Friday, May 13, 2011

Money in Methane

Methane is often overlooked among alternative fuel sources.  It is the simplest alkane and the principal component of natural gas.  Because it is a gas at normal temperatures it is tough to transport.  Methane is typically moved through pipelines as a gas or using LNG carriers in its liquid form. 

Methane is produced anaerobically by a process called methanogenesis.  The earth’s crust contains large amounts of methane.  Other sources include mud volcanoes, which are connected with deep geological faults, landfills and livestock.  Yes, that is right cows produce a lot more than milk.

The relative abundance of methane and the fact that it has a high energy density make it appealing alternative energy source.  Compared to other hydrocarbon fuels, burning methane produces less carbon dioxide for each unit of heat released. At about 891 kJ/mol, methane's heat of combustion is lower than any other hydrocarbon.  Nonetheless, the ratio of the heat of combustion to volume shows that methane, being the simplest hydrocarbon, produces more heat per mass unit than other complex hydrocarbons.  So why is methane not higher on the list of renewable fuel sources?

Methane is considered a greenhouse gas and a nasty one at that.  It has a high global warming potential and can lead to a breakdown in the ozone layers.  It is also highly flammable adding risk to transport it. 

Those drawbacks have not deterred companies like Ember Resources, Inc.  (EBR:  TSX; EBRFF:  OTC/BB), a Canadian producer of coal-bed methane.  The corporate motto “Unconventional to the core,” provides insight into both the unusual nature of the company’s operations and the source of its methane.  Ember extracts
“sweet” methane from coal beds deep in the earth.  The gas is considered “sweet” because it does not contain dangerous hydrogen sulphide.

Ember reported CAD$34.2 million in sales in the year 2010, on which the company posted a CAD$20.4 million loss.  However, operations generated CAD$12.1 million in cash.  That was apparently enough to impress an investor group that made an offer to by all the outstanding shares of Ember in a deal valued at CAD$125 million.  Ember shareholders are scheduled to vote on the deal in June 2011.

Ember is just one of dozens involved in coal bed methane extraction.  Oil Voice provides a lengthy list, many of which are well recognized names with fully integrated oil and gas operations.

Coal beds deep underground are not the only sources of methane.  Next post we will look at methane “up top.”

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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