. And I think from the LCA that we have, the max you can get is about 66%. So to get to 100% or any of those residual emissions, you need a certain level of carbon offsetting and carbon removal technologies. So that's one reason that comes in.
00:07:52
Speaker
So that's the release carry side of it. But this momentum is also really exciting. Why? Because this boom in new entrants from three to 70 players is not just about companies entering the space because it's a big market with a lot of customers willing to pay. That's really not how we should be thinking about DAC. In a lot of ways, it's been a renaissance of technology development. And I do want to get into that in a bit more detail and talk about its impact on cost.
00:08:21
Speaker
Yeah, so I'm curious. There's a couple things we said, and maybe I want to unpack, and maybe this is too much of a divergence. But like, you made the point about high quality carbon removal. And you know, I agree with you, that's not forestry credits, right? Forestry is like forests have this bad habit of burning down. But and this is maybe on the technology development side,
00:08:44
Speaker
there are these other carbon removal approaches like weathering, enhanced weathering. There's a number of other carbon removal approaches where they don't produce a carbon feedstock, right? They're not producing a CO2 stream. They're not producing like a CO stream or whatever, right? But they are removing carbon from the environment and they're potentially doing it at a much lower cost than DAC, something like enhanced weathering,
00:09:11
Speaker
you know, it's still very early stage, right? But it's definitely got the potential to be like sub $100, maybe even sub $50, depending on who you ask, right? And so that's much cheaper than DSC as we'll get into. So I guess I'm curious, why don't we just do carbon capture, point source carbon capture, right, for the carbon stream, combined with these other higher potential or just higher sort of
00:09:41
Speaker
cost potential, right? Like invest in those, like enhanced all of the weathering, or whatever. Is it just a risk thing that we don't really know how much carbon is actually getting
Carbon Capture Debate: Weathering vs. DAC
00:09:51
Speaker
captured there? How important is it to get that carbon stream from DAC? Is that really differentiator? Or is it really just that those other technologies just don't work that well? And, you know, yeah, they have this high potential to be really, really cheap.
00:10:04
Speaker
aren't that scalable or whatever, yeah. Yeah, yeah. I'm curious, why don't we do, why don't we do like point source carbon capture plus like enhanced weathering as opposed to like point source carbon capture plus DAC. Right. So the question you're really implying is can we get, if you just need DAC for carbon offsets, does it have competitors that can give you the same level of quality at a more affordable cost?
00:10:28
Speaker
So on the engineered side of it, there's three options broadly. One is DAC. There's also ocean capture, which is coming up a little bit, a little more early stage, but it is moving a lot faster. And then you also have your more traditional CO2 utilization and cement or concrete, where companies are also able to show relatively negative overall carbon life cycles.
00:10:54
Speaker
With weathering specifically, there is still a lot of uncertainty. A lot of it just has to do with the way in which the weather materials are deployed and the scalability of it. So a lot of the companies today are basically still looking at almost having like new barrels or larger trucks and sort of manually spreading some of the materials around. So the consistency and the measurement is still a bit of a question mark.
00:11:20
Speaker
I know when you talk to some of the startups, I think this kind of came up recently, right? So they're actually founders who started out in weathering, but then pivoted to direct capture. And as interested as I was in the technology, I was also interested in their thoughts on, you know, having had a foot in both of these different technologies, why did they choose to move towards direct capture, right? And the reality on the ground is that from a measurement verification perspective, weathering still has someone to go.
00:11:49
Speaker
There's two interesting, I think, applications on weathering though that provide certain co-benefits, right? So there are companies looking at using mine tailings and waste materials from mines to develop their weather material, right? But in your LCA are you accounting for any of the upstream emissions associated with your weather material sourcing, right? That's still a big factor to consider. The other big benefit is combining it with more traditional agricultural practices, right? And even our CPG team gets a lot of questions there.
00:12:18
Speaker
Let's see if you take all the vines from behind and then add that to your traditional soil mixes or their impacts on yield and potential co-benefits there.
00:12:27
Speaker
Yes, but the thing is it's also supply chain driven, right? Because the weather material that you use is to some extent limited by what's available in that region. And different soils might interact differently with a specific type of weather material and other heavy metals you might find in the weather material mix. So there's still a lot of uncertainties that challenge scale, whereas with DAC tends to be a bit more standalone.
