I came across this Alan Kohler interview with Geoff Ward published in late August. Key to note, the heat exchanger delay will drag the CDP well into 2023, he said. We need a proper update asap about why that is, given that a heat exchanger apparently isn’t rocket science.
He gave a couple of new insights, e.g. re the “graphite” - that it’s somewhere between highly-crystalline and amorphous carbon black (adjustably), and that applications also include fertiliser / bio-char, which presumably could be huge for low-grade carbon. He thought Hazer will be relatively easier to scale up than pyrolysis with molten salt, the catalyst used by competitor C-Zero.
www.eurekareport.com.au /investment-news/hazer-pitches-low-emission-hydrogen-from-methane-gas/151612
Hazer Pitches Low-Emission Hydrogen From Methane Gas
Alan Kohler, 19-24 minutes 23/08/2022
Alan Kohler here and I’m talking to Geoff Ward who is the CEO of Hazer Group, which is a company that’s got technology that involves making hydrogen and carbon from methane gas and they use iron ore as a catalyst. But Geoff is finishing up soon, he’s been there for four and a half years as CEO and he’s moving on and a bloke named Glenn Corrie is taking over in October. Anyway, that’s probably neither here nor there. Hazer is building a commercial demonstration project in Western Australia, been hit with delays because of a failure of some equipment there and it’s also trying to build a full plant in Vancouver in Canada.
It’s got some support from a couple of large companies and it’s got a fair bit of cash in the bank. It’s still obviously burning cash, it’s a pre-profitability business, but it seems to have enough money to get through the valley of death, says Geoff Ward.
So, here he is, Geoff Ward, the CEO, still, of Hazer Group.
Geoff, I suppose we should deal with your own position to start with. You’ve resigned and you’re finishing up in October, is that correct?
In October, yes, Alan. This was part of a planned transition that was driven both by myself and the board, and so it was very much about what’s the right thing for the company for its next Hazer development. I’m coming up to my fifth AGM this year which is, I think, a reasonable run for a pre-revenue company. There’s a lot of quite intense work in running a pre-revenue company, in funding it and driving that mission. I’m very proud of how far we’ve come over the last four and a bit years, from a pilot that was only just starting to produce some results, to now a demonstration plant which has suffered some delays, but is now completed construction and is waiting its last pieces of equipment to get fully into operations in the next year. Also, with the emerging partnership with Suncor and Fortis in Canada showing a path beyond the valley of death, as it’s called, from your demonstration into your early commercial expansion.
So, we figured it was a good time for a transition. From a personal perspective, I’ve been leading the company from the east coast which made a lot of sense when we’re building collaborations with Arena, with the Australian government stakeholders in the last couple of years and with investors on the east coast, as well as with partnerships in Canada and Japan. But from a personal perspective, I felt it was very much time that the CEO was on the ground leading the team and really supporting them through the difficult build-out phase, scale up and design phases as we scale up, the challenge of which shouldn’t be overlooked.
I thought it was really time for that person to be based in Perth, which from a family perspective wasn’t possible for myself. So it was a really good time to find the next leader and I think with Glenn we found an outstanding executive…
Tell us about Glenn Corrie, your replacement.
Glenn has a background in the energy industry, he’s a former senior Shell executive across commercial and technical areas. He’s then gone onto work for both private equity firms, sovereign wealth fund having spent some time with Temasek in Singapore, and then has led ASX-listed companies before in the small oil and gas area, having worked for Ophir which is London-listed and Sino Oil & Gas which was ASX listed.
What’s he been doing lately?
He’s currently an advisor to and director of the State Oil Company in Suriname in South America. And so, I’ve agreed to stay on from June through to October while he works out his transition in South America.
Right, and then he’ll come and live in Perth?
Yes, he’s a Perth resident, Perth’s home to him, so he was looking for an opportunity to live in Perth. I lived in Perth for 14 years, but that was over a decade ago and with my family we made the decision that as much as we loved life in the west, it wasn’t right for our family to move from the east back to the west.
Fair enough. As you mentioned, it’s pre-profit company, so tell us what the cash burn rate is at the moment and how much you’ve got in the bank?
