Cleaning Up: Leadership in an Age of Climate Change

Texas Hold'em: Playing Poker With Methane - Ep167: Grant Swartzwelder

Episode Notes

Depending on who you ask, methane is either a useful transition fuel to a low-carbon future, or a super polluter. The science of methane says that for natural gas to have a lower climate footprint than other fossil fuels, particularly coal, there can be leakage of no more than 3.2% from end to end. Yet studies across the US show wildly different leakage rates. One of the most influential, by Robert Howarth of Cornell University, puts it at 4.8%, making methane worse for the environment than coal. The EPA tells a different story, and says leakage rates are just 0.93%. All of this really matters for the climate, especially since Russia's invasion of Ukraine. The US has become the world's biggest producer and exporter of natural gas, and hundreds of billions of dollars have been invested globally on the premise that natural gas is a cleaner stop-gap between our fossil present and our low-carbon future. So who's right? And how can we find ways to reduce those methane emissions in either case. Grant Swartzwelder, founder of OTA Environmental Solutions and ESG Dynamics, based in Dallas, Texas, joins Cleaning Up to tease out the problem.

Episode Transcription

Michael Liebreich

Hello, I'm Michael Liebreich, and this is Cleaning Up. As we've heard from many of our guests, over the past few years, the world has been making great progress on CO2 emissions. They're no longer growing out of control. We are at, or near, peak annual emissions. Sadly, CO2 is not the only greenhouse gas. In episode 146, Bryony talked to Jason Anderson about super polluters, among them nitrous oxides and exotics like sulphur hexafluoride. Today it's time to do a deep dive into methane, fossil gas or, as the fossil fuel industry has persuaded us to call it, natural gas. It's such a contested area that I'm going to change the format a little bit for this episode, I'm going to start with a bit of a primer.

Now, if you already know all about methane leakage, why it's a problem, and why the rates of leakage are so controversial, you're allowed to fast forward to the point, about 15 minutes in, where I'm joined by this week's guest. Otherwise, here's a bit of background. 40% of methane emissions globally are from natural sources, mainly from wetlands. The other 60%, however, is anthropogenic and that means it's our fault. In 2023, the International Energy Agency estimated that around 350 million tonnes of methane were released to the atmosphere as a result of human activity.

And methane is an incredibly potent greenhouse gas. Over a 100 year period, each tonne of methane has a global warming potential 30 times as powerful as CO2. So that methane that is being released as a result of our activities is equivalent to a release of 10.5 billion tonnes, or gigatons of CO2. You have to compare that to an emission of 37 gigatons of actual CO2. So all in all, methane is responsible for around 30% of all historic global warming since the industrial revolution. However, methane degrades relatively quickly in the atmosphere, so all of its impact is front loaded. Over a 20 year period, methane has a global warming potential that is 80 to 85 times as much as CO2, which means that over a 20-year period that 350 million tonnes of methane is equivalent to no less than 28 gigatons of CO2. So 37 gigatons of actual CO2, and then 28 gigatons equivalent over a 20-year period of methane. So if you're worrying about the climate in 2044, in 20 years time, as I think you should be, today's methane emissions are almost as big a problem as CO2.

So where do those anthropogenic methane emissions actually come from? Well, the biggest source, 36%, is from agriculture, largely from cattle. And if you've ever wondered which end of a cow it comes from, the answer is both. There is more methane in cow burps than in cow farts, but methane is also given off by manure. The other big agricultural sources include decomposing vegetation in flooded rice paddies and in artificial irrigation reservoirs. But the next biggest contributor, and what we'll be focusing on during this episode, is fossil fuels, at 30%. That comes from leakage during the production, transport and use of oil, gas and coal. The final big source is waste going to landfill, that's about 18%, emitting methane as it decomposes.

Now, there have been international efforts to agree to lower methane emissions, especially from fossil fuels, this has been going on for some years. All the way back in 2004, US President George W. Bush introduced the Methane to Markets Partnership to try to get international consensus on reducing methane emissions, partly instead of really dealing with CO2 emissions. This was then relaunched in 2010 by President Obama as the Global Methane Initiative, and since then, emissions have continued to increase. But so has the awareness of its contribution to climate change. In 2021, at COP26, methane really came under the spotlight. President Joe Biden and the European Union President Ursula von der Leyen signed the Global Methane Pledge with the aim of cutting methane emissions by 30% from 2020 levels by 2030, a target which I immediately condemned as insufficiently ambitious. Coming into COP28 in 2023, China finally joined the methane brigade, not signing the methane pledge but announcing a bilateral agreement with the US to enhance cooperation on climate goals, and crucially unveiling a plan domestically to reduce methane emissions, particularly from coal mines. 155 countries have now signed up to that Global Methane Pledge. But India, Russia, Iran, Algeria and Venezuela are among the countries that have not and you'll note they are all oil and gas producers, and they're responsible for 30% of the global emissions of methane from the oil and gas industry. Last year, in the US, the Environmental Protection Agency announced that the federal government would, for the first time, require oil and gas producers to actively detect and fix leaks of methane. And in April this year, the EU adopted a new law to cut methane emissions across the block. Now in both cases, it's a little unclear exactly how this will play out in practice, and how any of this is going to be enforced, but piece by piece, the methane abatement puzzle is slowly being filled in. We are still on an upward trend, but one could be optimistic and think that's about to reverse.

But there's a big problem: data. Part of the problem of stopping methane leaks is detection. Methane is a colourless, odourless gas, so with a naked eye, it's pretty much impossible to spot. And if you're a big gas producer or distributor, with a network of pipes running across a state or country, leaks can go unnoticed for weeks, months, years. For better or for worse, it's not like an oil spill where entire coastlines are swamped with black goop almost immediately — terrible for the environment, but easy to detect. For methane, you need satellites, drones and people out in the field equipped with infrared cameras to detect leaks. Satellites are great for picking up leaks on a macro scale, but they're not yet high enough resolution to pinpoint the exact leak to a specific well or collection unit within a collection area. People and drones are required to home in on the precise spot in order to enforce action. This is its own burgeoning field in the climate space. In fact, my cohost, Bryony, had two fantastic conversations in episode 157 of Cleaning Up. One with Dr Sebastian burrowed. One with Sharon Wilson, an academic and an activist, respectively, both of them on the hunt for leaking methane and ways of stopping it. At an international level, too, there's been progress with MRV (monitoring, reporting and verification) becoming an increasingly hot topic in climate negotiations. Ahead of COP26 and the launch of the Global Methane Pledge, the United Nations Environment Programme — UNEP — launched the international methane emissions observatory to monitor the commitments and actions of countries that were signing up to the pledge. And in March this year, the launch of MethaneSat, you guessed it, a sat, or satellite, dedicated to sniffing out methane and its sources, was launched into space by the Environmental Defence Fund and the New Zealand Space Agency. But getting reliable methane data is hard. There's lots of uncertainty, in particular around the production of natural gas, the methane that is piped into homes, piped into power plants around the world for heating, cooking and producing electricity.

