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Topsoe and Sasol forge SAF development partnership

The purpose of the Sasol Topsoe JV is to develop, build, own, and operate sustainable aviation fuel plants.

Sasol, the global chemicals and energy company, and Topsoe, a global leader in carbon emission reduction technologies, have signed a landmark agreement to establish a 50/50 joint venture (subject to approval by relevant authorities), solidifying their commitment to produce sustainable aviation fuels (SAF) and contribute to global efforts in combating climate change, according to a news release.

The purpose of the Sasol Topsoe JV is to develop, build, own, and operate sustainable aviation fuel plants, and market sustainable aviation fuels derived primarily from non-fossil feedstock, utilising green hydrogen, sustainable sources of CO2 and/or biomass with a specific focus on Sasol’s Fischer Tropsch and Topsoe’s related technologies. Together, this proven partnership intends to bring future-proof solutions to the market.

“Sasol is delighted to join forces with Topsoe, furthering our global sustainable aviation fuel aspiration. This is an important milestone in advancing our long-term strategy to become net zero by 2050. As we transform our business to focus on decarbonisation while preserving and growing value, this JV is testament to the decades of collaboration between our two companies,” says Fleetwood Grobler, Sasol president and CEO, highlighted the long-term ambitions of Sasol in sustainable aviation fuel.

Roeland Baan, CEO at Topsoe, adds, “As part of our proven partnership, this future business is an important moment of progress at a critical time. We need to keep the world open by creating more sustainable ways of flying, and our shared commitment to accelerating sustainable aviation fuels is a vital part of this. We believe no one is better placed than the company formed by Sasol and Topsoe to deliver the means to scale SAF production”.

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Cleveland-Cliffs submits application for front-end engineering design for large-scale carbon capture

The steel and iron ore company’s Burns Harbor project in Indiana aims to capture up to 2.8 million tons of CO2 per year from blast furnace gas with a net carbon capture efficiency of at least 95%.

Cleveland-Cliffs Inc. announced that its initial phase of research being conducted with funding from the U.S. Department of Energy’s (DOE) Office of Clean Energy Demonstrations (OCED) is coming to a close. Based on the results of the initial study, Cleveland-Cliffs has submitted an application on Monday, Dec. 5 for funding from the DOE’s OCED for the next phase of research for the front-end engineering design (FEED) for large-scale carbon capture at its Burns Harbor integrated iron and steel facility located in Northwest Indiana, according to a news release.

The company’s Burns Harbor project aims to capture up to 2.8 million tons of CO2 per year from blast furnace gas with a net carbon capture efficiency of at least 95%. The proposed FEED would be completed over a period of 24 months. The study would be funded 50 percent by Cleveland-Cliffs and 50 percent by the DOE through the Bipartisan Infrastructure Law appropriations, which is part of a broader government approach to fund domestic commercial-scale Carbon Capture and Sequestration technology.

Cleveland-Cliffs has existing technical partnerships with the DOE and is the only American steel producer participating in the DOE Better Climate Challenge initiative. The Company is the largest industrial energy user in the DOE’s Better Plants program. Through DOE’s Better Climate Challenge, organizations join a network of market leaders that are stepping forward to work with DOE to plan for their organization’s future success by reducing GHG emissions and sharing replicable pathways to decarbonization.

Cleveland-Cliffs is the largest flat-rolled steel producer in North America. Founded in 1847 as a mine operator, Cliffs also is the largest manufacturer of iron ore pellets in North America.

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LSB CEO Mark Behrman: new ammonia markets could reshape – and revalue – the company

We spoke to CEO Mark Behrman about his vision of the company’s future.

Oklahoma City-based ammonia producer LSB Industries wants to be a player in new markets for ammonia as they develop, and is nearing a deal to provide blue ammonia to an existing customer in its ammonium nitrate and nitric acid segment, CEO Mark Behrman said in an interview.

Though Behrman expects LSB’s sales mix to shift – and the company’s valuation to rise – as ammonia markets evolve, it is pursuing deals to furnish blue ammonia at a premium to customers in its ammonium nitrate and nitric acid segment, currently its largest portion of net sales.

LSB is developing a blue ammonia facility on the Houston Ship Channel with INPEX and Air Liquide, offtake contracts for which could push its earnings mix away from more volatile fertilizer markets and help revalue the company. It also has a partnership with Lapis Energy for the installation of a carbon capture unit at its ammonia production facility in El Dorado, Arkansas.

