Methane's Big Moment

for carbon dioxide. It also is an eighty times more potent greenhouse gas. So that is why the Global Methane Pledge, which was signed by over one hundred countries at cop is really so significant. This pledge is looking to cut

methane emissions by thirty percent by the year. So today I speak with Antoine Wagner Jones, who covers Amia energy transitions at BENF, and Na cool Nair, who is in America's gas analyst, and they're going to speak about where the emissions come from, which countries are leading the charge on the plug edge, and how one goes about detecting

methane emissions. To begin with, they wrote a piece recently titled Global d mechanization poised to give us l G an edge, and there's a good amount of coverage on the pledge on the COP twenty six Bloomberg blog. As a reminder, BIENNAP does not provide investment of strategy advice. And we've got a complete disclaimer at the end of

the show. But now let's speak with Antoine and that cool Antoine and Nicole, let's talk about this as a greenhouse gas and why it is significant because I think that there has been historically so much conversation around carbon emissions, and very rightfully, but where is methane's role in the greenhouse gas world? So methane carbon working pretty different ways. I think one of the ways of looking at it is carbon sticks around in the atmosphere for a very

long time. Methane is much also lived. It has a very short half life, but within that amount of time that it remains in the atmosphere, traps more than if we're looking over two decades from emission, it traps more than eighty times the heat that the same amount of carbon dark side would. So let's call this out. How long is a very long time? How long does c O two stay in the atmosphere hundreds and hundreds of years.

And how long does meet things stay in the atmosphere, Well, it says it's half life is a lot shorter, and a lot of the effects dissipates dramatically after the first decade or so. Okay, so we're talking about roughly ten years if we're thinking about the worst impacts, which is particularly relevant right now as there are both short term and long term emission schools that countries are actively creating

as we sit here recording during cop week. But back to the significance of me things, what is the scale of the problem in terms of how much is being admitted since you're just noting that it's eighty times eight

times and greenhouse gas A good, great question. I think one of the things that's come out recently there's the Governmental Pound Climate Change to Report, the first of three this year that have been released, which basically sets out that about a quarter of all heat that's been trapped in the atmosphere since the pre industrial age is down to me thing and that makes it very important to tackle.

And also levels of meeting and risen a lot more over the last two centuries than levels of CO two very much view it as sort of carbon dioxide naughty little brother, if you will, And I think a lot of focus at least in the last decade or so has been on the carbon dioxide and methane has been sort of been able to get away with nefariuff activities, if you will. In the meantime, in which industries is

this coming from? I think technically the largest source of ME thing globally is the agricultural sector, but the one that's been under the most focus, and you know what we want to speak about today is oil and gas. So I've definitely heard of ME thing from cows and then a link to beef, and yes, that is a whole another conversation action regarding where it comes from also other parts of the agriculture sector as well. Correct, Yeah,

exactly a cow's landfills. I guess landfills aren't really agriculture, but there are abroadly other sources other than oil and gas. Oil and gas gets a lot of the heat though. Okay, so oil and gas. The space that we at BNEF spend a good amount of time thinking about as we think about the energy transition and some of the opportunities that this industry has in terms to pivot their business

and look at a potentially more sustainable future. Why are they at the center of the discussion around me thing? From my opinion, I think is really down to the fact that there has been the sort of clamp down from a climate perspective on oil and gas companies in the sector as a whole, and this mostly came from

a common ox side perspective. But then to just sort of increase the scope and capture me thing within that clampdown I think was a fair and fairly easy at tension to to make and to be fair, when we talk about this in front of all and gas companies, they talked about what about the agriculture sector? So I think that this is a good opportunity for oil and gas to sort of get ahead of itself and sort

of stepped benchmark, if you will. And it works very differently if we sort of compare and gas to waste and agriculture and natural sources of meeting I mean in terms of reducing them tackling those emissions, it's a lot

more achievable at a low cost. The i as put out estimates for the percentage of oil and gas emissions that can be reduced at a net profit about it says, and then at low cost for many others because you can actually if you find an off taker market the gas that mean thing that you're capturing, which is effectively natural gas, and the technologies for actually making those reductions

are broadly available today. So again there was a UN report that stated about forty of those oil and gas emissions can be basically cut out using technologies that are available today. It's not rocket science. It's sort of upgrading pipelines, um like valves and pipelines, compressor stations. It's simple stuff. Yeah, plugging empty wells pretty easy to do. So this is essentially leakage. This isn't causes an industrial bride product of

creating things. This is waste. It's funny you say that data because I would actually describe it as sort of maybe not waste, but lost useful product because essentially natural gas is predominantly meeting and so if you can capture it, you can sell it and gain perhaps additional revenue that you're effectively just getting or letting loose into the atmosphere.

