Petroleum – a term includes oil, gas and derivatives – wells have been going dry for more than 150 years. Until the late 2000s, the solution to that problem of resource depletion has been to find a new place to drill. We now have the alternative of drilling deeper and using hydraulic fracturing techniques to reach previously known but inaccessible formations.
Though there is still a lot of oil left inside the Earth, it is getting more difficult to reach. Even the booming fields made available by horizontal drilling and hydraulic fracturing are beginning to degrade; people in the field are reporting that many of the best locations have already been exploited.
Even if there was an unlimited and magically refilling source of petroleum, it is becoming increasingly clear that the waste products from petroleum combustion, including CO2, are causing major damage to Earth’s livability. We need clean power sources with greater longevity.
Russia’s invasion of Ukraine reminded all of us of the importance of a broad base of fuel suppliers that can overcome politically driven changes in global production and distribution. Low cost producers will always find a way to market their product unless there is a coordinated effort to prevent their output from being sold.
Few people would dispute the fact that the oil and gas that has been discovered and extracted so far is the most accessible portion of the available resource. It was relatively easy to find and it was located close enough to human populations or transportation routes that it was reasonably easy to deliver to the ultimate customers. The petroleum that is still left underground or underwater is the harder portion. It is more challenging to find, it is deeper underground, it is in tighter formations, it is lower quality, or it is located in areas that make it difficult to move to markets.
Petroleum alternatives – coal, wind, solar, biomass – have been available for hundreds to thousands of years. New technologies have evolved to make them more affordable and competitive, but those technologies have only partially overcome inherent disadvantages in many applications. Petroleum is still the world’s dominant energy source because it is readily transported, it’s more energy dense than non-nuclear competitors, it burns more cleanly and thoroughly than coal, its output can be controlled, and it has an enormous base of equipment designed to operate with refined hydrocarbons derived from oil.
The realization that the easy oil is gone has led to volatile energy prices that have tended to ratchet up for the past two decades.
Increased prices have put hundreds of billions of dollars into the hands of petroleum producers, but they have not led to a large increase in production. An increasing portion of the slowly increasing petroleum supply is in the form of natural gas liquids (NGLs) and not conventional crude oil.
Petroleum producers know that there are not many opportunities to make major new discoveries so they are focused on maintaining their current production levels. In many cases, there is a growing supply of unused capital waiting for an appropriate place to invest.
Oil executives would be wise to consider investing their human and financial resources in nuclear reactors, which can be considered to be modern, near zero emission energy wells. When nuclear reactors are used as advanced heat sources to produce synthetic fuels and hydrocarbons, a substantial portion of the capital infrastructure and core competencies are directly transferrable from the conventional petroleum industry.
Short historical digression
When nuclear power first entered the energy market during the mid 1950s, several oil companies invested heavily into the uranium and fuels processing portion of the business. This was the portion of the new energy system that seemed to fit with their core competencies of finding and producing the raw materials needed to produce useful energy. For the most part, these investments were not successful.
Part of the problem is that the cost structure for nuclear power is different from the one historically associated with producing electricity with fossil fuel power stations. With nuclear, a most of the cost and risk is incurred at the beginning of the project. Once the plant is fully operational, the recurring fuel cost is minimal. With fossil fuel power plants, capital and operating costs are often minimal compared to the ongoing expense of purchasing new fuel. In some natural gas plants, fully 90% of the electricity production cost is purchasing delivered natural gas.
Building nuclear plants is analogous to drilling oil wells
The path that fossil fuel producers take between finding a promising new field and selling finished product from that field into the market is a tortuous one full of regulatory hurdles, government agreements, massive capital investments, and significant risk. That path description should sound familiar to nuclear professionals.
Once the challenging process has been successfully negotiated, the producer and his investors can look forward to an uncertain number of years worth of selling the product at an uncertain price that depends on a number of external factors. The incentive for making those up front investments and taking the risk is that sometimes those factors lead to market price increases. For an already producing asset, there is little risk that the actual cost of operating that asset will change very much, so price increases due to market conditions fall directly to the bottom line.
Fossil fuel companies have the necessary assets to make successful investments in nuclear energy wells. They can raise capital from investors that are comfortable with risk, work their way through the regulatory wickets, buy the steel and concrete, develop the necessary agreements with local governments and ensure that their suppliers meet exacting specifications. They live and breathe safety based on long experience with massive quantities of volatile materials. After their new energy wells begin operation, they can look forward to many decades worth of reliable production and sales – energy is not a fad and people will always find new ways to use whatever quantity is available.
Sea-going or floating nuclear plants are especially well-matched to the current infrastructure and skill set of fossil fuel companies. They will be produced in the same shipyards that currently produce off-shore platforms, tankers, support vessels, and barges. In some cases, the production platforms will closely resemble floating petroleum or natural gas processing plants.
There are increasing pressures on fossil fuel companies to slow or stop their contributions to greenhouse gas emissions. Fossil fuel companies can legitimately meet their fiduciary responsibility to maximize their investor returns by directing their capital budgets to a new generation of energy production and distribution capability.
That new energy production capacity should include:
- Systems using heavy metal fission to directly supply heat and power
- Installations that use fission to produce heat and power for synthetic fuel production that combines hydrogen from water and carbon that is captured from the atmosphere.
At Nucleation Capital, we are focused on investing in advanced nuclear energy, synthetic fuels and macro energy integration systems that can all help decarbonize our energy and power sources. The transition from hydrocarbons to clean energy will be challenging, but nuclear energy investments will enable its success with lower costs than attempting to complete the transition without nuclear energy.
If you are and accredited investor who is interested in opportunities in private companies in our target sectors, please make contact. We’re happy to help.