One tonne of methane has the warming effect of 28 tonnes of CO2 over a 100-year timeframe and with climate change continuing its steady impact, this potent greenhouse gas has started attracting the attention of private companies looking to offer solutions. Led by Talal Debs, Zefiro Methane is one of the very few operating in this space and it has shared ambitious goals for plugging the many orphan wells that dot the U.S. landscape.
2024 saw the company strike deals with energy trader Mercuria and French utility giant EDF, so we took the opportunity to speak with Mr. Debs about the company’s approach to different revenue sources and unit costs, the demand from the U.S. and abroad, as well as the prospects of the global carbon market under the UN’s leadership.
This interview has been edited for clarity and brevity.
Zefiro has established operations in North America with projects across the U.S. and Alberta. Do you plan to go global at some point?
We definitely want to be a global leader, as well as within the U.S. and North America. The question of where we grow first will depend a lot on which markets we’re monetizing our abatement and removal projects into. We are now monetizing through the American Carbon Registry methodology with voluntary offsets and we have the potential compliance markets. And then we also have CORSIA which has both voluntary and compliance elements.
With where we are in the U.S., the attractiveness of global jurisdictions is that we can take advantage of the Article 6.4 framework as it comes into play, and we have been approached about numerous projects in various geographies like the Gulf and Europe.
For us it’s really all about the depth of the market. We look for opportunities that look like the one we see in the U.S. and Canada where there’s millions of these orphan wells that are leaking methane.
Can you tell us what Zefiro Methane’s main goals are at the moment?
We want to be plugging 5,000 wells a year in five years, that’s our internal goal. That means that a big chunk of that is going to be orphan wells, and to have that kind of scale, we need to be able to deploy in places where we can have a close attention to unit cost.
It’s certainly true that we could meet our growth goals staying right here in North America, and that, in some ways, it’s a very low risk way of doing it, because there are lots of small wells.
Are there different types of wells in terms of complexity and unit cost and how do they factor in your decision-making process?
The way we think about unit cost today is based on what I’d call an operating batch of offsets. These are one or more well locations that are close enough so that they can be economically accessed by one crew and one rig in a period of time without tremendous mobilization and demobilization costs. To do that optimization, we need to ingest not only estimated leak rates and locations, but also things like topography and access.
We think we have one of the better datasets for this and it helps determine the cost [to plug the well], which is a key factor in the ability to deliver an economic batch of orphan well completions.
There are a lot of factors that have to be considered – age of the well, is it vertical or horizontal, whether it’s in a gassy region, what’s the associated gas content of the reservoir, the remaining reservoir pressure, and obviously, the condition of the wellheads.
We also need to make sure we clean the soil if there is any surface contamination, so when we leave a site, we want the well to be sealed and the soil to be clean and to stay that way.
So to us the two key variables are correctly estimating the leak rates in advance and then correctly estimating the full scope cost of remediating that whole batch.
What are your expectations for the UN led carbon market under Article 6?
It’s hard to formulate expectations because geopolitics is hard to predict. But if the past is a guide these initiatives will continue along their path, even if the U.S. is no longer a part of the climate accord. This is a global market. The commodity market is a global market, and carbon intensity, or net zero status, is a way that producers can differentiate their commodity.
My view is that the best producers will keep wanting to have a very strong profile in terms of environmental sustainability, which delivers [value] both to their shareholders, and also even at the commodity level.
We expect to see in the coming years natural gas and oil which trade with a carbon intensity metric that are reflected in their price. In other words, the lower the carbon intensity, the cleaner the product. If you have a very low carbon intensity hydrocarbon, synthetically created through offsets or insets or compliance offsets, this starts acting like an additive that improves performance.
I think carbon intensity and the embedding of environmental attributes provides an opportunity for producing and refining companies, and nations around the world, to compete on quality as well as on availability and price.
What types of companies are most interested in this. Is there a typical customer, or is it a broader range?
We think it is quite a broad range and we’re going to continue to focus on what I view as the wholesale offset market. These would be the commodity broker dealers like Mercuria and traders like EDF.