00:12:52
Speaker
with a more verified CO2 removal target. And the last thing is regulations, right? So regulations don't really support DC as much as they do weathering and things like that just yet. Yeah, so Makun, I think this kind of gets us into the other aspect of this, right? There's two considerations basically for this whole carbon economy, right? One of which is
00:13:11
Speaker
How can we prevent too much carbon from going out into the atmosphere? But the other is where are we going to get the carbon that we need to make plastics and, and chemicals and all sorts of other, other useful, useful types of products. And CO2 is, is one of those potential feedstocks that we talked about in the, in the DAC conversation.
00:13:34
Speaker
but the other options are sort of biomass and waste plastics, right? So when you talk to clients, when you're in Houston, being with all the oil and gas companies and whatever, what's kind of the outlook and what's your outlook on that as far as where the carbon sources of the future are going to be moving to?
00:13:58
Speaker
Yeah, it's a great
Exploring Carbon Sources and Methanol's Role
00:14:00
Speaker
question. And yeah, as you mentioned, there's three tiers to it. One is recycled plastics, then you have biomass solid waste, and then your last is PRCO2 streams.
00:14:11
Speaker
Now, with recycled plastics, we haven't seen too many projects that directly look at it as a source of carbon formula, more traditional pseudo-utilization products. With biomass, there's a lot of activity, a lot of recent projects looking at gasification, or even biogas reforming, for example, to basically produce the syngas feedstock that you need.
00:14:34
Speaker
And then the third tier is CO2, where you have traditional point source, you have biogenic CO2 from ethanol fermentation, biomass co-firing, things like that, and then you have dietary capture. DAC today is the most expensive source of carbon you can get, right? But again,
00:14:52
Speaker
I've heard recent arguments against DAC saying, is it really a non-fossil feedstock? Because at the end of the day, you're capturing CO2. What is the carbon footprint of DAC? Good question. Because again, coming back to something like Monolith, and correct me if I've got the wrong company here, but they're the one they've partnered with, the existing natural gas pipeline player, whoever it is. And they've got this whole high temperature thing
00:15:21
Speaker
going on where they're capturing carbon using some high temperature solvent or high temperature sorbent. Yeah, what is the carbon footprint of that? Because it's probably at least a third of a ton of carbon for every ton of carbon. You're only getting a 70% effectiveness, right? So yeah, just talk to me about that.
00:15:41
Speaker
Yeah, so the more traditional calcium developing process does need natural gas to get to about 1000 Celsius to crack the calcium carbonate down. Carbon engineering is a big company there. They recently got acquired by Occidental for over a billion in valuation. And there's a few other companies developing a similar technology.
00:16:00
Speaker
Right, so eight of ours calcite is a big one. There's also heirloom which already has a one kiloton per year plant in the US, but a lot of the more emerging technologies with dietary capture Anthony are actually not looking at high temperature processes.
00:16:16
Speaker
So on the sorbents, you're basically coming down to 100, 150 Celsius. And the technology that I think is really defining the DAC innovation ecosystem today are the more electrochemical processes that continue to use, you know, calcium hydroxide and these more traditional solvents. But you basically swap out your high temperature calciner with an electrolysis or electro dialysis unit, and you just load that with sulfuric acid. It's a simple acid-base reaction taking place closer to ambient temperatures.
00:16:45
Speaker
right, because of which they can rely on renewables a lot more than your more incumbent DAC processes. So again, I think going back to, I think how we started at this conversation, right, if these 50 new startups within the space were basically doing the exact same thing as the incumbents, the same thing that's been going on for almost a decade with just slight variations, that's a no brainer caution for DAC.
00:17:10
Speaker
But the reality on the ground is quite the opposite to a point where the incumbents, in my opinion, no longer really set the tone for what the future of D.C. is going to look like. And even for the more traditional companies using calcium looping, we've spoken to them just in the last month, and they're quite keen on electrifying their processes. So they say that they've already
00:17:31
Speaker
found partners to basically develop eKills and deploy that for their upcoming projects. Now, that's easier said than done, of course, right? But in terms of what companies are looking at in terms of development, that's really where their heads at because they understand they can't be using natural gas. We've also spoken to companies that say that they can achieve overall negative net emissions even if they use natural gas. But yeah, I mean, that's, yeah, of course, need to see some more numbers there.
00:18:01
Speaker
Yeah, so first I want to issue a correction. I was thinking of Mammoth, which is the Climeworks project. Monolith is a methane pyrolysis company.
