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  • Yves Siegel

Market Commentary: Natural Gas Can Provide Carbon-Free Electricity


We recently hosted a fireside chat with Danny Rice and Akash Patel, CEO and CFO, respectively, of NET Power Inc. (NYSE: NPWR). A year ago, we chatted with Danny’s brother, Toby Rice, CEO of EQT Corp. (NYSE: EQT), the largest U.S. producer of natural gas, and covered similar themes. Both Danny and Toby strongly believe in the role that natural gas can play in reducing greenhouse gas (GHG) emissions. Toby famously coined the phrase, “Unleashing U.S. LNG.” Conceptually, U.S. LNG can reduce carbon emissions by displacing global coal-generated electricity. Danny is taking that to the next level by leading a company, NET Power, developing a gas-fired power plant that generates clean power with de minimis emissions.

Our goal in hosting a webinar with Danny and Akash was twofold:

  • Firstly, to emphasize that natural gas is not a transition or bridge fuel. Rather, natural gas should be viewed as part of a permanent solution to achieve net zero emissions.

  • Secondly, to learn more about NET Power. Overall, NPWR’s investment thesis aligns well with SAM Partners’ portfolio strategy and view that natural gas should be viewed as a complement to renewables as we strive towards decarbonization.

We believe that NPWR is a compelling investment opportunity with a leader that has an enviable track record of making money for investors. Danny has already had a remarkable career, having founded Rice Energy and Rice Midstream and selling those entities to EQT and EQT Midstream for more than $10 billion combined. Danny then invested in and oversaw the sale of Archaea Energy, a publicly traded renewable natural gas company, to BP for over $4 billion. Thank you for that one Danny!


1. Investment thesis: Delivering the energy trifecta. NET Power is developing a utility-scale power plant that can generate electricity with practically zero carbon emissions and competitive costs by using responsibly sourced natural gas (RSG).* The NET Power Cycle technology is potentially a game changer and checks all the boxes: it generates clean, low cost, and reliable energy or as Danny Rice states, “the energy trifecta.” In fact, NPWR can potentially deliver the lowest cost and lowest emissions of any competing power source. (Nuclear can generate marginally cleaner energy but at a much higher cost. Please see chart below.)

Source: NET Power Second Quarter 2023 Results presentation August 2023 1. Lazard, Boston Consulting Group, NPWR management estimates, 2. United Nations Economic Commission for Europe, National Renewable Energy Laboratory, NPWR management estimates, 3. U.S. Environmental Protection Agency, 2021, 4. National Renewable Energy Laboratory, NPWR management estimates, 5. Enverus Intelligence

*RSG is natural gas that has been certified by a third-party assessment that molecules were produced under environmental best practices (e.g., minimizing GHG emissions, water usage, etc.).

2. Proprietary technology with a moat built around intellectual property patents. The NET Power Cycle technology uses natural gas and oxygen as inputs. An air separation unit separates oxygen from air and eliminates air pollutants such as sulfur oxides (SOX), nitrogen oxides (NOX), and particulates. The natural gas and oxygen combine creating CO2 and water vapor. Simplified, the CO2, in a super critical state, turns a turbine that creates electricity. The CO2 is repressurized and recirculated and a portion is exported for sequestration or commercial use such as enhanced oil recovery. (Please see chart below).

Source: NET Power Second Quarter 2023 Results presentation August 2023

3. Strategic partners provide expertise, capital, and credibility. Occidental Petroleum is NPWR’s largest shareholder and brings CO2 transportation and sequestration expertise to the platform. Baker Hughes is developing the turboexpander to be used in future facilities. Constellation Energy, a clean energy producer, provides operational expertise to the enterprise. Finally, SK Inc., a publicly traded South Korean investment company controls 8 Rivers Capital, founder of NET Power, that can provide project development support. Additionally, SK can be instrumental in commercializing NET Power Cycle in Asia.

4. Demonstration plant validates technology. The NET Power Cycle technology was validated at a 50 MWth demonstration plant in La Porte, Texas. The plant was commissioned in 2018, was connected to the Texas grid in 2021, and has over 1,500 operational hours. NPWR’s next step is to prove the technology in utility scale operation.

5. First utility-scale plant planned for startup in 2026. NET Power will build its first 300 MWe utility-scale commercial plant at an OXY hosted site in the Permian Basin of West Texas. The plant will provide electricity to OXY’s Direct Air Capture (DAC) facility that removes CO2 from the air. DAC technologies extract CO2 directly from the atmosphere at any location.

6. Asset-light business model. NPWR’s primary revenues will be derived from license and royalty fees from customers that will develop, own, and construct NET Power Plants around the world—NPWR will also provide technical support services to these developers and operators.

7. Potential market for The NET Power Cycle is substantial. Potential customers include electric utilities, oil and gas companies, technology companies, and industrial facilities, both in domestic and international markets. NPWR is in active dialogue with potential customers in each of these sectors.

8. Key considerations for future plants. The sites of future plants in the U.S. will require access to low cost, responsibly sourced natural gas, favorable power markets, and be near favorable geology to sequester (bury) the CO2. Based on these criteria, NET Power estimates that the number of potential sites could approximate 800 plants in 20–22 states. Over the next few years, NET Power will need to demonstrate its ability to execute large scale operations.

