Interview with CNX CEO Nick DeIuliis (Part 2) – Assets & New Tech

Last week MDN editor Jim Willis had the privilege and honor of a (remote) sitdown interview with Nick DeIuliis, the CEO of CNX Resources, one of the major producers in the Marcellus/Utica. This is the second installment of that interview. In today’s portion, Jim asks Nick about CNX’s asset mix, shale and other assets. Nick also reveals some bombshell news–that CNX has applied for patents on technology that could change the future of the natural gas industry here in the U.S. Read on!

Note: The following is a lightly-edited (but faithful to the original) transcript of our conversation with Nick.

MDN: I’m going to transition to your company and where you’re at now, and where you’re heading. CNX owns assets in all three Marcellus/Utica States–Pennsylvania, Ohio, and West Virginia. I believe you also own assets in Kentucky and I think one or two other states as well. Tell me about those assets. When I think of CNX, I think of the shale wells, of course, but you have a lot of coalbed methane assets, correct? Assets that originally belonged to the mothership CONSOL Energy. I believe you have a number of conventional wells too. Tell me about your mix. How much of it is shale, and how much of it are these other things?

Nick DeIuliis: It is an interesting mix from a couple of different perspectives. But first, to start, everything geographically that you mentioned is in Appalachia, particularly in northern Appalachia. So, located in western Virginia, West Virginia, Pennsylvania, Ohio. That’s basically the footprint.

There are two unique traits with the physical, traditional E&P assets you mentioned.

One is the Marcellus/Utica shale holdings which is the big focus and area of attention for the company. But also that coalbed methane component in western Virginia. So the western part of the state of Virginia, which is where the natural gas business that became CNX Resources all began–with that CBM and coal seam degasification effort.

The other unique aspect of the asset collection is that we are the only Appalachian producer that is both upstream and midstream integrated. So we own our gathering, processing, compression, that type of asset collection. And we think it’s critically important to work those two groups–upstream with drilling and completions with midstream–to work them together in concert because that creates a lot of synergies, efficiencies to lower costs as well as reduce capital intensity. So it’s very fortuitous to have those together, and we’re certainly happy they are.

There is sort of a third bucket of assets, so to speak, that is currently under development, that’s getting a lot of our attention. That is what I would call the new technologies. You could call it an emerging technology arm, something tied to doing a couple of things.

One thing would be developing proprietary technology to create a step change improvement or to transform the way you would go about extracting or processing natural gas. So it might be with respect to drilling or completions or flow back, or it might be something with respect to pipeline maintenance. Going about that manufacturing process with proprietary technology that improves the efficiencies, reduces the cost, reduces the CO2 emissions tied to the different individual links of the chain. I think that will be a big area of attention for us moving forward.

Another area within this new or emerging technologies group would be similar proprietary technologies, but ones that are particularly tailored to efficiently, elegantly, with low-cost CO2 emission footprint, transform the state of the methane molecule from natural gas into CNG or LNG. And being able to apply that technology at the wellhead, at the pad level. Not having to build a big type of a facility or plant that would require massive capital investment and all kinds of different types of commitments and whatnot. So, almost being able to do this well by well and pad by pad, to sculpt it as the demand grows with it. And if you can get natural gas methane from a gaseous form into CNG, LNG, and you can do that cost-effectively in a no-CO2 or low-CO2 incremental emission footprint, now you start to be able to get consideration for things like ground transportation, whether its fleet vehicles with FedEx or UPS, and public transportation–those types of things. Or in the case of LNG, we’re looking at aviation, basically displacing jet fuel and petroleum-based aviation fuels, and that’s part of a partnership we have with the Pittsburgh International Airport to start looking at those types of markets.

From my perspective, there is an opportunity to do a couple of things. You have a huge cost advantage. If you look at dollars per million Btu for the costs of petrol, or diesel, or gasoline, versus what it would cost to take gaseous methane natural gas into CNG/LNG forms using this technology, there’s a huge spread between the two which creates an economic thesis, right? So you can lower cost. It definitely has a CO2 benefit, particularly on a Scopes One through Three basis when you look at the true life cycle as you should–the CO2 footprint of different activities. Sometimes those out there are guilty of excluding Scope Three when they say things are zero carbon. Then, of course, you’ve got the efficiency improvements and things like that. And you’ve got a supply chain advantage. Suddenly instead of looking at a very vast supply chain for gasoline or diesel for jet fuel, you are now looking at more of a domestic supply chain where it’s manufactured if not on site, very close to on-site, being able to transport relatively short distances. There is a national security supply chain benefit that comes with it.

So yeah, coalbed methane, Marcellus/Utica, then upstream coupled with midstream is the second sort of facet of our asset base, and now the third one is this proprietary technology that we’re developing and coupling it with being able to invest incremental capital in the capture of methane that would otherwise be vented to the atmosphere, and using technology similar to our CBM techniques and being able to take advantage of basically offset attributes. So that will be an area through the rest of ’22 and into ’23. I think you’ll be hearing a lot more about the company as we continue to unfold these opportunities. The Airport was a big step in that direction.

