Preserving Methane’s Value on Earth

Hi there,

We’re Overview Capital and we invest in the mitigation of methane and other super pollutants at the earliest stages. Welcome to the ninth edition of our newsletter, The Overview: Our biweekly dispatch on the world of methane and other super pollutants.

The topline

Methane is a versatile, potent molecule that differs from other fossil fuels and greenhouse gasses. For one, methane is the only fossil fuel that is also a greenhouse gas. Burning all fossil fuels produces carbon dioxide emissions, one of the main greenhouse gasses. But because methane is itself a greenhouse, when it escapes from infrastructure and appliances, ranging in scale from massive pipelines to natural gas-fired stoves, it drives global warming. While methane isn't only emitted from fossil fuel industry operations, it has driven 30%+ of global warming to date.

Methane is also becoming more important to global energy and economics, not just because of its role as a major driver of global warming. Today, methane accounts for more than 20% of global electricity generation. In places like the U.S., it is the number one source of electricity generation. Methane is also arguably the most versatile fossil fuel in that it is used both for power generation as well as in many industrial processes–such as making fertilizers–as well as to power vehicles and in home heating, whether for cooking, clothes drying, or water heating. Plus, it’s increasingly used in transportation, whether in municipal buses or maritime shipping vessels. There are 3 million miles of natural gas pipelines spanning the Earth, three times more 'pipe' than exists globally to support telecommunications and internet infrastructure.

Methane's growing role globally has been enabled in part by a revolution in production, especially in the U.S. Thanks to advances in horizontal drilling and hydraulic fracturing, AKA fracking, technologies, natural gas producers have been able to access new formations in otherwise low-permeability (i.e., 'unconventional') reservoirs. The U.S. is the world's largest natural gas producer by a wide margin, surpassing Russia (the second top producer) by more than 50%, providing 25% of the world's natural gas.

Not without consequence

Of course, producing and burning methane, whether for electricity generation, heat for industrial applications, or building heating, comes with consequences. While burning methane produces far fewer carbon dioxide emissions than burning coal does, burning it still produces a considerable amount of carbon dioxide. 7.8 billion tonnes of carbon dioxide emissions globally come from burning methane every year (20% of total). While these emissions don’t drive as much near-term warming as methane emissions do, carbon dioxide is a long-lived atmospheric gas, meaning it accumulates in the atmosphere and lingers there for centuries, driving warming.

In addition to changes to atmospheric greenhouse gas concentrations and contributions to global warming, the entire lifecycle from natural gas and methane extraction to combustion comes with a whole host of other environmental challenges,. At the ground level, methane is a tropospheric ozone precursor; it contributes to the formation of tropospheric ozone, which is a greenhouse gas as well as an unhealthy air pollutant. Further, the ecological toll of fracking is well documented; countless communities in the U.S. situated near fracking operations have suffered harms ranging from water contamination to air pollution. 

While the world continues to devote considerable resources to the innovation and large-scale infrastructure deployment required to conduct a comprehensive energy transition away from fossil fuels, methane is expected to play a role in energy generation and industry for years to come, especially in places like Asia where coal is still dominant in power generation and natural gas imports offer a less carbon dioxide and air pollution-intensive fuel source. China, Japan, South Korea, India and other Asian countries are top LNG importers, with Asia on the whole accounting for close to three-quarters of global LNG imports. Recently, the U.S. also became the largest exporter of natural gas in its liquefied form, surpassing Qatar.

Given the centrality methane will continue to play in global energy dynamics, entrepreneurs are getting more and more creative about how to source methane and use it to power energy-intensive applications or make other useful products in a less ecologically taxing fashion.

Valorizing otherwise stranded methane assets

Given the versatility and power of methane, identifying opportunities to make use of methane that would otherwise not get valorized (a stranded asset) or, worse, would get emitted into the atmosphere, can represent win-win opportunities for businesses. 

To understand why methane emissions are common during oil extraction, it's worth noting that methane is often found alongside oil deposits, though the methane content is often too low or the cost of processing both resources simultaneously too high for producers to divide their attention and monetize both assets. So producers typically focus on the oil. Even when the methane content might be significant, monetizing both the oil and the gas can entail developing two different sets of infrastructure, which is neither easy nor cheap.

As a result, oil producers often either vent or 'flare' (burn) excess methane gas that builds up in oil extraction infrastructure rather than making use of it. This is a significant environmental challenge. When gas is vented from oilfield operations, it enters the atmosphere directly, contributing significant methane emissions to the atmosphere. Even when flared, methane enters the atmosphere, as flares are rarely 100% efficient at combusting the gas into carbon dioxide and water. Further, even after oil wells are no longer operational, like coal mines, they can continue to vent methane emissions for decades. According to BloombergNEF, venting and flaring accounted for 64% and 11% of methane emissions from oil and gas in 2021, representing three-quarters of all methane emissions from the sector.

