Graphene

What is graphene?

Graphene is the world’s first two-dimensional material, consisting of a single layer of carbon atoms, hence why it is only two-dimensional. Graphene is the thinnest, strongest and most conductive material ever produced. One gram of graphene can be spread so thinly that it covers two football pitches. It can transfer electricity 140 times faster than lithium. It is 200 times stronger than steel and 100 times lighter than aluminium. In fact, graphene is about million times thinner than the diameter of a human hair.

The classic way to produce graphene involves copper and methane, a carbon-rich compound. The copper is heated to about 1,000°C and then exposed to methane gas. There are two problems with this technique. It takes a long time to make graphene this way, and the quality is not very good. This has led to new and improved techniques, of which there are many. Let me share the most exciting one with you. A Canadian company has built a reactor, which can take the carbon out of CO2 and turn it into graphene. Assuming this technology can be commercialised (and the early signs are promising), CO2 will become a major asset and not the liability it is today. If anything, we won’t have enough CO2!

What can graphene be used for?

The combination of weight, strength and conductivity opens the door to many applications. The most obvious opportunity near-term is the use of graphene in lithium-ion batteries, which has caused some concerns amongst investors as to how demand for lithium will be affected. Allow me to address that question straightaway. Graphene?will not?replace the lithium in lithium-ion batteries but rather replace the graphite in the anode of the battery. The use of graphene will therefore have?zero impact?on lithium demand.

I could spend all day, listing the many applications where graphene will come handy, but that will probably put you to sleep. Suffice to say that at least 60 different applications within energy, biological engineering, medicine, electronics, environmental monitoring, construction, security and food have already been identified. The list is very long.

Why invest in graphene?

You may wonder – why on earth should I invest in graphene? Most people have never heard of it, and it is still only used around the fringes, so why? Allow me to quote a colleague of mine. As he said to me, “if it is such a fantastic material, why doesn’t anyone talk about it?” The short answer is that I don’t know. Is it because of ignorance? Maybe. Could it be because of the ongoing obsession with momentum amongst investors? Could be. Or could it be a function of investors’ current lack of appetite for long-duration stocks? That’s certainly possible. I really don’t know, but I know enough about graphene to know that, 5-10 years from now, there will be lots of unhappy investors calling their broker or adviser to complain why they hadn’t been told about this new material before.

I am the first to admit it is still early days, and that there are not yet that many companies to invest in but, mark my words, this material is going to change the world for the better. It is the most interesting, new material since the early days of the industrial revolution, and I expect graphene to become the most life-changing new material ever. The opportunity set is enormous.

What’s the status?

Graphene was first discovered in 2004, and the two inventors behind the discovery were awarded the Nobel Prize in Physics in 2010. Last year, about $400 million of revenues were generated by graphene companies worldwide – a number which is expected to grow by at least 30% annually between now and 2030.

As already mentioned, I expect the rollout of graphene to be a true game changer; however, it is still early days. Therefore, it is not yet time to be fully loaded in your portfolio. In my company, we have only allocated a couple of percent to graphene so far but expect it to turn into one of our biggest baskets over the next few years. Such is the upside potential. And the upside doesn’t get any smaller, if the ongoing Canadian CO2 project turns out to be a success.

As graphene is a recent invention, it should come as no surprise that it still faces certain obstacles, for example production time and standardisation issues. Having said that, ongoing R&D will continue to come up with new applications. As a result, I would expect the graphene market to grow rapidly for many years to come and think there is significant upside risk to the 30% annualised growth estimate I referred to earlier.

One of the biggest opportunities is the use of graphene as an add-on material. Take for example concrete. By mixing one gram of graphene into 3kg of cement, the concrete becomes almost 50% stronger. Or think of the impact of adding a layer of graphene onto a car’s windscreen. As graphene is transparent, it would have no negative impact on visibility, but the windscreen would now repel the water and increase driver safety in rainy conditions.

Alternatively, think of the impact of using graphene as a coating material on ships. Because graphene is hydrophobic, any surface coated in a layer of graphene would move through water with decreased friction. A graphene layer on container ships would therefore increase the speed, and reduce the cost, of shipping. Another obvious application is to replace bulletproof vests with jackets that are lined with a thin layer of graphene. Not only is it much safer, but it is also more comfortable to wear. Imagine demand, if police forces and military personnel all over the world are equipped with this gear.

Risks

Investing in graphene is not yet an earnings story but a concept story, and that makes it extraordinarily volatile – another reason to keep your exposure at modest levels until it becomes an earnings story. In our portfolio, on a day-to-day basis, it is often the worst performing basket but, fortunately, it is also frequently the best performing basket. Such is the volatility.

I see that as the main risk. Conceptually, we are now beyond the point where you could question the validity of graphene. For years, some commentators argued that it will never work in practice, but we are beyond that point now, I believe, and the enormous amounts of capital being allocated to graphene development is testament to that fact.

Conclusion

Many of these techniques are not yet fully developed, mostly because graphene cannot yet be produced in size, but I would argue that graphene’s potential is only limited by our (lack of) imagination. A wide range of applications will most likely develop over the next few years and, best of all, this will all be made possible by utilising one of the most abundant and most versatile of all elements in the universe. And, with a bit of luck, the climate crisis will be solved at the same time.

Niels