00:18:11
Speaker
So apologies, shout out to, not shout out to any of them, I actually don't care. Sorry, but I just wanted to issue that correction before we move on. So I guess talk to me about CO2 from DAC as a feedstock, right? And one of the questions is like, okay, the cost of CO2, you know, the cost of DAC you forecasted getting down for these electrochemical processes into like the $120 a ton range, right?
00:18:41
Speaker
But there's a difference between the cost of DAC and the price that companies are going to end up paying for the CO2 feedstock. And so can you talk a little bit about that dynamic? As we move more into the methanol, a little more downstream, how do you expect to see the cost of DAC versus the price of the feedstock dynamic playing out? Because I can imagine a scenario where the cost of DAC is mostly offset by credits,
00:19:06
Speaker
and then they're able to sell this feedstock at a competitive price, but also I can see the feedstock being very uncompetitive and this relies on a lot of technology developments. How do you see that dynamic playing out? Who's going to pay for this?
00:19:18
Speaker
Yep. So, DAC companies today, well actually that's at the tone of force, we don't expect DAC to reach that $100 per ton without significant regulatory support, right? So, even a lot of the plans that we're talking about today are first of their kind. And you basically need eight, nine similar industrial facilities if we're going to talk about meaningful cost reduction. Yeah, I know what people are paying right now is like over a thousand.
00:19:42
Speaker
Yeah. And by people, we mean Microsoft and Stripe, right? Essentially. Right, yeah. Now, I would say the entrance, the entrance of BigTac in DAC for Luxus clients is almost a boon and a bane. A boon because we understand there's no winning DAC technology, right? So in a lot of ways, BigTac paying a lot of these early stage startups to develop their technology gives our clients a front row view.
00:20:11
Speaker
to watch a lot of these technologies scale in parallel, which is pretty amazing. But on the negative side, it's inflated the market. So as a DAC startup, let's say in two or three years, you've achieved $500, $600 per ton. You have two options. One is to sell your credits to Microsoft at closer to $1,000 per ton.
00:20:36
Speaker
Or you can have slightly lower margins, but then attract industrial investors, which is what the DSC ecosystem today really needs. You need investments on the CBC side from oil and gas, from cement, from steel, from staff developers, from airlines, who will basically be using DSC either for offsets or as a carbon feedstock. And we're not really fully there yet. And the only way to get there is cost reduction.
00:21:05
Speaker
Yeah. And that's just like, that's like a question of scale, right? I mean, the amount of offsets that Microsoft needs to buy to address its emissions is pretty small compared to the scale of like what could be needed for SAF or something like that. Exactly. And emissions from data centers, especially those that use artificial intelligence, it's also a big market that DAZ companies are targeting today from a non-feedstock perspective.
00:21:28
Speaker
That's another podcast episode that we might have done. That's a whole other podcast. We actually wrote a big piece on emissions and energy from data centers. I think it's right in the sense that the dollar value of revenue per emissions is really high. So if you're running a data survey, you can offset that very easily. And even for some chemical companies, we have this whole carbon canvas where we do this question of, what's the total profitability divided by the amount of revenue?
00:21:58
Speaker
And you can see that some companies can withstand paying, you know, $600 a ton, you know, and do 100% offsets at $600 a ton. It's not impossible for them. It would be a big financial burden to do it, but it's like theoretically possible. Even like a Taejin, you know, a materials company, it doesn't even have to be like a Microsoft, right? But a lot of companies can't. Relatively high value.
00:22:22
Speaker
specialty materials or fine chemicals, pharmaceuticals, stuff like that. Yeah. Manufacturing companies. Anyone who's not doing high temperature manufacturing can afford, typically afford carbon credits. At least as high as $200, if not up to $600 per ton. But it does become a pretty big investment. If you want to do 100% offset at $600 a ton, that is often enough to wipe out all your profitability, which is
00:22:48
Speaker
Not really. Not a real idea, right? Let's talk methanol. Let's move down. What are we going to do with the CO2, right? And why? I guess the big question is why methanol, right? Because for our listeners who are maybe not as up on this, you take the CO2, you can combine it with hydrogen, which we can get from electrolysis. And you can make a pretty wide range of different things from it. One of the things is methanol, which is, what, CH4O, I think, or? Yeah, SNH3OH.
