Do Methane Leaks Detract from Natural Gas?

Some commentators criticize that methane leaks detract from natural gas as a low-carbon fuel in the energy transition. Compared with CO2, CH4 is a 25-125x more potent greenhouse gas (depending on the timeframe of measurement). Hence, leaking 2.7-3.5% of natural gas could make gas “dirtier than coal”. However, for an apples-to-apples comparison, we must also consider the methane leaks from coal and oil. Natural gas value chains have the lowest methane leakage rates of the three.

When combusted, natural gas emits >50% less CO2 than coal, at c320kg/boe versus as much as 850kg/boe. Generating 1MWH of power from natural gas emits 0.35T of CO2, versus 0.85T for coal (chart below, data here).

But it has been criticised by some commentators that natural gas value chains leak methane. Methane is a 120x more potent greenhouse gas than CO2. It degrades over time, due to hydroxyl radicals in the atmosphere. So its 20-year impact is 34x higher than CO2 and its 100-year impact is 25x higher. Therefore, if c2.7-3.5% of natural gas is “leaked” into the atmosphere, natural could be considered a “dirtier” fuel than coal (chart below, model here).

Is this comparison apples-to-apples? After tabulating EPA disclosures, we find that the US underground coal mining industry emitted 1.4MT of methane in 2018. This is because natural gas often desorbs from the surface of coal as it is mined, and can thus be released into the atmosphere. For comparison, 250M metric tons of coal were produced from underground mines in 2018, out of 700MT total coal production. In other words, for every ton of underground coal production, the methane leakage rate was 0.6%, equivalent to around 33kg/boe (chart below, data here).

For comparison, similar EPA disclosures imply that the methane leakage rate in the upstream US oil and gas industry ranges from 0.1% through to 1.1%, with an average of 0.26% (chart below). The data are available here, by basin and by operator.

The US upstream methane leakage rate also appears to be much higher for associated gas in oil basins than non-associated gas in gas basins. The Marcellus is the lowest-leak basin in our sample at 0.1%, versus the Permian, Bakken and Eagle Ford at 0.4-0.5% (chart below, which also correlates the leakage rates with the number of pneumatic devices).

The fairest comparison must also add in the methane leaks from gas gathering, processing and distribution to end-customers (chart below), in order to capture the methane emissions expected across the entire gas value chain. This takes our estimate for total US methane leaks to 0.6% of commercialised gas. Leading the industry, we find the total end-to-end value chain taking Norwegian gas to European consumers leaks around 0.23% of the methane (note here).

Converting back into energy-equivalent units is the most comparable metric, to assess the methane leakage rates of different energy resources. The average ton of coal mined under the US contains 23mmbtu of energy (11,584btu/lb). The average ton of oil contains 40mmbtu and the average ton of gas contains almost 50mmbtu. In turn, this is because greater molar portions of oil and natural gas are from hydrogen molecules, which are very light, but generate energy when they are combusted into water vapor. Dividing through, we calculate the methane intensities below.

Looking most broadly, we find the total emissions profiles of commercialising piped natural gas will tend to run at 25kg/boe (chart below, model here), the total emissions profile of producing coal will tend to run at 50kg/boe (model here) and the total emissions profile of commercialising oil will tend to run at 60kg/boe (model here). This is deeply favourable for the credentials of natural gas as a low-carbon fossil fuel. It adds to the favourable credentials for combusting natural gas versus other fossil fuels.

None of this is to exonerate leaks in the natural gas industry, which remains an urgent challenge for upstream producers to resolve. We are excited by the opportunity and have recently screened companies in the supply chain that can help mitigate methane (chart below, note here, screen here).

What producer impacts? We have also screened the leading and lagging operators around the industry, as ranked by their methane leaks, and after looking across 750,000 bleeding pneumatics that need to be phased out (chart below, data here).

Across all of our research, we find very strong credentials for natural gas as the fuel for the energy transition. All of our research into gas opportunities is linked here; and our work into LNG is linked here.

If a tree falls in a forest…

Carbon-offsets, specifically forestry projects, can sequester 15bn tons of CO2 per annum, helping to accommodate 400TCF of gas per year and 85Mbpd per oil in a fully decarbonized energy system by 2050. The cost is below $50/ton, placing forests among the the most economic ways to decarbonize global energy, by a factor of c6x.

It is also a golden opportunity for climate-conscious energy companies to uplift their NAVs by 15-25%, generating and commercialising carbon offsets. The natural point of sale is together with the purchase of the fuel. (schematic below).