Over the last few years, natural gas has been given a second lease of life as a transition fuel. It's the relatively good cop in the bad cop world of coal. It's still a fossil fuel, but supposedly far less polluting. You only need to look at the UK's emissions profile over the last few decades to see the positive impact of switching from coal to gas. But as always, it's not entirely simple. Because depending on how much of that natural gas, that methane, is leaked throughout production, transportation, distribution and use, natural gas can turn from good cop to villain. The science, the global warming potentials, of methane and CO2 say that for natural gas to have a lower climate footprint than other fossil fuels, particularly coal, there can be leakage of no more than 3.2% from end to end. But a 2022 study by Robert Howarth at Cornell University estimates that in the US, that figure is 4.8%. And because methane is so much more potent a greenhouse gas than CO2, remember 85 times more potent in the first 20 years, Howarth concluded that this level of leakage means methane has overall a greater greenhouse gas footprint than any other fossil fuel when it's burned. Not just coal, but also oil. That's just one number from one researcher. By comparison, the US Environment Protection Agency gives a much lower figure than Rob Howarth, saying that leakage is just 0.93% in 2019, across upstream, midstream and downstream. The International Energy Agency is a little more conservative, estimating the figure at 1.4%. If Howard's figure 4.8% is correct, then natural gas is not just a villain, but a supervillain. If the EPA is correct, or even the IEA, then methane, natural gas, remains the good cop, so we should allow it to stay on the force throughout its greying years before being retired for something even cleaner. And it gets more complicated, because methane is not the only gas being released by oil and gas facilities. There are other gases given off, particularly by oil, once it's brought to the surface and released from that massive pressure that it exists under beneath the surface. So there are ethanes, propane, butanes, pentanes. It's easy to talk only about methane, but these are different gases being released by different types of wells, different pieces of equipment, with different characteristics and different global warming potentials. All of this really, really matters for the climate, especially since Russia's invasion of Ukraine. The US has become the world's biggest producer and exporter of natural gas, hundreds of billions of dollars have been invested globally on the premise that natural gas is a cleaner stop-gap between our fossil present and our low carbon future. So who's right? And how can we find ways to reduce those methane emissions in either case. To help me sort through this, I'm joined by Grant Swartzwelder, an old friend of mine from Harvard Business School. He's founder of OTA Environmental Solutions and ESG Dynamics, based in Dallas, Texas, and he's a frontline expert on all of the above. Please welcome Grant Swartzwelder to Cleaning Up.

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So Grant, welcome to Cleaning Up.

Grant Swartzwelder

Thank you. Looking forward to it.

So let's start where we always do. We're going to ask you, sort of who you are and what you do in your own words. But this one's got a bit of a twist, because you've got to cover 34 years. The audience needs to know, we were at business school together, we were sitting in a Harvard Business School classroom in Kresge, 34 years ago. So what have you been doing since then?

Well I could say, recovering from sitting in that Harvard Business School class. No, really always enjoyed visiting with you at class, and it's been great to reconnect over the years. You know what I've been doing and I guess why I'm here today is we do everything emissions related with a company called OTA Environmental Solutions and with a company called ESG Dynamics. So we take care of looking at emissions and vent issues in the upstream oil and gas, and provide solutions for that, be that equipment like flares, combustors, vapour recovery units, whether it's field service, where we go and fix equipment to make sure they're running effectively, or consulting, or filling out all the regulatory forms, like tier two, greenhouse gas, phase ones, all the acronyms that you could appreciate. And then ESG Dynamics takes it to a different level, where we look at all the data that exist in the public domain regarding environmental issues. That's EPA data, (environmental protection agency), various state agency data, and then put it all together so that it's very easy to see who the good performers are and who the bad performers are.

So in the intro, prior to bringing you into the conversation, which I think you listened to, we talked about the overall problem of methane and other volatile components that are being released by the oil and gas sector. We said, okay, yeah, it happens in agriculture and so on, but we're homing in here. And you really are at the heart of it. You're there in Texas, and the US is the biggest... Because it's got the biggest oil and gas footprint, it's got the biggest methane and other emissions leakage footprint, and you're there and that is your business. You have these two businesses. One actually trying to help people capture the vapour recovery and so on, and consult with them on how to do it. And the other one is tracking the data. So it should be a fantastic conversation, and I'm really, looking forward to it.

Yeah, we primarily focus in Texas, New Mexico and Oklahoma, which happens to be obviously a huge producer of oil and gas. We touch 17-1800 pieces of equipment every 30 days. So it's always interesting. We see at the field level how things are really going and then we hear producers say what they say about their their environmental efforts.

And your clients would be, presumably, big, medium-sized and small oil and gas companies.

We do a wide range from the smallest, to the majors that you would recognise.

So how can I put this nicely? If we reach the end of the episode and it's clear that actually the US oil and gas sector in Texas, Oklahoma and New Mexico is doing a fantastic job, then it'll be down to you. But if it's not, it'll also be down to you. Is that fair?

Well, or it could be that our clients are doing fantastic because of us, and it's all those others that need to actually use us. How about that for a shill commercial.

Exactly, well why don't we come back and see if we can give a great big plug to OTA and to ESG Dynamics at the end. But can we start with the engineering, which is really important. So why is there a problem? I mean, how hard is it? What is actually happening? Why is this stuff ending up in the air in the first place? It's valuable, right? So, why is it being lost in the first place? Can you talk us through where do these emissions come from? There's different sort of reasons for them, in oil, in gas. Give us the kind of overview.

Yeah, when you suggested leading off with that, I thought that was so important because there's so many people I deal with on the regulatory side, the environmental advocacy side, public relations side, that don't really understand where a leak comes from. And if you don't really know where the root cause is coming from — the leak — how do you really fix it? And so you can get very complicated, very fast, but we'll try to keep it fairly high level. You have oil wells and gas wells. Gas wells generate gas, obviously, and because of that, their facilities, their capturing system, is such that it's capturing the product that it wants — a gas. Where the issue comes in, and when you talk about flaring and emissions, that tends to be with oil wells, because with oil that's being produced there's something called associated gas. There's gas captured in that oil, and once it goes up into a tank or flows throughout, then gas starts being emitted from there, coming out of solution. And that creates most of the problems when you talk about methane and emissions, it's the oil well that is really the suspect, which is kind of strange when you think about it.

Okay, so if you've got a gas well, it's producing gas, what you're saying is you've got a system to capture that. That's the valuable product, you're probably connected to a pipeline.

Your whole facility is based on that. Now, can you still have leaks? You bet, but that is a small percentage compared to the oil well.

Okay, we'll slice and dice and we'll see if we agree that it's a small percentage as we go through this, because there's some bits and pieces of data we need to cover. But broadly speaking, you're saying that the gas goes into the gas pipes, and the problems tend to come from associated gas. But it's not just methane, there's a whole bunch of gases that are being off gassed and coming out. Because methane is not... I don't know if it's in solution or if just alongside the oil, but there are also some gases that are literally dissolved in the oil. And when you bring them out, the pressure drops and they start to be emitted, they start to evaporate out from the oil, right?

And methane is just part of the natural gas that's in solution. So you're exactly right. You have the oil, then you have natural gas bubbling out, and methane is one of the main components of that natural gas.

But there are others? There's ethane and propane and all sorts of -anes, right?

There's hydrogen sulphide. There's a lot of things that are really bad for people and the environment.

And those come out at pretty high pressure, right? I mean, some of them — not all of them — they can't be contained in a tank. If you just have a tank of oil, which is essentially at almost atmospheric pressure, these gases are coming out, and the pressure is building and building and building in that tank, is that correct?

They can only build to a certain point because they're only structured for a certain pressure. And so that gas either has to go down a pipeline and be captured and either destroyed through a combustor or a flare. Or use a vapour recovery unit and you push that gas into a pipeline someplace where it can be taken somewhere and processed. Now, on the other side, if you don't have those control devices in place to save the tank and not let it explode, then the thief hatch, the little opening on the top of the tank, has to open, and that's when your emissions can really hurt you, because it'll flow out. You don't want it to build up too much pressure, because that'll create issues for the tank, as in, destroy it.

