ECONOMIC ANALYSIS OF A LUNAR IN-SITU RESOURCE UTILIZATION (ISRU) PROPELLANT SERVICES MARKET:

ECONOMIC ANALYSIS OF A LUNAR IN-SITU RESOURCE UTILIZATION (ISRU) PROPELLANT SERVICES MARKET: 58 th International Astronautical Congress (IAC) IAC-07-A5.1.03 Hyderabad, India 24-28 September 2007 Mr. A.C. Charania Senior Futurist ac@sei.aero Mr. Dominic DePasquale Systems Engineer dominic.depasquale@sei.aero 1

Introduction Study Overview Supply: ISRU Propellant Company Demand: Government Customer Economic Analysis Results Conclusions Contents 2

Introduction 3

Overview: - Engineering services firm based in Atlanta (small business concern) - Founded in 2000 as a spin-off from the Georgia Institute of Technology - Averaged 130% growth in revenue each year since 2001-85% of SEI staff members hold degrees in engineering or science Core Competencies: - Advanced Concept Synthesis for launch and in-space transportation systems - Financial engineering analysis for next-generation aerospace applications and markets - Technology impact analysis and quantitative technology portfolio optimization About 4

- The Engineering Economics Group (EEG) of SEI can help forecast and analyze multiple future markets. Some of these include: - Sub-orbital and orbital commercial space flight - Orbital space habitats/stations (vehicles and hotels) - Low Earth Orbit (LEO) payload delivery - International Space Station (ISS) crew and cargo services - Fast package point-to-point delivery on Earth - Propellant stations/depots in space - On-orbit servicing - Space manufacturing - Lunar propellant production - Lunar public commercial space flight - Asteroid mining - Space Solar Power (SSP) Images copyright 2007, Artist: Phil Smith Sample Markets 5

Human Exploration Cost Estimates Scenarios of Reusable Launch Vehicle (RLV) Price Sensitivity $M 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 NASA FY06 Exploration-Related Budget CLV CEV/CM Other (Robotic/ISS/Shuttle) Components of LCC (FY06) $111.3 B (2006-2018) $53.4 B (2019-2025) $164.7 B Technology Maturation LSAM Surface Systems EDS + CEV/SM CaLV-HLLV Facilities, Operations, and Flight Tests 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 25% Operations Cost Reduction 75% Price Per Pound Payload [$/lb] Price Per Pound Payload [$/lb] 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Price Per Flight [$/lb] 25% 50% 75% Turn-Around-Time Reduction Price Per Flight [$/lb] 25% DDT&E AND TFU COST REDUCTION 75% Flight Rate [Flights/Year] Flight Rate [Flights/Year] 25% 50% 75% Turn-Around-Time Reduction 40 35 30 25 20 40 35 30 25 20 Flight Rate [Flights Per Year] Flight Rate [Flights Per Year] Price Per Pound Payload [$/lb] Price Per Pound Payload [$/lb] 4,500 3,500 2,500 1,500 500 4,500 3,500 2,500 1,500 500 Price Per Flight [$/lb] Flight Rate [Flights/Year] 25% 50% 75% Turn-Around-Time Reduction Price Per Flight [$/lb] Flight Rate [Flights/Year] 25% 50% 75% Turn-Around-Time Reduction 140 120 100 80 60 40 20 140 120 100 80 60 40 20 Flight Rate [Flights Per Year] Flight Rate [Flights Per Year] Year Discounted Cumulative Cash Flow (US $) 100M 50M 0M -50M -100M Space Tourism Economic Modeling Effect of Competition Higher-End Operator Lower-End Operator In Competition with Higher-End 0 2 4 6 8 10 12 Project Year See: http:///library/technical.html for more information and technical papers on above analyses 80M 60M 40M 20M 0M Effect of Market Entry Date Higher-End Operator Lower-End Operator -20M -40M -60M 4 Year Market Delay -80M 2 Year Market Delay 0 2 4 6 8 10 12 Project Year International Space Station (ISS) Support Market 5 Commercial Competitors + min. 2 CEV/Yr + Russian Competition Sample Economic Analyses by 6