Relevant: Zefiro Methane Corp. Announces Presale Of Methane Emission Offset Credits To EDF Trading
It’s important for us to sell to the most discriminating customers that have been here for a long time. This is a market where quality matters a lot, and [to develop] the ability to acquire very high-quality, high-grade offsets takes quite a bit of seasoning and history.
We’re going for the hardest clients first. That hard client group includes the two we mentioned, as well as other commodity broker dealers that may be out there because they need those offsets for their various trading activities.
And of course, the bulge bracket banks are also there. That’s one of the reasons why we focused on issuing our initial offsets through the recognized registries like ACR. Right now, we’re holding back from using innovative registries for these first issuances, because we want to prove that we can meet those standards for the blue-chip buyer.
A new set of policies is now in place for energy and the environment, what are your thoughts on the changes?
Every government, has a different emphasis for policy. I think we can all agree that one policy goal for energy is that we want low cost, reliable energy and another is to be environmentally clean. I think the emphasis for this administration has been that they want to see costs come down.
But the thing I’d like to point out here is that when we apply our rigor and discipline to driving down the cost of plugging and the abatement of oil and gas wells, there is a follow on impact to lower cost of capital for producing energy.
It’s counterintuitive but my view is that you’re actually reducing the cost of capital, so it more than makes up for the price of staying responsible, clean and secure. With this you won’t be leaking methane into the atmosphere around communities where millions of Americans and people across the globe live in.
Has there been any impact on your business model since the new administration tok office in the U.S.?
Politics affects economics and we’re not immune from it. But I would say that we’ve constructed our forecasts and our business model very carefully and we see our services is as providing the value of reducing methane, cleaning up the environment. Whether we’re paid through a cash payment from the government, or we’re paid through cash payment from a corporate or if we’re paid via the carbon markets, it all works to the same end.
We’ve set up our operating system, our ground operations, to deliver that value, regardless of who pays. As this new administration’s energy policies start to impact, I think we’ll see that over time, the mix of our revenue lines may shift, but I don’t think that we’re going to see anything that would take us off course from our highly aggressive plans.
Do you see changes on the demand side? Are individual states higher up the agenda in that regard?
We have more than ample demand on the existing avenues and we have enough on our plate to drive our data build out and to issue credits. We’re getting a lot of interest, and that’s very encouraging.
Going back to 2008 with the Regional Greenhouse Gas Initiative the US, it was regional efforts that got the voluntary market started in the U.S. I think there’s some demystification that needs to happen around the world of voluntary carbon offsets. Many people, quite rightly, might not know the difference between a tax credit, or a compliance credit, or a 45Q, or a voluntary offset.
When we explain this (in its simplest form) to investors that are willing to pay to see quantified and verified environmental benefit, they see this is a tool they could use. We do find new pockets [of demand] that previously wouldn’t have seen us as being applicable to their region and they are asking us to come and talk to them about how we may be able to help fund more cleanup in their states.
What’s your biggest challenge at the moment?
The biggest challenge is that we’re building a new kind of company. It combines some things from traditional carbon markets where you have separate roles for the project developer, the project funder, and for the marketer. We’re trying to offer a very simplified, vertically integrated role, where we fund, source and deliver the project.
That means we spend a lot of time speaking to people about who we are and helping them understand our scope. We’re not a government contractor, but we are. We are not a corporate contractor, yet we are. We’re not a carbon credit company, yet we want to lead that too, because what unites it all is the mission of delivering the environmental service solving the largest greenhouse gas problem in the developed world right now – the highly additional orphan well problem. There are no funds set aside for it, and we want to see that solved in our lifetimes, rather than in 100 years.
And finally, what is the biggest opportunity you’re chasing?
The big opportunity is the [size of the] market for carbon offsets. We think this is a half a trillion dollar market waiting to happen, with highly liquid offsets that can really be funded by many channels. And if that “viral” industrial channel can open, we could see a real success here. We currently have a backlog in this country that’s many decades, maybe even 100 years, so plugging is required and to clean up all these old orphan oil and gas wells at current rates. I’d like to see that totally change and I think that for too long, people have assumed it’s just the way it is.
Another big opportunity is that we [can] make a big dent in this challenge, and we change the way that people think about environmental services. That it can be a profitable activity, an opportunity to innovate and to do something very creative and profitable.