Okay, because what we're doing here is kind of slicing and dicing and saying: all leaks, all emissions, they may look the same when you see some single figure in some IPCC report or some EPA report, but actually why they're happening, there's a whole range of reasons. So we've got methane, you've got gas wells where, as you said, 'Can you have leaks? Sure.' So that's one type. Then you've got oil, where this pressure builds up and builds up, and if you don't deal with it correctly, or if you've not got the investment in place, then you're going to have to vent it or flare it or do something, right? And that's a different sort of problem. But that's in normal operation. But what about in startup and shutdown and bad weather, and there's all these kind of emergency situations: something breaks. Those are presumably other reasons, where there's just some catastrophic failure of a piece of equipment. How big is that of a problem, compared to those first two that we've that we've talked about?

Yeah, when you're drilling a well and you flow it back initially, to get the fluid started and get it into the facility, you can emit a decent amount of gas at that point. Now there are rules that have been put in place, causing it to be more of a closed loop system, meaning you try to keep all that gas in control, in the facility. The other thing that you alluded to is emergency use, and that's where you have a flare out on location, and for some reason, you have to shut the location in, the pipeline is shut in, and you have to do something with that gas. That tends to be a big slug of gas, because it's happened all of a sudden, and it's not necessarily an emergency. It could be an emergency, or it could be just something having to do with the downstream system that causes it all to back up, and there's no place for it to go except through a control device. Where that normally goes is through a flare, which is a long piece of metal going up 20, 40, 100 feet high, depending on the amount of gas it's supposed to handle. And then it's burned up there. Those flares, with some of the changes that have just been made, are supposed to be upwards of 98 to 99% efficient. Big question whether they all are, meaning, they probably aren't, but that should eliminate the methane going up. And if it's set upright, you're burning it very efficiently. That's the goal.

Interesting. So there's a friend of mine — Mark Davis — who runs something called FlareIntel, and I've talked to him about whether those flares are efficient, and what percent slip is there within the flare? So you're flaring, you think that you're turning all of those hydrocarbons, into CO2, but actually there's a bunch that just doesn't burn off and ends up being emitted. And these are very bad. As we heard in the intro, these are very bad greenhouse gases if they just go through that system, or if the flare is not lit, or if it's just vented rather than flared.

It kind of comes down to two main things. The flare has to be sized appropriately so that it can handle the amount of gas that you have. And that works on the low end and the high end. If you have something too big, then it can't burn the small gas effectively. If you have a flare that's too small, then if you push a lot of gas through it, then it won't burn it efficiently. And then the second point is that you've got to do preventative maintenance on that to make sure that it lights, and that it can handle everything it's supposed to do. And unfortunately, not everyone is doing a steady preventative maintenance plan to make sure that it does work. So there's those aspects of how one flare can be better than others.

Okay, so you've got some perhaps quite small levels of leakage, or excess pressure build up and whatever. And then you've got these kind of catastrophic or the bigger chunks, and they have to be dealt with with different equipment, a different approach. One is vapour recovery, the other is flaring, etc, etc. Now, you said you can have a decent amount of gas given off... I think my listeners probably, you know, half of them will be like, 'Oh, that sounds like a decent amount of gas.' The other half are going to be like, 'No, that sounds like an indecent amount of gas.' But obviously — obviously! — your clients are all doing a fantastic job at this, but are there also some bad apples? Is everybody equally magnificently good down in Texas, Oklahoma and New Mexico?

Well, within any industry, there are definitely good actors and bad actors. And it all depends on the culture that company has and if it's willing to spend the money and the time to make their equipment be sized correctly, be able to operate correctly and be in good functioning capability. So there's definitely issues out there to that end. In the QuadOb, which is a form of regulation that was just issued a few months ago, there's a thing called a superemitter, which is where they've kind of deputised a lot of people to identify potential leaks that are over 100 kilogrammes. It's very hard to figure out what 100 kilogrammes, for me or for anyone, but the idea is that...

Is that 100 kilogrammes per second, per day, per minute, in total?

Per day. But usually that means it's enough that by satellite, by aeroplane, by an OGI (Optical Gas Imaging) type camera, you can tell when it's emitting that much. And then there's a mechanism — that they've yet to announce how it's going to have happen — to basically inform the EPA, and then the state, to be able to tell on those folks and try to get something resolved.

Just a question, though. In your experience working with small, medium, large companies, and so on. Is it correct that the bigger companies are more competent, they're doing this more rigorously, and the smaller ones are not? What's the heuristic here, when you sort of start talking to a client and you think, 'Wow, these people are really just not across this.' Do you ever get that feeling? And if so, what are the tells? What are the things that make you think, 'Okay, we've got a lot of work to do here getting this company up to spare.'

Again, we're out in the field, touching a lot of different producers' wells. So we see the small and the big. And quite frankly, the environmental issues are not limited just to small players or just to large players. All of them have you know... most of the larger players are the ones drilling big new wells, and because of that, they have the capital to really do all the equipment, all the facilities, first rate, and eliminate a lot of the issues we're talking about. But the large companies also have a lot of wells that are marginal at best, and those are the ones that create leaks or venting. And it's hard to justify, on a well basis, spending the money for that. The smaller operators have the same thing where they're, at the end of the day, there to make money. And to justify spending a lot of money on a marginal producer is very hard, just from a pure economic sense. With the various regulations and the fines and the various public relations issues or mechanisms out there, you're seeing a lot more companies take this more seriously and really fix their locations to handle that type of venting.

Yeah, the reason I ask is that I was talking to somebody from Chevron, and they were saying, 'Look, the issue here is we're actually way above the average. There's these methodologies that are being used to say you're probably emitting this, you're probably emitting that. And here's the calculation using methodologies that are based on averages.' And they said, 'well, that's kind of unfair, because we are not average, we know we're better than average.' Is that credible?

Well, that's a little problematic in the thought process, because what happens there is that the Chevrons — to use your example — or I should just say, the generic, large, independent major... They have wells that are so large and produce so much that when you start looking at the vapour and emissions as a numerator and volume as a denominator. Their volume as a denominator is so big that it makes their percentages look fantastic. Now they still have a lot of individual wells that have problems, that need investment. The smaller companies don't have these big producers, so they don't have the big denominator, and so their ratios definitely look worse. There's one company out in west Texas that we do some work for, but not going to say the name. They have more wells that need to be plugged than any other company out in west Texas, and they're very large, in the news all the time. Well, they've got an environmental issue, not necessarily emissions, they have a plugging issue. But there's also emissions related to that.

Right, and because there's also, just to complete on this question of you know, why does this stuff happen? And you've alluded to it when you talk about plugging, and when you talk about some of these older wells. How many wells and how many holes in the ground are there in the three states where you operate? Is it hundreds of thousands, or is it millions?

Oh, it's probably in the low million level. Here's an example. The Texas Railroad Commission, as a state plugged, roughly 5,000 wells last year. But the number of wells that they need to plug increased more than that. So they plugged 5,000 and spent all the money associated with that, which I don't know the amount. But it's like running in place, because you still have the same number, if not more, of wells that need to be plugged. And what's going to happen, with all these regulations that we have — that we will probably be talking about — is as those regulations really push hard on these marginal wells, you run a real chance of those marginal producers just saying, 'I give up.' And what happens to those wells? Well, they become the joy of the state regulator, or the state, to do something with. And so the unintended consequence of a lot of the air emissions rules could be, you end up with a lot of wells that need to be plugged.

Yeah. I mean, I can do some math on that. If you tell me there's... let's just do it with 1 million. If a well has a 20-year life, then that means there's 50,000 wells per year coming to the end of their life. And what you're saying is 5,000 of them got plugged, maybe another 5,000 by their original owner, who's still around. But that's an awful lot of wells that are just orphaned.

