Reduced activity has left the oilfield service sector scrambling for new sources of revenue.
- One company, in particular, is looking to green energy applications using materials that have been primarily used in oilfield applications.
- The renewables and carbon capture technology it is developing that will provide another outlet for the materials it uses in oilfield applications.
The decline of the oilfield service sector (OFS) due to reduced activity in the past few years have required companies participating in this space to look for new sources of revenue. One such company, Tetra Technologies, Inc. (NYSE:TTI) is expanding its horizons to green energy applications with materials that have traditionally been used in primarily oilfield applications. For those who aren’t familiar with them. TTI has three legacy core businesses-
- Oilfield fluids, additives, and field service
- Frac water treatment and management services in the shale patch.
- Chemical manufacturing for industrial applications and for their own bromine supply.
The news of their partnership with EOS Corporation, (NYSE:EOSE) compels us to look at TTI through a new lens. That of a minerals and resource steward with significant reserves of key minerals- bromine and lithium that are finding new applications in the alternative energy economy. In the case we will discuss in this article, Flow Batteries play a role in the viability of the rapidly expanding installations of solar farms for industrial and residential electricity applications. When the sun doesn’t shine and the grid must be supplied, flow batteries are the technology that fill the gap.
You can read the press release for yourself, but I will summarize the key parts of what this partnership entails. TTI manufactures a chemical known as zinc bromide in their Magnolia, Arkansas facility. By manufacturing, I mean that TTI adds zinc oxide to elemental bromine to make the final product, ZnBr2. For the past forty years, the main application for ZnBr2 has been as a heavy completion fluid used in oilfield completion operations. ZnBr2 had a couple of attributes that made it attractive to use this way. One, it enabled a density of as much as 2.45 s.g. (Roughly two and a half times the weight of water.) Two, it lowered the true crystallization temperature, (TCT) –the eutectic point of a fluid where it begins a phase change from liquid to solid, of a brine fluid.
Those were the positive attributes. There were also some negative ones. The low pH of the fluid made it a weak acid and therefore it was risky to handle for field workers. To a large degree, proper preparation and personal protective equipment, (PPE) mitigated this risk, although you can probably imagine how miserable wearing a neoprene slicker suit in the Gulf of Mexico-(GoM) in summer can be. But that wasn’t the real problem.
Zinc is an EPA listed material and bioaccumulates up through the food chain. It is a known teratogen and therefore comes with strict discharge limitations. As a combination of risk to personnel, and the EPA reporting requirements, oil companies have been increasingly reluctant to use it. Several former manufacturers of ZnBr2 have withdrawn from the market as well. These actions have proved to be timely as alternatives to the use of zinc are now marketed.
So, the fact that a new use for ZnBr2 has come along is welcome news to TTI and could be an increasing source of revenue in the coming years.
The Zynth battery and EOS
The oil industry has long known that leaving zinc bromide as a packer fluid was a great way to have tubing failure or come back to the rotted casing in a couple of years. Zinc bromide is an electrolyte and readily enables ion transfer from metal into brine. Even with corrosion inhibitors applied, at elevated temperatures, zinc posed an unacceptable risk. There’s a lot more to the corrosion story, and we’re going to stop here on that subject.
But, that very characteristic is what makes ZnBr2 a powerful candidate for use in batteries designed to store power generated in daylight from solar arrays. When the sun goes down they then discharge this stored energy into the grid.
If you are struggling with the concept as described above, this graphic sums it up nicely. In between wind and solar are neat arrays of chemical batteries ready to kick in and deliver power when the wind fails to blow and the sun doesn’t shine.
There is some overlap between Li batteries and flow batteries as noted in the EOS graphic below. The point EOS is making here is that to accommodate the entire range of applications different technologies appear to be best suited for unique situations. The segment EOS has targeted is the standby commercial power segment.
So what is a ZnBr2-Zynth battery?
Traditional ZnBr2 flow batteries rely upon separate chambers to flow the ZnBr2 solution across membranes coated with zinc in the charge cycle. The ion transfer creates current which provides the electro-motive force for the discharge cycle. In graphic below EOS describes their static battery, marketed as the “Zynth,” as a step-change improvement over the flow battery.
Why ZnBr2 batteries? They come with a lot of pluses and a few minuses. On the plus side-
- 100% depth of discharge capability on a daily basis.
- Little capacity degradation enabling 5000+ cycles
- Low fire risk as electrolyte is non-flammable
- No need for cooling systems
- Use of low cost and readily available battery materials
- Easy of end-of-life recycling using existing processes
On the con side-
- Lower energy density than li-ion batteries
- Lower Round Trip Efficiency than li-ion (although this can be partially offset by the energy drawn from li-ion installations to run cooling systems).
- The need to be fully discharged every few days to prevent zinc dendrites that can puncture the separator.
- Lower charge and discharge rates than Li-ion
Now you will remember I said the market was segmented. Li-ion battery has been widely adopted for transportation. If you have any doubts about this just look at the 2-year chart on Albemarle Corporation, (NYSE:ALB), ranging from $56 in March of last year to as high as $280 last month. What the Zynth battery is particularly suited for is the deep discharge, daily cycling needed by solar and wind power installations for grid power.
Growth in solar power
The International Energy Agency, (IEA) has identified a sharp growth profile for installed photovoltaic power supporting the energy grid through 2026 and beyond. EOS estimates that their opportunity pipeline for the next for this period is a conservative $3.7 bn.
TTI is selling at $2.84 a share now, having declined from just over $4.00 a few months ago. The market is only valuing the ongoing completion fluid and water management businesses that are still viable but do not have the growth prospects of the solar applications. Even taking those businesses at current revenues, TTI should be selling for more than it is now. Their current valuation of $300 mm is only 75% of the ~$400 mm worth of revenue that TTI will generate this year.
TTI is also beginning to monetize its lithium resources, and that adds another lever to resource revenues. Their agreement with Standard Lithium, (NYSE:SLI), to extract elemental lithium from their Arkansas acreage, has provided a stream of revenue and stock that led to a ~$6 mm boost to the lagging oilfield EBITDA in Q-3. TTI gets paid for the lithium and bromine extracted, and gets shares of the SLI. No TTI capital is tied up here.
Going forward, it’s time to stop thinking of TTI as just another oilfield service company. They are also a resource company, and control resource assets in the form of elemental lithium and bromine that could one day bring $10’s of millions annually to the bottom line. The renewables and carbon capture technology they are developing that will provide another outlet for their calcium chloride, give them a broadening array of distribution channels into the green energy economy.