Study Overview 7

Human cis-lunar space exploration architectures could potentially utilize new commercial products (e.g. space hotels, propellant depots, orbital tourism) What would an actual scenario for lunar commerce look like, what products could be produced and what price points would exist that make companies financially viable? An economic analysis is performed of a commercially operated lunar In-Situ Resource Utilization (ISRU) facility Case 1: Lunar Surface - 1A: Sale of propellant (LOX/LH 2 ) on the Lunar surface - 1B: Sale of propellant and oxygen on the Lunar surface Case 2: Low Lunar Orbit (LLO) - 2A: Sale of propellant to a government customer in LLO - 2B: Sale of propellant to a government customer in LLO and sale of oxygen on the Lunar surface - 2C: Sale of propellant to a government customer in LLO, sale of oxygen on the Lunar surface, and sale of propellant on the Lunar surface Task Overview Copyright 2007 ; Artist Rhys Taylor 8

Image sources: NASA, ESAS Report: http://www.nasa.gov/mission_pages/exploration/news/esas_report.html Components of Lunar Return: NASA s Exploration Systems Architecture Study (ESAS) 9

MOON Tanker Transfer ISRU Propellant Plant LSAM Descent LSAM Ascent Lunar Orbit LSAM Descent Stage Fueling Geostationary Earth Orbit Transfer to Moon (TLI + LOI) Return to Earth (TEI) Low Earth Orbit EDS LSAM CEV/SM CEV/CM LEO Rendezvous Ares V Ares I NASA elements and activity path Commercial ISRU company elements and activity path Earth Arrival EARTH Note: Notional representation of lunar exploration architecture. Architecture elements may not be to scale. Commercial ISRU Company and NASA Exploration Architecture 10

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Robotic Precursors FY 2011-2015 FY 2016-2020 FY 2021-2025 FY 2026-2030 Government (NASA) Architecture 1 st Human CEV Flight 7 th Human Lunar Landing Lunar Outpost Buildup Lunar Lander Development Lunar Heavy Launch Development Earth Departure Stage Development Surface Systems Development Commercial ISRU Company Design, Development, Test Production Facility Prep Facility Delivery Operations (10 years) Tanker Delivery Program Development Roadmap 11

Supply: ISRU Propellant Company 12

Leverage government and existing commercial developments in the construction and delivery of company assets Delivery of all assets to LLO through purchase of transportation from U.S. Government - Cargo Launch Vehicle (CaLV) provides ETO launch of Cargo Lander with ISRU plant and Lunar Tanker Vehicle - Earth Departure Stage (EDS) provides TLI for all elements ISRU plant sized to fit on NASA lunar cargo lander as described in ESAS, and is transported to the Lunar Surface from LLO by this lander Reusable Lunar Tanker Vehicle (LTV) to perform transfer of propellant from the Lunar Surface to LLO and back - Derived from NASA LSAM Descent Stage as described in ESAS The alternative to this incremental [lunar outpost] approach is to develop a dedicated cargo lander that can deliver large payloads of up to 21 mt. Apollo LM Total Mass: 16.5 MT ESAS Baseline Lander Total Mass: 45.9 MT Source: NASA's Exploration Systems Architecture Study -- Final Report, August 2005, URL: http://www.nasa.gov/mission_pages/exploration/news/esas_report.html, p.25. ISRU Propellant Company Assets 13

Water / Soil Separator Electrolyzer / Dryer Radiators LOx / LH 2 Storage Solar Panels Tanker Loader Excavator Transporter Water / Ice Storage Liquefiers / Radiators Nuclear Power Plant Credit: Shimizu Corporation ISRU plant system design, specifications, and capability provided by the Shimizu Corporation Space Project Office of Tokyo, Japan Elements shown are not to scale, but represent those that are included in the plant landed by the lunar cargo lander Notional Elements of a Lunar ISRU Plant and Depot 14

