An agreement at COP26 to curb the world’s second most powerful greenhouse gas looks on shakier ground in the short term in the wake of the war in Ukraine, reports Terry Slavin
The International Energy Agency says if the 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, the largest oil field on the planet, and in parts of Central Asia, with the amount wasted equal to all the gas used in Europe’s power sector, the IEA said.
Almost all of the options to reduce emissions from oil and gas operations worldwide could be implemented, at no net cost
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 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, as high oil and gas prices prompt fossil fuel companies to re-examine the economics of projects, and energy security concerns now trump climate issues for policymakers.
Of particular concern is the impact of European Union plans to import U.S. liquified natural gas to help fill the vacuum left by Russian gas, given the already high methane emissions in the Permian basin, where 30% of U.S. oil and gas is produced. Russian gas production is also known to be high in methane emissions, but Russia, together with India and China, are not signatories to the Global Methane Pledge.
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 Defense 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.
A separate 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.
Meanwhile, analysis of satellite data by the Howard Center for Investigative Journalism, found that oil and gas operators in Texas and a dozen other U.S. states have flared at least 3.5 trillion cubic feet of natural gas – equal to the annual emissions of nearly 42 million cars – in the past decade.
The problem is that 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. As the Howard Center investigation found, in states like Oklahoma and Louisiana flaring is allowed if it is not “economically feasible to market the gas that is produced as a byproduct of oil production”.
Mark Davis, chief executive of Capterio, which interprets satellite data to track gas flaring in real time around the globe, says he expects a dramatic rise in flaring in the U.S. in 2022. “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.”
The industry says it is alive to the problem. There has been a plethora of multi-stakeholder initiatives involving industry players, 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.
BP and Shell, in particular, have made bold commitments to get to zero routine flaring by 2025
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.”
Davis of Capterio 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.”
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 requiring the elimination of venting and a reduction in flaring emissions, including a nationwide standard. The consultation period has just closed, and a final rule expected by the end of this year.
We believe that the United States really does need to lead by example here
Brownstein said strict regulation by the EPA, and its implementation by states, will be key to levelling the playing field for the entire industry.
“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."
Under one initiative EDF is a part of the Oil & Gas Methane Partnership 2.0 (OGMP 2.0), 70 companies have signed up to a new reporting standard that will require them to do just that.
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.
One big step up in this regard came last October, when the United Nations Environmental Programme (UNEP) launched the International Methane Emissions Observatory, which will produce a global public dataset to verify methane emissions, based on reporting from companies, national inventories and remote sensing data from satellites.
This will include data from EDF’s MethaneSAT, which when sent into orbit next year will be able to provide comprehensive information on 80% of global oil and gas production, Brownstein said.
Certification standards are critical to create a market signal, allowing companies to get a price premium for cleaner gas
“Mike Wirth, the CEO of Chevron, was quoted three years ago as saying the coming of satellites and other remote sensing technology means that the industry can't really hide from this,” Brownstein said. “I think that's proven to be true and I think it's part of the reason why the industry is really focused on making reductions.”
Gordon of RMI agrees that regulation is important, but certification standards are also critical to create a market signal, allowing companies to get a price premium for cleaner gas.
She said many in the industry woke up to the market risk from methane emissions in 2020 when Engie, which is part-owned by the French government, pulled out of a $7 billion deal to buy liquified natural gas (LNG) from NextDecade because of concerns over flaring in its Rio Grande project in Texas.
Last April, NextDecade announced a joint pilot project with another third-party certification platform, run by public benefit company Project Canary, to certify that each element of the natural gas value chain – from the wellhead to the ship at Rio Grande LNG – has achieved low emissions targets and performed to the highest environmental and social standards.
While Project Canary deploys its own sensors for continuous monitoring of methane emissions, MIQ’s monitoring protocol is not prescriptive, Gordon said; “It can be drones. It can be flyovers, it can be satellite, but it all has to be shown.”
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.
ExxonMobil are already being more transparent, knowing regulation is coming. It’s about making the invisible, visible
“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. 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.”
One issue of growing concern, however, 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 by energy consultancy M.J. Bradley & Associates 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%.
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, expects the market for responsibly sourced gas to only grow. “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.”
One of the messages we are giving to the oil and gas industry is that commitments are nice, but actions are what matter
He added that it was highly likely that the EU would make LNG subject to its proposed carbon border adjustment mechanism, “So if you're bringing a cargo into the EU, you will have to have a certificate that says this is the amount of emissions associated with this … everything from the wellhead, right the way through to the delivery point.”
As for the issue of supermajors divesting of dirtier assets, Law said, “that’s true, but we are seeing with even private equity owned companies their desire to align themselves with things like TCFD (Taskforce for Climate-related Financial Disclosures) is becoming increasingly strong. If you’re a private equity investor, you're going to have an exit strategy and that exit strategy may be going public with the company.”
Brownstein of the EDF said he is encouraged that methane is finally getting the attention it deserves, with the Global Methane Pledge. “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."
For all the commitments, Brownstein says, 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.
Nor do any of the sustainable gas certification schemes require companies to report measured emissions.
"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.”
This article is part of The Ethical Corporation’s March 2022 Energy Transition briefing: See also:
Environmental Defense Fund Permian basin IEA LNG Capterio OGCI World Bank Zero routine flaring Shell BP ExxonMobil Chevron