New and Old Methane Regulations with GTUIT – Aug 30, 2015

Today we talk about five things in the news from August 17 to 28.

  1. EPA Launches New Methane Rule
  2. Democrats Move Away from “All of the Above”
  3. Non-Trump Republicans Tout Natural Gas
  4. Southern Company buying Atlanta Gas and Light
  5. Aubrey McClendon Buys into Australia

Our weekly interview features George Chedsey from GTUIT, a service company providing mobile flare gas treatment in Billings, Montana and the surrounding region.

Listen below or on iTunes or Stitcher.

1.  EPA Launches New Methane Rule

On August 18, the Environmental Protection Agency released long-anticipated rules for methane emissions in the oil and gas sector.  As the New York Times explained:

[The EPA’s Janet] McCabe estimated that the proposals — which would require drillers to stop leaks and capture lost gas even in wells intended to extract only oil — would cost the industry up to $420 million to carry out by 2025, but that there would be savings, including reduced waste, of as much as $550 million during that period, bringing a net benefit of as much as $150 million.

The new rules, which were widely expected, are part of a broad push by the Obama administration to cut emissions of planet-warming gases from different sectors of the economy. This month, Mr. Obama unveiled the centerpiece of that plan, a final regulation meant to cut emissions of carbon dioxide by 32 percent from 2005 levels by 2030 and increase to 28 percent the proportion of the nation’s electricity generated by renewable sources like solar and wind.

The rules were panned by industry.  Here is America’s Natural Gas Alliance:

Since 2005, natural gas producers have cut methane emissions 38 percent, while increasing production 35 percent. This impressive record has been accomplished through existing regulations and industry innovation. With further improvements certain to continue, we believe new and additional regulations are both unnecessary and counterproductive. This rule is simply not the best way to achieve our shared goal of methane emissions reductions.

And the American Petroleum Institute:

“API supports a common sense regulatory approach that builds on cost-effective controls already required by EPA for new equipment,” [API President Jack] Gerard said. “Combined with smart, voluntary efforts for existing sources, this approach will continue to lower methane emissions. To avoid undermining American competitiveness, we urge the EPA to coordinate its efforts and not add duplicative rules.”

The main part of the rule is new standards for equipment in five categories:

  • Natural gas well sites – Operators will use a special camera to “see” emissions in a monitoring program and then repair any leaks.
  • Oil well sites – In addition to a similar monitoring program as gas wells, oil drillers will need to utilize “green completions” that capture methane during the completion process.
  • Natural gas production gathering and boosting stations – These systems will also need a leak monitoring and repair program.
  • Gas processing plants –  The EPA is seeking to eliminate emissions from pneumatic pumps used to move fluids around a plant, by moving to zero-emission gas pumps or pumps driven by air or electricity.
  • Natural gas transmission compressor stations – These stations will also be subject to pneumatic pump rules and also drastically reduce emissions from compressors and controllers.

The proposed rule will seeks to develop Draft Control Techniques Guidelines for methane, which provides guidance to state agencies fix air quality problems.

2.  Democrats Move Away from “All of the Above”

On August 28, 2015, the Democratic National Committee held their summer meeting in Minnesota.  This is an event where party leaders meet to discuss party business, like the process for selecting a nominee.  It is also a chance for a discussion of party policies.  On energy, Bernie Sanders spoke aggressively about climate change and cited blocking the Keystone XL Pipeline as his main policy tool.  Hillary Clinton, on the other hand, made only a minor mention of climate.  Sanders later criticized Clinton on CNN’s State of the Union for failing to take a stand.

Presidential Candidate Bernie Sanders goes big on climate and noted Keystone XL distinction from Hillary Clinton at a Democratic National Committee meeting and on a subsequent appearance on CNN’s State of the Union.

This rhetoric is important because each Presidential year, the Democratic and Republican parties publish “platforms” that explains what the party stands for.  Generally, the platform mirrors the party’s Presidential nominee.  In 2012, the official Democratic policy platform aimed to maximize all forms of energy (except, perhaps, traditional coal):

All-of-the-Above Energy Policy. In the last four years, President Obama and the Democratic Party have taken concrete steps to make us more energy independent. … Our dependence on foreign oil is now at a 16-year low, and a new era of cheap, abundant natural gas is helping to bring jobs and industry back to the United States.

We can move towards a sustainable energy-independent future if we harness all of America’s great natural resources. That means an all-of-the-above approach to developing America’s many energy resources, including wind, solar, biofuels, geothermal, hydropower, nuclear, oil, clean coal, and natural gas. President Obama has encouraged innovation to reach his goal of generating 80 percent of our electricity from clean energy sources by 2035…we are expediting the approval process to build out critical oil and gas lines essential to transporting our energy for consumers. Building a clean energy future means that new exploration and production needs to be approached safely and responsibly.

Bernie Sanders seeks to stop using fossil fuels, even while they are abundant.  It will be interesting to see if the likely nominee, Hillary Clinton, adopts the Sanders message or Obama’s “all-of-the-above” approach.