Just to clarify that that's 5,000 by the state with their funds, you have other companies, like your Chevron and others, that have a robust plugging. And a lot of the larger companies are pretty good at plugging the wells because they just set a certain amount of capital aside to handle that. But there's a lot of smaller companies that they don't have the capital to go spend $20,000 to $100,000 to plug a well. And so it just sits there until they either go out of business or something bad happens.

I can do some other maths... If you're telling me it costs $100,000 to plug a well, and you've got a million — just to use the number of million — that's $100 billion that's going to have to be spent at some point over the next 20 to 30 years to plug all of that.

Yeah, and I gave you a range. There are are some... like, there was a well just off the coast in Texas that they plugged, it costs $2 million to plug. So there are definitely examples where it's more expensive, but there are a lot of shallow dug wells, and those are going to be in the $20,000 to $30,000 to $40,000 range. But even do your math at 20-30,000 times the volume, that's still a big number.

And I think it's really useful to get some kind of just heuristics of, if we really want to fix this problem is a billion going to do it? Is 10 billion going to do it? Or is it going to be 30,40, 50 billion? 100 billion? I mean we have nuclear cleanup in the UK, we have one nuclear site — Windscale — which is like £200 billion that it's going to cost, and it's going to take 100 years. So these things happen, and it's really important, I think, just to get a sense. Let's just take a short time out, because you've used some acronyms. We don't really allow acronyms on Cleaning Up, but we allow them when they're well explained. So let's back up a little, because the audience here, you've got to assume they're all really smart, but they're not experts. They come from all sorts of different backgrounds: policy, finance, civic society, etc. Who's regulating this, right? The EPA is the US Federal Environmental Protection Agency, right? But then you've got some other players down in — let's take Texas as the example because that's probably going to be the most significant one — who's regulating down at the state level?

Yeah, you have the federal level, as you mentioned. And then at the state level, in Texas, you have two groups, the Texas Commission on Environmental Quality (TCEQ), which tends to focus more on air related issues, so emissions and venting and things like that. Then down here you also have the very misnamed Railroad Commission, which has nothing to do with railroads, but it all has to do with managing oil wells at the surface level and below. So if you're disposing of water, if you're putting a facility in place, if you're getting a permit, you go through the railroad commission. In theory, they work together, but what's odd about all that is that they both have different identification numbers for a well to each other, and so they can't communicate between each other. So that makes it harder for them to be effective. Each state has at least one, if not both, of those type of agencies. Then you also have variety of groups, like the Bureau of Land Management or University of Lands, which are groups that control large parts of land and will also do some additional regulatory work, which makes it challenging for the operator because now you have a federal you have a state, and then you have a property owner type of management group. And so you can have up to three different distinct regulatory sets of rules that you have to manage through. So it becomes very complicated for the operator.

And I know from previous conversations that's one of the things that ESG Dynamics does, is you're saying the same thing to different people, and not creating a regulatory risk by not keeping it all internally consistent.

Well, because if you're really going to take care of the issue, you need to understand what the issue is. And I think we're going to be talking about data, and this person says X, and this person says Y. And as an engineer, it's like, you have data that the states, the federal EPA, that they have. If you can put all that together, you have a much better chance of being able to see who the good performers are, who the bad ones are, and why.

Exactly, and let's move on to that. So you've got all of these operators, and millions of individual locations, and by the way, that means 10s of millions of pieces of equipment — that, frankly, you ought to be tracking and monitoring — with this valve and that valve and vapour recovery units and pressure release systems and flares that need preventive maintenance. I mean, it's a task of vast data complexity. But these organisations, these companies, your clients, are they self monitoring? Are they self reporting? Who's actually measuring what?

It's the individual company that reports to the state agencies and the federal agencies. Now both of those groups do have audit capabilities, enforcement capabilities. I'd argue that they're not the most stringent in their enforcement, but you are starting see some states like the state of New Mexico, and actually in Texas, I've seen the TCEQ — Texas Commission on Environmental Quality — starting to be much more proactive in interviewing and investigating. It's those type of things that will definitely get people's attention.

So what are the biggest fines that have been levied because of infringements around releases of whether it's methane or some of the other off gases.

Yeah, you'll see some federal cases. Like in Colorado years ago, there was a close to $30 million fine. More recently, you see in New Mexico, a variety of fines, usually in the $4-10 million, which is significant. And it usually starts off with someone seeing a flare that isn't burning efficiently, and that kind of triggers the investigation. And then it goes into all the administrative things.

So this is a big, nasty, old, smoky thing that's creating a big cloud of whatever. And you think, hang on a second, what's going on there?

And it doesn't even have to be as dire as what you've described. If it's burning efficiently, you don't see black smoke. You see black smoke, then it's not burning as efficiently and that's when you either need to improve the equipment or make modifications. But they'll see that initially, and the super emitter item will start identifying those issues. And then once that happens, the New Mexico regulatory folks have really dug in and do long investigations. They have several companies under consent decrees, so that they can really manage and make sure that the fines are paid, and that the improvements that the company has been required to make are actually made.

Okay. But now you're saying that there's an increasing number of fines: $2-4 million fines for this sort of stuff. If you've got an oil well, or a system of wells collection, and then it's going off into an oil pipeline, but you can't deal with the gases. How much would a vapour recovery system — a really good one that really works, that's going to be good for the next 20-30, years — what's the capital cost of something like that?

It depends how large it needs to be, which is dependent on how much gas you're producing, but you're talking somewhere in the $50-100,000 range for a vapour recovery unit. And then most likely, you would also put a flare out there, so that if the vapour recovery unit goes down for some reason, like some of the issues we talked about previously, then it has a place to go. And so that flare would probably be, for a larger location, $60-80,000. So you're talking altogether $150,000. And that's a very large facility that would need something that big.

Okay, so that's a couple $100,000 of CapEx. And then you've probably got a few tens of thousands a year of maintenance and so on.

If that.

Maybe using OTA to do a little few few bits and pieces of services along the way.

What's happening with that, especially if you use a flare, is that you're burning it, and you don't get anything for it. A vapour recovery unit, though, you're keeping that gas in the system. That gas, because it's coming off of oil, is a very high — you'll love this acronym — BTU, burning capabilities. And higher burning means higher value. And that value — instead of $3 per MCF (thousand cubic feet) for gas, it could be $7-8 per MCF. So if you have a vapour recovery unit and you keep that gas in, you could end up paying for that equipment just from the gas that you're capturing. So there's economic value.

You didn't want to say, but a BTU is a British Thermal Unit, right?

Well, I figured I'd let you have the joy of...

You think that down in Texas, you know all about this stuff, but you're still using our units.

We are.

So what you're saying is: you need to spend a few 100,000 pounds. You spend a few tens of thousands on maintenance. But you're getting something valuable in return. Does it pay for itself? Because I guess where I going with this is, why is this problem happening? Because if it's not that expensive to stop it happening, if you make money when you collect this stuff, and if you get a fine if you do it badly, why the hell are we even having this conversation? Why is it not just a kind of done deal and sorted?

And that's where you have to really compartmentalise the type of wells that you have. On a larger well, meaning producing a lot more, you have the economics that justify all of this equipment. It also means you generally have a pipeline to take that gas away. If you don't have a pipeline to take that gas away, then there's nothing you can do with it except to burn it. But you know, even if you burn it, if you do it effectively, that's 99% efficient. Now you could argue that 1%, we need to get rid of that too, but 99% should be able to be burned. But the problem becomes, when you have smaller wells that are marginal, they can't justify all this equipment. They can't justify $20,000 of equipment if you're only producing two or three barrels a day. And so it makes it very hard to do the corrective measures that are needed.