All right, we’re lucky that we’ve built a really strong funding platform. Our cash in the bank as at 30th of June – and this will obviously go out with our annual results in the next 10 days -- is just a fraction over $18 million and we’ve also diversified our funding base as well as our cash. We also have a $6.5 million senior secured debt facility which we will draw down and that’s secured against our future R&D tax incentive rebates. We are in the position to receive, over the next two years, somewhere around about $10 million of R&D tax incentive rebates and so we’ve got a debt facility we can use to call them down as we need them.
Also, we’ve been well supported by Arena, where we won up to $9.4 million of funding from Arena to support the development of the Woodman Point demonstration project in Perth. We’ve also been lucky enough to secure up to $8 million of funding to support the development of the next project, the Burrard Hydrogen Project that’s under development in the Greater Vancouver area in British Columbia. So, our cash is a fraction over $18 million as we go into this new financial year.
How much are you burning?
Our burn rate on core activities is typically around about $5-6 million a year as we’ve started to develop additional projects and really invest in our technology development. That will go up to around about $9 to $10 million a year when we’re fully operational at the demonstration project. We’re operating a cold testing phase at the moment, but when we get to full hot continuous operations over the next year, then our burn rate will go up. But we’re well funded to take us through this initial operation of the CDP, the demonstration project and continue to support the pre-FID activities of our Canadian project.
You mentioned that the commercial demonstration project has had a delay, from what I can read from your announcement on the matter, the heat exchanger blew up, is that what happened?
Not blew up, because it wasn’t under any pressure under load, but it failed during heat treatment. So, maybe a little bit of context. We took the investment decision on the demonstration project in June 2020 and we set ourselves a really challenging schedule which would see us be in operations by around about mid-2022, so we’re aiming somewhere between March and June 2022, so about now. That schedule was very demanding given the interruptions we saw with COVID. It was slower to get materials from international lenders and it was also a challenging environment to do construction because being in WA with borders closed, access to the resources you needed when you need it has been challenging and that’s everyone from small projects like ourselves to major operators like the iron ore miners and big oil and gas guys. So, our schedule had already slipped back from early 2022 to mid-2022. Unfortunately, we’ve had actually two issues related to fabrication of high temperature equipment in the special alloy that we’re using to be able to withstand the process conditions we need and we initially had an issue with a reactor shell. The main reactor shell had a quality issue when it was being forged in China and therefore it had to go through a re-manufacture process and that’s still ongoing.
Then secondly, the high temperature heat exchanger, so the piece of equipment which cools down the gas and graphitic carbon that leaves the reactor so we can separate it and process them further, it was being heat treated, so they’d been fabricated in Australia and was being heat treated before final delivery and there was a failure of the metal during heat treatment. All in all, that’s delayed us quite substantially. We’re still working through the revised schedule because we’re still identifying the root causes of the failure of the heat exchanger so that we understand that if we have to alter any of the procedures or processes in its re-manufacture.
And so, we’re still working through before we can update shareholders with an advised schedule, but we anticipate it will be well through 2023 before that is achieved. And so, very disappointing that that’s happened to us. It’s probably key to note that it’s been a delay due to the failure of suppliers and manufacturers who are supplying high temperature equipment to us. It does reflect the complexity of some of this equipment, but none of this equipment has actually failed in our process operating on our site, they failed while being manufactured, the defects were discovered while they were being manufactured before they were delivered to us.
You better explain to us what the Hazer process is.
Hazer is a technology development company, we want to develop low emission technologies, the technologies needed for the energy transition and then licence them to large companies like Suncor, like large utilities in Europe or Asia or large industrial companies who need to decarbonise their operations, whether that’s heat and power, whether that’s industry and petrochemicals, whether that’s production of ammonia, urea or steel. And so the Hazer process is our primary focus, our core technology, and it’s a methane pyrolysis technology. Methane pyrolysis is a process by where you take a gas, natural gas which is predominantly methane, we mix it with iron ore as a metallic catalyst, so with powdered iron ore, we heat it under a mildly elevated pressure in a fluidised bed reactor and that causes the methane to crack and produce two hydrogen molecules and a solid carbon particle.
That solid carbon particle aggregates together to form a black high-carbon purity, around about 90 to 95 per cent pure carbon, which is quite graphitic in nature and which we think we’ll be able to find commercial sales of.