“Unlike a lot of our competitors, who are really known as fertilizer companies, half our business is non-fertilizer,” he said. “So we’re really familiar with the non-fertilizer markets and the pricing and contractual nature of those markets.”

The company is in talks with its mining and nitric acid customers – Covestro, Dow, BASF – about helping them lower their carbon footprint via blue ammonia so these customers can meet 2030 decarbonization goals, said Behrman, who hopes to announce a sizeable contract within the next several months, “obviously at some premium to the price that they’re paying today.”

As for what the blue premium will be, for some markets the formulation might come down to the required capital investments and the developer’s desired return.

“I want long-term cost plus offtake contracts so I could de-risk the volatility in any cost,” he said. 

By way of example, Behrman said, “If we’re selling to JERA, and we have a long-term contract, and it’s a cost plus, so natural gas and power plus, it might be at a healthy premium to the overall ammonia market, or it might be a discount to the overall market,” he said, “but basically we’ve built an annuity because we’ve got a long-term contract at cost plus, and lock in our return as long as we operate the plant well.”

‘Meaningful player’

Behrman, a former investment banker, recognizes that it’s a brave new world for ammonia – particularly clean ammonia – with demand expected to come from myriad new places like shipping and power production. “We want to be a meaningful player as the new demand develops for ammonia,” he said. 

But he believes the market will evolve more slowly than expected, noting that initial estimates even for Japanese offtake and use of ammonia have already been pushed back.

“I think in the earlier years, so call it ‘28, ‘29, even ‘30, you’re probably only going to have two or three offtakers out of Japan until the other ones come online.” Korea, on the other hand, might be faster due to its national incentive scheme, he said.

Meanwhile, in the last few months, LSB has had a lot of conversations with potential European offtakers as Europe’s carbon tax scheme and the Carbon Border Adjustment Mechanism (CBAM) take hold.

“Europe, while still significantly focused on green, has come to the realization that it’s an energy transition and not an energy revolution,” he said. “So I think that we’re looking at trying to secure some European offtake as well.”

Behrman believes that, over time, 400 million metric tons of new demand for ammonia could materialize – the current global market is around 175 million metric tons – but “it would take a lot of switching from hydrocarbons to ammonia, or to partial ammonia as a feedstock, and it’s going to take the marine industry to really ramp up.”

The principal gating factors, he said, are the infrastructure required to support the transition and parties coming together on price.

Mix shift

The Houston Ship Channel project could be a centerpiece in LSB’s efforts to expand into new markets and potentially transform the way the business is valued.

“As we think about where we’re going and our vision of really being a leader in the production of low-carbon products, I think you’ll start to see more of our production trend away from fertilizer and to existing markets that we’re in by broadening some of those markets, plus really focusing on taking advantage of some of these new markets,” he said.

One reason is for the stability of the contracts compared to fertilizer markets, he added, which feeds into the second reason: predictability of earnings could lead to higher multiples on LSB’s equity, akin to valuation multiples for Air Liquide, Linde, and Air Products. For reference, LSB’s equity trades in the mid to high single digits on an enterprise value to LTM EBITDA basis, while equities for the aforementioned companies trade in the mid to high teens.

On LSB’s most recent earnings call, Behrman detailed some of the expected economics from the Houston Ship Channel project as well as the in-development blue ammonia facility in El Dorado, Arkansas. He expects to add roughly $150m of EBITDA each year from the Houston Ship Channel project and $15m – $20m of EBITDA annually from the carbon capture installation in Arkansas.

Behrman clarified in the interview that the $150m figure assumes 100% ownership of the facility, and that LSB’s ultimate ownership would come in the 45% – 49% range.

LSB is expecting to finish the pre-FEED study for the project in July or August of this year, at which point they would elect to proceed with a FEED study that would finish around September, 2025.

The company will use a project finance model to fund the project, and recently ran a process to select a banker, the terms of which are still being negotiated. Behrman declined to name the advisor.

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American Airlines invests in hydrogen-electric engine developer

American Airlines has invested in ZeroAvia, a leader in hydrogen-electric, zero-emission aviation.

American Airlines has invested in ZeroAvia, a leader in hydrogen-electric, zero-emission aviation, according to a press release.

In addition to the investment, a memorandum of understanding provides American the opportunity to order up to 100 engines from ZeroAvia’s hydrogen-electric powertrain development program. The engines are intended to power regional jet aircraft with zero emissions.