Okay, episode 157 we had Sharon Wilson from Oilfield Witness — I'm trying to remember the name of her charity, her NGO — and she goes around with a thermal imaging camera and films huge plumes of stuff happening in thermal frequencies. So you can't see it. To the naked eye, you'd look at this flare stack, there's nothing to see. But when you look at it with a thermal imaging camera, you see that actually there's all sorts of stuff coming out, great big clouds of it. And that wouldn't trigger a fine, that won't get noticed by anybody, it's only because Sharon goes around and films it that anybody knows that some of these things are happening. So isn't the problem just much bigger than you're characterising it right now?

Well, first, you know, if I'm Sharon, I'm going to be showing the big ones, because that gets attention. There's a whole lot of other wells that aren't showing any type of gas. So it's not every well out there with these huge plumes, as you'd like to say, but a lot of these companies we deal with have their own monitoring systems or own teams that go around and use cameras like what Sharon uses, or various forms of those, to monitor themselves. They also pay for flyovers and drones to fly over that have the cameras that can see those type of methane leaks. You also have the various satellites that are now out there that have very poor resolution, but at least it can start identifying areas that might leak. So a lot of companies and a lot of regulatory groups are doing what Sharon does with that camera, but just on a more massive level. Just be careful, there are definitely problems out there, and there's definitely bad actors out there, but there's a lot of companies that are performing very, very well, but that doesn't make the news. So you're not going to see that. Seeing video of a flare that's performing perfectly is not that exciting, so you won't see those.

Okay, so the thesis that there's all this stuff that's invisible to the naked eye, but that is happening kind of everywhere. You don't recognise that picture, you don't think that's a correct characterization?

There definitely problems out there. There's definitely bad actors out there. But if you look at the numbers, there have been significant improvements. If you look, for example, from 2019 to 2022 we increased production, gas production, by close to 11%. At the same time, the methane that's produced on a per day basis decreased 37%. So you know, is that perfect? Is that zero? No, but is that a significant improvement? Yes. Especially when you consider that you have that number of wells you've mentioned, that's a huge logistical and capital issue to be able to reduce and manage all of those wells in all of those places.

Okay, we're jumping a little bit between oil and gas. But that's good, because I want to segue onto gas more. Because we've got a good handle now in this conversation on why stuff's coming out? It's being released from dissolved gases within oil, it's at high pressure, it can't be contained, etc, and that's resulting in some of these releases and so on. Okay, we kind of get that. But let's come to gas, because gas is really... We started this talking about methane, and there is this kind of break even leak rate, where, if it's more than a certain level, and it's 3 point — I think it's 3.8%, it's 3.2 or 3.8. I can't recall exactly, I had it in the in the intro. Ad at that point, because methane is such a ferocious greenhouse gas, you might as well just not use methane, not use natural gas. You might as well just burn coal. And so the number that you've got end to end, that you can leak, that you can afford to leak, is very, very low. If we're really going to address climate change, you have to be not just as good as coal — 3.2 or 3.8% — whatever the number is. You've got to be down at the kind of point 0.1 or 0.2 — zero would be good, but we think that's probably going to be impossible — but it really has to be very low, tenths of a percent.

Well, your goal is to get it down to zero. That should be your goal. That should be my goal. That's everyone's goal is to get it as low as possible, and zero is the preferred, right?

But let's talk about Bob Howarth, professor at Cornell, who published really influential papers saying, let's take all the data that is that is out there that we can. Not the self reported stuff that says, 'Well, I didn't see it, so it's not happening,' but actually where people have measured. And the figure that he came up with, and this was 2011, he came up with a figure of 3.2% median. So some better, yes, some worse, some super emitters. But that was only for upstream and midstream. And then you've got another couple of percent downstream. Because, you know, they were also driving around in Boston and sniffing and saying, 'oh, the air seems to be full of methane.' There's methane emitted downstream, in other words, in the distribution to homes, offices, commercial properties and so on. So you know, if it's 3.2% upstream and midstream, then you can kiss goodbye to this being even better than coal, let alone addressing climate change. So are these numbers now just wrong, or are we kind of like, 'yes, that was the problem, but we're dealing with it'? How do you respond to that?

First of all, let's clarify, what year was that done in?

Well, that was 2011, however, there have been other reports since. Lots of studies, the most recent one, which is recent, median emissions upstream and midstream range from 0.2% to 40%, median 3.7%. So that kind of 3-4%, mid and upstream, seems fairly robust even now. And we'll put links into the notes to the research, so people can poke around.

And this next comment I'm going to make, I'm not trying to be a homer for the oil industry. Because data, with ESG dynamics, that's what we focus on. And being gearhead engineers, we love data. And the problem you have is that for every academic study that is out there, there is actual field-based data that says something different. EPA has numbers out there that are significantly lower than that, closer to 1%. Studies that we've done with the EPA data shows that looking at the methane tax and kind of how everyone goes, shows that the operators are at below 0.2% as far as the methane. So data is very important, and it's great that he has that data. I would say he's probably not accurate. And I'd say some of the numbers I said are not accurate. I think if we're really going to be serious about this, we need to actually get better data to be able to judge. Because otherwise we're speculating on the low end or speculating on the high end, and it sends us on a wrong path.

Right and I tried to come in earlier because the the IEA, the International Energy Agency, does actually come up with a figure that's about twice the EPA figure. So you've got Bob Howarth and lots of academics at 3-4%, you've got the EPA kind of around 1% then you've got the IEA kind of around 2%. But that's just midstream and upstream, so this is a huge, huge problem. We also know, by the way, that there are some very good players that are at the 0.1, 0.2%. Obviously, I'm familiar with a lot of the players in the North Sea Basin, offshore in the North Sea, where the numbers do seem to be point 0.1, 0.2%. And some of the companies in Texas and Oklahoma are — I don't want to say are claiming that, because that makes it sound like I don't believe them — but I leave it up to the audience to know whether they should believe them.

But also think through... When you're talking the North Sea, you're talking about a fewer number of wells, more expensive wells that can handle all of the extra equipment, and relatively newer wells. Now, I know they've been there 20-plus years, but you've got wells out in west Texas that have been out there for 60 to 70, years when the technology wasn't there, the economics aren't there. So the North Sea better be better because of the size, the newness, so I appreciate that.

But there is another difference also, which is, of course, that you are fracking, right? And fracking has also come in for a lot of flack about seismicity and so on, but also about leakage rates. Is any of that, in your view, justified?

No, most of the wells, you're right, are fracked, but that just is a way to increase production. So that's two different things. One is increasing the production through fracking, but you still have to worry about the emissions and the venting on the top, whether you frack or not. You've got to worry about that. So the fracking is...

So the fracking is not creating a leakage pathway from subsurface, it's got nothing to do with it?

No if you put a pipe down the hole, and then you frack through it. If that pipe is seamed in correctly, you don't have leakage coming through. You have it controlled through the pipe, and then it can be controlled. So the fracking doesn't have anything do with emissions? And as soon as I say this, you'll come up with some little example, but that is not the main issue.

No, no, the reason I'm pushing is just, I think it's really important for the audience to understand this. What I'm trying to do, is slice and dice the problem down to: is it orphan wells? Is it the small players? Is it the big players? Is it fracking? And we can close off some avenues. We can have better discussions. And there was something else you said which is so important, which is, we need real data, because the other person in that episode — episode 157 — Sebastian Biraud, is a proper academic trying to actually reconcile, you know, we've got all this methane building up in the atmosphere, you know, the concentration is increasing. Where is it coming from? And then he's reconciling it back down to whether it's agriculture, whether it's oil and gas, whether it's this, whether it's that, but you know, does that offer a...

