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Product Review Img Vertical

Date : 18/06/2021

Global Energy Ventures

ASX :

GEV

Market Cap : $33.45 Million

Buy

52 Week Range : $0.043 - $0.150

Share Price : $0.069

A vertically integrated all-in-one package in the fast growing hydrogen sector. We recommend investors to "Buy".

Company Analysis

Global Energy Ventures (ASX: GEV) is an energy transition company that develops compressed shipping solutions to transport energy to regional markets. GEV has quite an interesting business model with the firm attempting to develop a vertically integrated complete hydrogen solution by building, owning, and operating the production, storage, and shipping of the promising resource of green hydrogen.

GEV has demonstrated its skills and experience in hydrogen compression which delivers a proven, simple, and efficient method to transport green hydrogen. Furthermore, the company is really committed to the environment, as its Compressed Hydrogen (C-H2) ship is propelled with electric drive engines powered by onboard fuel cells making it a unique zero-emission marine transport solution.

A pioneer in its Domain, situated in the thick of a booming market

In 2020, GEV introduced the world’s first large-scale Compressed Hydrogen (C-H2) ship and positioned the company as an early mover to fast track the marine transport of Hydrogen. The company’s patent-pending intellectual property is the design of a pressure vessel to enable bulk compressed, non-liquefied, hydrogen storage, in volumes that significantly exceed those offered by other compression technologies. The engineering and design of the C-H2 ship have benefited GEV’s long-standing history in developing compressed gas carriers through to final construction approval.

GEV has recently been approved by the American Bureau of Shipping for the C-H2 ship with a hydrogen storage capacity of 2,000 tonnes. The Company is also advancing a scaled pilot ship with a storage capacity of 430 tonnes for near term project opportunities, targeting its first shipping fleet to enter construction by 2023.

Compression is the preferred solution for marine hydrogen transport but it is often overlooked for shipping, due to its lower volumetric energy density when compared to ammonia or liquefied hydrogen, the current commonly explored shipping methods in the hydrogen export industry. However, the higher energy density of alternatives requires complex, capital intensive and energy-demanding processes.

GEV proved that the simplicity and the energy efficiency of the C-H2 shipping solution are ideally suited for exporting hydrogen over medium distances providing a lower delivered cost and eliminating the technical barriers of other transport alternatives. This will enable the transport of hydrogen from Australia to major destinations in the Key export markets of the Asia Pacific region.

Two complementary projects in the pipeline

GEV is not only showing us that the company is a pioneer in the emerging hydrogen transportation market but is also positioned as a global developer of integrated compressed shipping projects. Currently, the company is working on two projects that engage in the nascent green marine transport solutions: the CNG Optimum for Natural Gas project and the C-H2 Ship for Hydrogen (Fig.1).

Both projects are advancing quickly. The CNG optimum project is a patented design for two million standard cubic feet per day (MMscf) of natural gas and has been approved for construction in January 2019 by the American Bureau of Shipping.

The CNG project is nearing commercialisation and recently entered a Memorandum of Understanding (MOU) with the German consulting engineers, ILF Beratend Ingenieure GmbH (ILF) to identify and develop green hydrogen projects in Europe and Australia including the hydrogen transportation project C-H2. This recent news and the C-H2 vessel development initiative is evidence that GEV is on the right path to becoming the global leader in the development of hydrogen maritime transportation solutions.

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Source: Global Energy Venture (Fig.1)

Big opportunity for GEV to enter the lucrative European market

The recent MOU agreement with the German’s engineering consulting firm ILF is a massive opportunity for GEV in our opinion. The partnership between GEV and ILF will accelerate the development of green hydrogen projects in Europe and Australia. ILF is a key player in the design of export and import infrastructure to load and unload gas at the destination. On the other hand, GEV specialises in the transport of green hydrogen from port to port. It is clear to us that the collaboration between ILF and GEV will open the door to upcoming lucrative projects. GEV has recognised Europe as a key market for its C-H2 shipping and supply chain with the rapid growth of the renewable energy sector. This partnership with ILF establishes GEV’s penetration into the European market with one of the world’s leading engineering experts in the design and development of green hydrogen projects. Furthermore, Europe is leading the global effort of sustainability and green energy development. It is worth noting that 85% of the world’s proposed green hydrogen projects are from the European Union (E.U.). The E.U. is planning to install 40 Gigawatts of electrolysers by 2030 out of the current 250 megawatts in place globally today. The European policymakers believe that hydrogen is one of the main solutions to decarbonise industries and transport and ultimately reach zero emission by 2050.