But a recurrent challenge goes as follows: if you eventually cut down the trees in the forest, do they still sequester CO2? (like a 21st century climate-variant of Bishop Berkeley’s 1710 thought experiment). This short note responds to the challenge.

How to think about CO2 offsets from forests?

Think in terms of land area, rather than in terms of tree tonnage. Each new acre devoted to forests should sequester around 5T of CO2 per annum. In other words, increasing the global land area that is covered by forests would increase the annual removal of CO2 from the atmosphere. Our target of 15bn ton per annum requires repurposing 3bn acres, or around c8% of the world’s land.

To maximise the rate at which forests offset CO2, our models suggest it is better to cut down old trees and replace them with new trees. This is because a mature forest absorbs CO2 more slowly than a maturing forest (charts below).

There are also economic benefits to re-seeding old forests, earning double-digit returns at a $15/ton carbon price. For contrast, $50/ton is needed to earn a 10% return under greenfield forestry economics (chart below).

The largest capital cost is land acquisition costs; without this, required CO2 prices fall almost 70%

But what happens to the wood?

The wood could be burned and the forest will still lock up two-thirds of the CO2. This is because 69% of the CO2 locked up by forests is not stored in the wood, but in the soils beneath the forests, according to the IPCC and the FAO. Again, this carbon will remain fixed in the soils, as long as the land remains devoted to forestry.

Burning the wood also displaces fossil fuels. If sustainably sourced wood is burned in a power plant, it can displace the combustion of fossil fuels, such as coal. Generating 1MWH of power from coal emits 0.85T of CO2; and burning 1ton of coal emits c4T of CO2e. As an example, Drax is currently running the world’s first carbon-negative power plant at the 3.9GW Selby facility in North Yorkshire. It runs on wood pellets from responsibly managed forests, and a pilot is ongoing to capture the CO2 for sequestration (including using MCFCs, an exciting technology that we recently reviewed in depth, chart below).

It is better if the wood is not burned, but instead used as a raw material. Do not underestimate how long wooden buildings can last, if properly maintained. The oldest wooden structure still standing is Japan’s Horyuji Buddhist temple, constructed in 639AD, and thus standing for over 1,400 years. Other examples include pre-Renaissance Italy (800-years old), Lhasa China (c1,400 years) and parts of the UK’s Greensted Church (c1,000 years old, below). Climatic conditions need to be dry, but not too dry.

The oldest wood still being worked on planet Earth is even older: at 45,000 years old, from the Ancient Kauri forest in Northern New Zealand, which was levelled by a tsunami and preserved in a peat bog. An exception, rather than a rule. But even wood products that end up in landfill effectively sequester CO2.

Wood can displace other materials, and thus carry a further benefit. For example, it takes 1.9T of CO2 to make 1T of steel, around 1T of CO2 per ton of cement, around, 1.3-1.5T of CO2 per T of glass and ceramic, and as much as 5T of CO2 per ton of plastic (chart below). The relative benefit of wood will depend, of course, on the energy intensity of the wood processing. Relative CO2-savings should be possible.

CO2 emissions of household objects:

Thus on our numbers, the periodic harvesting of forests should not be considered to detract from the benefit of reforestation projects in offsetting CO2. Each ton of green wood cut down may still entail 1-4T of total CO2 sequestration (chart below). Please find our recent research on the opportunities in CO2-offsets linked here.

Climate science: staring into the sun?

The scientific evidence for anthropogenic climate change is extremely robust, based on the technical papers we have reviewed, warranting better technologies that can decarbonize the global energy system. But the largest uncertainty is our understanding of the sun. Two new satellites (launched in 2018 and 2020) could soon provide unprecedented new data. It is interesting to consider scenarios for how the science could unfold, and how this could alter policies and market sentiment (chart above).

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Could new airships displace trucks?

In 2019, TOTAL co-filed two patents with an airship-technology company, Flying Whales, aiming to lower the logistical costs of moving capital equipment into remote areas. An example is shown above. The LCA60T is envisaged to carry up to 60T of cargo (c4x teh capacity of a truck), with a range of 100-1,000km. This short note assesses the opportunity, and whether these new airships could displace trucks, or lower diesel demand. We are most excited by the impact for onshore wind.


Flying Whales is a French company, originally supported by the French Public Forest Office, to progress transportation technologies that could help evacuate timber. It has since raised €200M, including from BPI and Chinese backers.

Designs for the LCA60T are shown below, from TOTAL and Flying Whales’ patent. The ship is 154m x 68m, constructed from rigid carbon-fiber composite, generating aerostatic lift from 10, unpressurised cells of helium.