Flared and vented gas is a massive challenge for the oil and gas industry. But it’s also a massive opportunity to source valuable methane gas without requiring additional fracking and to mitigate additional methane emissions into the atmosphere. Here’s how.

Building win-win businesses

One of Overview’s portfolio companies, Emvolon, offers an excellent example of the types of economically and environmentally sound businesses being built in this space. Emvolon’s core technology takes typical combustion engines – not dissimilar to those found in cars – and converts them to modular, easy-to-deploy chemical processing plants that use methane to make valuable chemicals with large markets.

An example of a valuable product Emvolon makes is green methanol. Methanol, a highly flexible hydrocarbon fuel used for a variety of applications, is a leading candidate for decarbonizing maritime shipping and is typically made from natural gas. By producing it from otherwise wasted or unused sources of methane, Emvolon can reduce environmental externalities inherent to new oil and gas extraction and help keep methane out of the atmosphere, preventing global warming. The unlock here is Emovolon’s technology platform and expertise, which allows them to turn otherwise wasted gas into valuable products like methanol, whereas oil producers have previously overlooked their stranded gas assets. Future use cases can include greener production of other foundational chemicals, like ammonia, which is essential for fertilizer production.

Outside of stranded gas in oil fields, there is unutilized methane gas in many other environments that would be better used on Earth than lost to the atmosphere, where it drives global warming. For instance, harnessing methane from landfills or dairy barns represents additional opportunity.

Other companies are building successful businesses in this space by using stranded methane assets on oilfields for other applications. For example, M2X, which recently raised a $40 million Series B, makes gas-to-methanol trailers while Crusoe Energy, which raised a $350 million Series C in 2022, uses stranded methane gas to power distributed data centers. As much of the climate and energy tech space struggles to muster fundraising beyond the pre-seed through Series A stages, this space shows strong precedent for growth-stage financing.

The bottom line

Methane’s role in global energy production in industry isn’t going anywhere in the short-term or medium-term. In fact, it’s growing considerably. That said, as the world navigates innovation and commercialization of cleaner technologies and industrial manufacturing techniques to reduce dependence on fossil fuels, making use of previously wasted sources of methane on Earth and keeping it out of the atmosphere offers opportunities to reduce global warming while creating valuable products. Emvolon’s technology and business model is a great example of the win-win impact on the environmental and economic front inherent to both reducing methane emissions and harnessing the versatility and power of methane for established applications and markets.

News and Policy

• Methane misestimations: U.S. oil fields release up to four times as much methane as previously estimated, based on new data analyzed by the Environmental Defense Fund that was collected by MethaneAIR, an aircraft equipped with methane measurement technology. The aircraft surveyed ~70% of onshore U.S. oil and gas production.

• The methane imperative: A new paper published in Frontiers of Science outlines a crystal clear case for the methane imperative, namely to rapidly reduce methane emissions as the rate at which atmospheric methane concentrations is increasing suggests rising natural releases (e.g., from wetlands) in addition to human-caused ones. Further, a separate study found significant methane releases in ecosystems not previously thought to be major methane sources in Alaska. 

• Commercializing CH4 reductions: CH4 Global, a company developing feed additives to reduce enteric methane emissions, signed a first of its kind offtake agreement to export “reduced-methane beef” out of Australia.

• Grants for methane-reducing vaccines: The Bezos Earth Fund awarded grants to several projects that aim to study and develop vaccines that reduce the rate at which ruminant animals produce methane. The Pirbright Institute and the Royal Veterinary College (“RVC”) received a $9.4 million grant to study how to improve the efficacy of vaccines while RVC also received ~$1.5 million to work with the the Spanish National Research Council to develop a vaccine.

• Trees suck up methane, too, not just carbon dioxide: A study conducted by researchers at the University of Birmingham in the U.K. found that trees (specifically, tree bark) are more instrumental in removing methane from the atmosphere than previously thought, adding another imperative for conservation and reforestation work alongside tech development.

Odds and Ends

If there is anything to take away from this edition of The Overview, it is that methane should be kept on Earth where it can be utilized as a leading energy source, and out of the atmosphere, where it is a leading driver of warming. This requires measurement, reporting, and verification technologies to quantify emissions of methane that were previously going undetected, but it also requires the utilization of undervalued and overlooked emissions like those from flaring, landfills, and anaerobic digestors, which turn out to have much more value than previously thought.

Thanks for reading the ninth edition of The Overview. If you are a methane or super pollutant focused company or want to connect on methane or our investment work, please reach out to [email protected].

– Team Overview