I wrote about the challenges of putting a price discovery process ahead of a market development step. When I look into markets like China, US or even India, market development is very much the main process because they are likely able to produce many different types of commodities and hence anyone who needs something would or could scour the market in search of that commodity or product.
Now if it is difficult to obtain the product because of limited number of producers, you would then undertake the activity of actually developing the supply chains and producing it, assuming that you are able to line up all that is required to start producing it. We are now all operating in the same market, so it would make sense for large corporations because that reflects growth, and for governments as well because it creates jobs and boost economic activities.
Basically, if the market is underdeveloped, instead of buying off the market, you will have to somehow build it yourself. And that means building out the entire value chain. Because going out to ask for a quote will likely give you ridiculous figures from traders and potentially scalpers.
Smaller economies that are unlikely to be able to build supply chains and produce within their own economies would likely have to go elsewhere to seek out the product or commodity. This means finding out where there are already markets already available, getting a sense of the cost, factoring it into their considerations, or developing a full supply chain into their own economies by themselves.
Trading economies like Singapore and Hong Kong are really strong at the price discovery portion, focusing on short term cost reductions, seeking out the most cost-competitive sources. Perhaps the mature, yet geographically disadvantaged economies like Korea and Japan in particularly is really strong at the longer term approach of developing the full supply chain into their own economies and strengthening real economic linkages across borders.
What this means is that Hong Kong and Singapore may be disadvantaged by their approach towards markets when it comes to sustainability and the transition. Part of the reason is that being trading nations, most of the genuine manufacturing base is not actually in the country (demand pushes doesn’t work so well); and for the limited activities that are to be ‘decarbonized’, the ability to do so with domestic resources is limited. When the demand side such as Europe or America starts demanding for ‘decarbonised’ products through various policy instruments or corporate targets, especially when the green fuel, green electricity markets are not sufficiently mature in Asia Pacific, some of those supply chains and relationships will shift.
Japan is able to develop these value chains and build up the ability to connect resources back to their economy mainly because of the strength of their corporates which dominates their domestic economy and also string up a lot of their local supply chains including small-medium enterprises. The large corporations can then draw the resources and potentially even raw materials back into their domestic economy to feed inputs to the other domestic players who could produce for the rest of the world.
Perhaps one day I’d conduct more research into the economic strategies and growth paths of these various Asian economies and what it means for the emerging Asia economies in Southeast Asia.
In my day job, I provide strategy, commercial as well as policy advice particularly related to the energy transition. We aim to support players to make evidence-based decisions and to ground their decisions on proper assessment of risks and the dynamics underlying the operating environment.
One of the big mistakes I have been encountering when it comes to the energy transition is that market players (including government) have this mistaken idea that certain solutions are not viable or possible after trying to get a sense of pricing when a market has not been developed. In essence, price discovery can only take place after establishing a market. We can try to work out the cost of bringing certain products into the market, but that is different from trying to call a tender a have a price discovery process.
Take for example biomethane in Southeast Asia. There are pockets of it already produced, and you would be able to get price quotes for delivery of the products to where you need. Maybe you could also sign a long term contract on a small volume but pricing is going to be high because the players would put in more margins in order to deal with their risks. The lack of liquidity and a fleshed out market leads to distortions in price quotes. Moreover, biomethane being a gas means that transport cost can be a huge portion of the delivered cost if you are situated far from the original source.
Logically, you could put the biomethane into the national gas networks and then distribute it using mass balance methodologies. However, there are issues and questions around gas grid access – the immaturity of regulations around open gas grid access in Southeast Asia makes things a bit more complex and that gets amplified when you consider cross-border trades, and even liquefaction.
Don’t get me wrong, complex markets do exists. The global LNG market is a marvel, and our agrifood supply chains are truly an amazing showing of what the free market does. But these markets took time to develop and have had to go through a process of evolution where the supply is driven by initial demand and the willingness to build infrastructure to support all that.
The same principle applies to cross-border renewable electricity; there is typically a gradual process of working out the infrastructure costs, understanding the approaches towards delivery of the electricity, developing feasibility studies and so on. Having diversified sources is all well-and-good but that works when you are accessing markets that have developed supply available to make these happen.