Its distributed electric propulsors are similar to those in the flying car concepts that excite us. We recently re-assessed our rankings of different flying car concepts here.

Technical Readiness is at Level 5-6, but rapid progress is foreseen: Wind-tunnel testing in 2019, the first test phase in 2020, the first prototype flight in 2021. Flying Whales company plans to construct a plant in Bordeaux, for €90M, to produce 12 airships per year by 2022, ramping up to €5bn of sales within 10-years, from constructing 150 airships in France and China.

What Advantages?

Airships can rapidly reach places that trucks cannot, particularly in remote areas without naviable roads. They are helped by vertical take-off and landing (VTOL), and a system of a dozen winches, that can lower cargoes.

Airships can also carry large loads, up to 60T, at speeds up to 100kmph. For comparison, a typical truck carries c14T, a Sikorsky S-64 SkyCrane carries 9T and the largest Russian Mil Mi-26 helicopters can carry 20T.

Economics are better than helicopters. Flying Whales estimates that its deliveries could be 20x less expensive than helicopters, which can cost c$1M/day or at least $11,000/hour. The Flying Whales should cost c$50,000/day, which perhaps translates into c$5,000/hour. This is still much more pricey than a truck ($60-200/hour), making Flying Whales best suited to large loads in remote locations. The technology is unlikely to replace trucks on highways.

Wind turbines? Where these capabilities may best come together is in the delivery of wind turbine blades, where the logistics can be notoriously challenging (chart below). All three turbine blades could in principle be delivered as a single Flying Whales Cargo, slashing the c$30,000-100,000 delivery costs per turbine, that can be incurred in the onshore wind industry.

What Energy Economics?

The energy economics of Flying Whales’ airships should be a great improvement on helicopters, but still fall short of trucks, we estimate.

Specifically, the Flying Whales airships consume 1.5MW at peak cruise speeds around 100kmpg. This power consumption is equivalent to c100 gallons of diesel per hour, fed into a diesel generator, which in turn feeds the propulsion units. Total fuel economy thus runs at 30 ton-miles per gallon (chart below).

By contrast, we estimate helicopters consume c5,000 gallons of jet fuel per hour, for fuel economies of 1.5 ton-miles per hour.

But trucks consume only c10 gallons of diesel per hour, for a fuel economy of c67 ton-miles per gallon.

Fuel consumption may also be higher for large airships, during strong gusts of wind. To stabilize the Airships, they will contain 3MW ultracapacitors, to provide bursts of energy.

The most efficient freight delivery method remains via container ships and trucks, according to our data-file (chart below), which now also includes the calculations above for Airships.

We conclude that new airships may help deflate delivery costs in remote locations: particularly for onshore oil and gas, onshore wind and niches in the construction sector. But they are unlikely to displace materialy volumes of diesel demand, which remain in our models of long-run oil demand (chart below).

Source: Kuhlmann, H. F., (2019). Method for Transporting a Payload to a Target Location and Related Hybrid Airship, Patent WO2019092471A1


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Chevron: SuperMajor Shale in 2020?

SuperMajors’ shale developments are assumed to differ from E&Ps’ mainly in their scale and access to capital. Superior technologies are rarely discussed. But new evidence is emerging. This 11-page note assesses 40 of Chevron’s shale patents from 2019, showing a vast array of data-driven technologies, to optimize every aspect of unconventionals.

Page 2 explains how we assessed Chevron’s shale patents, to identify technologies that could support guidance for 900kboed of Permian production by 2023.

Page 3 sets out Chevron’s technologies for shale exploration and appraisal, based on recent seismic patents.

Page 4 sets out Chevron’s technologies for shale drilling, based on recent patents, many of which are co-filed with Halliburton, around a specific innovation.

Pages 5-8 set out Chevron’s technologies for shale completions, through an array of sophisticated, proprietary and increasingly digital technologies. These will not only help in the Permian, but also in de-risking international basins.

Page 8 sets out Chevron’s potential edge in completion fluids. We are particularly excited by the promising results from field-tests of anionic surfactants.

Page 9 sets out Chevron’s data-driven flowback practices, including productivity gains from field tests in the Vaca Muerta.

Pages 10-11 set out Chevron’s technologies for upgrading NGLs into gasoline-, jet- and diesel-range products, using industry-leading ionic liquid catalysts.

Page 11 concludes with implications for the broader shale industry.

Thunder Said Energy: CO2 Neutral in 2019

It is important for us to practice what we preach. Hence in 2019, we reduced our CO2 by 78% compared with a typical research/consulting firm, and purchased CO2-offsets for the remaining 5.6 tons (chart above). This 9-page note contains granular data on professional service firms’ emissions and opportunities to reduce them.