Soil and Water Management Sub-Total TOTAL Components Excavator Separator Transporter Water Storage WTM Loader Wheel Loader Wheel Crane Nuclear Power Station Power and Transport Sub-Total Electrolyzer Dryer Radiators Liquefiers LOX Liquefiers LH2 Radiators LOX Radiators LH2 Storage LOX Storage LH2 Solar Panels Lunar Habitat Module Size (stowed) [m] 2x0.1x0.1 D0.6x3 6x0.15x0.15 D2.0x1.7 ----- ----- 2.5x1.6x2 D8.6x2 1x1x1 3x3.1x0.05 0.6x0.7x1 0.5x1x1 5x3x0.1 5x3x0.3 D1.6x2.1 D1.6x4.3 D8.6x0.45 ----- Mass [MT] 1.00 0.80 1.60 1.43 ----- ----- 4.80 5.40 15.03 1.08 0.04 0.13 0.42 0.21 0.58 1.23 2.15 0.07 ----- 5.91 20.94 Assumes accessible water ice in the lunar regolith at a concentration of one percent by weight Technologies available - Bucket wheel excavator - Water separation by heating method - Nuclear power plant for heat source - Assembly of lunar facilities by semiautonomous system The oxygen and hydrogen production rate is on average 20.0 kg/hour If such a plant were operating continuously over a lunar 12 day period (daylight operation) then that would equate to 5.8 MT/month or 69.1 MT/year of processed water With a mixture ratio by mass of 8:1 Oxygen to Hydrogen in water, 49.4 MT/year of propellant (LOX/LH2 at a mixture ratio of 5.5:1) and 19.7 MT/year of additional Oxygen can be produced Lunar ISRU Plant Size for 21 MT Lunar Lander 15

Reusable LTV performs transfer of propellant from the Lunar Surface to LLO and back - Assumed 1860 m/s of Delta-V required for one-way transfer - LOX/LH 2 propellant with an O/F mixture ratio of 5.5 Derived from NASA LSAM Descent Stage as described in ESAS LSAM Ascent Stage replaced with tanks to store the propellant for sale to the customer in LLO LTV is capable of delivering 22,000 kg propellant from the Lunar Surface to LLO and returning - LTV burns 25,100 kg propellant while performing delivery mission (equivalent to the propellant capacity of the baseline ESAS LSAM Descent Stage upon which the LTV is based) The amount of payload propellant delivered to LLO by the LTV is sufficient to fuel two NASA LSAM Descent Stages 7.5 meters LOX Payload Tanks (x4) 8.1 meters 5.3 meters LH2Payload Tanks (x4) LOX Tanks (x4) LH2Tanks (x4) Modified NASA Lunar Lander Descent Stage Lunar Tanker Vehicle (LTV) 16

Parameter DDT&E Cost [$M, FY2006] Nuclear Power Plant* Excavation/Processing/Storage Facility Cost* Mass of Excavation/Processing/Storage Facility* Lunar Tanker Vehicle Acquisition Cost [$M, FY2006] Nuclear Power Plant* Excavation/Processing/Storage Facility Cost* Mass of Excavation/Processing/Storage Facility* Lunar Tanker Vehicle** Transportation Cost to Lunar Surface [$M, FY2006] Cargo Launch Vehicle (CaLV)*** Earth Departure Stage (EDS)**** Lunar Surface Access Module (LSAM)**** Deterministic / Most Likely Case 1: Lunar Surface $957 M $200 M $595 M $162 M - $319 M $67 M $198 M $54 M - $1,445 M $560 M $215 M $670 M Case 2: LLO $ 2,157 M $200 M $595 M $162 M $1,200 M $ 1,019 M $67 M $198 M $54 M $700 M $2,220 M $1,120 M $430 M $670 M Mission Operations Cost [$M/year, FY2006] $35 M $35 M Notes: United States Dollars FY2006 unless otherwise noted * - Source: Shimizu Corporation (75% development cost, 25% acquisition cost) ** - Source: SEI internal cost estimates derived from previous work; development cost to the commercial company is for modification of existing stages, not for complete development of a new vehicle *** - Source: Charania, A., "The Trillion Dollar Question: Anatomy of the Vision for Space Exploration Cost," AIAA- 2005-6637, Space 2005, Long Beach, California, August 30 - September 1, 2005. **** - Source: Exploration Systems Architecture Study (ESAS) Draft Report, Section 12. Minimum All Cases -25% -25% -10% -10% Maximum All Cases +75% +75% +25% +50% Monte Carlo Simulation: Triangular Distributions for Various Uncertainty Parameters 17