00:23:19
Speaker
CH3OH. I wasn't going to say it. Thank you, Mikunda. I have taken one chemistry class in my time in school, so I'm not a chemist.
00:23:30
Speaker
Oh yeah, why methanol? Why methanol? So I think if you think about either saff or methanol, the fundamental problem with converting CO2 into any of these products, or into any of these products, it's a one word problem, it's hydrogen, right? So on a mass balance basis,
00:23:49
Speaker
you need more CO2 than you need hydrogen, but when you break that down to a feedstock house, hydrogen is a bigger challenge there. But when you think about CO2 utilization, to some extent, both obviously, Saff has a fuel. Methanol has a big role within the fuel space as well.
00:24:07
Speaker
And the reason you're converting CO2 into these products is because you need a non-fossil source, right? So you can think about points of carbon capture as a source of CO2 as well. But if you think about what's happening in Europe, right, the future regulatory trajectory is thinking of banning, quote unquote, fossil CO2 to produce SAF, so from power plants or industry, after 2035.
00:24:29
Speaker
So if you still want to produce a lot of these products that are running energy bi-chains, chemical bi-chains, you basically need a non-fossil source of CO2. So that's why DSC integrates into these products. But if you talk about the product themselves, so methanol, one of the highest hydrogen to carbon ratios, very energy dense, that makes it a good fuel.
00:24:51
Speaker
And the use of methanol isn't entirely new, right? So Exxon commercialized its methanol to gasoline process very long time ago, decades ago, methanol to all of an activity in China has been really high. Yeah. So there's a lot of plug and play opportunities for methanol specifically.
00:25:11
Speaker
And then Musk, of course, has kind of gone pretty heavy on using methanol directly as a marine fuel. And specifically for an industry that has been used to, you know, paying rock bottom prices for marine fuels, the shift to a low carbon fuel is a big transition. And they've been looking at methanol there, so you don't need any conversion.
00:25:34
Speaker
But of course, to use methanol in these applications, you can't continue to use methanol from natural gas. So you need methanol that's from biomass or from CO2 hydrogenation. A lot of the more near-term projects that are targeting green methanol are biomethanol, not e-methanol. Because simply said, if you don't have carbon capture or green hydrogen, you don't have methanol.
00:26:01
Speaker
The benefit of bio-methanol is that A, you can rely on gasification today and you continue to rely on the syngas to methanol intermediate conversion, which is what's commercially done today as well. So you're kind of piggybacking on a very industry established process. Yeah. It looks like very well known chemists, like people like Eastman have been gasifying coal to make syngas and then methanol from that for many decades.
00:26:28
Speaker
Can I ask a question? Can I be a chemistry novice here? One of the things about methanol is it's very energy dense, right? And a lot of the stuff that you make from it is less energy dense, right? Like specifically like MTO, methanol to olefins, right? You know, olefins have generally less, the hydrogen to carbon ratio is lower. But I also know that like MTO is like a million tons of material a year or something. It's like this big and it's this really fast growing
00:26:55
Speaker
part of the situation. Why is that if it's not as energetically or chemically favorable? Is it just because we have a lot of natural gas and it's easy to turn natural gas into methanol and easy to turn methanol into olefins and it's kind of wasteful but
00:27:11
Speaker
the fact that natural gas is so cheap makes it worth it. Is that like the story there? Because I've never fully understood that. So most of the MPO activity is almost limited to China. I think there's two plants in Uzbekistan now. Our products recently announced a partnership there as well. And the biggest driver has basically just been oil prices and China's goal to actually make oil or like elephants from coal. Right. So yeah. So it's really a coal gasification.
00:27:39
Speaker
essentially and the olefication sort of dolphin production route was most profitable sort of mid or early 2010s, 2010, 2014, when oil prices were really high. And then it's really oversupplied now in the market. Exactly. Both.
00:27:55
Speaker
Oil is cheaper and also the pile of things are really oversupplied. Yeah, so many MTO units kind of started up and then the demand and the price for methanol went up in China and that caused a lot of the MTO projects to actually shut down due to negative margins and then now it's kind of calibrating again, right? But none of these plants today are using green methanol.