In terms of leakage, I'd say most of it is accidental fugitive if you will, But a lot of times it is intentionally vented just because the infrastructure isn't set in place to capture it. And yes, so they're like losing value by doing it. So one would assume that incentives are aligned for the oil and gas industry to not want to lose this potentially sellable product. Why is is an important role for governments to play in trying to restrict or enforce the oil and gas industry to

actually handle some of this leakage. Yes, I think a lot of the leakage and the reason behind it is that companies and operators don't actually know it's being released. It's an invisible gas. It seeps out of the upstream sector, maybe through a loose valve or compressor, and those emissions are broadly unknown to the operator and they don't want to go and to take the effort to sort of track that down and figure out how to reduce it.

So really, I think, at least from a government perspective, it's more about putting pressure on the company's to actually start doing it, because it is definitely possible to do yeah, and it's that freshest built up for a number of reasons, and one part is just that we're better able to sort of monitor and verify large emission events using satellites.

So satellite technology has progressed very rapidly over the last few decades, and we're now at a stage where using for example, the Copernica's satellite program that's run by the European Space Agency has been used by data providers to pick up sort of large emission events above five tons per hour, for example, and that gives you an idea of what's going on in places where geographically the conditions are aligned for you to be able to get good

satellite data. And that recognition, along with efforts by n g O S and by other organizations and by oil and gas producers too, So basically measure emissions using other techniques closer to the ground, has given us a much more granular picture of emissions then we've had in the past.

And that's also being really at the heart of our recognition of of me things being a problem and also the scale of the challenge involved in technic So there's technical monitoring that then leads us to a place where we can actually fix the problem, and then there's this shorter time horizon around a decade where we can actually see real tangible results in their being brought down. So this seems like this is an area where we can make some pretty dramatic progress when it comes to climate goals.

Was that fair summary to say that that's why you think that this may have come up from a policy standpoint at least in the CUP conversations which are taking place. Yeah, I think that's fair. Cup. The number of issues that are on the table that are getting a lot of attention, that means that in terms of media attention, it's going to be issues like methane, which are more like side issues usually where we'll probably be seated seeing tangible progress.

That's something to sort of follow carefully. Over the last few weeks, we've seen the US and the European Commission come together launched the Global Methane Pledge, trying to get countries to agree to cut methane emissions, and the diplomacy around that is going to be interesting to follow. We've already seen the European Commissions say that, well, we've seen spokespeople say that eight countries have signed the pledge. Will be seeing more details over the course of this week.

So who are the countries that are leading the charge, one might say, on some of the enforcement around the Paris Agreement targets on meeting. So I'm based in the US, and I think effectively, over the past year or so, maybe a bit longer, the US has gone a full one e D and gone from what you could view as a bit of a lagguard to perhaps even so far as if I may go so far as to say,

a bit of a leader on the topic. Where a year ago under the previous administration, we were revoking rules that have helped curb emissions along pipelines to now, you know, signing that Global Meeting pledge with the EU to really be a leader, a focal point, a um sort of someone the industry can look up to in terms of taking proactive action to reduce emissions. So there's some alignment here between the Eropean Union in the United States and

trying to achieve the targets around meeting. What is the scale of the problem in these two parts of the world, and how do their emission really relate in terms of size and scope with other parts of the world. That's um, Yeah, it's a good question, and that the answer is that we don't know exactly. So the IA has come out with estimates for the largest source of emissions from the oil and gas sector across different geographies. Those involved assumptions.

Those also involved using imperfect data. Although it's a very thorough assessment. We're still relying on satellites, for example, to give us an idea of what's going on in Russia. And that's tricky because satellites are good at picking up emissions when things are dry, when they're well lit, So the Permian Basin in Texas, for example, in the US

is a perfect example of that. But they're much worse at doing it for places that are offshore, like production off the coast of Qatar, when they're equatorial so in Nigeria for example, or when they're in northern latitudes. So Russia is one of those countries. And that's because of the reflectivity of the surface of water. That makes things tricky in terms of getting a very good view on

emissions around producing areas. That doesn't mean we can't track what's going on to some extent, but it does mean

that it's difficult. Yeah, I don't know if you If you have that information, I'd love to love to fear I basically need to have satellite business because satellites of the future here, Yeah, exactly, Okay, So they're definitely challenges around monitoring and pinpointing where this is all coming from, maybe the US specifically, who's leading the charge on this in some respects, and what are some of the other

regions that we assume do have fairly high meeting emissions. Again, the uncertainties here are large, but you could see the top three countries as being Russia, Tekmenistan, and the US. But then when you're looking at the intensity of production, production in Tekmenistan volume wise is much lower then that of than what's being produced in the United States, for example, So that's a particular problem. They are low incentives there

in terms of tackling the problem. There's a low level of transparency in the local fossil fuel sector and that's been a big issue. And it also means that when we're looking at the global Methan pledge, a lot of the impetus then sort of lies with importing countries, so places like the EU, but also like East Asia, like China,