Demand: Government Customer 18

Case 1 (Lunar Surface) - Demand for propellant in Case 1 is equal to the production capacity of the ISRU plant, 49.4 MT per year - As the NASA Lunar Exploration Architecture and future Mars Exploration Architecture evolves, there may be an advantage to fueling on the Lunar surface - Commercial companies may wish to purchase propellant on the lunar surface in support of lunar tourism, mining, or other entrepreneurial activities Case 2 (LLO, Government Customer) - Demand for propellant in Case 2 is equal to the amount required by two reference NASA ESAS lunar landers to descend from LLO to the Lunar surface, 21 MT per year - In the years 2022 through 2031, it is anticipated that NASA will conduct two or more expeditions to the Moon per year - It is assumed that each descent requires a Delta-V of 1860 m/s, which results in 10,500 kg of propellant per lander Market for Case 1 (Lunar Surface) and Case 2 (LLO, Government Customer) 19

Case # Product(s) Demand Case Description 1A* Propellant on Lunar Surface 49.4 MT/yr The commercial provider of ISRU propellant sells its maximum production capacity each year to government and/or commercial buyers on the Lunar surface. 1B Propellant on Lunar Surface Oxygen on Lunar Surface 49.4 MT/yr 19.7 MT/yr Case 1A plus excess oxygen produced is sold to government and/or commercial buyers on the Lunar surface. 2A* Propellant to LLO 21.0 MT/yr The commercial provider of ISRU propellant delivers and sells only the amount of propellant demanded by a government customer in LLO. 2B Propellant to LLO Oxygen on Lunar Surface 21.0 MT/yr 22.5 MT/yr Case 2A plus excess oxygen produced is sold to government and/or commercial buyers on the Lunar surface. 2C Propellant to LLO Oxygen on Lunar Surface Propellant on Lunar Surface 21.0 MT/yr 19.7 MT/yr 3.3 MT/yr Case 2B plus excess propellant not demanded by the government is sold to a government and/or commercial customer on the Lunar surface. *Probabilistic results presented for Case 1A and Case 2A ISRU Propellant Market Case Studies 20

Economic Analysis Results 21

In each economic simulation, the price per kg that the company must charge for its products in order to achieve a Net Present Value (NPV) of zero was determined - NPV is an indicator of financial success, and is calculated as the sum of all future cash flows discounted to their present values - Cash flows are discounted by Weighted Average Cost of Capital (WACC), a measure of the cost of capital which takes into account the debt and equity financing structure of the company - An NPV of zero indicates that the company has broken even on its investment after financing charges to investors have been met Sweeps of WACC were performed to investigate the sensitivity of the results to the cost of financing - A company s assets are financed by either debt or equity - WACC is the average of the costs of these sources of financing, each of which is weighted by its respective use in the given situation - A firm's WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities - The baseline WACC is 21.7 % based on a debt to equity ratio of three, equity beta of comparable industries (Aerospace, Air Transport, E-Commerce), tax rate of 30%, average nominal interest rate of 7.5%, inflation of 2.1%, and risk-free rate of 4% Probabilistic simulation of each case involved 1000 Monte Carlo runs with triangular distributions on the cost variables as previously defined Economic Analysis Methodology 22

