Current news. The ESG movement has always had a complicated relationship with the oil and gas industry. Many of the organizations pushing the ESG movement were the same groups calling for the end of oil dependance. Today, some of this sentiment continues to exist, but as segments within ESG—like decarbonization—move to the forefront, it is the oil and gas industry leading the charge. In my opinion, the decarbonization industry will only develop with oil and gas involvement; and without it, will remain fringe. It is Oxy, ExxonMobil, Chevron and others making the multi-billion-dollar investments to grow and scale decarbonization, and that trend continues.
The Boston Consulting Group (BCG) recently announced an agreement with 1Point5, the Oxy CCUS subsidiary. This agreement includes the purchase of 21,000 metric tons of carbon dioxide removal credits over three years. This agreement additionally includes consulting services from BCG, including supporting the carbon dioxide removal credit market. These credits will come from the Ector County Direct Air Capture (DAC) facility under construction by 1Point5 and referred to as the STRATOS facility. This comes on the heels of another announcement from BCG in the purchase of carbon dioxide removal credits.
Not to be left out of the decarbonization movement, the Abu Dhabi National Oil Company (ADNOC) just announced in January a 10% investment in UK-based, CCUS developer Storegga. This was part of ADNOC’s announcement last year to invest $15 billion into low-carbon solutions and decarbonization. Expect to see more of this throughout the year, as major oil continues to become the engine behind the growth of decarbonization and CCUS.
Methane and more methane. But let’s get into our main topic today, which is methane. We have all noticed—if you’ve been paying attention—the increased focus on methane reduction, from flaring reduction to improved monitoring, leak detection and emission reduction programs. It has not been unusual to see announcements within the oil and gas industry of new methane-centered programs and operating groups. We are seeing methane teams, with larger oil and gas companies focused on monitoring, reporting and reduction.
Like decarbonization, we are seeing the development of a new industry. Technology for monitoring and detection is growing and improving. There are even methane certification companies emerging, mostly as a result of “Responsibly Sourced Gas” requirements. You can expect these groups to play a role in the larger methane monitoring and reduction programs. None of this should be a surprise. The U.S. EPA has long established, and announced, that they would be increasing the regulation of methane.
The EPA’s justification is that methane has a 30-time impact as a greenhouse gas (GHG), as compared to carbon dioxide. But it’s not just the U.S. looking at methane. At the annual meeting of The Conference of the Parties (COP) 28, which was formed as the decision-making body under the United Nations Framework Convention on Climate Change (UNFCCC), it was announced that 150 countries had signed onto the Global Methane Pledge (GMP), including the U.S.
This pledge is to reduce methane globally to 30% below 2020 levels by 2030. Over half this reduction is expected to come from the oil and gas industry, which accounts for about 30% of these methane emissions. So, much of the burden is placed directly on oil and gas. At COP28, as part of the GMP, the partners signing the pledge also announced over $1 billion in new grant funding. In addition to the GMP, 50 major oil and gas producers signed the Oil and Gas Decarbonization Charter—pledging again to reduce methane by 2030 and eliminate routine flaring—and U.S.-based companies like ExxonMobil, Occidental and EQT signed on.
I’ve always wondered about flaring, in as much as it has been villainized and—let’s face it—flares don’t necessarily inspire emission reduction confidence as we see the black smoke rise from flaring. Yet, it does have some benefits. Besides the safety issue of not allowing methane to accumulate, combustion of methane results in the formation of carbon dioxide, which has a 30-time lower impact on climate as a GHG. But I also understand that to inspire public confidence, flare reduction makes sense and ultimately gets this methane to market.
Methane tax. The EPA also took time to announce its final rule on methane at COP28, something that had been anticipated for some time, as it was also incorporated into the Inflation Reduction Act (IRA). Thus, we knew it was coming, and after plenty of input, everybody was anticipating the final rule.
This final rule estimates that 58 million tons of methane will be eliminated during the 2024-to-2038 period, which, with the about-30-time multiplier, is equivalent to about 1.5 billion metric tons of carbon dioxide. They also established a “methane fee,” which many are calling the Methane Tax. This fee is $900/ton this year, and it increases to $1,200/ton in 2025 and $1,500/ton in 2026. But it’s not straightforward—the fee only applies to methane above specific thresholds. For example, in gas processing facilities, the fee applies to methane in excess of 0.2% of the natural gas sent for sale. In gathering and boosting facilities, it’s 0.05% of methane emissions that exceed natural gas sent for sale. For transmission facilities, the standard is 0.11% of natural gas sent for sale.
What about VOCs. The EPA announcement also included some discussion of volatile organic compounds (VOCs) and benzene. New Mexico was considered the benchmark for methane regulations, having already imposed their own state program. New Mexico has already implemented a VOC monitoring and reporting requirement, with VOC reduction due in 2025. So, expect VOCs to be the next regulatory concern that will be addressed by the EPA.
Produced water as well? One of the new impacts that was announced in the IRA, but which made its way into the EPA final rule, is methane emissions from produced water. A standard was developed that will be applied to every barrel of produced water, so it’s not just controlling emissions from flaring and gas processing and handling; it includes methane emissions from produced water. Again, this was expected, and if we look to New Mexico as a benchmark, they also included produced water in their new VOC regulations. Managing produced water will change, going forward.
It's not all bad news. I’ve always considered change to be a constant and within change brings opportunity. We have talked about a new industry developing in decarbonization, while a subset of this new industry will be a methane Industry focused on monitoring and emission reduction. We are already seeing new technologies developed in these areas and will see new jobs open up to meet this demand, but yes this will also likely mean an increase in costs. We do have a tax credit program to offset costs in decarbonization and offset credits, but what we need is for the 45Q program to move away from a CO2-only standard and go to CO2e, which would include methane and other emissions to help offset the costs to the consumer.
Another interesting piece of news is that 22 countries, including the U.S., signed a nuclear declaration, in which they pledged to increase by 30 times their current nuclear energy capacity. Interesting, how little attention this received, but it speaks greatly to the efficiency concerns over wind and solar. I will continue to keep you updated on the world of ESG, as it applies to our industry. Stay tuned.
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- Global capex growth is slowing (February 2024)
- Industry at a glance (January 2024)
- The last barrel (January 2024)
- Executive viewpoint (January 2024)