Is it actually graphite?
It’s not fully graphite, it’s graphitic, it’s crystalline and it’s not amorphous, but it sits somewhere between being a full finished graphite and being amorphous carbon black, and we think we’ll be able to find applications for it across both graphite, carbon black and other carbon advanced material applications.
Okay, take us through the business model then, what sort of cost of hydrogen does it produce?
Well, that will depend on the cost of gas which has been very volatile at the moment and varies enormously from somewhere like Canada which doesn’t have an LNG export industry, so it’s still in a low-cost gas world through to if you’re doing it in Europe or Japan where it would be a lot more expensive. We’re targeting hydrogen supply costs in that $3 to $5 range as we scale up and we anticipate…
Including the cost of the gas?
Including the cost of the gas, that’s where our long-term target has to be because that’s sort of what the industry studies show hydrogen has to be cost-competitive in the long-term, the 2035 to 2040 and beyond. We think we can achieve that through economies of scale, through building bigger units so you have more efficient capital costs, more efficient operating costs. We think we’ll also continue to see, obviously, developments in our process as we go from demonstration project to first small commercial project and beyond. We’ll typically see costs come out of a process technology, the same way they’ve come out of LNG, oil refining, plastics manufacturing, they’ve all followed a cost curve of decreasing costs with scale.
Are you building something in Vancouver as well now?
We’re not yet building but we have in development a project, the Burrard Hazer Hydrogen Project, which is a plan of 2,500 tonne per annum facility. That’s 25 times larger than the 100 tonne per annum facility that we’ve just completed construction of at Woodman Point in Australia.
Is the one in Vancouver then a demonstration plant or an actual commercial plant?
It’ll be a first small-scale commercial plant is our hope and our intention. Canada’s a great location because it has a strong low-carbon fuel standard regime, so there’s a good price for hydrogen and demand for it from customers who need to meet a certain amount of low-carbon fuels within their business. It’s an area that has an efficient electrical grid with a low carbon intensity, so we can buy renewable electricity to power our process, further reducing our already low carbon emissions. And it’s also a place where we can access competitively priced gas because their gas market is primarily domestic, they don’t have a link to the currently elevated global prices. The intention of us and partners in Canada, that’s Suncor and Fortis, is that this will be a small commercial operation.
Right, okay, but what margin do you think you’ll get?
It’s still a first-of-its-type project and so it’s too early for me to talk about that ahead of my partners talking about it, so we’ll still be seeking support from the Canadian government to help fund that project to address its unknowns and the fact that it’s the first of its type, first of its scale, and so I’m not able to talk about margins at this stage.
Can you talk about the patents you’ve got?
Absolutely. So, we’re pursuing – our core patent family is around both the unique carbon materials that we produce, but primarily around the Hazer process itself, the process for making a low-emission hydrogen from hydro-carbon gas using iron ore as a catalyst. And so, we’ve been pursuing three patent families across over 20 international jurisdictions, Asia, Europe, Russia and Central Asia, so the ‘-stans’, Singapore, New Zealand, Australia, South Africa, Japan, Korea, the US, and we’ve been sequentially securing patent rights across those countries.
We’re very pleased to report just in this last year that we secured the US patent for our core Hazer process patent and that builds on securing patents in Singapore, Russia and Central Europe, South Africa, New Zealand, Australia previously and we’re continuing to go through the patent process in the remaining countries that we’ve targeted. We’re very pleased to say that we haven’t lost the patent process yet and we haven’t had one yet disallowed, so we’re continuing to use that as one part of our IP strategy. The other parts are know-how and experience. We’ve learnt so much from the demonstration plant at Woodman Point, through our R&D program we’re also developing some really deep knowledge about what makes the catalyst work and what makes one iron ore more effective than another as a catalyst. And so, we’ll build an IP Protection strategy that relies not just on patents but also on trade secrets and know-how.
I guess you’ve concluded that the thing is viable. It will be viable, is that right?
It will be viable, we believe, at larger scale, and in this way we’re really following the path of probably the leading methane pyrolysis company, a company called Monolith Materials that’s around about a generation ahead of us in Nebraska. Methane pyrolysis has become a bit of a hot topic in the last three to five years and there’s been various proponents of technologies like Hazer’s popping up in Canada, in New Zealand, in Europe, in the US. I’d say that we’re one of the world’s two leading examples along with Monolith in the US.