No matter how sophisticated your price discovery process is; it will not deliver in an environment where the market is under-developed.
The challenge with over-financialisation is that price signals get confused in the market. We are trying to make prices mean too many different things. And there gradually is some kind of misallocation. This is probably something not studied deeply enough in economics because it’s always been glossed over in the assumptions about free markets.
We often think only about the demand and supply sides of free markets, but never quite about the income side. The assumption is that incomes then unlock the demand back in the free market. Yet the income side of the equation also changes the underlying demand. A society that has higher concentration of wealth will have a different demand profile than one that has lower concentration of wealth.
Not to mention that different regulations and rules will divert income and wealth in different ways. Countries with stricter labour regulations can have higher unemployment, but wages can also tend to be higher, and that gives rise to a broader middle class while also resulting in labour-based services commanding higher prices, and changing the value of goods vis-a-vis services.
The philosophy to leave things to the market isn’t neutral per se. We cannot make a conscious decision to say this or that should be left to the market and then disclaim the negative consequences of it. Once we institute a market, or any other policies, we ought to recognise the presence of winners and losers, and then the overall system needs to deal with the shortfall of the system.
In the HDB for example, the government seeks to ‘subsidise’ housing for the BTO flats but allow secondary ‘resale’ transactions to be ‘priced’ by the market. Yet this pricing is subject to forces such as private housing prices, which is in turn related to land sales and also buying power from foreign capital. This means that as much as we try to create the two-track market to ensure locals have access to affordable housing, it is subject to forces on the other side. Ultimately, the tension is political – with so much wealth of the people locked in real estate, can the government or the political parties allow for massive collapse in real estate value to ‘reset’ costs for a younger generation?
And if not, how can we ensure that intergenerational wealth transfers do not massively handicap those who do not receive them? Do we then intervene in the market? I would think that the market continues and should be part of the whole suite of allocation mechanisms available for policy-makers but treating it like the default approach for allocation of everything would be wrong.
I think it’s great that Edwin & Shulin’s interview/podcast with Steve Chia and Tiff Ang on CNA provoked a whole bunch of discussion. The point that Steve brought up at the beginning of the podcast was that he talked about the need to balance between the aspirations of the nation and the work preferences of the younger generation. Unfortunately, it wasn’t really the conversation they had because the grander picture of Singapore’s economy and market evolution isn’t mentioned.
Jeraldine Phneah actually posted a video discussing some of her take on how these things blew up and it was a really balanced perspective. I like how she gently took a jab at Shulin’s approach to delivering the message when Shulin herself talked about the importance of communication.
Personally, I’m more concerned about the characterisation of what ‘hunger’ is about. A lot of the discussions made it seem like this ‘hunger’ is self-evident but it isn’t. Different people had different interpretation of what hunger is and what it looks like.
For Shulin, it might be more about an attitude, not projecting so much me-first; being willing to stretch and take on learning opportunities as opposed to viewing things outside job scope as a chore or seeing some work as ‘beneath’ a job title. Yet for many others, hunger might look more like desperation; of making sacrifices that are unreasonable, and sucking up to bosses, going all out to please clients or entertain their unreasonable requests, etc. Shulin even posed ‘hunger’ as binary – whether you have it or not. That just probably didn’t seem right.
Tan Min-Liang, the founder of Razer, made a very good point on Linkedin about the younger ones behaving simply as a response to the corporates and employers. Give them the right sense of purpose and the work that they feel they deserve, and they will make the appropriate sacrifices.
Technology has made it possible for people to just keep working non-stop; and at the same time, companies may not have properly adapted technologies to their own business and workflow, and managed their employees poorly in that process. It would only make sense that without the management improvements (with management being stuck in the 80-90s mindset and management style), the company is suffering from actually really poor productivity, of which the younger employees are bearing the brunt of.