Thunder Said Energy’s CO2 emissions were 5.6 tons in 2019.  61% was from air travel, 4% from broader transport. 5% was running computers, 5% was data-servers and 3% was other electricity. 13% was materials, 7% was heating/cooling and 2% was shipping/freight (chart below).

We offset these emissions for just $87, purchasing verified carbon credits at $14.5/ton. Offset costs are low (chart below). More companies may choose to offset.

A typical consultant or industry analyst has a footprint of 25 tons of CO2 each year. Compared with this baseline, we saved 8 tons through a leaner organization, 7.5 tons by minimizing air travel (e.g., video conferences), 3 tons by remote working and 830kg by phasing out printed presentations.

For 2020, we also commit to be CO2-neutral. We would like to thank our clients for their support, as we limit our travel, print fewer materials and grow our organization.

Offshore Wind: Tracking Turbines with Satellites and Machine Learning?

Followers not leaders? In a commodity industry, it is important to invest with superior technologies, if you want to generate superior returns. Hence we have been relatively cautious on the Majors’ offshore wind investments. Commoditised, industry-standard technologies yield single-digit returns at best. Model it from a portfolio perspective, and the optimal portfolio allocation to undifferentiated renewables technology is just 5-13% (chart below, note here).

Leaders not followers. 2018 did include some encouraging solar innovations from Oil Majors, as reviewed in our data-file (below). But as we start reviewing 2019’s patent filings, we are looking for examples of Energy Majors developing superior technologies for traditional, offshore wind. Today’s note highlights an example…

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The Most Powerful Force in the Universe?

Investors may suffer if they do not consider the energy transition. But they may suffer more if they consider it, and get the answer wrong. We argue that the best way to drive the energy transition will be to maximise carbon-adjusted investment returns.

Our starting point is the chart below, which focuses on the power of compound interest, “the most powerful force in the universe” (the quote has been ascribed to Albert Einstein). This is not our usual tack — which focuses upon energy technologies, economics or quantifying CO2 — but purely mathematics…

The difference is enormous between compounding at, say, 4% and 12%. It may not sound material in any given year (“it’s just 8%”). But over a thirty year investment horizon, it makes the difference between a $100 initial investment rising to c$300 and $3,000 of value (i.e., a factor of 10x).

How this applies to the energy transition is that we currently observe institutional investors backing away from high-return (10-20% per year), industrial asset classes, which are feared to be high-carbon, towards low-returning asset classes (4-6% per year), which are perceived to be low-carbon.

For oil companies, the spread of opportunites is charted below (note here). Measured over any single year the difference may be imperceptible. But over 30-years it is vast.

By down-shifting from high-return assets to low-return assets, the costs of mitigating climate change end up falling upon the shoulders of institutional investors: endowments, foundations, hopeful retirees; as a hidden cost.

It is not for us to say whether this kind of hidden cost is morally right or wrong. But we can say that it is sub-optimal, in economic terms, because unlike a visible cost (e.g., a direct “carbon price”), it will not change behaviours in ways that actually drive decarbonisation.

No “incremental” energy transition occurs when investors divest from traditonal industrial sectors; and instead, outbid each other to finance the same renewable energy projects. A better alternative is needed.

Investment firms understand the challenge. This week, Blackrock’s CEO, Larry Fink, published a letter to CEOs, stating how climate change will “fundamentally re-shape finance”. What is not being reshaped, of course, is the maths of compound returns. Mr Fink’s letter begins by highlighting “we have a deep responsibility to institutions and individuals … to promote long-term value”. So how can this happen?

Three better alternatives for investors in the energy transition

In order to drive incremental energy transition, it is necessary to attract incremental capital. It must flow towards high-returning technologies and projects, which can drive decarbonization. This is our central tenet on investing for an energy transition. And it underpins the opportunities that excite us most in 2020 (chart below), which should all seek double-digit returns. Seen this way, climate change is not a cost to be passed on to investors, but a positive investment opportunity, to help meet a societal need.

A second alternative is to allocate more capital to companies that offer attractive returns and also have lower carbon contributions than their peers: such as lower-CO2 oil and gas producers, shale producers, refiners, midstream or chemicals companies. On any decarbonized energy model that we can construct, demand for gas will rise and demand for low carbon oil will not collapse. We have reams of data to help you with this screening. Often it is due to superior technologies.