A quick point, though, on that data. A lot of the academics, it's all about probabilities and statistics, so they're taking certain data points and extrapolating that, which is academically probably very correct, but it can be very misleading, because it depends on what area. Not all basins are the same, so if you do a study in the Marcellus, which is more dry gas, or if you do it in the Delaware basin or the Permian, which is more oily, you can get drastically different numbers. So the key, like any study, is to really understand where that data came from and how they're extrapolating it to get to that. Now, at the same time the actual data that they're self reporting, there's definitely people that are playing games with that, but already the EPA and the state agencies have a proper way to accumulate that data. I think the key is making sure that that's good data, either through enforcement, through modernising their data system. Again, I go back to how those two agencies can't communicate because they haven't even identified the wells the same way. There are basic things you can do to make that usable data.

But this feels like... The way forward, it feels like if we were going to have this conversation again in 10 years, you know, 44 years after we sat together in HBS in Kresge Hall, or in the classrooms there, we would be in a surely, in a completely different place? Because aren't we going to end up with sensors everywhere? Because sensors become really cheap, drones become really cheap, satellites... there's already MethaneSat and a whole bunch of other satellites up there. And then the ability to aggregate that data and to find the patterns with machine learning surely is being completely transformed? It just feels like... this feels really primitive, if I'm honest, and I'm not trying to be funny, but what we're doing now just feels really primitive compared to, I think, what we'll be doing in 10 years. Do you get that sense or not?

I hope you're right, but for example when the EPA gathers all the greenhouse gas data... that is due by the end of the year, or say for 2023 that was due March 31. You don't see that data till October, so you don't see the data till 10 months later. And you know that if you don't get data soon, it's really not worth a lot, because so much has happened since then.

And if you can't analyse it, if you don't have the ability to actually analyse it...

You got to be able to speed that up. And then back to your point about yes, there are sensors, there's continuous monitoring, there's flyovers. The problem with all that data is, how do you bring it together into a usable form, in such a timely fashion that it can be used? For example, on the superemitter. If you identify a really bad actor and it's superemitting, you turn that over to the EPA, who then turns it over to the state, who then has to go and talk to you. By everyone's recollection, they think that that's going to take two to three months. So if you have a bad actor emitting, it's going to be two to three months before someone goes and says, 'Hey, do something about this.' Well, is that data worth anything at that point? I'm not saying don't use the data, but you've got to use it better, because otherwise it's not worth anything.

So I have a very modest investment in a company called Worldsensing, and what they're doing is using geotechnical sensing, so safety of tailings dams or railway cuttings or construction sites. And they're using a bunch of sensors — the sensors have existed for decades — but they're using LoRa (Long Range) wireless collection and data logging approaches. And you know, if you've got something like the Brumadinho Dam, the sensors actually were saying, there's a problem, there's water, there's the water pressure, the hydrostatic pressures are changing, but that data never made it to somebody who could make a decision to say, we've got a problem. Whereas, once you start using this kind of mesh data collection, then you can put machine learning on top of it, and you could react in real time. And you could say there's a pressure drop here, or you can do acoustic monitoring, or you can do whatever. Companies ought to be able to really, really up their game, and the regulators...

Great in theory, but what happens is that what you're talking about with the dam, that's one huge project that can justify that because of the socioeconomic issues. How do you justify that... we've been doing some searches on different sensors, and you're talking $6-7,000 upfront costs, and then $100 a month to maintain. Well, there are wells out there that can't justify that from an economic side. And so if you say, 'well, sorry, you got to put it on there,' those people are going to just shut the well in, and you lose that production, and then it ultimately has a chance to become an orphan well.

So the half of my audience that were thinking that any releases of any sort were not decent emissions but indecent, they'll be going, 'what I'm hearing is this stuff is fundamentally not economic.' Because if it can't be done properly, if it can't be monitored, if it can't be done without these emissions if you can't meet your regulatory requirements. And by the way, given that we have to stop burning fossil fuels anyway, what the hell is going on here? Of course, this stuff should be shut in. Of course those small wells should be shut down. Of course those operators should be compensated or whatever. But that's what a transition looks like. Surely?

The problem, though, becomes those unintended consequences that I mentioned. Someone's going to have to plug those wells, and then — excuse me — the economics of that area, little towns like Orla, Texas that are dependent on those little producing wells and the economy around that — the little machine shop, the little engine repair — all that goes away when you start shutting all that stuff in. And so yes, it's great to have this transition and you compensate, but it is a much larger issue when you start working with the big butcher knife, than with the scalpel.

But that is the challenge of, you know, they call it a just transition. How do you make sure those communities have a route to do something else, etc? Because the coal industry is facing this, right? Your automotive, the internal combustion engine car industry is facing this. In the past other industries have faced it. You know, it's not an excuse to keep doing bad things just because the transition will be too painful. But there are some programmes in place — federal and state — let's talk about those. And then I want to come back to, you know, the sort of the international picture at the end to sum up. So what programmes, the Biden administration has put some programmes in place, Texas has got some of its own programmes, what are you seeing there?

Yeah, one of the largest ones is the recently passed Inflation Reduction Act, where there was money provided for marginal wells to be able to plug those. Texas ended up getting about $130 million to go and plug those type of wells. They have five years to do it, and they've got to decide which wells — because $130 million, based on your numbers, won't go that far — so who are the winners and losers? Is it a certain area that's near a big city or population centre? How do you figure that out? So there's some money for that. There's also additional money through the inflation Inflation Reduction Act for low capitalised producers. And that money, that's more significant, that potentially could be several hundred million dollars that go to Texas. And overall, I think it's like closer to a billion dollars for the US. And that's to go help these small producers identify what their issues are and help them fix. But then it becomes an issue of good money after bad. If it's not an economic well or a marginal well, how much money do you spend on it? Are you better off to saying plug it or let it be and focus on where the real leaks and the emission events are. So it creates its own issues there.

But just to triangulate, you know, where I come up with a million wells, and the number we're talking about. Ultimately, it's going to be a $100 billion plus problem over some period, potentially. That was just based on a million but it may be maybe two or three times that, an order of magnitude. It's a hundreds of billions of dollars problem, ultimately, to deal with all these little wells and locations. So it's kind of a very small drop in the ocean, maybe you can call it a sort of first pilot project, surely.

And what's missing on all of this kind of back to the whole data, is the analysis of A) the issue and the wells. But then what do you what can you do to improve it? Like there's all these continuous monitoring systems, there's all these cameras, but there's no studies to say which ones are really effective and which ones are not. So if you have the shiniest tool, then you can maybe sell it, but that might not be the best one, and there's no studies from academia or industry or government to really help narrow in and have best practices for some of these emissions items. So there's probably better ways of using some of that money initially, to be able to really identify the best practices, the best solutions. And then you can go and imply.

I was very struck in Norway, there was a study a bunch of years ago, I think was around 2016 where they said, what are all the places... where is gas leaking from? And they just went through absolutely end to end. And they found 41 different this valve, that valve, when you do this, when you clear a tank, when you do maintenance. And then they quantified them, and then they started to do programmes around them. And it was just incredibly analytically driven. So it gave, you know, it felt very satisfying for me to read about it. But what you're saying is, there isn't that. There's just sort of bits of money being thrown at different bits of the problem, but without that sort of overview.

Well, for the EPA, they have a thing called Subpart W, which identifies and has factors for each leak, but it's all very academic. And what that does is makes it so that certain actuators or certain valves or pumps, they have numbers that they say this is how much emissions they'll have on that. And we work with companies that have done actual studies on their equipment, and it's significantly different. And I was there and saw this, they're not lying about it. It's just when you start taking general numbers and doing a sweep through, you're going to misrepresent a lot of things, and that has consequences when all of a sudden your methane tax is a lot higher than you think it is, things like that.

