Quadrise Fuels International — Progress on bioMSAR development

bioMSAR – biofuel variant of MSAR

While the original MSAR is more environmentally friendly than heavy fuel oil (HFO), Quadrise went a step further with the launch of bioMSAR in December 2020. Results from tests on five tonnes of bioMSAR using a medium speed four-stroke Wärtsilä diesel engine by VTT in Finland, which were announced in August 2021, gave average CO2 savings of 26% on a well-to-wake basis compared with conventional diesel. Part of the CO2 reduction was attributable to an increase in engine efficiency of up to 7%. This result is better than the CO2 savings achieved with existing biofuels, which are typically in the region of 10–15%. NOx emissions were lower than for HFO and comparable to diesel. Smoke and particulate levels were very low, as were unburned hydrocarbons emissions, due to efficient fuel combustion.

In January 2022, Quadrise announced that further tests carried out on an engine at Aquafuel Research that had been modified to simulate larger, high-compression engines like the low-speed two-stroke engines used in the marine sector set showed that engine efficiency can be increased by over 13% by advancing injection timing, further reducing fuel consumption and CO2 emissions. Typically, higher engine efficiencies result in increased combustion temperatures and NOx emissions. However, it was possible to reduce the inlet air temperature with bioMSAR to the same level as with diesel, resulting in NOx levels around 45% lower than diesel fuel.

Quadrise plans to conduct further testing of bioMSAR with Aquafuel during calendar 2022 to fully define efficiency and emissions optimisation. Quadrise has jointly submitted an international patent application for bioMSAR with Nouryon, the supplier of surfactants used in the production process.

Marine programme with MSC Shipmanagement

Under a joint development agreement (JDA) with Quadrise, MSC Shipmanagement is to carry out a letter of no objection (LONO) trial of MSAR on representative commercial vessels in MSC's global fleet deploying either large MAN ME and/or Wärtsilä/WinGD Flex two-stroke engines. Originally, Quadrise expected that the two parties would carry out high-level scoping and feasibility activities and define a project roadmap during H1 CY21 ahead of one or more on-vessel trials commencing in Q4 CY21. However, the shipping line is an early adopter of environmental technology and currently uses 850,000 tonnes of biofuel annually, making it one of the largest consumers of biofuel in the marine sector. Consequently, as more details of bioMSAR’s performance were released, which was after the original agreement had been signed, MSC decided it wanted to fast-track Quadrise’s biofuel option. This decision has contributed to delays in the preparatory phase. The preparatory phase has also been held up by lack of availability of engine manufacturer personnel to review the initial results from the bioMSAR trials because of coronavirus issues and their engagement in the testing of multiple new low-carbon fuels, of which bioMSAR is one of the options.

Quadrise continues to work with MSC to finalise the LONO programme and commercial terms for the supply of bioMSAR. Assuming that these discussions conclude successfully, Quadrise expects preparations for the LONO trial to start in CY Q222, ahead of the trial starting by end CY 2022. At the time of the FY21 results in October, management believed that the earliest the 4,000-hour LONO trial would start would be mid-CY22. Management expects that the LONO trial will take around nine months to complete. As part of the LONO preparation, Wärtsilä Switzerland has scheduled tests of MSAR and bioMSAR in its optical combustion chamber for late CY Q222 followed by testing of bioMSAR on an injector wear rig at end CY Q322. These land-based tests do not need to complete successfully before preparations for the LONO can commence.

Converting oil from oil sands in Utah

Quadrise received crude oil samples from the Tar Sands II site in the Uinta Basin, Utah, where Greenfield Energy purchased an initial 10% stake, in August 2021. The subsequent tests confirmed that the sample could be converted to both standard MSAR and the bioMSAR variant for potential use in power and marine end-user applications domestically and internationally. Quadrise is currently working with TomCo Energy, which is the parent company of Greenfield Energy and with energy services company Valkor Technologies, which is a stakeholder in TomCo, to secure commercial opportunities for MSAR and bioMSAR in Utah. In February, TomCo announced that Greenfield had received the permits required to enable it to start drilling three exploratory wells in March.

