Renergen: Using helium to power vaccine transportation

Today we’re speaking to Stefano Marani in South Africa who is the CEO of Renergen, which is a natural gas and helium producer. Alan Kohler spoke to Stefano in the early part of March this year, so just prior to the COVID market crash. We thought we’d get him back on to discuss how the development of their deposit in South Africa is going and whether they’re still on track given what’s happened this year.

They have also just announced a helium powered transport solution for vaccines which they say simplifies the logistics of moving these vaccines at temperatures between negative 70 and negative 150 degrees Celsius for periods of up to 30 days. They filed for a patent for the rights to its design and the obvious question I ask is whether this will be applicable for the COVID vaccines.

Here is Stefano Marani, the CEO of Renergen.

Table of contents:
COVID impact on helium market
Cash position
Zero emissions solution for cold chain logistics
Expansion of N1 route for LNG
Helium powered transport for vaccines
Patent for design
Share price performance
Pipeline and outlook for 2021

Stefano, the last time you came on it was the beginning of March so pretty much the start of COVID in Australia so could you explain what you have seen happen in the helium market this year, has it been impacted much by COVID?

Overall I’d say yes, it probably took a little bit of the edge off the gap between supply and demand although that was relatively short-lived. I think we’re almost back to pre-COVID levels in terms of the gap between supply and demand and I think longer term that’s probably going to be exacerbated now because one of the things about helium is that the main sources of new helium really come from natural gas fields and the strain that COVID has had in terms of demand for LNG has meant that there has been even lower supply.

As some normality comes back to the helium market and you’ve still got this glut and reduction on demand on the LNG side where LNG hasn’t necessarily come back into play, you have had increased pressure in helium. All in all, I think the helium market is very quickly getting back to where it was pre-COVID levels.

Could you also bring us up to date on how things are going with your deposit in South Africa? Because last time you were on I think you were expecting phase one to be in production in the middle of next year so are you still on track for that?

Yeah. I’d be remiss to say that we weren’t impacted by COVID but I think we got off relatively lightly compared to a lot of other people. I think our original timeline of midyear next year has been delayed, we were probably somewhere around third quarter of next year which I think in the grand scheme of things is not bad going given the devastations that the lockdowns have had on supply chains globally so we are taking it on the chin but I think we got off relatively lightly compared to a lot of other people so we’re on track for third quarter of next year.

Could you explain more specifically what delays you’ve had or what issues you’ve had in your own supply chain just throughout this year?

Sure. A lot of the components that have ordered were being manufactured in European countries. Italy is a manufacturer of a lot of our equipment, Switzerland, some components are coming from the Czech Republic and it was the early lockdowns that took place in Europe that ended up delaying a lot of the delivery of some of this equipment into the main manufacturer in China. It’s one of those cases where you need the one component in order to complete the next set of components and that’s had the cascading effect in terms of the delay on the timeline.

Could you update us as well on your cash position, do you feel as though you’re in a comfortable position to get to that production phase in the third quarter next year cash wise?

Cash wise I think we’re still somewhere around $20 million AUD of cash on the books as it stands and then we have still got a further $7.5 million US of undrawn facility from the OPIC loan. All in all, we’re in a strong cash position.

You’ve had a few announcements over the last month but I’d like to start with the one regarding your development of a zero emissions solution for cold chain logistics. Could you explain the significance of this and how it works?

Yeah, this one we’re actually really proud of. When I explain to you what it is you’ll say it’s bleedingly obvious, why has no one done it before and the truth is I don’t actually have an answer for that but it’s really a great little innovation. The primary focus that we have from an LNG perspective and delivery of LNG from phase one in South Africa is using LNG as a substitute for diesel in trucks. In other words, we have got something like the world’s 11^th largest fleet of trucks in South Africa despite our economy only being 50^th largest and that really is a function of a non-operational railway.

You’ve got this huge number of trucks on the road and when you take a truck in with a very small conversion you can get a truck to run on dual fuel which is a combination of both LNG and diesel however in order to do so the LNG which is stored at minus 162 degrees Celsius needs to be brought up to room temperature before it can go into the engine block. What we did was that we moved the LNG tank from behind the truck cab to underneath the trailer that it’s pulling and this is obviously for cold chain trucks, trucks that are transporting food between the Western Cape and Johannesburg or Durban and Johannesburg.

We put the LNG tank underneath the trailer and there’s a thing called a vaporizer or a gasifier and it is basically like a really sophisticated car radiator. This car radiator takes LNG in at minus 162 Celsius, it uses ambient air to then warm up the gas, boil it and then you’ve got room temperature gas that goes into the truck. Normally what would happen is that the gasifier would be out in the open whereas what we did is that we put that gasifier inside the food box where you’re storing the food and all of that ambient that it sucks the energy out of is now where you are keeping your food and as a result, you end up with completely free cooling because you’re basically sucking the energy out of where the food is being stored at very low temperatures and you’ve got the LNG that’s used to power the truck which gives you completely free cooling.