Company Updates

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Source: Tradingview.com

FY21 Outlook: GEV is close to capitalise on two major export projects for its CNG Optimum solution

Since the approval of the CNG Optimum design by the American Bureau of Shipping in early 2019, GEV has been increasingly receiving requests for marine CNG analysis, given the attractiveness of the concept. GEV currently has two big opportunities in its CNG project, and the firm is very close to turning a profit from both – the Brazil Pre-salt and the U.S. Export Project.

Brazil is seeking an alternative method to re-injection or installation of new pipelines. It is where GEV intervened, proposing a more effective implementation with its CNG Optimum solution. Since then, the company has been working with two local operators of offshore assets. GEV completed its commercialisation plan last year in April 2020 with a local operator and both parties agreed on the technical and commercial feasibility of the CNG Optimum solution. However, for now, the operator decided to postpone further development in 2021. Since the last quarter, things accelerated with GEV in close contact following the submission of a technical and economic report in response to a request for information from a prospective client. The scale of the opportunity is considerable for GEV, with the possible requirement for a large fleet of CNG ships for up to 20 years.

Furthermore, an improvement in sentiment resulting from stable energy prices and a forthcoming positive outlook post-pandemic brought a catalyst for natural gas operators to start moving forward in FY21. GEV continues to remain engaged on the gas supply and pipeline capacity potential projects. During Q1-2021, the company focused on the proposed U.S. CNG Export Project and on the preferred CNG export site to secure the gas market. We have witnessed that GEV has progressed well during the previous period and has now selected its preferred supplier and expects the finalisation of all key terms in the upcoming quarter.

Last year, GEV secured a deal with Kinetica Partners for a potential firm transportation service of natural gas supply. GEV and Kinetica agreed on a preliminary rate for the transportation of up to four hundred million standard cubic feet per day of firm natural gas supply over a term of fifteen years. Upon completion, the export deal could be a very lucrative project for GEV which involves the development of compression and facilities to load CNG to a fleet of two hundred CNG Optimum ships. GEV has extended the agreement with Kinetica Partners to the end of Q3-2021. This will provide sufficient time for the parties to complete and execute a precedent agreement for pipeline capacity from Port Sulphur to GEV’s preferred offshore export site, via Kinetica’s existing pipeline network. GEV continues to be in discussions aimed at securing gas markets in the Yucatan and Central American region. Progress is expected onward Q3-2021 to qualify new bankable parties with demand for gas and progress key terms.

Industry Analysis

Hydrogen has long been described as the fuel of the future. In recent years, “green hydrogen” — hydrogen made without fossil fuels — has been identified as the clean energy source that could help bring the world to net-zero emissions. With the rapid growth in renewable electricity and falling costs of wind and solar power, the opportunity to produce low or zero carbon-emitting forms of hydrogen has captured the imagination of the industry, consumers and policymakers seeking further opportunities to decarbonise our society. Hydrogen adoption is projected to grow as different uses for green hydrogen emerge and mature. Global demand for hydrogen currently approximates 70 million tonnes, primarily for use in oil refining and ammonia production for fertilisers, with over 98% of the current supply being ‘grey’ hydrogen produced from fossil fuels. Global demand is projected to increase to 100 million tonnes by 2030 and exceed 500 million tonnes by 2050. Although demand for clean hydrogen will partly be driven by its capacity to replace grey hydrogen in existing processes, the greatest contributing factor to future hydrogen demand is forecast to be in emerging uses as a replacement for carbon-based fuels, including petrol, diesel, natural gas, and bunker fuel.

The largest emerging role hydrogen is expected to play in the future of Australia’s domestic energy system is as a blended gas and as a transport fuel, but its growth will present many investment opportunities across numerous sectors. Japan, South Korea, and other markets have set ambitious hydrogen targets, presenting a multibillion-dollar opportunity for the Australian export industry in the long run.

And this is where GEV’s C-H2 project makes a lot of sense. It is expected that regional markets with high demand for hydrogen will experience significant infrastructure, natural resource, and development constraints to produce sufficient security of supply of green hydrogen. Australia will play a key role in the supply of hydrogen to meet this demand and GEV will be one of the major stakeholders for regional transportation (Fig.3).

We are convinced that the C-H2 supply chain is very competitive as a marine transport solution for green hydrogen to markets at 2,000 nautical miles and remains competitive at 4,500 nautical miles. GEV’s focus will be on those export project locations from the midwest of Western Australia, up to Northern Territory, and across to Queensland.

The market for shipping hydrogen globally is expected to be developed over the next decade and could match the scale of the current liquified natural gas (LNG) fleet with over 600 vessels now in operation.