So the question now goes back to the employers. Are they hungry enough? Are they hungry enough for the right people and talents to provide the appropriate training, software systems, management and leadership? Shulin mentioned about employers’ lack of flexibility and the corporates limitations in meeting the needs of the current workforce culture. I thought Tiffany helped to voice out some of that employers’ and managers’ grievances about the inability to have the real conversations about work / job redesign. These are exactly the issues that we are not confronting enough in this podcast. I am actually really glad that the younger workforce is forcing employers to rethink their approach.
It will be politically challenging for the government to keep the situation in the way it is and allow the market to simmer and boil a bit so that the culture would shift. To do that, they will need to let businesses struggle with the manpower challenges. But maybe, they need to do just that.
While engineering our prompts well can maximise the possibility of a good result from GenAI tools that we are using, it is also important to understand the technology, the features that AI are really good at, and the things that they are really poor at so that you’re leveraging the right strengths and not wasting your tokens or prompting attempts on things that are fundamentally not going to come out of the AI tool.
One thing to appreciate, especially for GenAI, is that LLMs are designed to provide you with high probability responses that will be considered ‘right’ or ‘appropriate’ by human raters. So even though they are trained on a large amount of data and information, it is difficult to necessarily weight the information appropriately to your needs when giving you a response. As a result, they would tend to give you motherhood statements that have a high probability of being on-point even if they are tangentially related to what you are really looking for. You may be able to guide it in your prompt to go a bit more specific towards what you want, but essentially, you’ll have to do the work of narrowing down things. This is because the LLM is designed not to clarify your questions and sharpen their output for you – that’s something that you are supposed to do. Yet at the same time, they would already be consuming your tokens even during that process while you’re ‘finetuning’ them towards your output.
The other challenge for LLM is the problem of hallucination and even creating false data or connections. Quite often even when they are citing or linking to certain sources, the LLMs are making guesses on the content and association with what you’re searching for and also what they are ‘talking about’ themselves. So an assertion may be associated with a link they furnish you, rather than being based on that link. This is radically different from academic citations when your ‘sources’ are really saying or validating what you are saying. Most GenAI tools simply provide materials that may be associated rather than actually make certain points. Worse still, they could make up links that are broken and claim them as source.
Of course, there’s a whole issue around existing softwares being replaced by AI or vibe-coding. Often, this involves almost reinventing the wheel. Yes, maybe the prototyping cost has come down: what AI has done is that it has taken down some of the initial barriers in getting some kind of digital product out. But all that without providing a proper long-term infrastructure planning or system thinking because it is not exactly optimising towards a longer-term vision. This means a lot more resources dealing with bugs and bolting on new features or other aspects of the software in a way that is not optimised at the system level. Moreover, the AI companies are themselves competing with their own customers and users in developing the more bespoke tools for those willing-to-pay clients. So what makes you think you are going to vibe-code your way to a proper product people will pay you for?
I spent the last three years of my life almost evangelising about biomethane and more broadly, biofuels. Perhaps that is not the right word given that I am a Christian but basically I was trying to get people more aware about biomethane because of the benefits it could bring to the energy transition. It was something that was overlooked during the course of the hydrogen hype, and there had been very aggressive lobbying and campaigning against biomethane for some political and emotional reasons.
In the backdrop of the wars that are taking place in the Middle East now, the potential impacts on energy systems and markets, I want to revisit the whole biomethane story, sharing the good, and explaining some of the concerns away, while also identifying the concerns that remain, which won’t be dealt with by biomethane.
The Good
Biomethane is produced from anaerobic digestion (AD) of organic matter. It is a natural process though it can be rushed and optimised through temperature and humidity control as well as careful management of the substrate (whatever organic feedstock) put together under those conditions.
Left alone, these organic stuff would have produced carbon dioxide and methane anyways. The carbon dioxide is biogenic so it doesn’t add to global warming potential, but the methane does (and it’s 28 times more potent). So by capturing this methane, we are already reducing emissions of greenhouse gas (GHG).