Japan and South Korea. China imports a lot of gas from Turkmenistan, so if it joined the Global Meeting Pledge, which doesn't look like it's the case now, but who knows what could happen over the next few days that could put pressure on producers there to clean up their act. Just to add anecdotally, I was reading an article that came out on Bloomberg News actually the other day that talked about Turkmenistan's methane hell of fire crater, which was a crater that formed because it had a build up

of meeting that eventually exploded. And then to solve the problem, someone lit it on fire and it has just been burning. It has been sort of effectively on fire since one which is over a decade ago at least. Explain this to me. How setting it on fire solving the problem? You know, I I don't know. I don't think they know. But it makes for, if nothing else, a good visual attraction if you ever find yourself in Turkmenistan. Wow. And this is going to burn for some time because once

it gets started. There are similar things that happen in coal basins in the US as well. It's a it's a problem, and it's with methane emissions that there's something similar as well. When you flare methane, you can burn

it and it converts it to carbon dioxide. But the issues that process is rarely we'll not always entirely efficient, and if you have older equipment, then that can mean that your efficiency of the flaring process means only about the methane of the natural gas is converted to carbon dioxide, so you're still leading to it, still seeing large methane

leakage as a result of those practices. Now, for a very short break, stay with us, So can you explain what issues are currently being discussed in the United States as a part of some of their domestic bills that are making their way through the House and the Senate. I think the biggest and the brightest star in all of this is them talking about a me saying tax effectively and it's in the range of about nine hundred

to a thousand, five hundred dollars per metric ton. And we're actually doing some sort of back of the envelope analysis on this earlier today, and we found that if you take sort of the methane rates assumed or published through the EPA, the Environmental Protection Agency four leakage along production sites, then you're talking about and this tax goes into effect, you're talking about a gas producer having sort of liability in the millions. But and this is where

it gets really interesting. If you look at it from a sabllite data perspective and talk about, okay, what are the actual emissions, assuming that there's some under reporting going on, that number gets into the billions. So depending on the actual policy, the price that it comes out at, the tax that is um and then how they enforce it, this could be really game changing for the for the

U S gas industry. That's exactly right, and there's also something to be said for the pressure that already exists on US producers, and what we've seen is that again, as we've mentioned, accidents of geography mean that US producers are particularly exposed to satellites, more so than is the case for other producing regions. Also, there's practice for extraction

in place, like the permanent involved fracking. There's been a lot of concerns around the environmental footprint that that involves, and that's led to pushback from certain quarters, including governments in the so France is one example where the French government basically put pressure on energy um and local utility to cancel an import detailed deal from next Era the US user based on fears around frackings of methane footprints. And we've also seen similar moves be made in in Ireland,

where there's been popular pushback against energ projects. We're also seeing the EU try and regularize things, and we're awaiting over the course of this year a gas decarbonization package, part of which will be basically enacting proposals that were made last year around setting up a framework that would allow you to look at the methane intensity of different sources of natural gas, which could then be tied to different types of policy for actually having a bit more

of a handle on the associate or on the on the emissions associated with supply chains and imports into the European Union. There's been some discussion as of late, and actually this came up as a topic of an entire panel at the recent b an F summit in London, which took place at the end of October, was around engagement versus davis for some of these companies when they're thinking about some of their highest emitting parts of their business.

So for the oil and gas industry, they're methane assets. There has been in some circumstances companies that have actually sold off these assets to get them off their balance sheets so that they appear to be cleaner and greener for investors. Now, would the bills that are currently being discussed in the US, if we're just going to narrow it down to that region, would it address those producers that are smaller that maybe seemed to be at this

point in time somewhat slipping under the radar. Yeah. Absolutely. I think from any perspective, if I was a big integrated oil and gas company looking to clean up my balance sheet, if you will, by selling off the dirtier assets, if there's now a tax liability on some of these assets, it would just make it much harder to sell. As a private equity backed firm who's on the smaller side, I would be left by you to come in and

purchase that. As you know, it's just not as profitable as if I was able to pump out oil and gas with no with no repercussion for my emissions. This is an area that you know, even we at b any of haven't discussed a ton up until I would say the last year, And as that's happening, what is the most frequently asked questions that you're asked regarding meeting. For me, it's a it's a couple of things. The first is, if I'm a producer interested in actually reducing emissions,