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Source: Global Energy Venture Ltd. Delivery of H2 customers within 2,000 to 4,500 NM (Fig.3)

Investment Thesis

Global hydrogen is forecasted to grow by 0ver 10x through to 2050

We believe that the hydrogen sector is now established as an investment thematic with significant tailwinds, and GEV is one of the companies to own in one’s portfolio. GEV did not produce any revenue as it is in a very early stage, but the firm’s two main projects are very near to producing substantial revenues and we think it is the right time to consider GEV. Moreover, it is expected that hydrogen will represent up to 20% of the primary energy consumption globally, at an addressable market of A$ 3.25 trillion by 2050.

Governments around the world are pushing for sustainable energy and green hydrogen is one of the key elements to achieve zero emission. More than A$ 38 billion have been committed from France, Germany, the United States, China, Japan, South Korea, and Australia to develop a hydrogen economy. Currently, there is about A$ 389 billion of funds pledged across the hydrogen value chain, however, there is not yet any proven and scalable storage and transport solution. This is where GEV will feel the gap and play an important role in the value chain (Fig.4). Earlier this year, GEV completed a share placement and issued 63 million fully paid ordinary shares to institutional investors at 10 cents per share to raise A$ 6.3 million.

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Source: Global Energy Venture. C-H2 supply chain. (Fig.4)

We think that the company is comfortably funded to continue with its business development and pursue opportunities for the CNG Optimum project. Moreover, the funds will help in accelerating the development of the new C-H2 supply chain and start the ship construction programme to support the hydrogen economy which continues to receive global interest in the application of compression for both onshore and offshore loading and export applications for hydrogen. The available liquidity will also contribute to the company’s working capital. Actually, GEV has just announced this month, on June 7, 2021, the commencement of a pilot C-H2 ship for operation. The company is planning to achieve its approval in principle later this year and debut the construction in early 2023 (Fig.5).

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Source: Global Energy Venture Ltd. C-H2 Development Timeline. (Fig.5)

GEV exhibits a robust balance sheet despite being at an early stage of development. The company is well-funded with debt remaining very low in the capital structure mix. We are convinced that GEV has the necessary resources to develop its CNG and hydrogen transportation project. GEV is on the verge of getting its first revenue from its CNG Optimum solution, while the highly lucrative C-H2 ship pilot construction is expected for early 2023.

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Technical Analysis

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Trend

GEV found support between 7 cents and 8 cents per share since November last year. The stock spiked briefly after the completion of the share placement to raise A$ 63 million from issued new shares priced at 10 cents, earlier this year. Despite GEV’s price action, it remains trapped below the 50% retracement level from the COVID-19 swing low, the stock seems to find some decent amount of support in the area of 6 and 7 cents per share which is as well as the 78.2% Fibonacci retracement level. We are convinced that this level may offer a fair price for a buying opportunity. In the short-term, GEV may be under a selling pressure that might push the share price to retest the lower range of 6 cents per share which coincides with the H2FY20 resistance level. Technically, GEV shares have been oversold since Q1-2021, however the company has two promising projects that are very near completion. We are confident that it is a window into a big play to own shares that have the prospect to appreciate by three-fold in a very short time.

Key price levels

The key level to observe is the 6 and 7 cents price range where we believe consolidation will occur before a potential rebound ensues above the 61.8% Fibonacci level at 9 cents per share. Strong volume and a clear breakout of the psychological level of 10 cents will attract buyers and push the share price back above our target price of 15 cents per share.

Volume and momentum

Volume declined since the last 200-day with the 20-day volume average down by -47%. The price action remains bullish in the near term, evolving in a range between A$ 45 cents and 50 cents per share.

Trade consideration

  • Market participants might be interested to enter at key support level: A$ 6 cents per share.
  • Primary target price above $A 15 cents per share
  • Secondary target price at $A 17.5 per share
  • Consider reducing exposure below A$ 5.5 cents per share
  • It is recommended exiting the trade below A$ 5 cents per share

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Recommendation

We believe that the hydrogen sector is now established as an investment thematic with significant tailwinds, and GEV is one of the companies that will thrive as a vertically integrated all-in-one package. GEV does not generate any revenue yet given that it is in a very early stage, however, the firm’s two main projects are close to producing substantial revenues and we think it is the right time to consider GEV. The company is well funded and earlier this year, GEV raised A$ 6.3 million to continue with its business development and pursue opportunities for the CNG Optimum project. Moreover, the funds will help in accelerating the development of the new C-H2 supply chain and start the ship construction programme to support the hydrogen economy which continues to receive global interest. GEV shares look to be oversold momentarily, and with this sell-off, there is a silver lining. We believe entering a position at the key support level of $0.06 is ideal and issue a “Speculative Buy” recommendation for GEV.

 

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