Plugging the methane leaks
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“A small leak will sink a great ship” was a favourite saying of Benjamin Franklin, the writer, scientist, diplomat and Founder Father of the US. It could also be a pretty good slogan for the struggle to prevent catastrophic climate change. Methane emissions from leaks, venting and other sources have increasingly come into focus in policy discussions and among businesses as an important contributor to global warming.
The Intergovernmental Panel on Climate Change’s 6th Assessment Report, published in August, highlighted methane as the second most significant greenhouse gas after carbon dioxide. Methane emissions alone are estimated to have caused about 0.5 °C of global warming since the 19th century, about two-thirds as much as carbon dioxide.
The growth in global methane emissions since 2007 has been largely driven by the fossil fuel industries and agriculture, the IPCC scientists concluded. Roughly 30% of human-created methane emissions come from the fossil fuel industries, with agriculture, waste and biomass accounting for the rest. Within that fossil fuel section, the coal industry is responsible for about one-third, and the oil and gas industry two-thirds.
So although oil and gas production, processing and transport only accounts for a minority of human-created methane emissions, it is still a significant contributor. And whereas solutions in agriculture can be elusive — adding seaweed to cows’ diet to reduce their burps and farts is still being tested — the strategies and techniques for capturing methane and preventing leaks in the oil and gas business are well-established. The UN Environment Programme argued in its new Emissions Gap Report 2021, published this week, that using existing technologies to capture methane leaking from oil, gas and coal facilities could reduce the sector’s emissions by 40-50% by 2030, “much of it at net-zero cost”.
A new international Global Methane Pledge, launched by the US and the EU in September, now has 32 countries signed up, including nine of the world’s top 20 methane emitters. The participating countries have pledged to commit to “a collective goal of reducing global methane emissions by at least 30% from 2020 levels by 2030”. Implementing the pledge would on its own cut global warming by 2050 by 0.2 °C, the US government says.
As part of that global effort, the Biden administration and Democrats in Congress have been pushing for a “methane fee”, to be levied on oil and gas companies through some formula linked to methane emissions. At the time of writing, the future of this proposal is uncertain, as negotiations in Congress continue over the proposed. Build Back Better Act.
The methane fee was included in the first published version of that bill, but had to be scaled back after opposition from Joe Manchin, a centrist Democratic senator from West Virginia, which has significant coal and gas production. The 50-50 Democrat-Republican split in the Senate means the bill would need support from every single Democrat to pass, putting Senator Manchin in a highly influential position. The most recent draft bill circulated on Thursday still included a fee, but with a phase-in over three years and other years modifications to cushion its impact. There are also carrots as well as sticks: $775 million for the Environment Protection Agency to provide “grants, rebates, contracts, loans, and other activities” to help companies cut methane and other emissions.
The US oil and gas industry had objected strongly to the plan, arguing that it would “levy an unreasonable, punitive fee on methane emissions only from oil and natural gas facilities that could jeopardize affordable and reliable energy with likely little reduction in greenhouse gas emissions.” The latest revision of the plan addresses a key issue in earlier versions: that oil-focused producers were likely to be hit much harder than their gas-focused peers. But analysis of company disclosures and of methane data in Wood Mackenzie's Emissions Benchmarking Tool, suggests that the proposed fee could still have had widely varying impacts across companies and across basins.
For example, production in the Northeast of the US, mostly gas from the Marcellus and Utica shales, last year had an average methane emissions intensity of 3.8 tonnes of carbon dioxide equivalent per thousand barrels of oil equivalent produced, whereas the Mid-Continent region had an emissions intensity almost four times greater at 14.75 tCO2e/kboe.
There is a similarly wide variation between companies, as you can see in this sample of reported methane emissions intensities of production from some of the larger US E&Ps. Many have set goals to reduce emissions, and made progress on those objectives in 2020, with Pioneer Natural.
Resources reporting a particularly steep decline in its methane intensity. But not all companies are moving in the same direction, and their starting points can be very different.
Another chart that is worth looking at in this context is this one showing international comparisons, again using the Emissions Benchmarking Tool. North American production is neither the highest nor the lowest for emissions intensity among upstream operations worldwide. But it is striking that the green bar for methane losses is the largest for any region. That points to both a problem for North American producers, and an opportunity for improvement.
Investors and regulators will keep up the pressure on US companies to reduce their methane emissions, even if the fee does not pass into law. The Environmental Protection Agency has been working on new methane regulations, which are expected to be published soon. Michael Regan, head of the agency, said at a conference in August that reducing methane emissions has “never been done as aggressively as we plan to do it.”
The largest companies already have goals that commit them to steep reductions. Chevron has set a target of cutting its methane intensity by 50% from 2016 levels by 2028, to 2 tCO₂e/kboe by 2028. ExxonMobil’s goal is a 40-50% reduction from 2016 levels by 2025. This week ExxonMobil said it supported the Global Methane Pledge, and was committed to working with the US government, the European Commission and other governments to help achieve its objectives.
Anuj Goyal, a senior analyst in corporate research at Wood Mackenzie, says that smaller US operators just starting to address emissions, methane is “the lowest-hanging fruit with the shortest payback period”. Independent third-party certification could help those companies convince sceptical investors that they are making genuine progress towards emissions goals.
If the proposed fee system is ultimately rejected, the decline in emissions across the industry will be slower. But methane will remain a big issue for the industry in the US and beyond.
