FSR Topic of the Month
by Andris Piebalgs and Maria Olczak (FSR Gas Area)
Substantial reduction of methane emissions for achieving the climate goals
Methane has value and now with the industry taking action, the introduction of new regulations targeting methane emissions should be well justified. Methane abatement economic potential depends on gas price, the emission rate and the abatement potential of the mitigation measures. Fluctuations in all of these factors could significantly delay the payback period for companies. Moreover, the social costs of methane emissions are considerably higher than revenues for the company from selling captured methane. The economic opportunity is not sufficiently strong to rely solely on it, which is why regulation is needed. Additional reasons include the avoidance of “free riders” and the urgency in the reduction of the GHG emissions.
The current examples of methane regulations are mostly focused on the upstream part of the gas value chain. The regulations in the US and Canada target large upstream producing and receiving installations. They require frequent reporting, use of leak detection and repair programmes, the avoidance of flaring and venting. These regulations are expected to help to reduce the methane emissions by 40 to 45% below 2012 levels by 2025. It is true that the majority of emissions occurs in the upstream, but there are also substantial losses in midstream and downstream as well. The regulations should target also these parts of the value chain.
In Russia, the regulations require the abatement of emissions from every facility and there are fees for emitting methane. The supervision is carried out by environmental and tax authorities. Norway claims that due to stringent regulation, the companies operating on the Norwegian shelf are world leaders in the solutions to reduce GHG emissions. From all the GHG emissions, methane accounts for only 3%. Mexico has proven that strong regulation to reduce methane pollution can be implemented, while simultaneously having growth in oil and gas industry. Experiences in different countries pave the road for specifying issues that need to be regulated to significantly reduce methane emissions.
First, it should require regular leak detection and repair, the so-called LDAR programmes. A LDAR programme is the system of procedures used to identify and repair the leaking components. Regulation should require regular inspections with thorough record keeping and transparent public reporting. It should incentivise the operators to implement continuous monitoring.
Second, it should seek to reduce or even eliminate intentional methane venting. The regulation should demand to use non-emitting equipment and regular replacement of parts known to leak when worn. Third, it should prioritise gas capture and utilisation over flaring.
The potential benefits resulting from the implementation of more stringent regulations are substantial. The IEA estimated that the expected emissions savings are equivalent to shutting down all coal-fired power plants in China.
The additional aspect of dealing with methane emissions could be the customers demand for climate-friendly gas. That could give a market-based premium for low-emission gas. A study shows that gas delivered from the Norwegian shelf to customers in Germany has only half of the emissions intensity of European average. Today’s market does not reward it. However, the development of transparent and comparable systems of measuring, reporting and verifying the drive to limit GHG emissions could change this.
In an ideal case industries actions would be supported by effective regulation and market forces. That really could be a game changer.