But what’s even better comes when this captured methane is actually used to displace fossil fuel. And it does so in two ways. Remember I mention it the AD process produces carbon dioxide and methane? The carbon dioxide can be used in industries for making dry ice, for cleaning purposes, and even used as feedstock for some specialty chemicals. Traditionally, these carbon dioxide are from fossil sources, so getting it from biogenic sources reduces final emissions. At the same time, when biomethane is displacing the fossil methane, we further reduce final emissions when we combust it for energy or consume it for other processes.
That is quite a bit of GHG emission reduction isn’t it?
The Better
It doesn’t just stop there. The biogenic carbon dioxide can be used to produce other e-fuels including e-methane that will help increase the methane yield of the feedstock. The other chemical process pathways like gasification, methanation and all will play a role in enabling this. This provides a suitable commercial pathway for green hydrogen to help contribute to energy transition at this stage without having to refit the demand-side equipment. It helps kickstart the market without the transport logistics and infrastructure in place yet.
There’s more. AD produces a liquid slurry that is called digestate as a residue in the reactors. These are remaining organic matter that has been mainly stripped of the carbon content, but other nutrient content remains, making it suitable for use as a fertiliser. Traditionally, fertiliser is made using synthetic ingredients, including ammonium salts, featuring natural gas as a feedstock to the chemical process. By using AD digestate to make up for part of the fertiliser, we are reducing the use of fossil fertiliser and once again reducing final emissions.
As energy security and food security become a more relevant topic, we begin to see how biomethane wonderfully contributes to both the energy and food ecosystems. While we all wonder when the holdup at the Straits of Hormuz is going to end, we can start investing in the right areas that will help create the biomethane ecosystem, which can enhance our energy security and resilience, rather than squandering further resources trying to backstop our fragility.
The feedstock concerns
One of the most common issues around biomethane or biofuels in general is the challenge of having enough feedstocks. At Blunomy, I’ve conducted many feedstock studies and mapped feedstocks. The truth is that we probably won’t be able to meet all the gas demand through the biomethane that we can produce from existing feedstocks. But neither should we.
Just as we should not be relying on a single gas field or a single strait to transport all our gas. Biomethane feedstocks are naturally diversified from various sources, and policies could encourage more organic waste or residue to be properly managed upstream to produce more biomethane.
Moreover, we have not even begun exploring the possibility of growing novel crop feedstocks on marginal land that can be dedicated to energy. These crops serve to rehabilitate the soil, the land ecosystems while contributing to energy. The concern about feedstock limitations should not even feature at this moment when we have not even exploited a tiny fraction of it.
Perpetuating oil & gas interest?
Another political and emotive concern raised is that biomethane will allow the energy industry to maintain oil & gas infrastructure, further entrenching our capture by these companies. We should not perpetuate gas infrastructure and entrench ourselves in the fossil ecosystem.
More often than not, the infrastructure is regulated, and we simply need to have the right policy and governance in place to push them to serve the interests of the energy transition rather than the status quo. In many countries that have started introducing blending mandates for biomethane in the gas networks and pipelines, the largest gas consumers and even fuel suppliers have become the biggest customers for biomethane!
The methane slip concerns
So the feedstock limitation or concern around energy industry interests, isn’t something to fuss over. What we can and ought to fuss over, is the fugitive emissions, and methane leakages from continuing to use of methane for energy in the existing infrastructure. Biomethane is still methane, so while combusting it produces biogenic carbon dioxide, which we consider non-additive GHG, the release of biomethane into the atmosphere itself is still a GHG emission.
This continues to be a challenge and certainly contributes to rising GHG emissions. What we cannot always agree on is whether pushing to end the use of methane entirely is worthwhile.
There is greater consciousness of methane leakages precisely because monitoring has improved, sensing equipment is now more broadly available, and I believe the technology to upkeep the infrastructure has also improved. This is an issue to be resolved through better infrastructure, better management and better systems to ensure accountability, compliance and monitoring.
Biomethane will not resolve the issue of methane leakages, but I am not sure if this problem should be stopping us from exploring biomethane as a solution to all the other above issues that I raised. Natural gas continues to be broadly use, and the huge amount of gas infrastructure already invested into could rightly be used to serve the transition if we are willing to build this biomethane ecosystem.
