Making Methanol with Dr. George Boyajian – Oct 27, 2015

Today we talk about five things in the news for the weeks of October 12 and October 18, 2015:

  1. Democrats Trip Over Themselves on Climate
  2. Canada Turns Left, Keystone Impacts Unclear
  3. Obama Locks Up the Arctic, if Anyone Wants In
  4. Rubio Lays Out Energy Plan, Jeb! Looks West
  5. Ohio Report Supports Raising Severance Taxes

My interview with week is with Dr. George Boyajian, the Chief Commercial Officer at a company called Primus Green Energy that has some interesting solutions for making use of stranded natural gas.

Listen below or on iTunes or Stitcher.

1.  Democrats Trip Over Themselves on Climate

The Republican Presidential debates have so far largely avoided the issue of climate change, even though the candidates seem to share somewhat different views on the topic.  The first Democratic debate, on the other hand, spent a ton of time on the issue even though everyone largely agrees.  All major candidates mentioned climate as one of their top priorities, Martin O’Malley and Bernie Sanders called it a national security threat, and any support of fossil fuels seemed to be out of touch with the Democratic party.

2.  Canada Turns Left, Keystone Impacts Unclear

Canada had a big election last week, and it could have serious implications for America’s favorite oil and gas policy issue — the Keystone XL pipeline.  Getting the pipeline approved became a major policy issue for the Canadian Prime Minister Stephen Harper.  As Politico reported:

Canada’s prospective new leader, Justin Trudeau, led his Liberal Party to a decisive win at the polls Monday, with the Canadian Broadcast Corp. projecting liberals would hold a majority of seats in the government. Trudeau unseated Prime Minister Stephen Harper’s Conservatives, whose nine-year reign has been marked by notable friction with the U.S. over Obama’s slowness to decide on Keystone….

The Alberta-to-Texas pipeline, a linchpin of Harper’s energy strategy, has drawn fire from environmentalists in both countries who call it a symbolic threat to the climate effort. While Trudeau is also pro-Keystone, a fast rejection of the pipeline by Obama could give a new Liberals government time to pivot away from the controversial project to open a new chapter in continental relations.

It is interesting to hear his critique of the current Prime Minister.  Basically, he argues that Harper has alienated Obama and made the oil sands an environmental “pariah” that America does not want to deal with.  The path to getting pipelines built, in Trudeau’s view, is to show a commitment to the environment.

3.  Obama Locks Up the Arctic, if Anyone Wants In

The Administration made an announcement that is not really a surprise and will not have much immediate impact, but will be controversial nonetheless.  The Hill explains:

The Interior Department is canceling two lease sales it had planned over the next year and a half for Arctic drilling rights and denying two oil companies’ requests to extend the time on leases that they currently hold.

The decision comes weeks after Royal Dutch Shell pulled out of the Arctic for the foreseeable future, saying the little oil it found in this summer’s drilling is not worth the cost.  The administration said its decisions are based on the current oil markets and low interest in Arctic drilling.

With Shell’s decision, there is little immediate action on tap in the Arctic.  Nonetheless, many feel that this decision has hampered production.  Last week, Sen. Lisa Murkowski (R-AK) made her feelings known at a hearing to consider nominees for the agency:

A few weeks ago, the deteriorating regulatory environment played a key role in Shell’s decision to abandon seven years of work and $7 billion in investment in the offshore Arctic. And then just this past Friday, Interior rejected lease extensions and canceled the offshore sales that are scheduled for 2016 and 2017. So if you’re an Alaskan, and reading the headlines, you have to wonder: what’s going on within Interior? Why do they have it out for us? How can Interior set up a regulatory regime that prevents companies from having commercially viable exploration programs, and then claim that it shows a “lack of interest” in the Arctic?

4.  Rubio Lays Out Energy Plan, Jeb! Looks West

Marco Rubio has long been outspoken on oil and gas issues, and he recently released an official plan for “Powering a New American Century.”  It is more detailed that what most candidates have put out, but largely sticks to the current orthodoxy:

Rather than distort the market, the government should instead promote competition. Policies that expand access to oil, gas, and coal development can also expand access to the development of wind, solar, nuclear, and hydropower energy. Modernizing regulations and permitting processes will help develop both traditional and alternative energy sources and encourage energy diversity.

