Methane Remediation

The mysterious Nord Stream pipeline explosion in September 2022 was perhaps the definitive moment in Europe's energy crisis of 2021-23. Even though Nord Stream 2 never actually delivered a single molecule of gas, it was a moment of maximum stress for the European - and indeed global - gas system, sending all-time-high gas prices still higher. But besides its market impact, it was also an environmental travesty, releasing an estimated 290 KT* of methane into the atmosphere. 

What is more shocking is that, effectively, this happens every day. Across global fossil fuel operations, 133 million tonnes** of methane are emitted annually, equivalent to more than one Nord Stream leak every day of the year. Besides the enormous climate damage this is also a prodigious waste of resources. 133 MT is just over half the EU's total annual gas imports, with a market value of €75bn based on 2023 European average prices (TTF).

Methane (CH4, also known as natural gas) is a more than 80x more potent greenhouse gas than CO2 over a 20-year horizon, meaning rapid action to curb methane emissions is essential to meet climate goals. It is already responsible for ~30% of temperature rise since industrial times. 

While we can endlessly debate how much hydrocarbons the world will use at future dates, one thing we should all be able to agree on is that producing and transporting them as cleanly as possible is in everyone's best interests. 

Readers will most likely be familiar with the COP28 pledges to triple global renewable capacity to 11,000 GW and double the energy efficiency improvement rate to 4% by 2030. But this is why there is another essential target: to cut methane emissions from O&G production by 75%.

How can this be done? In short, by rapidly reducing venting and flaring (which also releases uncombusted methane), fixing fugitives from leaky equipment and tightening up coal mine operations. For the oil and gas industry, over 75% of fixes are achievable with existing technology, such as rolling out leak detection and repair programmes for equipment like pumps, pneumatic control valves and pipelines. The fact that around 80% of O&G methane emissions occur onshore should also greatly facilitate abatement. 

Of course, methane is a very valuable commodity: it remains critical to global energy security and it will also play a role in energy transition (switching from unabated coal to gas has a very positive impact, as already shown in the US). So it shouldn't be a big surprise that a substantial proportion of methane remediation activity could actually be profitable, reducing the need for external finance. There is much low-hanging fruit at "super-emitter" sites around the world where the value of saved gas would outweigh the costs. 

Saving money and emissions - what's not to like? In fact, the IEA puts the cost of deploying all abatement measures at $100bn. This may sound substantial but it's actually only about 3% of 2022 O&G industry net profits. 

The IEA believes as much as 200 billion cubic metres (BCM) of gas could be diverted to normal economic use, out of their total estimate of 260 BCM/yr that is vented, leaked or flared. That could save 0.1c in global temperature rise by 2050. In a world struggling badly to meet the 1.5c target, that's a much bigger deal than it sounds: the equivalent of eliminating the emissions from all cars and trucks. 

So what's actually being done about it? The good news is that hydrocarbon producers (both companies and countries) are increasingly aware of the opportunity to achieve rapid and permanent methane abatement as a key step on the path towards climate targets. As monitoring capabilities rapidly improve, methane emissions could be sharply reduced if operators take the next steps to turn pledges into reality. 

Producers are still really just getting started, but progress can and should accelerate quickly over the rest of this decade. Outside of the US where emissions are more evenly spread, focusing on the highest-emissions sites first can have a disproportionate impact. Rystad Energy has worked out that in 2022, just over 100 fields across the Middle East, Africa and Asia producing in aggregate <1% of global supply, caused nearly 100 MT CO2e in methane emissions. With the advent of advanced satellite detection methods, key emissions sites are much more easily identified, while progress in addressing them can also be better tracked. 

It feels like an inflection point could be coming, if the thickening alphabet soup of overlapping initiatives focused on methane abatement is anything to go by. This includes: Global Methane Pledge (GMP, 150 participants), the Oil and Gas Methane Partnership (OGMP 2.0), the Oil and Gas Climate Initiative (OGCI), the Methane Guiding Principles (MGP) and the Oil and Gas Decarbonisation Charter (OGDC). The latter is the newest, announced at COP28, and may yet become the most impactful. So far including 50 operators, including many National Oil Companies (NOCs), who collectively account for 40% of global oil supply have pledged to reach near-zero methane emissions by 2030 (rather than the 30% reduction targeted by the GMP). 

This is a laudably ambitious goal which, if achieved, would have a hugely beneficial impact. However, in industry terms the timeframe is very short and we should not forget that actual progress has been minimal to date, with annual levels of fossil fuel methane emissions fairly constant since 2010. Transforming pledges at COPs into genuine action on the ground will require consistent public scrutiny and evaluation of progress. 

Evidently, rather than relying fully on such non-binding pledges and self-regulation, stronger international policies and regulations will also be required. As a major gas importing region, the EU can help to lead the way. Although its own upstream methane emission intensity is already low, where it has leverage is on the emtahne intensity of its imports, which were over 320 BCM in 2022. Under a law passed in early 2024, as of 2027 contracts for new hydrocarbon imports will be subject to the same methane emissions limits as domestic EU ones, which should incentivise non-EU exporters to clean up their act. Meanwhile in the US, the Inflation Reduction Act includes a charge on O&G methane emissions plus $1.55bn of financial assistance. A few other countries around the world have introduce their own internal legislation or action plans, but there are still many yet to do so. 

The trajectory of global methane emissions will no doubt need to be tracked much more closely and publicised at future COPs and elsewhere, helping to keep the pressure on operators to turn pledges into action. There is no more time to waste. 

* EGUSphere study: https://egusphere.copernicus.org/preprints/2023/egusphere-2023-732/egusphere-2023-732.pdf

** IEA estimate for 2022 

*** Agricultural methane emissions are even higher at an estimated 142 MT (also IEA 2022), but outside the scope of this note

Sources: 

IEA Methane Tracker 2023, Financing Reductions in Oil and Gas Methane Emissions  

Statistical Review of World Energy 2023 

Rystad Energy: Zeroing out methane: Top upstream emitters provide path to 100 million tonnes in reductions 

Environmental Defense Fund: https://www.edf.org/climate/methane-crucial-opportunity-climate-fight