I hope you’re convinced biomethane is something worth working hard to make manifest in the future we are all working for. It’s worth wondering, when we pay for energy, what are we actually buying? And whether cheap energy comes at the cost of fragility, environmental harm, lower end-use efficiency, and reduced resilience. Are we exhausting our resources, and the environment for what really matters to us?
Update (26 March, 11:18am): Initially the post mentioned methane is 12 times more potent than CO2 in global warming potential but that has been corrected to 28 times.
There is fundamentally a tension between bureaucratic structures and human judgment. The reason for such structures is to reduce the need for, and also disperse the responsibility of judgment. Often, it tries to aggregate wisdom but sometimes at the cost of creating more inertia for action.
Bureaucracy starts with good intentions: create systems and structures to minimise errors, repeat proven actions by making them a matter of policy, and prevent potential rogue players from having discretion. And potential rogue players within the system mean just about everyone. Yet it promotes conformity and compliance.
The ones who would break the rules and create wins won’t make the cut for promotion if they go too far with rule-breaking. Often, structures prevent them from going far enough to end up with wins. Those who do would probably cause loopholes to be closed up anyway.
But bureaucracy allows you to swap talents for mediocre hires, especially in highly stable environments. Take the example of infrastructure financing; the early pioneers of project finance did the hard work, used their brains to work out the risks, quantify them and set up best practices. They created financially viable structures matching the underlying needs. The ones who come after just copy their templates, sometimes even without completely understanding how the risk management or control works. They are trained more for pattern recognition and for finding market deals that work for the structures they create. This still brings value to the system, and they are rewarded for this stage of industry development. So, more people who can match the patterns will rise within the system. Those who actually think thoroughly about the risk and keep trying to innovate get stuck in the middle. Even if they stick around long enough, they do not have the chance to get their innovation pushed through the system.
New kinds of infrastructure are overlooked because they are “too hard,” when it’s easier to find what fits in the market or wait for the next deal. And so the previous innovation that succeeds cannibalises on future innovation. And the structure to scale up and deliver greater success on something that works inhibits successes of different variety.
Could it be that Singapore is running up against such an issue?
I came across a point made by a supporter of low-carbon hydrogen when others were arguing that green hydrogen should be reserved for hard-to-abate sectors, but not for other sectors that can easily decarbonise through a lower-cost pathway instead. The point was that if low-carbon hydrogen was only going to target the hard-to-abate sector, the market size simply isn’t enough to create the scale necessary to drive down the cost of low-carbon hydrogen.
This comes at a time when we are discovering that some of the sectors that could actually pay for low-carbon hydrogen are those with much lower-cost approaches to decarbonisation (for example, food product or food services companies). So why would they be willing to pay higher price for low-carbon hydrogen? Technically, this is where economics starts to break down. Part of the reason is that the end customers are willing to pay – this is especially possible for consumer products where the agrifood industry may be able to differentiate the introduce the food prepared using low-carbon hydrogen. This is exactly what some Seven cafes in Japan is doing.
And to a certain extent, every industry starts out this way; if solar panels were simply looking to the locations with huge energy demand in the day, and also lots of solar resources for power generation, the market is going to be incredibly small. And certainly insufficient to enable the lower cost from economies of scale. So finding use cases and continually expanding them is important. While it might be admirable to keep trying to create premium products and then price it well, the alternative way of getting economics in your favour is actually to keep innovating on use-cases and focus on growing scale in a way that lowers unit cost. This then allows for further expansion of demand and use which improves learning at manufacturing and drives the cost advantage further.
That is the story of China’s manufacturing rise. And Lidar technology is a great example. The original use case for lidar technology was very limited to very specialised fields where great precision was needed in sensing and mapping physical spaces. It was initially used almost exclusively in military applications and would probably have remained so if not for China entering the picture and driving down costs through sheer manufacturing scale. By pushing down prices to particular thresholds, the mass market use case in EVs and other driver-assistance technologies emerges and serves to expand the pool of demand further.