00:28:22
Speaker
It's so crazy because if you read the IEA or you read a lot of these things, they're so bullish on MTO. They just look at this MTO growth in the last decade and they're like, yeah, methanol olefins is growing at like 7% and it's just kind of like
00:28:39
Speaker
keep growing like that. And like, olefant demand is going to go through the roof forever. And like, we're just going to keep doing methanol to olefants. What you just said is really like, clicking a lot of things at the place for me. Because I've always been like, how is this possible? Or like, this doesn't make a ton of sense. So I think the supply outlook for green methanol has more certainty today than the demand outlook.
00:29:02
Speaker
Right, so when you really look at that fuels versus chemicals split, right, so we've done the math here, right, so about from all the projects we've looked at on the green methanol side of it, about 45-50% are targeting fuels, right, whereas marine fuels, methanol to jet, or even more traditional gasoline blending. About 45% are basically undecided.
00:29:26
Speaker
And there's about three or four projects that have strong chemical offtakers. The LEGO group was one, and I think there's a project with Parrstra and a couple of others.
00:29:37
Speaker
I don't think that that split that I just spoke about is representative of what it can be in the future. But it's interesting to talk about what some of the drivers that are. I think regulations is an obvious big one, definitely the big elephant in the room. The other one that I see is that if I look at mask using Math null, they're basically using Math null retaining that form factor.
00:30:03
Speaker
And you're basically combusting a fuel and that fuel is not fossil essentially, right? But when you look at the chemical side of it, one thing that I see is, you know, BASF and Avonic in 2017-2018 came out with this new process to make metacrylates essentially. So for plexiglass, contact lenses and all these applications.
00:30:22
Speaker
And they basically said that it's higher fish. It wasn't about making it greener, but it was more about, it's a process that is more energy efficient, lower temperatures, high yield. And it basically converts ethylene and methanol into methanol. It's in a multi-series step. But now let's say three years from now, BASF decides to use green methanol in this process. So they use green methanol, but then the ethylene is still coming from steam cracking.
00:30:50
Speaker
Right, so the reduced carbon footprint of that green methanol as a feedstock doesn't necessarily translate one-to-one with the reduced carbon footprint of the final methacrylate, right? How does that basically impact BASF's profits from the product? But it gives you a pathway because you can also do like bioethanol to ethylene. Yeah. And there's a route there. And I think that's what's most interesting to me because you also mentioned Lego, right? And there are all these polymers. It's not necessarily a huge volume.
00:31:20
Speaker
compared to like the big six commodity polymers, but like polyamides and your, you know, methyl methacrylates. ABS. ABS, right? That's what Lego uses. These are all polymers where recycling them is basically, if not technically impossible, then logistically impossible. Yeah. Because they're not, they're, they're diversified products. They don't have a
Sustainable Aviation Fuels (SAF) and Industry Impact
00:31:42
Speaker
consistent way stream for Lego. Like you don't really throw Legos out anyway. Like they,
00:31:46
Speaker
notoriously like very durable they last 30-40 years right you're not going to get a big lego stream of waste but they need to be sustainable right and legos try to do a bunch of different things over the years including incorporating recycled plastics like non either you know non abs recycled plastics or
00:32:04
Speaker
bio-based plastics and it's been very difficult, right? They haven't really been super successful making green brick, right? So that all makes sense to me. But olefins in particular, it's funny because that's the thing I hear the most about is MTO, olefins in particular. And it seems like that is not really, doesn't really make a ton of sense just because of the economics and also the fact that you can recycle olefins, theoretically speaking, it's possible to recycle olefins.
00:32:32
Speaker
I wanted to get back to the gasification point in China because this is really interesting to me. How possible, how feasible is it?
00:32:40
Speaker
to switch those coal gasifiers or gasification in general from coal to something that is not coal, right? Whether that is MSW, biomass, a more pure plastic waste stream, because gasifying those things tends to be really expensive, right? Like I think maybe $200 a ton tipping fees to gasify those kind of wastes. Is it possible? Are we gonna see China making that kind of pivot? Is that even,
00:33:08
Speaker
I'm curious if you've looked into that or if you have thoughts on that type of question. We're basically talking about gasifying something that's 90% carbon to gasifying something where only 50% of the carbon is actually converted into methanol. And this basically means that you're going to need gasifiers that are a lot larger. So that's one big thing to consider.
00:33:34
Speaker
The other issue, it's, again, a bit more of an engineering problem because, again, gasification hasn't really changed in 15, 20 years now, is that the syngas ratio is really important when you actually look at what you're going to convert that to. And typically, you need a syngas ratio of two to one favoring hydrogen. And biomass gasification typically falls short on the hydrogen ratio.