Case 1: Sale on Lunar Surface 23

35,000 Price per Kilogram ($/kg FY 2006) 30,000 25,000 20,000 15,000 10,000 5,000 Price for Propellant Price for Oxygen 0 Case 1A Case 1B Case # Product(s) Price for Propellant Price for Oxygen Price for Excess Propellant on Lunar Surface 1A Propellant on Lunar Surface $26,800 per kg - - 1B Propellant on Lunar Surface Oxygen on Lunar Surface $25,600 per kg $3,200 per kg - Deterministic Price for ISRU Products (WACC = 21.7%) 24

$1,200 $1,000 $800 WACC = 21.7 % Price = $26,800 (FY 2006) Total Cost (w/o Financing) Total Cost (w/ Financing) Discounted Value (Before Interest), WACC Net Income After Taxes $600 US $M $400 $200 $0 -$200 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 -$400 Year Cash Flows for Case 1A (Propellant On Lunar Surface) 25

50 Mean = $30,470/kg std dev. = 3798 90% Certainty <= $36,035/kg 40 Occurrences 30 20 10 0 21,753 22,497 23,242 23,987 24,731 25,476 26,221 26,965 27,710 28,455 29,200 29,944 30,689 31,434 32,178 32,923 33,668 34,412 35,157 35,902 36,646 37,391 38,136 38,880 39,625 Propellant Price ($/kg, FY2006) The probabilistic mean price for propellant on the Lunar Surface is $30,470 per kilogram in order for the company to break even in terms of NPV with a required rate of return (WACC) of 21.7% Histogram of Price for Case 1A (Propellant on Lunar Surface) 26

Probabilistic Price: Mean Probabilistic Price: 90% Confidence (<=) Deterministic Price Propellant Price ($/kg, FY2006) 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 WACC Probabilistic Price: Mean Probabilistic Price: 90% Confidence (<=) Deterministic Price 10.0% $14,286/kg $16,196/kg $12,721/kg 20.0% $27,548/kg $32,261/kg $24,240/kg 21.7% $30,470/kg $36,035/kg $26,845/kg 30.0% $49,584/kg $58,968/kg $43,491/kg Baseline WACC = 21.7% Price = $26,845/kg 0 5% 10% 15% 20% 25% 30% 35% Weighted Average Cost of Capital (WACC) Case 1A (Propellant on Lunar Surface): Price for Required Return 27

Case 2: Sale in LLO 28

$/kg to Deliver Propellant to Low Lunar Orbit (LLO) [FY 2007] 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Number of Successful Flights Per Year - $74,774/kg $55,027/kg $37,762/kg Falcon 9 Heavy Delta IV Heavy Falcon 9 Heavy w/ new U/S Price that lunar ISRU plant on lunar surface must $/kg match to be competitive with Earth propellant delivery to LLO Vehicle $43,219/kg Atlas V Heavy $33,267/kg 14 4 3 3 1 Notes: - For each vehicle, assume 20% of LLO payload is used for structure/non-propellant mass - Above prices include acquisition of EDS stage for propellant depot in LLO - Demand is the propellant required to fully re-supply two cargo LSAMS per year (total of 21.0 MT of propellant per year) - The prices listed are assuming all flights are successful, the overall reliability is given as a reference - Prices and reliabilities are based upon public sources and general estimates of as envisioned vehicles, thus they are first estimates and not mean to be definitive - Assumes no propellant available in EDS stage steady state propellant loading condition after first use of EDS stage Ares V Cost to Deliver Propellant to EDS Depot in LLO from Earth 29

180,000 160,000 Price per Kilogram ($/kg FY 2006) 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Price for Propellant Price for Oxygen Price for Excess Propellant on Lunar Surface 0 Case 1A Case 1B Case 2A Case 2B Case 2C Case # Product(s) Price for Propellant Price for Oxygen Price for Excess Propellant on Lunar Surface 2A Propellant to LLO $134,000 per kg - - 2B Propellant to LLO Oxygen on Lunar Surface $126,200 per kg $7,200 per kg - 2C Propellant to LLO Oxygen on Lunar Surface Propellant on Lunar Surface $119,000 per kg $6,800 per kg $54,200 per kg Deterministic Price for ISRU Products (WACC = 21.7%) 30