The benefit is you’re now no longer using diesel to keep that food cold, the result is that you’re saving. To put it in context if you did this for 100 trucks the amount of diesel that you save on refrigeration for 100 trucks is equivalent to planting 300,000 new trees every year so it’s a formidable CO2 saving but also from a cost perspective, the savings are enormous.

Are you in the midst of rolling that out or where is that at in terms of trucks actually using it?

The trucks will only be able to use it when our plant comes into operation third quarter of next year. This innovation was only announced a few weeks ago so we’re now in the process of working with one of the largest trailer manufacturers in South Africa, Hendred, in figuring out the logistics for customers that would end up running this out when we turn our plant on next year.

There was also that expansion of the N1 route for LNG between Johannesburg and Cape Town. Could you also explain a bit about that and the benefit that provides?

This is a big one for us, this is a very big one for us. For the listeners that don’t know too much about South African geography you’ve got your three biggest cities, you’ve got Johannesburg which is the most populous of the three cities, then you’ve got Cape Town down in the Western Cape which I’m sure everyone knows and then you’ve got Durban. These three cities are joined by two highways, you’ve got the N1 which joins Johannesburg and Cape Town and you’ve got the N3 which joins Johannesburg and Durban. Previously we had started with doing a run just between Joburg and Durban to supply LNG for the trucks but working with our partners, Total, we managed to identify an additional location on the N1.

Now essentially our customers have the ability to run both the N1 and the N3 on LNG for their trucks. This means that not only do we have first-mover advantage in terms of those two main highways joining those cities but it means that we also have a much broader offering because there are a lot of trucking companies that would rotate their trucks between doing Cape Town/Joburg and then doing Joburg/Durban as well. If you’re only offering one route a lot of customers would find it very difficult to dedicate trucks to one single route alone.

Can we also get onto I think it was your most recent announcement about the helium powered transport solution for vaccines? Can you tell us a bit about that and what’s unique about your solution?

This one we’re really proud of. I’m sure everyone has seen in the press that with Pfizer and Moderna, and all of these MRNA based vaccines these vaccines need to kept at cryogenic temperatures so it’s a logistic nightmare. Can you imagine trying to keep a little vial at minus 70 degrees Celsius for the amount of time that it takes to move from point A to point B? If you’re moving it by road that’s all good and well because you’ve got diesel powered refrigeration units that will be able to get it down to that temperature but if you have to now try and put some of these things either onto a ship or onto an airplane you don’t have a mobile power supply that’s going to keep it at that temperature for that amount of time.

This is one issue that the world is grappling with at the moment. Dry ice is only going to give you a few days and at best you’re not even going to be able to get dry ice onto an airplane. Liquid nitrogen is not going to take you that far and liquid nitrogen is incredibly heavy as a substance so that’s also not going to work. The innovation that we came up with was to use helium to power a little suitcase which you could then put the vaccine into. The benefit that you have with helium is, not only does it start off at a temperature of minus 269 degrees Celsius but also helium is a fifth of the density of liquid nitrogen so you get an ordinately large of cooling power for something that doesn’t weigh very much.

Yes, whilst it is true that helium is somewhere between – let’s call it 50 and 100 times more expensive than liquid nitrogen in the grand scheme of things the cost of air freight to be able to move these vaccines dwarfs the cost of helium. We ran some simulations on moving a payload of let’s call it 1,000 vaccines from the United States due somewhere in Southern Africa and we got competitive results from multiple companies and the result was ultimately if you include the cost of the flights and then include door to door transport by some of these major courier companies and you factor in the cost of the helium that you need in order to power these cases that we designed you could deliver a single dose of vaccine for call it under $1 Australian Dollar per vaccine and that’s all your costs all in which we think is actually quite a remarkable feat.

Compare that to some of the logistics costs of just moving the vaccine around within the United States and I think we’re competitive even relative to that and we have managed to move it into the rural area. Where do we see the applicability? If you look at the World Bank, it currently estimates that around 44 per cent of the entire planet's population lives in rural areas, they need these vaccines. We’re talking about a logistical nightmare that’s going to take somewhere between three to five years to roll out vaccines to get to the entire world. Now that the vaccine is there this is not going to be something that midyear next year is going to be solved, this is going to be an ongoing problem for a really long time and we feel that what we developed is in some way going to assist the world in overcoming some of the challenges of getting cryogenic vaccines into rural parts of the world.

Are you in discussions with pharmaceutical companies or governments, or where is that process at?