Shell responds to break-up call
The activist investment fund Third Point has taken a stake worth almost $750 million in Royal Dutch Shell, and urged the company to break itself up. Under the Third Point plan, Shell would split into “multiple” companies, including an oil and gas business and a separate lower-carbon energy business. In a letter to shareholders seen by the Financial Times, the fund wrote that Shell had “too many competing stakeholders pushing it in too many different directions, resulting in an incoherent, conflicting set of strategies” that pleased no-one.
The break-up plan is a direct challenge to Shell’s strategy of using some of the cash flows from its oil and gas business to fund its transition to lower-carbon energy sources. On a call with analysts to discuss Shell’s third quarter earnings, chief executive Ben van Beurden defended that strategy. “It is legitimate and necessary that oil and gas products are being provided,” he said. “And they had better be provided by companies that first of all know how to do it, have a very responsible attitude to doing so, and indeed have a strategy to use some of that cash, not just to fund shareholder distributions, but also to transition the company to a better, a cleaner, a lower-carbon slate.”
He also addressed the moves by some funds to pull back from investing in oil and gas. ABP, the
Dutch pension fund for government workers and teachers, said this week it was beginning a phased divestment from fossil fuel producers, which it expected to be largely complete by the first quarter of 2023. But van Beurden said oil and gas companies had a key part in the energy transition. “The energy transition that we are talking about,” he said, “will only come about when companies with the scope, skill and scale like us actually make it happen. And actually work with our customers to say: ‘we can help you use different types of energy products’… So I do think there is a role for us in there.”
China has published its Nationally Determined Contribution document: its 62-page overview of how it intends to contribute to the global effort on climate change, which it submitted to the UNFCCC this week. The NDC includes the emissions pledges that China announced last year: it aims to have carbon dioxide emissions peak before 2030, and achieve carbon neutrality before 2060. To support those goals, the government is pledging to begin to phase down coal consumption in the 15th Five-Year Plan period, 2026-30.
The NDC, reiterating China’s commitment to cutting emissions even though it has made no new pledges, is an encouraging sign for the COP26 climate summit that begins next week, but Xi Jinping, the country’s president, is not expected to attend. One head of state who will definitely not be there is Queen Elizabeth II of the UK. She had been scheduled to attend an evening reception, but has been advised to rest after a visit to hospital last week, and will now give a video address instead. Other members of the royal family, including the Prince of Wales, the Duchess of Cornwall and the Duke and Duchess of Cambridge, are still expected to go to Glasgow for the first week of the talks.
Tesla’s shares soared, giving it a trillion-dollar market capitalization for the first time, after it emerged that Hertz would buy 100,000 of its Model 3 cars. Half of those cars will be rented out to Uber drivers. Recode had a good assessment of the risks being taken by the various parties to the deal.
Siemens Gamesa will build the first US factory to make blades for offshore wind turbines, in Virginia. The new plant will support Dominion Energy’s 2.6 gigawatt Coastal Virginia project.
Japan is aiming for 36-38% of its electricity supply to come from renewables by 2030, under its newly adopted energy plan. Nuclear power is intended to provide 20-22%.
And finally: an idea for a different kind of carbon sequestration. The Greater Farallones National Marine Sanctuary, which works to protect marine environments off the coast of California, has published two fascinating reports on “blue carbon”: natural systems that remove carbon dioxide from the atmosphere and transfer it to sediments or the deep ocean where it will remain indefinitely. The most fascinating example is the role of whales, which support the growth of carbon-trapping phytoplankton with their excrement, and which trap carbon in their bodies that sinks to the sea-bed when they die. Over a 50-year lifespan, each great whale will sequester about 30 times as much carbon as the average tree.
Declining numbers mean the carbon stored by great whales today is only about 15% of what it was before industrial whaling began. If whale populations were restored to their levels of 400 years ago, they could capture an additional 1.7 billion tons per year of carbon dioxide equivalent, one estimate suggests. Compared to current global carbon capture and storage capacity of only 63 million tons per year, that is a lot. It is greater than the emissions of every single car on the road in North America today. It is often said that the birth of the petroleum industry in the 1860s helped save the whales from extinction (although the claim is equally often disputed). Perhaps now whales could return the favour.
Quote of the week
“It is my belief that the next 1,000 unicorns — companies that have a market valuation over a billion dollars — won't be a search engine, won't be a media company, they'll be businesses developing green hydrogen, green agriculture, green steel and green cement.” — Larry Fink, chief executive of BlackRock, told the Middle East Green Initiative Summit in Riyadh, Saudi Arabia, that he expected the next generation of successful startups to be innovators in low-carbon technologies.
Chart of the week
This comes from the latest report in Wood Mackenzie’s Horizons series, The Blue-Green Planet: How Hydrogen Can Transform The Global Energy Trade. The authors argue that as countries strive to reach net-zero emissions goals, “the course is being set for the most dramatic disruption to the global energy trade since the 1970s and the rise of OPEC”. In a world aligned with the goal of the Paris Agreement, the global trade in coal and oil would collapse, while the trade in low-carbon hydrogen would soar. Regions would compete in a “battle for green supremacy” to provide low-carbon hydrogen, and this chart shows a comparison of some of the leading contenders, in terms of delivered cost to Northeast Asia. All three regions are expected to show steep declines in costs by 2050, but Australia, with high solar irradiance and shorter distances to key Asian markets, looks particularly promising.