50 Mean = $152,906/kg std dev. = 19,412 90% Certainty <= $180,874/kg 40 Occurrences 30 20 10 0 111,136 114,895 118,654 122,413 126,172 129,932 133,691 137,450 141,209 144,968 148,728 152,487 156,246 160,005 163,764 167,524 171,283 175,042 178,801 182,560 186,320 190,079 193,838 197,597 201,356 Propellant Price ($/kg, FY2006) The probabilistic mean price for propellant in LLO to a government customer is $152,906 per kilogram in order for the company to break even in terms of NPV with a required rate of return (WACC) of 21.7% Histogram of Price for Case 2A (Propellant in LLO, Government Customer) 31

Probabilistic Price: Mean Probabilistic Price: 90% Confidence (<=) Deterministic Price Propellant Price ($/kg, FY2006) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 WACC Probabilistic Price: Mean Probabilistic Price: 90% Confidence (<=) Deterministic Price 10.0% $68,774/kg $79,010/kg $60,615/kg 20.0% $137,621/kg $161,511/kg $120,495/kg 21.7% $152,906/kg $180,874/kg $133,947/kg 30.0% $254,795/kg $307,296/kg $220,987/kg Baseline WACC = 21.7% Price = $133,947/kg 0 5% 10% 15% 20% 25% 30% 35% Weighted Average Cost of Capital (WACC) Case 2A (Propellant in LLO, Gov t Customer): Price for Required Return 32

$160,000 LTV Development Cost Lunar Transportation Costs $150,000 $140,000 Baseline Development Cost for One LTV Price per Kilogram ($/kg FY 2006) $130,000 $120,000 $110,000 $100,000 $0 M $600 M $1,200 M $1,110 M $2,220 M Baseline Transportation Costs for 2 CaLV launches, 2 EDS Stages, and 1 Cargo Lander $90,000 $80,000 $70,000 $0 M Price for Propellant in LLO is fairly insensitive to transportation cost, but sensitive to LTV development cost. $60,000 $0 M $500 M $1,000 M $1,500 M $2,000 M $2,500 M Cost ($M, FY2006) Case 2A (Propellant in LLO, Government Customer): Propellant Price Sensitivity to Costs 33

Conclusions 34

Deterministic Prices per kilogram for LOX/LH 2 propellant produced via Lunar ISRU are as follows (at 22.7% Weighted Average Cost of Capital): - Sale to a government or commercial customer on the Lunar Surface: $26,900/kg - Delivery to LLO to fuel two government customer LSAM descent stages: $134,00/kg Sale of excess oxygen extracted from water during propellant production results in a modest reduction of propellant price Price per kilogram for propellant delivered to LLO is roughly 5 times the price of propellant purchased on the Lunar surface - This difference in price is a direct result of costs for delivery of propellants to LLO - Development costs for the case of delivery to LLO, including development of a Lunar Transfer Vehicle derived from an ESAS LSAM Descent Stage, are more than twice the development costs for the case of propellant on the Lunar surface - Transportation costs from the Earth to the Moon are double that of the Lunar surface case due to the need to transport the Lunar Transfer Vehicle as well as the ISRU production plant - The Lunar Transfer Vehicle must use 25 MT of propellant to deliver 21 MT of propellant for sale in LLO Probabilistic simulation in all cases resulted in higher mean price per kilogram than deterministic analysis - Due to distributions on cost variables skewed toward higher cost The price for delivery of propellant to LLO is fairly insensitive to Lunar transportation costs, but sensitive to tanker vehicle development costs For the architecture considered, the price per kilogram for delivery of propellant from the Lunar surface to a Government LLO customer does not provide an attractive alternative as compared to launch from Earth Lunar ISRU Propellant Market: Summary and Conclusions 35

Business Address: 1200 Ashwood Parkway Suite 506 Atlanta, GA 30338 U.S.A. Phone: 770-379-8000 Fax: 770-379-8001 Internet: WWW: E-mail: info@sei.aero 36