00:34:00
Speaker
So that's another more engineering challenge that comes with actually making that switch. And typically, the way you deal with that ratio deficit is you either gasify more biomass, for which you can need a large gasifier, or you have to artificially inject green hydrogen into your product mix, which is what hydrogen back and a couple of others are doing in North America, but don't really see that happening in China just yet.
00:34:25
Speaker
The gasification, as you can gasify, I mean, like Anthony mentioned, you can gasify municipal solid waste, MSW, which sounds great. It's like, oh, I can make this really valuable syngas from literal trash. And we actually saw a lot of companies that were trying to do that back in the 2007, 2008 sort of days. But the problem is when, as you alluded to, with I think it's even worse with MSW than it is with biomass, just the yield and the quality of the product that you get out of that is pretty crappy.
00:34:54
Speaker
The calorific value of MSW can vary a lot. That's something I learned because I did a series of briefs on waste management in China and India and one of the big things is just like
00:35:05
Speaker
Yeah, like the calorific value of MSW in India, A, can vary within India, like an insane amount. And B, tends to be a lot lower than like MSW in like Europe or even China, right? So it's like, even just the variance is like a problem, right? Because coal, it's like, you know, you can get a pretty consistent coal stream. But like if your MSW is varying day to day by like 10%, right? And that is pretty problematic. A lot of like pre-processing also. Yeah, yeah.
00:35:35
Speaker
But I mean, there's one project in India, actually a couple that I think are interesting, right? So the way, the only reason it works is because these methanol producers have tied up with, you know, local municipality ecosystems that are going a bit more systematically, segregating waste and segregating and collecting that waste and trying to streamline that into a supply chain that actually works.
00:35:58
Speaker
But let's talk staff. We talked a lot about methanol, you know, and I think I have a clearer sense of where it can make sense, you know, potentially as an energy carrier and energy source, potentially for some of these more engineering plastics, I remain an MTO hater. Whenever I write about methanol, whenever I write about DAC, whenever I write about any of these things, I get people in my replies, in my mentions on LinkedIn, saying, we use this stuff for sustainable aviation fuel, you dummy, why don't you get it?
00:36:27
Speaker
The whole sustainable aviation fuel, this thing is so crazy to me because aviation, commercial aviation has like 2% margins, right? It's potentially like a money losing operation historically speaking. Like if you add up all the profits and all the losses of every airline ever, there's a pretty good argument to be made that that's a negative number at the end, right?
00:36:47
Speaker
you know, you think about chemicals industry. It's like, okay, there's a lot of concerns on our like return on invested capital going down. But historically, returns on invested capital in the chemicals industry have been pretty good. You know, we're talking like seven to maybe 10 12%, depending on the technology, right? And you did this big presentation in in Houston on aviation is really good. And you made a really, really cogent point, which is like for a lot of the alternatives to
00:37:13
Speaker
you know, staff, like electrification. They just don't make sense because you can't
00:37:19
Speaker
double the number of airplanes. If an electric airplane carries half the number of people, you can't double the number of airplanes coming in and out of every airport. We're constrained. But how does SAF work? How does that work economically? Is it going to get to be cost competitive? How much more expensive is it going to be? How do we make a sustainable business out of airlines, I guess, given that operating an airline is already at a baseline, a terrible business to be in, basically?
00:37:47
Speaker
So I think SAF at this point is basically a scale game. But yeah, I'm glad you brought up Houston because at the end of that presentation, someone actually called it out and said that they don't think methanol to jet is the future for the aviation industry because marine fuels is going to be the main or the winning application for the green methanol being used. And I think this brings up two channels of conversation.
00:38:13
Speaker
So A, do we agree on the fact that the future of aviation is SAF? For now, assuming that's a yes, the next question is what's the best SAF pathway? And what's the best SAF pathway? We think it can be methanogen. That's a different argument from, or that's a different discussion from whether the methanol or the green methanol that's going to come online is going to go towards SAF or not. So there's a,
00:38:41
Speaker
demand side of it and then there's a aviation side of it. So the other good question is, if I'm an airline, is it cheaper for me to just purchase credits from Director Capture as opposed to using Director Capture to make SAF and then buy SAF that's going to be a lot more expensive? That's a valid question and I think the way we think about it is
00:39:07
Speaker
You can engage with these more offsets or director capture directly in the near term to basically buy yourself time until the staff industry scales, right? So I think we can increase the running 100% staff today or if you use today is going to be too expensive and not a long, not a good business case, right? But.
