- The IEA says it is technically feasible for the oil and gas industry to prevent 70% of leakages of methane, a greenhouse gas that is 84% more potent than CO2 in short term
- At COP26 100 countries agreed to cut methane emissions by 30% by end of the decade, which if successful would be equal to getting to net zero emissions in global transport
- Biden administration has ordered crackdown on methane emissions, though EPA proposals judged weaker than Europe rules
- Increase in oil and gas production from Ukraine war imperiling voluntary efforts by industry
May 19 – The International Energy Agency (IEA) says if the oil and gas industry is to have any role in the energy transition it will have to urgently up its game in tackling methane emissions.
Despite numerous industry efforts in recent years to tackle the powerful greenhouse gas, which is 84 times more potent than CO2 in the short term, the agency reported in February that methane emissions from the energy sector, including coal, grew by just under 5% last year.
Significant emissions were confirmed in the Permian basin in Texas, where 30% of U.S. oil and gas is produced and processed, and in parts of Central Asia, with the amount wasted equal to all the gas used in Europe’s power sector, the IEA said.
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Unlike CO2, which is 90% about the end use of their products, methane sits squarely in the oil and gas industry’s wheelhouse.
In liquified natural gas projects, the gas is flared mainly for safety and technical reasons, but in cases where gas is a byproduct of the oil industry, it is routinely vented, or flared, by oil producers because it is too expensive to capture and sell.
While the oil and gas industry is only responsible for about a quarter of methane emissions, the IEA stresses that it is the sector where they can be most easily addressed. Not only is it technically feasible to prevent 70% of methane leakages, but the current record-high natural gas prices justify investing in measures to abate leakage.
“Almost all of the options to reduce emissions from oil and gas operations worldwide could be implemented, at no net cost,” the IEA’s executive director, Fatih Birol, said.
Significant political progress to curb methane was made last year at the COP26 climate conference in Glasgow, when more than 100 countries agreed to cut methane emissions by 30% by the end of the decade. If the target is achieved, Birol said, it would have the same effect on reducing emissions as shifting the entire transport sector to net zero.
But experts say delivering on that commitment, at least in the short term, has been dealt a setback by the crisis in Ukraine, with countries scrambling to secure supplies to replace Russian oil and gas, and high prices incentivising companies to ramp up production.
One concern is that a scramble to increase the production and processing of natural gas to ship to Europe will contribute to increases in emissions of methane in the Permian basin, where one study estimated that as much as 3.7% of gas production is being vented and leaked into the atmosphere – more than twice the Environmental Protection Agency’s (EPA) estimate. Climate scientists say that at methane leakage rates of 3.2%, gas emissions are more dangerous to the climate than coal.
In January, the Environmental Defence Fund and research group Carbon Mapper reported that aerial surveys of the Permian Basin over three years found around 30 oil and gas facilities “persistently” emitting 100,000 tonnes of methane a year, equal to half a million cars.
Unlike in some countries, the U.S. government doesn’t regulate for either flaring or venting, except on federal and tribal lands or in federal waters, while the oil-producing states vary widely in their approach to methane emissions. States like Oklahoma and Louisiana, for example, allow flaring in the production of oil if it is not economically feasible to market the associated gas that is produced.
There has been a plethora of multi-stakeholder initiatives involving industry players to tackle the problem, including the World Bank’s Zero Routine Flaring by 2030 group, the Oil & Gas Methane Partnership 2.0, the Global Methane Alliance, and the Oil and Gas Climate Initiative’s (OGCI) commitment to achieve 0.2% methane intensity by 2025. In March, the OGCI launched a separate Aiming for Zero Methane Emissions initiative, supported by a dozen chief executives.
Mark Davis, chief executive of Capterio, which interprets satellite data to track gas flaring in real time around the globe, says: “It’s definitely moving in the right direction, and I would cite BP and Shell, in particular, have made bold commitments to get to zero routine flaring by 2025, ahead of their previous commitment of 2030.”
He noted that the latest data on upstream flaring from the World Bank earlier this month found a “substantial reduction” in flaring in the Permian and Bakken last year, which he said was partly due to improved operational practices by larger players.
But he is concerned that a surge in oil and gas production by smaller players to meet the new demand will undo those gains. “We need to watch out for the implications on flaring if the world were to scramble to replace the 2.5 million barrels of oil that Europe consumes from Russia. If U.S. Permian production were ramped up to replace these oil barrels, we can expect significantly higher flaring in the U.S.”
Mark Brownstein, who leads on energy for the Environmental Defense Fund (EDF), says from EDF’s monitoring and reporting on methane emissions in the Permian basin, “we do see evidence of individual companies improving their performance … but it has not yet added up to improvements in the basin’s overall emissions performance”.
