A new company focused on low-carbon and renewable gasoline is taking aim at the Permian Basin’s flaring problem through a joint venture (JV) with one of the basin’s premiere operators, Diamondback Energy.
Verde Clean Fuels, which formed this month following the completed merger of special purpose acquisition company CENAQ Energy Corp. and Bluescape Clean Fuels, plans to convert natural gas that might otherwise be flared into low-carbon gasoline using proprietary technology.
The move comes after Cottonmouth Ventures LLC, the shale producer’s new ventures subsidiary, made a $20 million equity investment in the Houston-based company.
The low-carbon gasoline project in the Permian will be the first commercial project of its kind for Verde, which will put knowledge gained at its commercial-scale demonstration facility in Hillsborough, New Jersey, to work in the country’s biggest oil field.
The technology used will enable Diamondback to further decarbonize, according to Verde Clean Fuels CEO Ernie Miller.
“If we’re making a lower-carbon gasoline out of natural gas that might otherwise be flared in the Permian Basin, that results in a lower carbon footprint. Therefore, every barrel of oil that they produce is greener,” Miller told Hart Energy. “The economics around that process are also compelling. Not only can they can address an environmental problem—flaring—but they can do it in a way that’s profitable.”
Transforming flaring into fuel
Routine flaring of natural gas from oil production is seen as a global problem.
Data from the International Energy Agency show 143 Bcm of natural gas was flared in 2021. Five countries—Russia, Iraq, Iran, the U.S. and Algeria—accounted for more than half of those volumes.
The U.S. Bureau of Land Management (BLM) reported in November 2022 that venting and flaring from federal and Indian onshore leases averaged about 44.2 Bcf/year between 2010 and 2020. The amount was enough to “serve” about 675,000 homes, it said.
A proposed rule by the BLM would place caps on the duration and volume of flaring before collecting royalties on wasted fuel among other requirements.
“Flaring is such an issue. For one thing, it’s a huge environmental problem but it’s also going to start being very, very costly,” Miller said. “There are going to be penalties associated with flaring gas. … It’s going to become very painful for producers to flare natural gas, and there’s [must] be an answer for that.”
Several producers have already pledged to stop routine flaring.
Diamondback, which has nearly eliminated all flaring due to operational issues, aims to end routine flaring by 2025. It also set out to flare less than 1% of its gross natural gas production in 2022. The company flared about 1.5% of its gross natural gas produced in 2021, mainly stemming from midstream gatherers and processors, down from about 5.7% in 2019, according to its 2022 corporate sustainability report.
Cottonmouth’s largest investment to date
Verde’s process turns synthesis gas (“syngas”), a mixture of carbon monoxide and hydrogen used as a fuel, into gasoline that does not need additional refining. The technology process, called STG+, is not dependent on a specific type off feedstock, the company explained in a news release.
“The entire Permian Basin has an awful lot of natural gas, and a lot of that gas does not have good access to the markets. Therefore, trade at the West Texas trading hub Waha often is a deeply, deeply discounted place to sell gas,” Miller said. “So, the ability to convert that gas into gasoline, which economically looks a whole lot more like crude oil, is attractive.”
As part of the JV, Verde will allow Cottonmouth to participate and jointly develop Permian Basin facilities using Verde’s STG+ technology to produce gasoline from economically disadvantaged natural gas feedstocks.
Kaes Van’t Hof, president of Diamondback, said the investment is the largest to date for Cottonmouth.
“This investment, and the technology that accompanies it, fits with our strategy to decarbonize the oil field while generating an economic return for our investors,” Van’t Hof said in a news release.
Verde eyes other projects
While Verde’s modular systems will utilize natural gas in the Permian, the company’s project at a landfill site in Maricopa, Arizona, will utilize biomass to produce renewable gasoline. When the Arizona project is complete, it is expected to produce about 7 million gallons per year of renewable gasoline. Miller said a final investment decision on the Arizona project is expected in late 2023 and the facility could come online in first-half 2025.
“Natural gas to gasoline has always been part of our calculus but has been a little further out in the future,” Miller said. The relationship with Diamondback, he said, is “pulling that part of the business plan forward and accelerating it.”
While Verde doesn’t have any renewable gasoline projects underway in the Permian, the company is considering a renewable gasoline project that would use renewable natural gas as feedstock instead of biomass in the basin.
“We’ve got renewable opportunities kind of all over the place,” Miller said.
Formerly a portfolio company of Bluescape Energy Partners LLC, Verde Clean Fuels made its public debut Feb. 16 on the NASDAQ Capital Markets. The company is also working to bring online several other renewable gasoline projects, including in California and Oregon.
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