Does Monolith use iron ore as a catalyst?
No, Monolith is not a catalytic pyrolysis process. You can do methane pyrolysis using a catalyst that we do and we think our process has a number of advantages because the catalyst is cheap and readily available and the catalyst makes the process less energy intensive. Other methane pyrolysis technologies like Monolith as heading down the processes such as plasma or liquid metal molten salt catalytic processes and we think that those processes either will be harder to scale or are harder to operate than the path that we’re taking. If I sort of look at Monolith as an example, they’ve just conditioned in the last year, their first small commercial plant, around about 4,000 tonne per annum capacity.
So you can see that’s quite similar to what we’re planning in Canada and they’re already talking about the fact that they want to expand, or the next generation, they’re looking at 20-30,000 tonne per annum plans to really become economically efficient. We expect that our process will follow similar lines.
But are you absolutely sure that your process is going to be more cost effective and competitive against water electrolysis?
In some parts of the world, absolutely. In other parts of the world, electrolysis will be really difficult to beat. We don’t see ourselves as competing with electrolysis but being complementary to it. Our process can produce a similar emissions profile to electrolysis but it has different needs. What do I mean by that? So, for electrolysis it works really well where electricity is really cheap and is really low emissions, because it takes about six to seven times as much power to produce a kilogram of hydrogen by electrolysis as it does for us to produce a kilo of hydrogen from a gas feedstock.
That means if you’re in a situation where your access to renewable energy is limited, then you can produce a lot more hydrogen at similarly low emissions using methane pyrolysis than you can using electrolysis. So, electrolysis will work in Spain, in Algeria, Mexico, maybe in bits of Texas, in the Northwest of Australia, in Queensland… There’s some great opportunities. But then the hydrogen will need to be transported a long way which in itself is energy intensive and in itself requires the development of infrastructure, new technologies and added cost.
On the other hand, if you’re somewhere where you have limited access to renewables and that brings to mind places like France, Germany, the Scandinavian countries, the Netherlands, the Northeast of the US, large parts of Canada, but you have access to gas, then you can make hydrogen at low emissions using pyrolysis where it’s needed and at a much lower overall energy burden because you’ve already got the gas there, you produce the hydrogen close to where it is so it doesn’t have a transport leg and you’re using less energy in the production. There’ll be large markets where electrolysis is overwhelmingly the cheapest and there’ll be also large sectors of the market where electrolysis is not the cheapest, where other technologies will come into play. And this is where we see technologies like ours are very much seen as complementary to electrolysis by large international utilities and industrial conglomerates who’ve really understood what they need in what location to overall drive their decarbonisation strategy.
Does your business model show that you actually have to sell the carbon or will it work with just selling hydrogen?
I think at scale we would anticipate that the carbon is just used in very much low-value bulk uses and that could be lending into building materials or even as a, in the future, a biochar or fertiliser or even just disposed of. So, at small scale, we would look to create high-value carbon opportunities and use that to offset the higher cost you get from operating at small scale. So, yeah, one business model could see us doing small Hazer plants, maybe a couple of thousand tonnes attached to bio-gas so it was carbon negative, intensely sustainable, circular economy type businesses where you produce hydrogen for local transport and you produce carbon for high-value local manufacturing. That’s one business model and in that model I could see Hazer owning small facilities and really leveraging our carbon R&D program.
At the other end, where Hazer is integrated with utilities, with steel works, with ammonia or urea plants and where the demand for hydrogen runs into the hundred or thousands or more tonnes a year, and so you’re producing millions of tonnes of carbon, then you’re likely to be able to get low price purely through economies of scale and in that case the carbon would just be a form of solid state sequestration. You’d be trapping the carbon in as a solid that’s chemically stable for literally millions of years and being able to dispose of it much more cheaply than capturing CO2, liquifying that CO2 and then doing reinjection of the CO2.
Well thanks very much, Geoff, that’s great, we’ll keep in touch and interview Glenn Corrie when he takes over.
All right, Alan, always a pleasure to talk to you and thanks for having me on the podcast today.
That was Geoff Ward, the CEO of Hazer Group.
(20min delay)