He added: “Certainly for anyone (in the U.S.) who’s making the argument that we need to produce more natural gas, or that somehow this crisis justifies ramping up production, I’d say you need to show you aren’t wasting a huge amount of gas before you make the case that you’re entitled to produce more.”
He applauded the efforts of President Joe Biden, who as one of his first acts in office issued a directive calling on federal agencies to crack down on methane emissions from the oil and gas industry “as quickly as possible”.
While a proposed fee on methane emissions was dropped from the $1 trillion infrastructure bill, the EPA is proposing new regulations that would require the elimination of venting and a reduction in flaring emissions, including a nationwide standard. A final rule expected by the end of this year.
But Brownstein says the EPA’s proposals are weaker than the European Commission’s upcoming methane legislation, announced last December, which would limit venting and flaring, and require companies to measure and quantify methane emissions in their operations, as well as detect and repair any leaks – requirements that would also apply to imported fossil fuels.
“We definitely think what the EPA have proposed is important, but it could be strengthened”, particularly because it would still allow flaring for low-production but high-polluting wells. EDF also wants the EPA to change its methodology for companies reporting on their emissions. “Right now, companies use engineering calculations. We want them to change that so companies have to report measured emissions in the field,” Brownstein said.
The 70 companies that are part of the Oil & Gas Methane Partnership 2.0 (OGMP 2.0), which EDF is also a part of, have signed up to a new reporting standard that will require them to do just that.
In addition, some companies, including ExxonMobil, BP, Repsol and EQT, have signed up to have individual gas assets in the Permian certified under the recently launched MiQ Standard, developed by non-profit RMI and SYSTEMIQ, which grades a facility’s production from “A” to “F” based on its methane emissions.
Deborah Gordon, senior fellow in RMI’s Climate Intelligence Program, said an A grade represents very low methane intensity, of less than 0.05%, while F represents up to 2%. “We think the average in the U.S. is 0.2%, C grade, but there’s a lot of Fs there.”
While she agrees that regulation is important, certification standards create a market signal, allowing companies to get a price premium for cleaner gas.
She cites ExxonMobil, which last September announced it would make 200 million cubic feet of MIQ-certified gas from the Permian Basin available to its customers starting this year.
“They (ExxonMobil) are already being more transparent, knowing regulation is coming. They also know the satellites are coming, and that emissions are going to be seen,” Gordon said. “It’s about making the invisible, visible. Once you can see something (methane), and you have governments talking about it, and markets moving, that’s the trifecta.”
However, one issue of growing concern is of big players dealing with their methane risk by divesting of dirtier assets – often to smaller private players where there is far less transparency, and less incentive to tackle the issue. Shell, for example, has divested of all its assets in the Permian Basin.
The analysis of EPA data from 2019 for Ceres last year found that five of the industry’s top 10 emitters of methane were little-known oil and gas producers. The biggest polluter, privately owned Hilcorp Energy, had bought up old gas wells in northern New Mexico from ExxonMobil in 2017, which that year reported its greenhouse gas emissions had fallen 20%.
A new study by EDF analysing mergers and acquisition data in the oil and gas industry from 2017 to 2021 found that more than twice as many deals moved assets away from operators with net zero commitments than the reverse.
Gordon said it’s an issue that should be taken up by activist shareholders. “Just like selling your house, (methane emissions of) these asset transfers need to be disclosed and evaluated. They either need to clean up the gas before it’s sold, make it A-graded gas, or it needs to be discounted so they take a huge financial hit. I’d love to see MIQ imposed at stage of transfer, just like when you sell your house.”
Gavin Law, head of gas and power consulting at Wood Mackenzie, says: “I suspect that message (about methane emissions) has been shelved for the moment because people are saying, security of supply is a much bigger issue in the next 12 to 24 months because of the war in Ukraine and all the rest.
“But all this work that’s being done by the oil and gas companies is going to continue, because they have got teams of people working on carbon reduction, and they know this problem is not going away. Ultimately, if you want to sell your LNG in the market, you are going to have to be able to demonstrate that the carbon intensity is manageable, and you are better than others.”
Brownstein of the EDF said he is encouraged that methane is finally getting the attention it deserves. “I think we have the tools to get the kind of data that really allows us to understand the magnitude of the problem and the source of the problem.”
“But what’s also true, and the IEA report shows this, that for all of the attention that this issue has received over the last few years, we’re still not seeing the emissions going down.”
Brownstein believes the litmus test is whether companies are prepared to transparently report on measured emissions. He points out that while Shell, BP and TotalEnergies are part of OGMP 2.0, ExxonMobil and Chevron are not.
“One of the messages we are giving to the oil and gas industry is that commitments are nice, but actions are what matter, and the way in which we will know that actions are being taken and that they are effective is when we see that with measured, monitored and reported data.”
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