During the hype of low-carbon hydrogen during 2020-2023, people were expecting that the cost of hydrogen production could be pushed down to such levels. Yet if we examine the value chain and recognise that the opportunity cost of using renewable electricity for hydrogen production, we would see that it was difficult for hydrogen production to compete with electrification as a commercially viable approach for decarbonising a lot of low-heat industrial applications.
An alternative path to commercialising low-carbon hydrogen is needed; and it is more about finding other use cases. It could be locations where fuel is needed to run mobile applications, or where transport of liquid fuels were prohibitively expensive and being able to easily produce it make sense. And finally, one of my favourite approach, which I am sure would be the first early commercialisation pathway: colocating green hydrogen facilities with biogas/biomethane production facilities, producing green hydrogen, then use Sabatier reaction (methanation) to produce e-methane, boosting the overall output per unit biogenic feedstock.
Yet even then, it is still necessary to drive costs down in order to be able to produce a product catering to a large and expanding market. Even for that pathway highlighted, the actual demand possible for a single hydrogen project would be limited by the available biogenic carbon dioxide which is limited by the scale of the biofuel/biogas plant. These are all bottlenecks of the renewable industry that needs to be managed. Wind and solar, especially solar is a lot more disconnected from local supply chain and ecosystems in order to pull off a successful project as they are modular and largely plug-and-play. While it means government have less hard work on creating the supply chain, there is less local benefits reaped or job opportunities created from building out solar facilities than if the market starts looking into biofuels and hydrogen.
Ultimately, the economics of hydrogen requires very strong government collaboration and the actual boots-on-the-ground work of creating the supply chain, infrastructure and delivery mechanisms. To tap into some pockets of willingness-to-pay at the moment would help.
I think there is a place for carbon capture and utilisation. But just not the way we have been thinking or approaching it. Carbon capture and storage in some kind of cavern or project and expecting it to hold on to the carbon dioxide does not make sense. But many other carbon sequestration approaches do: applying biochar to ground, injecting carbon dioxide into cement to strengthen the concrete, or any processes that somehow mineralises carbon dioxide into some kind of other compounds including carbonates.
All of the approaches where carbon dioxide is somehow transform into some other form which is more permanent and serves a function make sense. The technologies involve in terms of filtering the carbon dioxide to a certain level of purity, conveying it and handling it, will play important role in the low-carbon economy.
The reason is that carbon dioxide is still an essential part of many industrial production processes. In any case, the main challenge of climate change isn’t really the presence of carbon dioxide – it is the fact that we are taking out fossil carbon and then turning it into carbon dioxide, releasing it into the atmosphere faster than it can be cycled back into other parts of nature. This build-up of carbon dioxide, strengthens the greenhouse effect, making things really nutty for the climate.
But when we are taking biogenic carbon dioxide and using it, there is nothing wrong because the carbon was sequestered from present carbon dioxide in the atmosphere. Using it merely ‘recycles’ the carbon around. Human systems that does carbon capture can play that same recycling role. Take for example the capture of biogas from the anaerobic breakdown of organic matter. That is a mix of methane and carbon dioxide gas; the carbon dioxide gas can be filtered out and then used for industrial processes, while the pure methane (or biomethane as we call it) can be used for energy purposes – combustion to produce heat and drive turbines to produce electricity.
Moreover, the carbon dioxide produced from combustion can be captured, purified, and utilised just like the carbon dioxide filtered out from the biogas. This carbon dioxide can actually be combined with green hydrogen to form many other hydrocarbon molecules that act as our more familiar fuels that are compatible with many of the engines and systems we have. Not just that, the combusted fuel will emit that same ‘biogenic’ carbon dioxide, which would not count as greenhouse emissions because they are in the short-term cycle. Nevertheless, we can still capture that carbon dioxide and then return it to those uses we talked about.
To me, that’s the role of carbon capture in the future – it is really to recycle the carbon just as nature already does it. It is not to erase the carbon dioxide that has already been emitted. It is really naive to think that spending more energy trying to capture the emitted carbon dioxide can be more worthwhile than using alternative forms of energy that do not emit so much carbon dioxide in the process. That would be the role of these technologies in the future.