“Our investment in ZeroAvia’s emerging hydrogen-electric engine technology has the potential to play a key role in the future of sustainable aviation,” said Derek Kerr, American’s chief financial officer. “We are excited to contribute to this industry development and look forward to exploring how these engines can support the future of our airline as we build American Airlines to thrive forever.”

ZeroAvia is working to achieve certain type certifications of its innovative propulsion technology that will pave the way for the engines to be incorporated into the regional jet market in the future. The ZA2000-RJ powertrain is anticipated to enable passengers to fly in zero-emission regional jets as early as the late 2020s.

“Having support from the world’s largest airline is a strong indication of the progress we’re making on the development of hydrogen-electric, zero-emission flight,” added ZeroAvia Founder and CEO Val Miftakhov. “We are focused on delivering sustainable travel, and are delighted that American, a visionary leader in the industry, sees ZeroAvia as a part of the future of aviation.”

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IPP retains banker for California plant sale

An independent power producer has retained a banker for a sale of a decades-old gas plant in California. Aging gas plants have been in the sights of clean fuels developers looking to retrofit or use facilities for clean fuel production and combustion.

GenOn, an independent power producer, has hired Solomon Partners to sell a 54 MW gas plant in California, according to sources familiar with the matter.

The plant, Ellwood, is located in Goleta, in Santa Barbara County, and was shuttered and retired by GenOn as of 2019. It reached COD in 1973 and ran two Pratt & Whitney FT4C-1 gas turbine engines.

Ellwood previously interconnected via Southern California Edison, a utility that is pursuing multiple natural gas decarbonization projects, including a hydrogen-blending initiative with Bloom Energy.

A teaser for the sale of Ellwood, which was issued last week, notes there is an opportunity to install a battery energy storage system at the site, one of the sources added.

Elsewhere in California, investment firm Climate Adaptive Infrastructure and developer Meridian Clean Energy are seeking to demonstrate decarbonization in peaker plants at the much newer gas-fired Sentinel Energy Center. Their plans include hydrogen blending.

GenOn declined to comment. Solomon Partners did not respond to requests for comment.

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Exclusive: Riverstone Credit spinout preparing $500m fundraise

Breakwall Capital, a new fund put together by former Riverstone Credit fund managers, is preparing to raise $500m to make project loans in decarbonization as well as the traditional energy sector. We spoke to founders Christopher Abbate and Daniel Flannery.

Breakwall Capital is preparing to launch a $500m fundraising effort for a new fund – called Breakwall Energy Credit I – that will focus on investments in decarbonization as well as the traditional energy sector.

The founders of the new fund, Christopher Abbate, Daniel Flannery, and Jamie Brodsky, have spent the last 10 years making oil and gas credit investments at Riverstone Credit, while pivoting in recent years to investments in sustainability and decarbonization.

In addition to bringing in fresh capital, Breakwall will manage funds raised from Dutch trading firm Vitol, for a fund called Valor Upstream Credit Partners; and the partners will help wind down the remaining roughly $1bn of investments held in two Riverstone funds.

Drawing on their experience at Riverstone, Breakwall will continue to make investments through sustainability-linked loans across the energy value chain, but will also invest in the upstream oil and gas sector through Valor and the new Breakwall fund.

“We’re not abandoning the conventional hydrocarbon economy,” Flannery said in an interview. “We’re embracing the energy transition economy and we’re doing it all with the same sort of mindset that everything we do is encouraging our borrowers to be more sustainable.”

In splitting from Riverstone Credit, where they made nearly $6bn of investments, the founders of Breakwall said they have maintained cordial relations, such that Breakwall will seek to tap some of the same LPs that invested in Riverstone. The partners have also lined up a revenue sharing arrangement with Riverstone so that interests are aligned on fund management.

The primary reason for the spinout, according to Abbate, “was really to give both sides more resources to work with: on their side, less headcount relative to AUM, and on our side, more equity capital to reward people with and incent people with and recruit people with, because Riverstone was not a firm that broadly distributed equity to the team.”

Investment thesis

A typical Breakwall loan deal will involve a small or mid-sized energy company that either can’t get a bank loan or can’t get enough of a bank loan to finance a capital-intensive project. Usually, a considerable amount of equity has already been invested to get the project to a certain maturity level, and it needs a bridge to completion.

“We designed our entire investment philosophy around being a transitional credit capital provider to these companies who only needed our cost of capital for a very specific period of time,” Flannery said.