And let's talk about the methane tax, because there was some pots of money to plug things and for the undercapitalized providers and so on. But the methane tax is something potentially much bigger, right?

It is. And what's interesting is that, as an industry, methane tax is anything over 0.2% of methane.

Grant, start with where did it come from. What is the methane tax? Assume that we don't know anything, that'll be broadly true in my case. So start with, where did it come from? When did it come into force? How big is it?

And it's formerly known as the Waste Emission Charge, and basically it's a way to tax or fine companies that have excessive methane associated with them. It was passed about a year ago, and the implementation started as of January 1 of this year. However, there's still a lot of rules and regulations that are still trying to be formalised on that. Like, even to when, when do you turn in your data? It's all going to be based on the same greenhouse gas calculations of data that you're filing already, and then they're just going to use that data to also determine the tax. And what it is, is it's based on the metric tonne of your CO2 equivalent. It's going to be over $900 the first year this year, $1200, $1500 so it escalates up and...

And that is per tonne of CO2 equivalent on a 100 year basis?

No just from a production basis, and a lot of it has to do with factors that if you have a certain number of pumps and actuators. They have a very formulaic calculation to see how much you have there. Again, back to what we were saying earlier, it's then divided by your production. And so if you have a lot of production, then then your percent goes way down. If you don't, say you're a small operator or a mid-size operator, you have a lot of wells, so your numerator is big because you have a lot of equipment and not a lot of production. And so it's really going to be a problem for the small producer.

Tell me, just to kind of help us to triangulate here. Natural gas in the US, Henry Hub is the index that's used, and it's priced per million BTU, British Thermal Units again. And the Henry Hub price is about two bucks, something like two bucks. How much might that go up for a good operator or a bad operator. What's the sort of range? I mean, we're talking about the methane tax might make that two bucks and a cent, or might it make it three bucks or four bucks. Just give us an order of magnitude?

No we're talking two different things. Methane tax is a fine that if you're generating too much methane or CO2 equivalent, there will be a fine. Now, what you're alluding to is certification of the gas, so that if you certify it through several different agencies like MIQ or OGMP2.0 which is a UN-based.

Acronyms Grant, acronyms.

These are certification groups, and there was this flurry of folks that were trying to certify their gas because they believed they would get a bump of two cents and MCF, or something like that. Well, turns out most of them have not. But what is most likely going to happen from a certification, bringing it to the international side, is that to take your gas and convert it to LNG to then ship over to Europe, you're most likely going to have to be certified, because now you're competing with the North Sea and their cleaner gas. So there are places where the certification will matter. Again, methane tax though has nothing to do with that.

Ok Let me re ask the question, rephrase. I got off on Henry Hub and all sorts of stuff.

You did all that so you could say British thermal unit again.

Absolutely, we have to get back to making fun of the whole Texan thing, a little bit and a bit of banter, because it's probably getting a bit dull, too many emissions, whatever. But let's go back to... I guess what I'm asking, really, is: by how much could the methane tax — what percent you could do it in percent, if you don't like, you know, dollars per million BTU. Are we talking about the methane tax might drive up the cost of gas in the US by 1%, 5%or 50%? What's the kind of order of magnitude impact that we're going to be talking about?

Well you're a lot smarter than me, so you can talk about the macroeconomics. What we're seeing is that it could affect upwards to a billion dollars of additional taxation or fines — that's in a year. And then with these additional factors, increases in factors that I was talking about, that could increase it another 40-50% so you could be talking $1.5 to 2 billion a year of additional tax cost associated with it. Now that doesn't necessarily mean that the operator is going to be able to pass that on because of the global market that it is. That price could still be $2 or $3 and they're just incurring additional cost through that taxation. So there's not a direct relationship between the cost and the price, like a commodity.

But it's interesting, because...Thank you for that. Because, you know, a billion spread over all of the revenue of the entire gas sector in the US is small percentage. So it's not 5%, 10%, it's small.

One point though Michael. That's true generally, but this is geared because of that numerator-denominator thing, it's going to affect the smaller operators much more than it will a Chevron or one of those. So it's a very disproportionate taxation that will really hurt the small producer and not really affect the large producer.

On the other hand, you could also say it creates another pool of a billion dollars, or maybe it's going to double or triple $1-3 billion, which is sort of the prize if you fix this problem. So it's another pool of pressure, pool of money, to actually fix the problem. But what you're saying is that it's regressive because it hits the smaller operators. And that's something fascinating that I've not though about. I think that's a takeaway here, that actually as we really push down on the methane leakages and methane emissions, in a way it's very much to the advantage of the big guys, because they can suck up the costs, and they've got the big wells that are probably going to be easier to put fixed sensors to, etc, etc, but it could drive a real change in the structure of the industry.

Yeah two points there. One is that these larger companies have the capabilities, and it does help drive the consolidation, and we've been seeing that lately. Now it's not just because of the environmental that all this consolidation has happened recently in the Permian and in Texas, but there is some factor to that. But the other point, and I alluded to it earlier, is that the unintended consequences... These small producing wells are the backbone of many communities throughout and it's going to kill those from an economic standpoint. And so that billion dollars you raise, you better train them to do something. But I don't know what you're going to be able to train all of these disparate communities throughout west Texas and other places to do to replace their income.

But, I mean, you can understand how this makes a lot of people angry that those people are basically holding hostage not just Texas, not just the US, but the world. And I hear you on the community needs a way forwards. But if the companies are simply saying, Look, you know, I'm just going to walk away, I just put this in thing into bankruptcy because you've made it impossible to operate, and it's not my problem, and somebody else has to now pay, you know $20,000, $50,000, $100,000, $2 million to plug it, and that's just not my problem. And you can see that's a pretty unpopular position, and not just around the world, but also locally.

And I'm not saying that's the right thing to do, but that type of mentality happens not just in the oil industry, but we see it in a variety of industries and a variety of businesses around the world. But you better be prepared for those unintended consequences, because they will happen — mark my words.

But ultimately, isn't the answer what happened with the German coal plants, and it's going to happen with gas distribution networks in the UK and other places. In the end, there's going to be a big negotiation, and there's going to be a kind of superfund type resolution, just a lot of money from federal, some state. And the problem gets fixed over a 50 year time period, or something like that. Isn't that ultimately, where this ends up?

Probably so. The problem is the ones negotiating from the industry standpoint are the Exxons and the the BPs and the much larger companies that have the lobbying capabilities. And so you can definitely see how the rules and how this will be skewed toward the larger producers. Because little oil company in Orla, Texas, is not represented in Washington, DC, at all. And so there's talk about have and have nots, it's playing out that way in spades right now.

And that's very reminiscent, by the way, of discussions in the farming industry in the UK and elsewhere, because the small farmers are just not around the table with the politicians in the same way as the big ones — the Bunges and the Cargills and the big industrial farmers — they've got the ear of the politicians and the small farmers tend not to. Let's come to the international piece...

Real quick on that though, Michael. The other part of that is these regulators, these politicians that are all making these rules, they don't know what the... If you ask them where emissions comes from, and a lot of your audience members, I would say...

Well, that's very simple Texas!

Exactly, but they don't know how it really works, and they're making rules and taxes and all. We had a significant player from the EPA into Midland, and that was her first time... and she's in charge of implementing all of the regulations we just mentioned. That was her first time to ever be on an oil location. It's very hard to regulate and to manage something that you don't even know how it works. And she went to a big, shiny new location and is thinking that that's how it all works. And it's like, no, there's a whole lot of other uglier situations out there, economically or environmentally that you have to consider. And so it makes it very scary that those people are making rules and regulations when they don't even know how it works.

