New Frontiers in Energy and Water

Brent Giles

Research Director

Lux Executive Summit Asia

October 21, 2015

Agenda

Energy and water are both traditional industries with large players that are typically slow to adopt new technologiesEnvironmental and technological disruptions have both industries confused and reacting to rapid changeBoth industries face fundamental shakeups that will permanently alter their landscapes

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Agenda: disruptions in energy

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4

Volatility and climate change drive the movement toward next generation energy

http://link.springer.com/article/10.1007%2Fs11708-014-0303-0

Major disruptions in oil prices have become common, as this graph showing spikes in the standard deviation in oil price shows. Volatile energy prices force energy-intensive industries to operate conservatively and slow growth.

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Technologies like fraccing diversify sources and stabilize prices

Hydrofraccing in North America has twice been the victim of its own success: first after it drove down the price of natural gas in 2008, and, after drillers began focusing on liquids, it eventually contributed to a sharp drop in oil prices in 2014. Nevertheless, the industry continues to operate and will remain a vital component in the energy mix in the Americas and beyond.

Advances in traditional oil and gas: drilling and monitoring

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While oil and gas technology has traditionally focused on finding new resources, it is now increasingly applied to decreasing costs and increasing efficiency in drilling and production. A large number of startups seeking to automate key operations and improve process monitoring are working in the space.

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Hydrogen economy?

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Hydrogen economy: a moon shot

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Electric vehicles become an important part of the mix by 2025

Lux projects that falling battery prices will make electric vehicles a significant portion of the fleet by 2025, though they won’t yet outcompete traditional vehicles in number.

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Biofuels can change the gameCellulostic materials remain promising: steam explosion and dilute acid techniques lead the way

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Biofuels can change the game

Cellulostic materials to renewable diesel and jet fuels

Has diversified from palm oil to waste oils to produce renewable diesel

Gas hydrates resources surround every continent, if they can be accessed

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Adapted from USGS

Gas hydrates confirmed

Gas hydrates expected

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

0

20

40

60

80

100

120

140

160

180

200

Japan Korea India China Rest of world

To

tal p

rod

uct

ion

, B

m3

Projected hydrate production

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2013 Japanese gas consumption

Agenda: disruptions in the water space

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Water is poised for a shakeup

15Likelihood

Imp

act

Water crises

Weapons of mass destruction

Water is a $600 billion industry that enjoys good profitability

The current industry faces accelerating change in what is traditionally a conservative marketplace

It’s not just drought: extreme storm events are increasing as well

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Change in frequency of extreme storm events, 1948 to 2011

New EnglandExtreme storms now occur 85% more frequently

Distributed stormwater treatment

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Treating large volumes of stormwater in centralized facilities is expensive and hazardous, risking release of raw sewage

Distributed treatment, combined with advances like permeable surfaces and rainwater capture, provide a way forward.

The Energy Water nexus: drinking water and wastewater converge

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0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%Energy consump-tionSludge produc-tion

Minimum footprint

Number of staff

Operating cost

Wastewater treatment has always been energy intensive, with advances such as anaerobic digestion reducing the cost somewhat

Producing drinking water from seawater is far more energy intensive than direct reuse of filtered wastewater

1972

1982

1992

2002

2012

-0.2

0.3

0.8

1.3

1.8

2.3

Capex Electricity Maintenance

Cost

of

desa

lination $

/m3

Desalination cost trends

Monitoring and control are the future for infrastructure

Worldwide, one third of drinking water is lost due to faulty infrastructure

A 100-year-old pipe may fail in only one short section. Repairing it economically depends on pinpointing the leak.

“Trenchless” repairs are now common. Finding the area in greatest need of repair is key.

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1 3 51

3

5

Computer mgmt/asset awarenessAutomated

inspection

Pig inspection

Ultrasound

Eddy-current EM probe

CCTV

Lidar

Thermal

Tracer gas

RFTC Acoustic

Chemical detec-tion

Smart metersPressure main-tenance

Maturity

Tech

nic

al V

alu

e

Future winners

Long-shot

Current winners

Incumbent

Future winners

Long-shot

Current winners

Incumbent

1 3 51

3

5

Clamp repairPipe

replacement

CIPP, wwCIPP, dw

Sliplining

Pipebursting

SIPP, wwSIPP, dw

Robotic local repair

Maturity

Tech

nica

l Val

ue

Future winners

Long-shot

Current winners

Incumbent

Future winners

Long-shot

Current winners

Incumbent

Future winners

Long-shot

Current winners

Incumbent

Future winners

Long-shot

Current winners

Incumbent

New agricultural demands for water: supporting the rapidly growing aquaculture sector

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Demand for seafood is growing at 10% per year, but wild capture has been flat since 1989

Aquaculture is growing at 8.3% annually

The fastest growing portions are sophisticated recirculating farms that require constant monitoring and aggressive water treatment

If better desalination membranes aren’t the answer, what good are next-generation membranes?

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Antibiotics“Porins of multidrug resistant

bacteria are often impermeable to antibiotics and could thus be used to

remove them from wastewater.”

Biomolecular fishing “…the cost of the ligand is the main

impediment to the widespread application of immuno-ultrafiltration or affinity ultrafiltration. Aptamers

could be one of the keys to breaking this powerful catch-22.”

Sugars separation“Lectins may be able to separate sugars such as known plant-based sweeteners and compounds with

important pharmacological activity.”

Replacing affinity chromatography

“The packing density of hollow fiber membranes rivals the specific

surface area of chromatographic beads. The bonds can be broken

without the use of chemicals simply by back-flushing.”

Quotes adapted from J Chem Technol Biotechnol 89 (2014) 354-371.

Increasing membrane flux by 300% would only improve seawater desalination plant performance by 10%. Still, some next generation membranes will find important uses replacing thermal and other energy- and water-intensive traditional processes in industry.

Lux Competitive Benchmark: looking at large water companies

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Technology is still applied unevenly in water, even by major companies in the space.

Lux Competitive Benchmark: Water innovation often lags behind other industries

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Even major companies in the space often invest relatively little in next generation technologies, and some are wedded to declining industries such as pulp and paper. High tech solutions can change the space.

Basic materials End-user facing services

Conclusions

Energy will become increasingly diversified

“Green” energies can expect competition not only from more efficient oil and gas operators but from other green energies

Water issues present a significant threat to populations and industries

The water space is diverse and increasingly needs new ideas and new technology

Key drivers in water include infrastructure repair and monitoring, fresh water supply, reduced energy demand for desalination and wastewater treatment, and support for new industrial processes

These two traditional industries are facing historic shakeups from technology and environmental pressures

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Thank you

Brent GilesResearch Director michael.holman@luxresearchinc.com

+1 917 484 4878