Breakwall provides repayable short-duration bridge-like solutions to these growing energy companies that will eventually take out the loan with a lower cost of capital or an asset sale, or in the case of an upstream business, pay them off with cash flow.

“We’re solving a need that exists because there’s been a flock of capital away from the upstream universe,” he added.

Often, Breakwall loan deals, which come at pricing in the SOFR+ 850bps range, will be taken out by the leveraged loan or high yield market at lower pricing in the SOFR+ 350bps range, once a project comes online, Abbate said. 

Breakwall’s underwriting strategy, as such, evaluates a project’s chances of success and the obstacles to getting built. 

The partners point to a recent loan to publicly listed renewable natural gas producer Clean Energy – a four-year $150m sustainability-linked senior secured term loan – as one of their most successful, where most of the proceeds were used to build RNG facilities. Sustainability-linked loans tie loan economics to key performance indicators (KPIs) aimed at incentivizing cleaner practices.

In fact, in clean fuels, their investment thesis centers on the potential of RNG as a viable solution for sectors like long-haul trucking, where electrification may present challenges. 

“We are big believers in RNG,” Flannery said. “We believe that the combination of the demand and the credit regimes in certain jurisdictions make that a very compelling investment thesis.”

EPIC loan

In another loan deal, the Breakwall partners previously financed the construction of EPIC Midstream’s propane pipeline from Corpus Christi east to Sweeny, Texas.

Originally a $150m project, Riverstone provided $75m of debt, while EPIC committed the remaining capital, with COVID-induced cost overruns leading to a total of $95m of equity provided by the midstream company. 

The only contract the propane project had was a minimum volume commitment with EPIC’s Y-Grade pipeline, because the Y-Grade pipeline, which ran to the Robstown fractionator near Corpus Christi, needed an outlet to the Houston petrochemical market, as there wasn’t enough export demand out of Corpus Christi.

“So critical infrastructure: perfect example of what we do, because if your only credit is Y-Grade, you’re just a derivative to the Y-Grade cost of capital,” Abbate said.

Asked if Breakwall would look at financing the construction of a 500-mile hydrogen pipeline that EPIC is evaluating, Abbate answered affirmatively.

“If those guys called me and said, ‘Hey, we want to build this 500-mile pipeline,’ I’d look at it,” he said. “I have to see what the contracts look like, but that’s exactly what type of project we would like to look at.”

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Mobility solutions provider to raise up to EUR 200m

Quantron, the German and US-based mobility solutions provider, is set to launch a capital raise that could entail the sale of up to 20% equity.

Quantron, the German and US-based mobility solutions provider, is set to launch a capital raise that could entail the sale of up to 20% equity, according to three sources familiar with the matter.

The company is seeking between EUR 150m and EUR 200m in the process, the sources said, implying a valuation of up to EUR 1bn.

Quantron, which recently expanded into North America with the opening of an office in Detroit, will also consider debt as a part of the raise, one of the sources said.

At a ceremony at the Delegation of German Industry and Commerce (DGIC) in Washington D.C. on 12 October, Quantron signed a deal to supply TMP Logistics with 500 Class 8 trucks. The trucks will be operated by Quantron’s as-a-service (QaaS) vertical; they are scheduled for delivery in 2024.

Quantron AG CEO Michael Perschke told ReSource at that event that the company is in discussions with US investors about the capital raise, which has not formally launched but is tentatively scheduled to wrap up in 2Q23. Quantron is also in pre-closure discussions with several US law firms.

A fourth source said Quantron has worked with Danish consulting firm Ramboll Group on past deals.

Perschke said his company has relationships with PwC and EY, the latter especially on IPO readiness.

Quantron in September closed on a EUR 50m Series A with NASDAQ-listed Ballard Power Systems and German machinery manufacturer Neuman & Esser as investors.

Looking forward the company would like to work with a US strategic or private equity interest committed to hydrogen.

Utilities or corporates investing in hydrogen production but still building out the offtake structure would be of interest to Quantron, Perschke said. He noted that private equity interest like Ardian’s HY24 and Beam Capital are also active in the space.

Quantron is in the final stages of a deal with an oil company that Perschke declined to name, but said the company has 2,000 fueling stations across Europe that they are considering for conversion to hydrogen.

Perschke said his company plans to build out its presence in California and then could look for expansion in the northeast, Gulf Coast or Canada. The company aims to be an early mover in US hydrogen-fueled long-haul trucking along with peer Nikola Motor.

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