00:39:26
Speaker
keeping an eye on the SAV production side of it while buying yourself time with offsets and then retiring those offsets when you can work with the plants that Topso and Johnson and Southso are actually setting up is a good way for the aviation industry to make a business case around SAV.
00:39:47
Speaker
I think you're right that that's the pathway, but I think maybe what Anthony's referring to, and I'm interested in getting at anyway, is what does that mean for the aviation industry? Because I'm in general not a degrother. I don't believe that making this clean energy transition is going to impoverish us. I think there's a lot of cases where the energy transition is actually going to make our lives better and things cheaper, as I think you can see with renewables and electric vehicles. These are actually better technologies.
00:40:18
Speaker
When it comes to aviation, because electrification and even hydrogen, as you guys also talked about in Houston, is probably not going to be viable for a lot of these routes. Whether you're going the SAF route or whether you're doing offsets, that's the one area I have a harder time seeing my way around to where it isn't just the case that
00:40:40
Speaker
in a decarbonized world, air travel is going to have to be more expensive and probably less common than it is today. I mean, sorry, do we have to bite that bullet or are you optimistic enough about the cost trajectory for like methanol and sap and MTG, methanol and jet and all that to
Economic Challenges in Sustainable Aviation
00:40:58
Speaker
get us over it?
00:40:59
Speaker
Yeah, so I mean, I think aviation is going to get more expensive. Right now we're at a point where, you know, paying for offsetting your flight is a bit more voluntary. Yeah. And it's like nothing. It's like, you know, two bucks on a four hundred dollar airline or something. It's kind of ridiculous. I get all my I want to come back to this. I get all I do all my travel through my credit card. Yeah. Right. There's a travel port there. They plant like five trees per per flight. Yeah. Yeah. Which is like so hilarious. They're like ineffective and not real.
00:41:29
Speaker
And today, they give you some XP if you offset it a bit more and kind of works your miles. But yeah, I mean, if that's 2024, right, but if we get to a point where there are SAF mandates, and there are regulations that require the use of SAF, these things might not be voluntary, and they definitely won't be as cheap.
00:41:51
Speaker
And that's a big reason why a lot of the, it's not just DSC. I think let's talk about methanol. Let's talk about CO2 electrolysis companies making syngas. Why are they all targeting fuels? Part of it is because it's easier for an airline to really pass on that cost to its final customer, as opposed to the chemicals industry doing it. So yeah, I think eventually it is, I think flying's all to your luxury. It becomes a bit more of it.
00:42:17
Speaker
Can we talk about the structure of the industry rate? Because in America, I'm just gonna throw some numbers at you, some stats. 1% of American GDP is funneled through Delta Airlines credit cards. The value of the Delta Airlines credit card program was valued at $22 billion at a time when the market cap of Delta the airlines was $10 billion.
00:42:43
Speaker
So the credit card program was twice as valuable as the airline itself, right? And, you know, I make this point because, you know, airline flight has been getting cheaper and cheaper, right? The real cost, inflation adjusted cost of flying from point to point has gotten, has deflated a lot over the last, you know, from the 1930s or whenever you wanna start, from the start of civil aviation to now, right?
00:43:13
Speaker
It's gotten way cheaper. From deregulation until now. Well, that's the thing I wanted to bring up is the cost of flying was dropping before deregulation. So from the 30s to the 70s, you know, airlines were pretty heavily regulated. They were regulated as a public utility. Right.
00:43:30
Speaker
and the flights and the routes were all set by the government, and there was only a limited type of thing. You could compete on basically amenities, and that was like it. I don't even think you could really compete on price, right? But the price was already dropping before deregulation, right? And it continued to drop after deregulation, mostly at the same level. And so I guess the point, like I'm gonna, like just the thing I wanna ask, right, is if we're moving towards this future of
00:43:57
Speaker
sustainable aviation fuel, which is a lot more expensive, or carbon offsets, or however you want to structure it. That is going to rely on a huge amount of government input. It's going to rely on a huge amount of taxpayer money, no matter how you do it, because there simply isn't the profit margins within the existing airline business to pay for this stuff.
00:44:21
Speaker
I mean, should we head back to a type of state owned or regulated as a utility type of model? Like what model makes sense for the airline companies? Why? Because right now they're like these weird e-commerce businesses that are like stapled to this.
