The space economy: real and imagined

What the Starship launch indicates about the future of investing in the space industry

The brief flaring of the SpaceX Starship last week offered a vivid image of the promise and risk attendant on taking a financial stake in the future of the space economy.

Funds tracking the sector are perhaps the purest example of the thematic ETFs I discussed a few days ago, trembling with tantalising possibility like the flickering images of the Starship which soared for a few minutes in the blue skies over the Gulf of Mexico. But that promise that will only be realised in the very long-term, and only if the technology on which it will depend can be developed. The rocket’s brief journey into the upper atmosphere offers an opportunity to peer through the haze of speculation that surrounds the nascent space industry, and to discern the viable investment opportunities it might actually offer.

Space colonisation: the concept

Though Starship’s ‘rapid unscheduled disassembly’ four minutes after launch was what most of us would call an explosion, it should be acknowledged that this was a test flight that more or less met expectations. SpaceX’s current class of Falcon rockets only achieved orbit on their fourth flight. CEO Elon Musk warned in advance that the test was ‘a very risky flight’ that could fail in ‘a million ways’. The explosion was no sudden catastrophe, but controlled, triggered by flight-termination commands sent when the rocket failed to detach from its booster (the fuel tank containing the propellant needed to break free of Earth’s gravity.) The test proved Starship’s capacity to clear the launch pad, thereby withstanding ‘MaxQ’, the period of maximum mechanical stress placed on the vessel. And, above all, it supplied the company with real world in-flight data critical for informing subsequent tests.

Once Starship proves its ability to reach space, which seems likely to be a case of fine-tuning existing technology, it will replace Falcon, becoming the primary vehicle for SpaceX’s core business of launching satellites, beginning with the next-generation Starlink internet communications satellites. But a craft of Starship’s power seems overkill for the orbital business, which can be served by smaller rockets. The design’s ultimate purpose is to provide the blueprint for a fleet of reusable vessels for colonising the Moon, Mars and the wider Solar System.

The conceptual framework for a sustainable and affordable space exploration system, using refuelling stations located in space and on the lunar surface, has already been worked out in some detail by SpaceX and NASA. In brief, rockets on their way to the Moon and other destinations could top up their fuel through orbiting depots, greatly reducing the volume of propellant they would need to carry at launch. Lunar depots would supply the fuel required to return to Earth (or, in time, to travel onwards.) Ancient water present in significant quantities across the Moon would be mined and processed into hydrogen and oxygen to make rocket fuel.

It sounds the purest sci-fi, but NASA-supported studies show that moon mining is possible with existing technology adapted to lunar conditions. And, crucially, it would make space exploration commercially viable. The refuelling of a rocket on the lunar surface with locally manufactured propellant would reduce the cost of travelling to and back from the Moon by a factor of seventy. Proof of concept would open the floodgates to a new age of deep space exploration, both to governments, notably China, which is planning missions to lunar regions believed to hold water, and to a host of private space companies. NASA, burned by the mixed legacy of its space shuttle programme, and not known in recent years for its impulsiveness, is backing the concept, putting up an initial $3bn to help develop Starship into a vehicle with refuelling capacity capable of meeting the objective of the agency’s Artemis venture to carry astronauts to the lunar surface.

Cosmic gas stations

It’s a seamless narrative, continually illustrated by smooth graphics and animations. But the failure of the Starship to separate from its booster last week — short of getting off the launch pad the most elementary task the vehicle has to perform — indicates the scope of the engineering challenges ahead. Its capacity to break out of orbit, let alone travel to the Moon and back, and possibly beyond, will be a major accomplishment. Standing nearly 400 feet high, more than twice as long as the space shuttle, Starship needs a huge load of propellant to leave orbit, and still more to travel to the Moon. Crewed missions will require a life-support system capable of sustaining a return journey to the lunar surface. As noted, an orbiting refuelling depot would ease the ship’s burden, but building one will be perhaps the most vexing task of all.