Example: High- and low-CO2 producers ranked in the Bakken,

A third alternative could be to offset CO2 directly, as you continue investing in high-returning, industrial companies. This still leaves investors paying for the cost of climate change out of their future returns. But the cost is much lower than if investment returns are sacrificed by divesting from industrial companies and funding renewables.

For example, we recently tabulated the costs of carbon credits, being offered by 15 separate offset schemes. Based on the data, we calculate that an investor could buy a SuperMajor oil company with an average distribution yield of 7%; offset their investment’s entire Scope 1&2 emissions for a drag of just 0.5pp; leaving their “zero carbon cash yield” at 6.5%. (It will be interesting which forward-thinking Super-Major is first to apply this logic and offer up such a “carbon-offset share class”).

The end point is that high carbon companies will see higher capital costs (and our survey work indicates this is already occurring, chart below). But how much higher? In an efficient carbon market, there is an easy answer: high enough so that the extra yield of Investment X (vs Investment Y) can be re-invested in carbon credits to offset the extra CO2 of Investment X (vs Investment Y).

These ‘carbon adjusted returns’ are directly comparable. The higher carbon- and risk- adjusted return equates to the better investment. The higher the carbon price, the higher the relative cost of capital for high-carbon companies; and the higher the relative incentive to lower emissions.

This system, we believe, will be much more sophisticated and effective in driving a full-scale energy transition that the blunt-force strategy of “divest from oil and buy renewables”. It will also not leave investors short-changed, by up to 90%, when they come to meet their budgeting or retirement needs in 2050.

Please do contact us if you have any observations, questions or comments; or would like to discuss some of the “long-term value” opportunities, which we think can help drive the energy transition…

Energy Transition: Polarized Perspectives?

Last year, we appeared on RealVision, advocating economic opportunities that can decarbonize the energy system. The “comments” and reactions to the video surprised us, suggesting the topic of energy transition is much more polarized than we had previously thought. It suggests that delivering an energy transition will need to be driven by economics, whereas polarized politics are historically dangerous.

The fist 50 comments from our RealVision interview are tabulated below. 17 were positive and enthusiastic (thank you for the kind words).

But a very surprising number, 16 of the comments, attacked the science of climate change. It is perhaps not a fully fair represenation, as those with extreme views are more likely to post comments in online forums. But 30% dissent is still surprisingly high. Read some of these comments, and it’s clear that fervent opinions are being expressed. Even moreso on our youtube link.

6 of the comments also challenged the politics behind energy transition, expressing concerns that some politicians are evoking fears over climate change in order to justify policies that are self-serving and only tangentially related to the issue.

These attacks are from an unusual direction. Living in New Haven, CT, we are more used to being criticised for seeing a continued, strong role for lower-carbon and carbon-offset fossil fuels in the decarbonised energy system (chart below).

Indeed, another sub-section of the comments argued that our views did not go far enough. 6 of the comments called for a greater emphasis on nuclear or hydrogen and continued vilification of traditional energy companies. Our economic analysis suggests economics will be challenging for hydrogen, while nuclear breakthroughs are not yet technically ready. But one commentator, for example, dismissed this analysis and said our views must be “ideologically driven”.

Mutual animosity was also clear in the comments section of the RealVision video. One comment reads “you are completely delusional..sorry that you got fed the wrong info by these fraudsters in suits and their little girl puppet. You’ll wake up to reality one day.” Another reads “let our kids and future generations figure it out like we had to from our forefathers!”. At last year’s Harvard-Yale football game, the protesters met any such criticism from the crowd with a chant of “OK boomer”.

Deadlock? Others in the comments section tried debating the climate science. One statement was criticised as a “typical ‘we know better’ argument”. Another commenter opined that all peer-reviewed scientific literature is “fraudulent”. The most sensible comment in the mix noted “very little space left between ‘Greta Evangelists’ and equally fanatical ‘haters'”. This appears right. It is a polarized, poisonous, deadlocked debate.

Historical parallels? Over the christmas break, I enjoyed reading James McPherson’s ‘Battle Cry of Freedom’, which described the gradual polarization of ante-bellum America, in the 25-years running up to the US Civil War. One cannot help seeing terrifying similarities. Animosity begat animosity. Eventually the whole country was divided by an ideology: abolitionists in slave-free states versus the unrepentant slave economies.

Ideological divides are also deepening in the energy space. 40% of world GDP has now declared itself on a path to zero carbon. What animosities will emerge between these carbon-free states and the unrepentant carbon economies?

Economic opportunities in energy technologies remain the best way we can see to deliver an energy transition without stoking dangerous animoisities. They will remain the central theme in our research in 2020, and we are aiming to stay out of the politics(!). Our RealVision video is linked here.