9. Attractive Valuation. The net present value (assumes a 10% discount rate) per utility-scale license could approximate $65 million according to company documents. In the U.S., the potential market for NPWR plants could exceed 1,300 through 2050, if all retiring baseload/dispatchable power plants are replaced. This equates to $87 billion—we estimate that a 10% market share would approximate $35 per NPWR share.

Expected Baseload Retirement and Implied Electrification of Demand through 2050 (TWh) (1)

Source: EIA, IEA, NET Power Analyst Day presentation March 2023; Note: IEA Global Demand Increase based on IEA 2021-2050 Sustainable Development Scenario as provided in IEA’s 2021 World Energy Outlook report.

1. Assumes all existing baseload generation will be retired by 2050 for illustrative purposes. 2. Potential NET Power plants calculated based on the Implied Power Generation divided by 300 MW per plant and 92.5% capacity factor. 3. Based on capturing ~820k tonnes/year of CO2 emissions per NPWR plant utilizing NPWR Gen 2 assumptions found on slide 14 of NET Power Analyst Day presentation March 2023. 4. Potential value multiplies the Potential NET Power plants by the PV-10% of a single-plant’s cash flows (~$65mm).

TAM=total addressable market (replacing retiring baseload power generation and meeting new demand from electrification).

10. NPWR is a major beneficiary of the Inflation Reduction Act. A provision of the legislation increased the 45Q tax credit to $85 per ton for carbon sequestration and $60 per ton for enhanced oil recovery. Additionally, under the 45Q credit, direct air capture facilities are eligible for $180/ton for CO2 sequestration and $130/ton for captured CO2 used for enhanced oil recovery (EOR). A NET Power Cycle Plant could potentially capture between 800,000 and 900,000 tons of CO2 annually. At the midpoint, this equates to annual revenues of over $72 million if the CO2 is sequestered. Further, assuming its power is sold at a spark spread† of $25/MWh, this would generate additional revenue of $50 million! To qualify for the credit, construction must start by January 2033 and the credit applies for twelve years of operation.

†The spark spread is a common metric for estimating the profitability of natural gas-fired electric generators. The spark spread is the difference between the price received by a generator for electricity produced and the cost of natural gas needed to produce the electricity.

11. NET Power Cycle complements wind and solar power. The renewables train has left the station, but it can’t supply power 24/7 without help. In addition to baseload power, a NET Power Cycle plant is readily dispatchable and can provide power when the sun isn’t shining, and the wind isn’t blowing. Additionally, it can eliminate the need for battery storage that has issues of its own.

12. Plant construction costs are likely to decline. NPWR targets reducing subsequent plant construction costs to below $600 million with standardization and supply chain efficiencies.

13. Financing is not an issue. As of the end of the second quarter, NET Power had $650 million of cash on its balance sheet. The first plant is expected to cost about $950 million and will likely be financed with loans from the Department of Energy and equity contributions from its partners.


The rundown:

  • SAM’s Infrastructure Income Portfolio produced a return (net of fees) of -0.3% compared to -1.6% for the S&P 500 and -3.7% for its customized benchmark.

  • SAM’s Energy Transition Portfolio generated a return (net) of -4.5% versus -7.0% for its customized benchmark.

  • Midstream remained relatively flat in August with a total return of -0.1%, as measured by the Alerian Midstream Energy Index (AMNAX).

  • Utilities and the clean energy sector underperformed and generated a total return of -6.1% and -12.0%, as measured by the Philadelphia Stock Exchange Utility Index (XUTY) and the S&P Global Clean Energy Index (SPGTCLTR), respectively.

  • In August, 10 out of 11 sectors in the S&P 500 reported a negative performance, except for Energy (i.e., 1.8% monthly total return). Performance reflected investor concerns over potential higher interest rates for a prolonged period. August month-end WTI crude oil and Henry Hub natural gas prices were above the ~$80 per Bbl ($83.55) and ~$2.50 per MMBtu ($2.56) levels, respectively, which was up ~2% and down ~1% from last month.

2023 YTD Total Return

Source: Bloomberg, NASDAQ and S&P Global


SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 63.7% and 3.5% since 11/10/20 inception and 1-year periods, respectively. This compares to a total return of 54.4% and -4.9%, respectively, for its customized benchmark and 32.9% and 15.9%, respectively, for the S&P 500.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 4.9% and -12.6% since 4/29/21 inception and 1-year periods, respectively. This compares to a total return of -0.5% and -13.6%, respectively, for its customized benchmark and 11.1% and 15.9%, respectively, for the S&P 500.

Sam Partners’ Infrastructure Income and Energy Transition Strategies seek to provide sustainable income and growth with capital preservation. This is accomplished by investing in a concentrated portfolio of high-quality midstream energy companies, utilities and clean energy companies that are well positioned to participate in the energy transition to a net zero carbon future. A diversified approach to investments across these sectors should optimize risk-adjusted returns, in our view. Our Infrastructure Income Strategy offers investors a current yield of ~5% and growth potential of ~5-7%; while the Energy Transition Strategy that is more heavily weighted with clean energy stocks and adheres to strict ESG criteria, offers investors a current yield of greater than 4%. In a world seeking yield, we believe these Strategies offer a compelling value proposition.


Siegel Asset Management Partners is a registered investment adviser located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.


November, 2020

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