00:44:38
Speaker
useful public utility, right, of being able to fly from place to place. And so just and like, it's not a very sensible business model, as far as I can tell. So I'm just curious as like, what do you think the future business model looks like? And how do these costs get absorbed? And how do the various outputs get like, spread around? I think this is where curious to get your opinions here as well. But I think regionally, there's going to be a lot of difference, right? It's just a question of
00:45:09
Speaker
whether governments can actually help the industrial sector make SAF work. If they can make SAF work, then that's good because then you kind of continue business as usual to some extent by just switching off your feedstock. If you set targets,
00:45:25
Speaker
and then don't help industry get to those targets, then that's when from business model perspective, from a regulation perspective, from a control perspective, that becomes a need to make things a bit more creative in a way that makes sense for both the government as well as the industry, and then of course the customer itself. It seems like I would say right now, the U.S. is doing a slightly better job at allowing staff to scale just by
00:45:53
Speaker
diversifying feedstock options, funding for the feedstock side of it as well as opposed to just the SAF production and then obviously the direct IRA credits.
Future of Aviation with SAF Scaling
00:46:02
Speaker
But again, the caveat there is that it is taxpayer money. So let's say we set up hundreds of SAF production facilities producing billions of gallons per year. At what point does the credit run out? Or does it start to go down?
00:46:15
Speaker
Yeah, I mean, I guess it's because if you think about the US government right now, the idea is we're going to kind of prime the pump, right? We're going to give a lot of money up front to people to help them scale through the form of grants and loans. We're going to give stuff like these tax credits, but these tax credits have an expiry date, right? Once you get up to scale, the assumption is that you're going to be able to... Substitute. ...make a price and, you know, 2040 and 2030, or excuse me, 2040.
00:46:40
Speaker
2045, you know, theoretically, at least, you're not going to have these tax credits anymore. The government's not gonna be paying, you know, that much money into the system. They've gotten the system over the hump. And then the system, you know, the economics, it's just a commercial system, you know, it's this, this existing commercial system. Is that gonna work, though? Like, is SAF, like, is it really, truly the case that we can, once we get over the hump on this stuff, you know, we can continue to
00:47:07
Speaker
to do it and it will make sense? Or is it going to require a continuous, like a carbon tax, like a continuous government adjustment to the relative cost of fossil versus, is there ever a point where clean outcompetes fossil on a one-to-one basis?
00:47:26
Speaker
I think the big driver to give you the answer to that would be, are we going to adapt refineries that exist today to produce these fuels and products that we need?
00:47:38
Speaker
Or are we talking about setting up greenfield facilities? This can really make or break that mix. Because also if you think about it, the byproducts of SAF, whether it's biodiesel or NAFTA, a lot of these byproducts also need to find a home and you can have a certain price for it, which can affect the overall unit economics of that plant. And I'm thinking of the infinium facility.
00:48:05
Speaker
They have Amazon coming in buying some of the gasoline. They have, I think it's United coming in and buying the, I think it's American Airlines coming in buying the kerosene, but no one's buying the NAFTA yet, right? But that's another product that's probably waiting to get sold out. But yeah, I think if we need to sort of build new facilities, I don't see a future where governments can sort of recluse themselves from how prices evolve. But if we're talking about adapting a lot of existing facilities to basically tune the output,
00:48:33
Speaker
that gives the industry a bit more self-sufficiency.
00:48:36
Speaker
Well, Makunda, thanks so much for coming on. I think we're going to leave it there. This has been a really, really great discussion. To our listeners, again, I want to just say you can like, you can subscribe. You can follow us on various platforms, Apple Podcasts, Spotify. We have a couple of exciting announcements coming up related to the podcast. We're going to be making some interesting changes, some updates going forward. So stay tuned for that. But yeah, Makunda, thanks so much for coming on and I'm sure we'll have you back on in the future.
00:49:06
Speaker
the whole landscape continues to evolve.
00:49:09
Speaker
Yeah, thanks for having me talk to you with Sandy Moore startups to look at next time. Yeah. Innovation Matters is a production of Lux Research, the leading sustainable innovation research and advisory firm. You can follow this podcast on Apple Music, Spotify, or wherever you get your podcasts. If you want more, check out www.luxresearchinc.com slash blog for all of the latest news, opinions and articles.