A Bloomberg feature outlining the technical complexities of the project describes the depot as ‘the cosmic equivalent of a gas station into orbit’. A rocket has never been refuelled in microgravity before. It is possible SpaceX will need to launch more than a dozen missions to transport enough propellant to the depot to fuel a trip to the moon and back. It’s worth quoting the article at length to appreciate the mesh of technical complexities still to be negotiated:

Filling up the tanks won’t be as simple as pumping gas. Starship’s fuel is composed of two extremely cold propellants: liquid oxygen and liquid methane. They must be kept at negative 260 degrees F to negative 300 degrees F to stay liquid and function as needed. If they get too hot, they’ll turn into gas and boil off … The space environment doesn’t make it easy to keep the propellant cool. As the depot orbits the Earth, it will spend half its time in the cold dark and half in direct sunlight. The vehicle will need proper insulation on the inside, shielding on the outside and refrigeration to combat the heat. To avoid a potentially catastrophic pressure buildup, there also needs to be robust valving to vent the propellant that inevitably does boil away … SpaceX will also need to transfer these extremely cold liquids from the tankers to the depot and then to the craft carrying humans. Just the act of moving the propellants from one tank to another causes them to heat up. And engineers have never worked with these propellants at such scale in a weightlessness before.

These are the kinds of hard engineering puzzles obscured by the glamour of the SpaceX/NASA narrative. And they are the reasons why sceptical investors continue to steer well clear of the space economy. But there is more to the sector than Moon and Mars missions. The somewhat more prosaic business of putting satellites into orbit is flourishing.

The future is already here, partially

As recently as 2010 SpaceX was just beginning to fly commercial payloads. Now a rich ecosystem has developed around the emerging orbital industry, driven by drastic cuts in the cost of launching technology into space, the development of smaller, cheaper spacecraft and satellites, and an expanding network of private space companies.

Not so long ago space tech could only reach orbit by hitching a ride on state-sponsored missions. NASA’s space shuttles cost an average of $1.6bn per flight, and charged nearly $30,000 per pound of payload to reach low-Earth orbit. Russia’s Soyuz rockets cost up to $225m per launch, charging some $8,000 per pound of payload. SpaceX typically charges around $67m per launch, or around $1,200 per pound of payload. Competitor Rocket Lab, which debuted its Electron rocket in 2018, charges around $5m per flight, working out to roughly $10,000 per pound of payload.

Companies and research institutions can now choose between rockets and spaceports that best suit their requirements. And the pace of growth is rapid. Last year a record 180 rockets were successfully launched into orbit, a third more than in 2021. SpaceX has already put more than 3,300 of its Starlink satellites into low Earth orbit, and currently has plans to launch as many as 42,000.

Though more straightforward than space colonisation, nebulous engineering complexities loom here too. Low-Earth orbit is becoming crowded, not just with operational satellites, but space junk, comprising thousands of tonnes of obsolete spacecraft, rocket parts, and tiny scraps of satellites blown apart by the governments that launched them. Certain circles of low-Earth orbit are becoming ever riskier to operate safely as the chances of on-orbit collisions increase. Scientists estimate there is a 10 to 15% chance of a significant incident in the next 10 years. Strict regulations govern the process of launching space missions, but the planet’s near-space is unregulated. Here too, the private sector has spotted an opportunity, budding several companies dedicated to monitoring debris and advancing situational awareness in space.

Everyday space investing

The overall picture, then, like that of the wider technology sector, is of a maturing industry emerging from the other side of the long tech boom. Like other growth shares, space stocks have fallen to earth over the past 18 months.

The most recent quarterly update from the space investing firm Space Capital reported that $2.2bn was invested in the space economy in Q1, the lowest figure for eight years. The value of the ETFs launched with no little ceremony over the past two or three years have plunged. The ARK Space Exploration & Innovation ETF, probably the best-known space fund, fell by 20% last year, and the Procure Space ETF by 22%. ‘Tourist investors’ looking for quick gains have left, leaving long-term investors seeking companies built on strong fundamentals.

Funds focused on expansive definitions of the space economy, like the iShares US Aerospace & Defense ETF, have fared better. That, it seems, where money may be made in the nearer term: funds that encompass not just headline makers like SpaceX, but also the growing nexus of enterprises serving the developing orbital ecosystem, and a selection of companies in defence industries winning new business due to ongoing geopolitical uncertainties. Starship is quite compelling entertainment, but, for the foreseeable future, the space industry’s investment opportunities lie elsewhere.

Image by Justin Reynolds. Moon photo by Sergey Ovchinnikov on Unsplash.