Addressing Methane Emissions in the Energy Sector: A Global Call to Action

The Challenge

In a multi-dimensional fight against climate change, reducing anthropogenic methane emissions has emerged as a crucial and achievable goal. Methane, though short-lived in the atmosphere compared to carbon dioxide (CO2), is significantly more potent in trapping heat, resulting in a global warming potential for methane estimated to be 21 times more intense than that of CO2. Consequently, methane emissions pose a significant challenge to the global environmental sustainability, accounting for about 30% of the global warming since the outset of the industrial revolution. The International Energy Agency estimates the current global annual methane emissions to be about 580 million tonnes (MT), equivalent to 12.1 gigatonnes (GT) of CO2, which is about one-quarter of the net greenhouse gas (GHG) emissions of 50 GT CO2e.

The energy sector is responsible for about 25% of the methane emissions, primarily as scopes 1 and 2 of the oil, gas, and coal industries, which are largely controllable. Consequently, the energy sector has a pivotal role in mitigating this threat.

The Urgency

Commitments made by countries through global treaties, such as the Global Methane Pledge (GMP), are creating a clear impetus for companies to act in this direction. Regulatory decisions at the level of individual states and regional associations will increasingly govern the methane emission related activities of the oil and gas companies, as exemplified by the new EU Methane Regulation adopted in May 2024, targeting the energy sector. Consequently, all oil and gas companies will need to reconsider their attitude towards methane emissions, preferably in a proactive manner, to avoid regulatory measures and fines eroding their value. National Oil Companies (NOCs) will play an important role in this effort and their current undertakings are illustrated in the figure below.

Key Strategies for Mitigation

1. Methane Inventory Measurements: Leak Detection, Monitoring, and Repair

The energy industry across the globe is increasingly mobilizing towards enhanced monitoring capabilities by leveraging satellite programs, land-based sensors, and other innovative technologies. These practices form the stepping stone to initiate prompt mitigation measures. Technology mapping, collaboration with service providers, and technoeconomic analysis are instrumental in optimizing large-scale deployment of such technologies.

2. Policy & Regulations

As national governments commit to methane emissions reduction at the global stage, they implement more stringent domestic policies to achieve the same, e.g., flaring and venting restrictions. Companies must understand the policy environment they operate in and also be able to anticipate the future changes to maintain business continuity. Comparative studies of global policy frameworks, stakeholder mapping, and gap analysis can help inform decision-makers to develop resilient corporate strategy roadmaps.

3. Technology Transfer

Technology transfers across companies and international boundaries in the energy industry have played a key role in the rapid growth of this sector. Technologies assisting climate action are being especially promoted globally. However, an in-depth knowledge of the global technology market and scientific understanding of their advantages and limitations are necessary to map the optimal strategy from a techno-economic and environmental standpoint. Moreover, geopolitical considerations, leading to export control regulations, trade wars, and sanctions are undeniable realities of the world today, affecting the industry, which may impede the access to certain technologies, potentially impacting a company's emission reduction strategy. Evaluating current practices, conducting scenario analyses, comprehensive mapping of the technology space, and identifying strategic collaborators, are critical for any company to adopt best-practices towards an optimal strategy in the long-run.

4. Knowledge Transfer

Knowledge of energy transition policies and technologies are key enablers. Stakeholder analysis helps identify the barriers to the uptake of emission mitigation measures. Hence, capacity building is crucial to unlock the potential of a company to develop and execute an indigenous strategy benchmarked against the international standards. Corporate and industry-wide gap analysis to implement targeted research and training programs is required. Technology expos, joint studies, workshops, and conferences can facilitate collaboration and innovation towards this effort.

5. International Alliances

Aligning with initiatives like the Oil and Gas Decarbonization Charter (OGDC), the Oil and Gas Methane Partnership (OGMP) 2.0, and the Global Methane Pledge (GMP) offers a collaborative framework for emission reduction. Engaging in global outreach to secure necessary support in preparing baseline emission reports, identifying partners, and exploring appropriate financing schemes will help the energy companies to advance their emission mitigation strategy. The GMP associates aim to cut methane emissions by at least 30% from 2020 levels by 2030, making a significant dent in the global emissions. However, such commitments require long-term strategic planning and a clear vision at the corporate level, often necessitating internal realignments.

The Road Ahead for the Energy Sector

Accelerated cuts to methane and other non-CO2 gases could prevent up to 0.5 degrees of warming by 2050. The significance of the urgency is reflected in the numerous international alliances at the highest levels of international engagement like COPs, with support from all relevant international organizations and voluntary participation form a large number of governments and corporations. This is exemplified by the fact that 155 countries, representing over 50% of the global anthropogenic methane emissions, joined the GMP. Among the various sources of this emission, the most controllable is from the energy sector, placing the oil and gas companies in the spotlight. The outlook below from the GMP highlights the key role of the energy sector in methane emission reduction. This understanding has led to 130 companies, accounting for over 37% of the global oil and gas production, joining the OGMP 2.0.

While governments have made commitments to cut methane emissions, the burden of implementation and its implications lies primarily on the oil and gas industry. Existing technologies can reduce these emissions, but these measures are cost intensive, likely raising the operational and production costs consequentially.?

On the other hand, the cost of inaction may even be greater, depending upon the regulatory environment of operations. Penalties for emitters are expected to increase, with the upcoming COP29 likely to impose more ambitious and binding commitments on methane reduction. Some examples:

• the US Inflation Reduction Act has already imposed charges from $900 per tonne of methane in 2024 to $1,500 by 2026
• Canada is aiming for a 75% reduction in oil and gas methane emissions by 2030 over the 2012 baseline
• Nigeria and Colombia became the first African and South American countries to regulate methane emissions from oil and gas sector.?

Moreover, with efforts like the Methane Alert Response System (MARS), it will be increasingly difficult for the operating companies to get away with emissions. Enabled by global tracking initiatives, the EU plans to place stricter methane emissions limits not only on domestic production but also on imports. This would imply that not only operational jurisdiction but buyer-market environmental regulations will also play a key role in methane mitigation. Consequently, sooner or later, oil and gas companies will be forced to take action to cut emissions. From a business perspective, it is arguably in their best interest to stay ahead of the curve for competitive advantage and lowering the financial and reputational risks of non-compliance.

Nonetheless, oil and gas operating companies often lack precise data on their own emissions owing to the limitations of the current monitoring technologies in comprehensive tracking of all emissions across the entire supply chain. No single technology, including satellite monitoring, yet offers the feasibility for the same. It becomes an even greater challenge for low emission sources like leaking valves, pneumatic devices, tanks, wellheads, etc. which are often likely to have a greater cumulative impact than large single emission sources. Thus, deployment of an optimally wide range of monitoring technologies and consistency in reporting methods are crucial to mitigate these challenges. Various estimation methods have also been developed by scientists, with international consensus, to bypass these challenges, which however, may need significant adaptation to the local operations.

Finally, process modifications to cut methane emissions must be complimented with new business models allowing for monetization of otherwise flared, vented, or leaked gas. Rather than dealing with methane emissions as a stand-alone operational and business item, companies should internalize it with their corporate strategy.???

The energy industry, especially the oil and gas sector, is navigating this space cautiously. While the need for action is often clear, identifying the specific actions and determining the implementation methodology turns out to be challenging. To strengthen its efforts, the energy industry must invest in a comprehensive strategy balancing all the five pathways listed in the section above, prioritizing the lowest hanging fruits.

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