We literally just filed the patent on that last week Tuesday so it’s all very fresh off the press. The approach that we’re taking is that we know we’re not the world’s biggest company, we’re a small-cap. To that extent we are not into posing ourselves as being everything to everyone, this is something that needs bigger balance sheets than we can throw at the problem and so we have reached out and we are playing open source with absolutely anyone who is willing to throw a much larger balance sheet towards construction of these cases and can roll it out a lot faster than we can, and to logistics companies out there, for example, the DHLs and the UPSs of this world, to use this case as a means of transporting the vaccine.

We have come up with a solution, ultimately we’ll start to supply the helium and we’ll make the helium available for the movement of these vaccines but it’s going to take a lot of collaboration as is overcoming this virus, this pandemic, it will take global collaboration and we’re calling on collaborators to come and assist us in rolling this out so that we can get this vaccine into rural parts. I use Africa as an example but South America and South East Asia are equally affected by moving vaccines in hot climates.

You mentioned briefly a patent, I think. How long is that expected to take for you to get a patent on the design of it?

I think that really depends on what the backlog is and also the effect the pandemic has had but from my understanding, it should only be a few months. That said I think what’s more important is we’re not going to wait until the patent is complete, we’re quite happy to just sign NDAs and work with whoever it is that’s going to come to the party and play ball with us in that regard. We have applied for the patents so the intellectual property is already protected.

Just a moment on your share price, like most of the market it crashed pretty hard in March, pretty much halving, but has recovered quite a lot in the past month. I know you’re probably not focussing as much on your share price but how do you think the market is reacting to your progress this year?

I think like any CEO it could always be better. I think with the potential for some good news coming out I think we’ve still got a lot of runway and potential upside if the results are as we hope and expect them to be. I think relatively speaking, relative to what we have already got proven underground and the potential for what could still be underground, especially if you look at our respective resources which at a U3 level is somewhere in the region of 470BCF helium which is gargantuan, I mean that’s the whole of North America and one or two other countries combined, and this is a little patch of dirt. I think that there is still, in my opinion, quite a lot of upside if a lot of this gets proven up.

I’d say the share price movement more recently is more of a function of certain markets returning back to normality and also more importantly more of an awareness globally with respect to helium and the fact that helium is as important as it is. It’s a case of a rising tide rises all boats and I think in part we experienced some of that but in part, a lot of it is also innovations that we come up with like the refrigeration for the trucks. I think that goes a long way to showing that we’re not just a one trick pony, we’re not just out there to go and drill a couple of holes in the ground and sell the company off to the highest bidder, we’re here for the long run, we want to build a sustainable business and we want to have a long delivery of LNG to reduce carbon emissions and also reduce truck running costs, and become a long term stable supplier of helium.

Just finally could you let us know what’s in the pipeline for the next 12 months and how you’re feeling about the helium market specifically, going into 2021.

I’m really encouraged, I think there are a lot of opportunities. 2021 I don’t think is going to be an easy year, I think it’s going to be more of 2020. I’m slightly less optimistic about the virus just disappearing so I think 2021 is going to present its own set of challenges, probably slightly different from 2020 but I think 2021 won’t be without its challenges so that’s the backdrop against which we’re expecting to go into 2021. From a company perspective, we are obviously really enthusiastic about the drilling program. I’d made mention and we had announced earlier that we have now mobilised multiple rigs so as it stands right now there are five drilling rigs out there so drilling progress should be a lot higher than it has in the past which is good and we’ll obviously update the market some time in January towards the back end of January with regards to what we’re finding and what gas strikes are looking like, etcetera.

The helium market, I can definitely see the helium market starting to hot up again and the other thing that’s worth also considering, and not many people really pay attention to this about the helium market, is rocketry uses an inordinate amount of helium, it really does. This is where Elon Musk has actually been pretty good, he recycles a lot of the helium in Space X’s launches but you obviously can’t recycle everything. Just to put it in context Falcon 9 used something like 2 million party balloons to get it up into the air. If you are launching an inordinate number of rockets and say for instance China has plans of launching something like 100 rockets in the next two years or something that is a lot of helium and they don’t recycle the helium in their technology.

There is a lot of helium that is just going to be released into the atmosphere and that will take a huge portion of the helium out of the market. You’ve got new projects coming online, big exciting projects like Qatar and out of Russia but I think that those are probably going to suffer some delays. We’ve been hearing all sorts of rumours in the market about when those projects will come online. I don’t see those projects coming online in the kind of timeframes that everyone is talking about and satiating demand. I think 2021 is still going to be a period of very constrained helium supply.

I do see exciting new uses for helium coming out, for instance, our cryovac solution for the vaccines, I do believe that that is a viable solution and probably one of the few solutions out there for mass transportation of the vaccine which will inevitably also end up putting some additional constraint on supply so I am relatively optimistic, I think 21 to 22 are going to be good years for the helium market.

Stefano, thanks very much for your time.

Thank you very much for having me.

That was Stefano Marani, the CEO of Renergen.