KIOR - making crude oil from woodchips

At the capex of about $10/gallon (yearly production), KiOR can build a large plant that converts wood waste ($70 per ton - market price) to crude oil.  Their current yield is 67 gallon/ton - that translated to feedstock cost of about $1/gallon.  Add to this opex (energy + personnel), let's say another $1/gallon, and you are left with about $1/gallon in operating profit (assuming $3/gallon ASP).  So it takes about 10 years to get back your original investment - pretty thin margin considering technology risk.

But the technology is cool (if it works, first 800 barrels per day plant, at a cost of roughtly $200m, is to start production before the end of '12).  By the way, this first plant (1/3 of size of full scale commercial plant) has capex of about $16/gallon.



Solar earnings season has begun

FSLR, SPWR, PWER reported yesterday.  Forbes Tech Trader has a nice round-up of analyst opinions on both companies (FSLR and SPWR).  These are the first module manufacturers to report.  Earlier we heard from inverter manufacturer AEIS and (mostly) poly producer REC.


How abundance of natural gas will limit oil price rise

The glut of natural gas in the U.S. has led to spot prices in the range of $2.5 per thousand cubic feet, or equivalently, about $90 per thousand cubic meters (about the same as domestic Gazprom price, and way below $400 per th.c.m. that Gazprom charges abroad).  With oil prices at about $100 per barrel, many enthusiasts (including T. Boone Pickens) are advocating a switch to natural gas in the transportation industry.  It is not going smoothly, and the main reason -- transportation requires fueling infrastructure - and it costs trillions to build new infrastructure in full.  The existing oil (gas) infrastracture is also worth trillions and no one wants to depreciate it to zero.  So, even though switching to nat gas makes sense in principle - it is a tough way forward.

But there's a different way (albeit less elegant).  One can convert natural gas to liquid fuel.  Roughly 11,000 cubic feet of gas give you 1 barrel of oil product.  You can do the math: $30 of nat gas can provide a nice $100 barrel of oil product.  Today Royal Dutch Shell reported that it will build a $10 billion facility in the U.S.  If it is similar to Pearl facility in Qatar with the output about 150k barrels per day (50m barrels per year), this should produce $5 billion in revenue per year.   It is immensely expensive (some report Qatar facility was $24 billion), risky (capex overruns) - but it does point to a way to bridge the gap between cheap natural gas and expensive oil.

P.S. Economist published a nice article on natural gas glut on their blog.


World energy consumption - some numbers (and dollars)

The size of the world economy is about $60 trillion.  World oil production is about 90 million barrels per day.  At $100 per barrel, the world spends $3.3 trillion (or 5% of its output) on crude.  What about electricity?  The world electricity production is about 20,000 TWh.  At $0.05 kWh (wholesale price), the world spends about $1 trillion on electricity (wholesale).

National Geographic has a nice map of world electricity consumption.  They project electricity consumption to rise from 20k TWh to 35k TWh by 2035 (that corresponds to about 2.5% annual growth).  Can we achieve this in a sustainable fashion?


Solar stocks drop - Italy looks to reduce tariffs

About the same time last year Italy has created a bit of a turmoil among the solar investors by reducing its feed-in-tariffs.  A huge wave of installations at the end of 2010 and the beginning of 2011, taking advantage of generous subsidies made the move absolutely necessary.  Now.. one year on.. we are still seeing a wave of installations (estimates range from 7.5GW in 2011 to recently reported by Reuters 9GW), and once again the market is surprised by Italy taking on tariffs again.


Poly prices

Did poly prices bottomed?  Or do we expect another leg down?

Current spot prices seem to have stabilized around $30/kg.  This caused a mini-rally in some solar stocks (until German tariff reduction news killed it).  However, some analysts (e.g. Citi) think another leg down is likely.  They estimate REC cash cost at FBR (newest) facility at around $13/kg based on latest data.  This is better than current cost and volume leader, GCL-Poly.  Latest GTM research suggests that panel prices in 2012 will drop from $0.90/w to $0.70/w, as lower poly prices work their way though the supply chain (80% of contracts are not spot, but will be renegotiated closer to spot).  They estimate poly cost of $20/kg and suggest that prices will head in that direction.  Biggest will survive: GCL Solar, REC, OCI, Tokuyama, Hemlock and Wacker.