3.  Non-Trump Republicans Tout Natural Gas

Over on the Republican side, candidates have been busy.  While Donald Trump soaked up most of the attention, a couple other candidates made some interesting comments on energy.  Gov. Chris Christie (R-NJ) was asked about climate change, and he touted natural gas and solar as part of the solution in New Jersey.

Gov. John Kasich (R-OH) also shared his excitement about finding natural gas in Ohio.

4.  Southern Company buying Atlanta Gas and Light

Southern Company is seeking to buy the Atlanta-based holding company that owns a number of utility companies across the company.  As The Wall Street Journal explained:

Southern Co. agreed to buy natural-gas utility AGL Resources Inc. for about $8 billion, a move that would give the electricity provider a big chunk of the fast-growing gas market from New Jersey to Florida.  The acquisition would double the number of Southern’s customers to nine million, making it the second-largest utility in the U.S., the company said on Monday, and providing it with new revenue to help offset its rising costs….

The deal, valued at $12 billion including debt, is the latest move by a large electric utility to buy exposure to the booming natural gas market. U.S. demand for electricity is stagnating—and the fortunes of coal and nuclear power are faltering—but demand for inexpensive natural gas is on the rise around America.

In an interview with Bloomberg, the companies made clear gas was at the heart of the deal:

“We really consider this to be a growth play,” Southern Co. Chief Executive Officer Tom Fanning said Monday in a telephone interview. “Expanding into natural gas infrastructure further is absolutely something we want to do.”

As a Southern unit, AGL may pursue gas pipeline and storage projects throughout the eastern U.S., John Somerhalder, AGL’s chief executive officer, said on a call with analysts.

5.  Aubrey McClendon Buys into Australia

Aubrey McClendon, one of the original frackers as the head of Chesapeake Energy Corporation, is looking overseas to invest with his new company.  Bloomberg explains that as big oil companies bail out, McClendon is swooping in:

Emboldened by the exodus of producers such as Chevron Corp. and Statoil ASA from Australian shale, McClendon and private-equity investor John Raymond are pouncing amid the rout in global crude prices and a dearth of other ready investors, said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. Australia is home to the world’s sixth-largest shale oil reserves and seventh-biggest tranche of shale gas…

McClendon’s American Energy Partners LP is negotiating two acquisitions with a combined value of more than $160 million for Australian drilling rights that span an area the size of New York state. That followed the disclosure last week that Raymond’s Energy & Minerals Group agreed to invest in Pangaea Resources Pty.’s shale holdings in the country.

Interview with George Chedsey from GTUIT (Starts at )

GTUIT was formed in 2011 by three engineers that saw opportunity in natural gas being wasted in the Bakken formation.  CEO Brian Cebull came in with a exploration and production background, Mark Peterson came in with an environmental background, and James Haider had a mechanical background.  The problem with wasted gas stems from a lack of natural gas “take away” pipelines in North Dakota and Montana.  In the early days of the region’s oil boom, that meant all the gas produced alongside the sought-after oil was simply burned off.  

The GTUIT guys created a modular and mobile capture system to address this problem.  They collect natural gas liquids on a well site, and then treat them.  Sometimes an oil well actually will be near natural gas pipelines, but initial flows from the wells are too great for the pipes to handle.  In that situation, the GTUIT system will capture the excess gas and store it on site before slowly releasing it into the pipeline.  Eventually, the GTUIT units can be removed and the more constant flow can go directly into the pipeline.  Some wells in the region are completely stranded and will likely never be connected to pipelines.  GTUIT serves those on a more permanent basis.  Producers hire GTUIT to provide processing capacity for a certain flow from a well, and the company’s mobile units are able to move around as needed.

When a well begins production, the flow is run through a processor that separates the oil, gas, and water.  GTUIT’s trailer-mounted units hook up the the gas stream.  The units use compression and refrigeration to separate out the natural-gas liquids.  Those “NGLs” are then placed in tanks to be transported away to market.  Sometimes they are delivered to a nearby gathering pipeline, but they may also be delivered to a processing plant.  GTUIT’s units also capture the residual methane-ethane mix and run it through a generator to provide power to the system.

Right now, the left over methane-ethane mix is typically returned to the flare stream and burned off.  GTUIT hopes to see greater beneficial use of this “conditioned field gas” in the future.  The company’s initial focus has been on NGLs because they are far more valuable.  Other uses are coming on line, however.  More gas is being compressed and used to run nearby rigs.  In some cases, the gas could be liquefied and sent a great distance.  GTUIT is aiming to utilize the gas nearby, though.  Farmers in the region are prime future customers, for example.

On the methane regulation front, GTUIT deals with a number of regulators.  Colorado has recently created a new set of fairly comprehensive methane regulations, while North Dakota has focused more specifically on reducing flaring.  The federal rules to be proposed, in George’s view, are more likely to mirror Colorado’s rules.  In fact, after reviewing the White House announcement I realized it only mentions reducing flaring on federal land through the Department of Interior.  George said he is interested in seeing how the federal methane regulation plays out, as most in the industry were hoping for state-specific guidelines.

GTUIT is located in Billings, Montana, with locations in North Dakota and Colorado.  You can learn more at www.GTUIT.com.

(Note this interview first ran in January 2015.  Since this interview ran, GTUIT received a major investment from Caterpillar Oil and Gas.)