We announced the NewLight joint venture last week, which highlights a big piece of this too. NewLight is a company based in California that’s looking to develop a process and supplant conventional plastics for straws and forks and plates, and replace it with a substitute that you really can’t tell that there’s a physical difference. It’s not like a cardboard straw versus a plastic straw. Yet when placed in seawater, it biodegrades within a couple of months, so, it’s an interesting way to avoid ocean plastic waste. They are working with us because we’re providing them with the feedstock, one of which is natural gas, but they want that natural gas to be procured by ways that would avoid emissions of methane. It involves capital investments on our part to capture that methane via coal mine methane attributes and then feed it into the NewLight process. So it’s a pretty cool area and I think it’s a great opportunity for the wider industry.

While we’re advocating for more pipes, and we’re advocating for rational energy policy and letting natural gas do its thing and assume its rightful place in the grid, this is yet another group of outlets that can take [natural gas] demand to a new level.

MDN: You just touched on a whole bunch of things that are blowing my mind here. Especially when you started to talk about CNG and LNG at the pad level and essentially being able to distribute that as opposed to having it centralized…you can point to all sorts of things like the Freeport LNG fire and what’s happened there. When everything is centralized and it goes down, then you have a serious issue. But you’re working on technology, or working with someone, or investigating technology, that would make it possible for you to actually create compressed gas and possibly even LNG at the pad level?

DeIuliis: So we developed and are in the process of patenting the technology that does that [creates CNG and LNG at the pad] in a very efficient low- to no-CO2 emission, cost advantage spread basis. What we want to do is partner with the airport, the Pittsburgh International Airport, to not just demonstrate it on a well-by-well basis, but also to start demonstrating utilization of LNG in blending for jet fuels or aviation fuels. And the utilization of the CNG for fleet transportation, that type of thing. Not just to demonstrate the technology to produce it, but then start developing the downstream markets.

This brings up when you mentioned LNG and Freeport and the issue with the advantage of on-site versus centralization. You brought up another interesting point of all this. There’s been a lot of attention, and I think rightfully so, about the role that domestic natural gas plays with respect to Europe and Ukraine and Russia, Japan with China, the developing world, all of those things. What’s interesting from our perspective is that there’s just as big, if not larger, opportunity, but much more immediate opportunity, with respect to new markets domestically. If you start thinking about supply chain risk, you start thinking about geopolitical risk, you start thinking about overall risk management, right? Many sites–pad by pad, well by well–versus one centralized site. And you start thinking about the overall Scopes One through Three CO2 footprints of these different endeavors, it makes much more sense to start utilizing domestic natural gas with respect to domestic downstream uses like fleet transportation, like aviation, like manufacturing such as NewLight that we just discussed. The CO2 footprint goes down and the cost advantage is substantial. And then the risk management side of this. The thousands of miles of supply chain that are emanating from places like China and Russia and who knows where else, is now replaced with a hundred-mile or a couple of hundred miles supply chain–all domestically, all within the United States. That has some enormous advantages when it comes to risk management.

So I think the common consensus with respect to natural gas in the energy markets is missing a key point, which is there is this massive untapped demand center for domestic natural gas domestically–in domestic applications, in domestic downstream markets. We think the technology exists in-house to start to turn that demand loose in a way where domestic natural gas production can be harnessed and transformed. And sculpted as the demand grows at different rates and over different periods of time to match that.

I’ll give you an example of one of the things we’re thinking about: You’ve got the ability now to create LNG or CNG pad by pad, wellhead by wellhead. But when you get into situations like Texas was dealing with in winter, or what Texas is dealing with now with summer heat, you can fill the vessels [with CNG or LNG]–whether they’re trucks, whether they’re rail cars, or whether it’s some other form of transportation. And just as you see when there’s a storm that comes through a certain state–you have all these utility cherry picker trucks, that are amassing across all the other territories out of state, that then surge to go to restore lines and service to all of the customers–you do the same with CNG or LNG. You would store it in places like Appalachia or other basins, and then when there’s a great crisis because it gets very cold or it gets very hot, or some plant goes down unexpectedly, you rail or drive those products, CNG and LNG, to the different facilities to keep the natgas plants running.

The scale of this really gets lost on a lot of people. If you look at the energy content of a typical Pennsylvania Utica well and what its productivity is, the amount of energy that it produces over the course of the first couple of years, it is equivalent to the energy usage of all the commercial flights in a place like Pittsburgh International Airport. So you start thinking about this across a basin like Appalachia, the energy deliverability content is enormous, in terms of what it could be doing to displace, what I would consider, is either more expensive or less efficient or higher risk or higher emission forms of energy that’s being utilized today. It’s very similar to coal and natural gas on the grid, except now it would be natural gas versus diesel, or jet fuel, or foreign oil, domestically.

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Tune in tomorrow for more great commentary from Nick DeIuliis, going deeper into CNX’s recent deal with NewLight Technologies and CNX’s fiscal philosophy and where the company is spending its money.