Status Update
I don’t generally use this column to discuss the projects that I am working on. In fact, it’s been more than 2 years since I did. But I often get inquiries about where I am and what I am doing, so in today’s column I thought I would update readers who may be interested.
Since I graduated from Texas A&M in 1995 with my master’s degree in chemical engineering, I have worked for 5 companies in 10 different locations — including 3 foreign countries. Most of my work has been on energy projects. I am not going to run through my entire career here, but I will explain what brought me to my current job. If you want a full accounting, please refer to my CV.
From 2009 to 2014, I worked for a company in Hawaii called Merica International. Merica was essentially a holding company for a German entrepreneur who lived in Hawaii and invested in energy companies and technologies. Most of the published biographies for me still list Merica as my employer. In my role as Chief Technology Officer for Merica, I had the responsibility for conducting due diligence and making investment recommendations. When I joined the company, one of the major holdings was the German company Choren, which produced diesel from biomass. I first wrote about Choren back in 2008 before joining Merica. Long story short, as is often the case with new technology, startup issues dragged on and on and we finally made the decision to shut the plant down. I documented the timeline for these events in What Happened at Choren?
Fast forward to 2012, and the financial website Investing Daily recruited me to take over as their Chief Investment Strategist covering the energy sector. This is still my night and weekend job. I write several weekly columns for Investing Daily, help co-manage (along with my colleague, long-time financial columnist Igor Greenwald) several model energy portfolios, and co-host a monthly web chat for subscribers to The Energy Strategist and MLP Profits. (I promise I am going somewhere with all of this).
One of my duties for Investing Daily is to speak at their annual investment conference. In 2013, that conference was in Scottsdale, Arizona. My boss at Merica had become interested in a company located in Chandler, Arizona — about 35 miles away from the Investing Daily conference. So he asked me to drop down to Chandler while I was in Arizona and check out a company called Advanced Green Innovations (AGI). They were working on a number of technologies in various stages of development, and after spending half a day there I reported back to my boss that I thought what they were doing had potential. I noted various technical risks on different projects, but importantly it wasn’t alchemy or pseudoscience.
It was a running joke that I always said “No” after looking at a company, so his response was “This may be the most positive assessment you have ever given a company.” My boss decided to invest in AGI, but he also decided to embed me at the company in Arizona to help them with their technology development. After living in a hotel in Arizona for a year, I joined AGI full-time in September 2014 as their Director of Alternative Fuels Technology.
Tackling the Flare Gas Problem
AGI primarily works on solutions to environmental problems. One of those problems is gas that is flared around the world at oil production sites. This so-called associated gas, or flare gas, is primarily methane, but also contains longer-chain gaseous hydrocarbons such as ethane, propane and butane. These higher hydrocarbons make the gas less than ideal for power generation, and it can be expensive to separate them out. As a result, this gas is often of relatively low market value.
According to the World Bank, gas flares at oil production sites around the world burn 140 billion cubic meters of gas (which is primarily methane) each year. To put this in perspective, if this gas was turned into power it could provide more than enough electricity to supply the entire African continent. The annual emissions from these flares are about the same as the yearly emissions from 70 million cars, or from ~120 coal-fired power plants. Thus these flares are very large global sources of emissions. You may have seen the nighttime pictures of the Bakken Shale that show the cumulative effect of all this flaring. Despite the fact that there are no major cities anywhere in the area, flaring in the Bakken is significant enough that the area looks like a major city when viewed from a satellite. Likewise for the Eagle Ford:
Governments worldwide are clamping down on the practice of flaring, but oil producers are often left without economic options for dealing with this gas. As I heard one oil producer explain it, “The associated gas on my site has a market value of $600,000, but it will take at least $1.5 million in infrastructure to move it to market. So I flare it.” The challenge for governments is that they want to restrict the practice, but they worry about negatively impacting tax revenues derived from oil production.
For example, in July 2014 North Dakota passed legislation that would have made mandatory cuts to the amount of gas flared. By January 2016, producers were required to capture 85% of the associated gas produced, or have their oil production curtailed. But as the deadline for compliance drew near, oil producers complained that there were no cost-effective options for dealing with the gas, and they would be forced to curtail production to meet the mandates. That potentially meant lower tax revenues for the state, so last month the North Dakota Industrial Commission approved a proposal to delay these mandatory cuts to gas flaring until late next year. The North Dakota government is hopeful that these delays will allow more time for an acceptable solution to be developed.
This is one of the problems AGI has been working to address. Working closely with oil and gas producers and with environmental organizations to understand their respective wants and needs, we designed, engineered, and tested a system that can economically address the issue. The solution is a compact, modular gas reforming system that converts associated gas that can vary greatly in composition and in energy value to a consistent quality gas that can be used to provide power for a site (often displacing diesel-powered generation). Alternatively, the reformed gas can be injected into a gas pipeline. ZHRO is the brand name of the product line, and those who have an interest in the system or how it works can find those details on our Associated Gas web page. But here is a general schematic of the system showing how it connects to a well site:
Advanced Green Innovations’ ZHRO 1500 CMT Associated Gas Reforming System
Thus far we have tested a unit in the Eagle Ford Shale in Texas, we have a unit operating on the Montana side of the Bakken Shale, and we have one that is being prepared to be deployed in the Permian Basin.
I have responsibility for one of the unit’s subsystems. Last week I flew up to Williston, North Dakota see our Bakken unit in operation. While I was there I also spent time gathering intelligence on how the shale oil boom — and subsequent oil price crash — has impacted oil companies, pipeline companies, and various service providers in the region.
Introducing My Well-Qualified Guide
It has been 5 years since I had been in North Dakota, and a lot has changed since my last visit. So, I was paired up with a guide who knows the area well. Jon Hesse is our Senior Vice President of Business Development for Associated Gas, and he has worked in the Bakken for several years. He also happens to be one of the 0.002% of Americans who own a Super Bowl ring.
Notably for football fans, Jon played linebacker at the University of Nebraska for legendary coach Tom Osborne, and won National Championships there following both the 1994 and 1995 football seasons. His 1995 team was one of the most dominant in college football history, and is often ranked as the greatest college football team of all time. After college Jon was drafted into the NFL where he played for several teams, including the 1997 World Champion Denver Broncos. After carefully considering his qualifications, he edged out Peyton Manning as my Bakken guide. (Manning was a strong candidate, but I just couldn’t cope with hours of him humming that “Nationwide is on your side” jingle).
My Bakken Guide – Former Nebraska Cornhusker and NFL Linebacker Jon Hesse
Jon and I spent 5 hours driving mostly around the North Dakota Bakken, visiting different sites, taking photos of flares, and discussing business strategy. We also talked a lot about the evolving business climate in the region, and the outlook going forward. I will provide a more in-depth report on my Bakken visit in next week’s column.