One interesting thing that stood out is his focus on “maximizing private innovation.”  He wants to embrace jobs created by the shale boom, both in professions like engineering and in the trades.  He also wants to refocus federal government research and development on “spurring innovation” and leaving it up to the market to “reward entrepreneurs.”
Meanwhile Jeb Bush was out in the early voting state of Nevada, and made a suggestion that seems aimed at boosting his poll numbers there:

Jeb Bush said Wednesday that he would rein in regulation at the Interior Department as president and try to move its headquarters from Washington, D.C., to the West, home to 90 percent of federally owned land.

“There is a tradition of having a secretary from the West,” the former Florida governor said at a discussion organized by his presidential campaign. “But the folks that actually do the work … all live in Maryland, Virginia and Washington, D.C., and I think they ought to be living out amongst us.”

5.  Ohio Report Supports Raising Severance Taxes

Ohio’s Governor, and current Republican Presidential candidate, John Kasich, has spent the last several years calling for increased taxes on the oil and gas industry.  Cleveland.com reports that a group of lawmakers and have put our a detailed report on the topic:
Ohio’s oil and gas severance tax is among the lowest in the nation, but drillers shouldn’t be hit with a significant tax increase until slumping energy prices rebound, according to new recommendations from panel of state lawmakers….

The report’s findings show that state lawmakers are still reluctant to act on Gov. John Kasich’s repeated calls for a tax hike to pay for income-tax cuts and funding to local governments in drilling areas.

The legislative study group found that “Ohio’s total tax burden on the oil and gas industry is lower than or as low as every other state with a severance tax.”

The report stated with the mission statement of finding a way to “update Ohio’s severance tax to make it comparative with other shale play states across the nation.”  The recommendation was to raise taxes…eventually, because “Ohio’s total tax burden on the oil and gas industry is lower than or as low as every other state with a severance tax.”

Interview with Dr. George Boyajian of Primus Green Energy (Starts 21:11)

Dr. Boyaijan grew up in the Philadelphia area and studied geology before becoming a professor at the University of Pennsylvania.  He left academia to work for a string of technology companies before joining Primus Green Energy four years ago.  When he joined, Primus was focused on converting biomass to gasoline.  The company saw an opportunity in cheap natural gas, however, and has since pivoted in that direction.  

Today, Primus works to convert natural gas to gasoline and methanol.  The company has an operational demonstration plant in Hillsborough, New Jersey and has several other projects ready to begin construction around the world.  The plant in New Jersey has been inspected by independent labs and by Primus’s clients to ensure the products meet all relevant government regulations.  The company seeks to give clients access to world-class economics on a small scale.  In other words, Primus’s $50 million plants are intended to give the same cost of production as a $2 billion plant.  

Methanol is a standard chemical feedstock, and Dr. Boyaijan says its worldwide use is growing about 9% per year.  It is used to create plastics, formaldehyde, and deicing agents.  It is also used to fuel some vehicles.  In China, for example, gasoline is blended with methanol the same way gasoline in America is blended with ethanol.   

Primus is seeking regional opportunities where either methanol is needed or natural gas is stranded.  Pennsylvania is a great example because methanol is currently being brought in on rail to serve as a feedstock.  It would be better to use locally-produced methanol made from the cheap gas in the Marcellus region.  That cheap gas is a “cost-advantaged feedstock.”  Other areas, like North Dakota and Kazakhstan, have natural gas that is being wasted because it cannot make it to market.  Primus would like to convert that wasted gas to a liquid that can either be sold locally or easily transported to market.  Gasoline created from natural gas could, for example, be poured right into the tanks of crude oil already being transported out of an area like North Dakota.

Primus’ system is equipped to handle the challenges of taking gas directly from the wellhead.  That includes an initial rush of natural gas, changing compositions of the gas (i.e. levels of ethane, butane, etc.), and contaminants.  The system has few needs.  It requires natural gas, electricity, demineralized water, air, and nitrogen (to purge the system when shutting down).  The plants have almost no waste.  The water is recycled, so there is no wastewater to treat.  The plant gives off very limited carbon emissions.

Dr. Boyaijan says today’s economics are looking good for Primus in certain regions.  Their business relies on disparities between the regional cost for their feedstock (natural gas) and their end product (gasoline or ethanol, whose prices are largely a function of crude oil prices).  The bigger the disparity the better.  As examples, Dr. Boyaijan said that at $4 natural gas, Primus needs $60 per barrel crude oil prices to break even.  At $2 natural gas, Primus needs only $40 crude oil.  Those numbers are well in line with the current situation in the Marcellus.

If you want to learn more, check out the company’s website www.primusge.com.