In addition, Valkor is currently working with one of its clients elsewhere in the Uinta Basin which has started exploration drilling at its site and expects to start production drilling there this summer, assuming that it receives the necessary permits. This would result in oil being available for on-site trials converting oil to bioMSAR and MSAR during CY H222, potentially resulting in commercial sales by the end of calendar 2022, subject to commercial agreement. These timescales are similar to those given by Quadrise last October. Quadrise is confident that it will be able to convert oil from this alternative site to bioMSAR and MSAR because it is located close to the Tar Sands II site and the oil extracted will be from wells and therefore have much less sand in it.

Industrial applications with partner in Morocco

Quadrise continues to work with an international chemicals and mining group headquartered in Morocco, which is considering using MSAR as a substitute for HFO in some of its kilns. Quadrise had hoped to conduct a pilot trial at one of its partner’s sites (site A) in Morocco in March 2020, but COVID-19 restrictions meant that Quadrise’s personnel were not able to gain access to the site and successfully complete the trial until October 2020. An industrial-scale trial at a different site (site B) owned by the same partner has been delayed from early CY Q121 because of a combination of site access restrictions and a recent internal management reorganisation at the client. The new client team has yet to sign an updated agreement, pushing back the industrial-scale trial from CY Q122, as per Quadrise’s expectations in October, to CY Q222. Once the site B trial has completed, Quadrise intends to deliver the results and a feasibility study for MSAR use at site A to the client, so the commercial-scale trial at site A has been delayed from CY Q122/Q222 as anticipated last October to later in CY 2022, depending on the client’s maintenance programme. Assuming the trials complete successfully, management intends to conclude a commercial supply agreement covering one or more of the client’s sites in Morocco during H222, potentially leading to commercial deliveries by the end of calendar 2022.

Executive chairman Michael Kirk retired at the group’s AGM in November 2021 and non-executive director Laurie Mutch became interim chairman while the group looked for Michael’s successor. On 1 February 2022, Andy Morrison became non-executive chairman. Andy began his career at Royal Dutch Shell, where he spent 17 years in its oil products (including bunker fuel), lubricants and speciality chemicals divisions. His roles there included VP positions in sales, marketing, trading and strategy, spanning several continents. After leaving Shell, Andy held senior positions at BG Group and BOC Group in corporate strategy and new business development respectively. Since 2007 Andy has been involved with a number of junior listed companies including roles as chief executive officer of Xtract Energy and Silvermere Energy and non-executive director of Kanabo Group and Ondo InsurTech.

Following the resignation of former COO Mark Whittle in July 2021, Phil Hill was appointed to the post, which is not a board position, in January 2022. Philip is a chartered chemical engineer with more than 20 years of experience in fuels and chemicals manufacturing, sales and distribution for BP and INEOS. He has significant technical and commercial experience in production operations, technology licensing, asset optimisation, project development and strategic planning. Prior to joining INEOS, he managed and held directorships in a number of BP's joint ventures, where he worked to develop and license gas-to-liquids technology for downstream and synthetic biofuel applications, and to supply jet fuel to the airline industry.

Since Quadrise has yet to generate commercial revenues, its value resides in the potential future cash flows generated from volume production of MSAR and bioMSAR. As there is substantial uncertainty on when the various projects Quadrise is working on with its partners will progress to commercialisation, precluding the preparation of estimates, we presented a high-level scenario analysis in our November note based on data from the company, which we understand is derived from the numerous detailed case studies it has carried out for prospective clients. The analysis concluded that adoption across only 9% of MSC’s global fleet could generate around $84m in licence revenues and $13.8m in EBITDA and be transformational for Quadrise. The other two projects closest to commercialisation are smaller.