The energy transition is littered with unintended consequences because of regulations put in place by people who don't move outside, whether it's the beltway in DC, or whether it's out of Westminster in the UK, or whether it's out of Brussels. And this has happened time and time again, and you're speaking my language, because we need more engineers or STEM literate scientists, engineers, practitioners of all sorts, actually helping to drive this — not being consulted last, and that's true across the board. Let me just come back to that international piece, because there's a long history. George W. Bush launched something called Methane to Markets. There was lots of activity, but you know, the numbers just keep getting worse and worse. Glasgow, COP26, there was the methane pledge, reducing methane emissions across the economy, not just from oil and gas, by 30% by 2030, which I immediately denounced as woefully unambitious. Now I'm not so sure, after this conversation. And then there's been, as you say, in the EU they're making noises about simply saying, you've got to meet some very stringent requirement to sell LNG to us or we won't buy it. And it all sounds very high and mighty and wonderful, until, of course, they are not able to buy Russian LNG or Russian gas and become very dependent. How does that play in Texas or in Oklahoma or New Mexico? Are people actually reading the, I don't know, International Herald Tribune, and following the news out of Europe and out of Brussels? And does all this register or not?

The larger companies clearly understand the macroeconomic and the international consequences. But our congressman from Midland, August Pfluger, is bringing up the point of it being a homeland security and international security type of an issue, talking about oil and gas production. And you see that with Ukraine. You see that with the European area and where they get their gas, from Russia and all. So if you don't have good oil and gas sources, you really put yourself in a bind. So it makes it even more complicated on how, yes, Biden wants to shut down LNG and others, Sharon wants to shut down LNG, but then Russia, you need to protect against Russia. Well, you can't do everything. You've got to pick a poison there, because a lot of times one will definitely affect the other.

Yeah, I was just thinking about when you about when you say you got to pick a poison. That may be exactly the best analogy possible that we're going to be poisoned. We're gonna be poisoned by climate change. We're gonna be be poisoned by geopolitical conflict or whatever. I would like to think that we can somehow thread the needle and actually walk and chew gum at the same time.

So many issues that affect the United States, whether it's immigration, abortion, whatever, it's not a simple you do one thing and you solve it. And that's clearly here in the environmental area, because you've got to first take care of the root cause of the leak, but then you also have to make sure that the global warming, however that's defined and done, how that can get resolved. And it's very complex. And one thing that the US government has unfortunately proven is that it's not capable of dealing with very complex issues. And especially as we head into an a presidential election, and we're seem to always be in an election period, to go and say you're going to shut down wells, or you're going to tax wells, or you're not going to allow LNG, there's effects of that, and you're going to lose some votes, and how strong do you want to be towards your issue?

But you know what's striking there is this kind of polarisation. And what gets put in the front row is 'we're going to ban this, stop this.' And then, of course, the other side has to say, 'well we're going to encourage that, and we're going to start that and fund that,' right? But it feels to me like the first thing to do is to say the stuff that surely people could agree on. For instance, in 10 years time, wouldn't it be fantastic if the US, everybody could agree had got to the point where there was only point 1.2%, leakage? Wouldn't that just be great? Don't you first have to say almost bipartisan, can't everybody agree that that's a good target?

Well, you even have to go a step...

Would you agree?

Definitely, but you almost have to go a step before that and say, you will need oil and gas in 10 years, because there's people that don't think you need oil and gas in 10 years and you can eliminate all of that. That's not going to happen. So, you first have to start with that. And so you're going to have to have some oil and gas. Yes, you can do wind and solar and a variety of other things, but you're going to have to have some oil and gas. Then you say, well, what is an acceptable emissions level? Obviously closer to zero than not. And then how do you get there? And the problem with 'how do you get there' also is that if you really want to do big steps in worrying about emissions, you worry about midstream pipeline so that you can get that gas out of there safe and environmentally, but there's a lot of people that don't want to provide permits or do anything with that. Then the other thing you need to do is improve the electrical grid system so that you can get rid of compressors that use diesel-fired engines and use electrical. Well, that's a huge capital requirement, and you've also got to get permits to get all the transmission lines. Well, if you do those two things, you will have a huge effect on emissions because of how you can replace things. But what's the likelihood of the folks that want to get rid of emissions approving that? I have not seen it.

But to your point about there'll be oil and gas in 10 years. Absolutely. But we could also go further out and say, okay, 2050 there may be oil and gas, but there are not allowed to be any net emissions, right? That's what climate science says. And so then you say, 'okay do we agree with that?' I had a very interesting interaction with Lorenzo Simonelli, I think he's the CEO of Baker Hughe, in Dubai. He was on a panel I was chairing, and we talked about net zero. And they were very committed to net zero, very committed to net zero by 2050, that's the corporate strategy. And I said, okay, but you're a service company, does that mean that by 2050 you will not work with oil and gas companies that have not abated, that are still selling their product, and that product is causing emissions? And at that point, he wouldn't answer the question.

Sure, and that's true for everyone. Everyone wants it to be completely green. Everyone wants it to be an electric vehicle. Everyone wants this until the actual, the consequence or the commitment in spending all the money for the grid, or for the electric filling or losing customers. There's consequences to all that, and you find out who will back up. And that works not only for the oil types and the corporate types, but also the environmental advocacy types, because if you get rid of oil and gas right now, then there goes your synthetics, there goes your plastics. Are you really ready for that? So again, just like in American politics, there's such a far left and far right, there's such a pro oil, anti oil. And it's like, come on, guys, get in the middle and get some solutions done.

So that was my attempt to achieve some grand bargain, which didn't work very well. But I think the the kind of getting down to nought... Whatever you're doing, have 0.1, 0.2% leakage surely is a vision that I think everybody can agree with. And do it quickly. 5-7-10 years, not mess around. Figure out how, because it's got these distributive consequences, figure out how to manage those rather than be scared off by them. And maybe we're getting somewhere.

It's great to have satellites. It's great to have all that. And at the end of the day, you're trying to eliminate emissions and leaks, and comes from a well or a pipeline, and you've got to figure out the technology and the culture and the dedication to fix it at that level.

And you've got to get the boots on the ground. Grant, it's been an enormous pleasure. And I think, I certainly feel like I've learned a whole hell of a lot in the last hour. So I thank you.

The only thing I regret is that we didn't have a drinking game tonight, on the number of times you said methane, which I say is methane. But if we did do that, I would be completely drunk by now. So it's probably best that we did not do that.

Methane, methane, methane. Look after yourself.

Very good. Thank you, Michael, appreciate you.

So that was Grant Swartzwelder, President of OTA Environmental Solutions, founder and co-manager of ESG dynamics. I don't know if I'm more or less optimistic about methane emissions at the end of our conversation, but I certainly feel a lot more knowledgeable, and I do think we'll be in a different place in terms of data and our ability to wade through it to take action, should we so choose? As always, we'll put a link in the show notes to some useful resources. That's the company websites for OTA Environmental Solutions and ESG Dynamics, the papers by Professor Rob Howarth that we mentioned in the episode, and a link to Episode 157 of Cleaning Up with Sharon Wilson and Dr Sebastian Biraud, rhe methane hunters. Please make sure that you subscribe to cleaning up on YouTube or your favourite podcast platform, and if you've enjoyed this episode, make sure you give it a like or a thumbs up and leave a comment, that really helps other people find it. Follow us on Twitter, LinkedIn or Instagram, and also subscribe to our free newsletter on cleaninguppod.substack.com, that's cleaninguppod.substack.com. Cleaning Up is brought to you by the Liebreich Foundation, the Gilardini Foundation and EcoPragma Capital. Please join us next week for another episode of Cleaning Up.