how do I go about doing it? You know, what are what are the best practices? What is typically or at least the best answer, in my opinion is the very first step is to actually figure out what is going on within your asset base, So to go in and actually measure real time continuous emissions monitoring for your entire asset base, to know which valves are faulty, which compresses a faulty, where it's coming from. If you've plugged and abandoned a well, is that well properly plugged? Or

is methane seeping out of the ground. To truly tackle the problem, you need to understand what the the big issues are. And then the second question, and I'll let Antonine come in after this. Then the second question is more around the market for it. I think meat introduction has at least up until now, been portrayed as being sort of forced onto the industry more stick than carrot,

if you will. But I think there's a real opportunity here, and that is the carrot where if you do reduce your emissions, you effectively have a new product, responsibly sourced to gas product if you will, then you can use to differentiate yourself and sell into a premium market. So just questions around when that market might develop, what that premium might look like. And you know this is all in its nation stages, So I think if you're making that bet, you should make it now. Uh, and the

market will develop. I can't speak to what the prices might look like though, And and it's a massive undertaking to set up the framework for data collection um to actually set up benchmarks that are internationally accepted. In my opinion, we kind of had a pivotal moment where these kind of benchmarks, this kind of standard setting can make a real big difference in the energy transition, and we're seeing

that because of trade taking an increasingly important role. So there's all kinds of initiatives around understanding what we're starting to talk about the international trade of hydrogen and then how different sources of hydrogen might compare in their carbon intensity. We're talking about setting up a carbon border adjustment mechanism in the EU that requires us to have a handle on the carbon that's embedded in things like steel and cement and aluminium, and methane is just one more example.

And again the EU set up a special observatory to basically track to use satellite data and other sources to track the emissions associated with different sources, so that you can basically have a sort of labeling scheme for a cargo of natural gas that gives you an idea of how methane intense it was across its value chain. How that set is going to be a matter for a

lot of diplomacy. There's going to be a lot of a big lift in terms of making sure the data is up to scratch, and it's not going to be simple, but moving into areas like this where you can have a real impact, it is a lot low hanging fruit in terms of the investments required to actually tackle methane and the fact a lot of the technologies are already available, But it's also tough in terms of setting up internationally

agreed structures through which to see through this transition. Would you say that sentiment regarding producers is generally positive, so this could be something that both governments and oil and gas companies are an agreement on broadly speaking, I think it will take some convincing because you're effectively asking the industry to change their current workflow. They're the way they go about things that has been maybe in traditional ingrained

in them for a number of years. But do I feel benefits for both the government, the climate and the

oil and gas company. Yes, absolutely, I think it can potentially be a win for all of them, and in a way, maybe even prolonged natural gas as life as a fuel is part of this energy transition, and in addition to that, even work as sort of a stop gap solution for climate ambitions before these net sero targets really come in and start to squeeze out molecule based fuels apart from hydrogen, of course, So it's going to take convincing producers that this isn't their economic self interest.

In a lot of cases, conditions are aligned for that to be an argument you can make very convincingly in the corporate space outside of the policy space. Where are their signs of life in terms of focus and progress on me things. So there is a lot of inaction and there is a lot of criticism. There are some bright spots and one of them is the Oil and Gas Methane Pledge, which is a pledge to limit the methane intensity of or in gas production below a certain threshold.

And and that's something that's been signed up to form by about sixty plus producers. And is this is this a separate pledge that is from the one that you're discussing, So pledges, there's a there's a few different pledges and a few different avenues, so one for private industry and

then one for policy makers and governments. Right. But it's what's interesting is that this and then the methodology that they employ in the reporting practices that they've already been implementing, are being taken up by the European Commission, for example, which wants to make it the basis for a methane observatory that it's setting up. This is all incremental, and we've seen progress start from the private sector. We've seen

it build up. What's promising is that those gains are then contributing directly to the creation and of rules and of policy that could have a very binding effect. Yeah, even on the US side, there are several producers in the double digits that have put out mandates for them to be transparent and eventually report of the media emissions.

Along there are a by Jane, and beyond that there are a bunch of companies that are doing exactly what we discussed earlier and starting a satellite business, sending up satellites to effectually verify if if the claims it will

be made are true. And so I think on the data front, there's a lot of progress coming up is this significant strides are about to be made and that really creates, as I saying earlier, the window of opportunity now before that data starts coming in for producers to get ahead of the game or even operators pipeline operators to to get ahead of the game and start really

making a difference. Now, how does a pledge like this get started In terms of specific genesis, I don't have all the details, but it's something that starts not just with producers themselves, but also with organizations like the Environmental Defense Fund, which is being pretty instrumental to gathering industry together and trying to work out how to to shepherd them into basically putting their names behind something like the

orn Gas Mething pledge line mentioned before. It is something that's volume treat These are commitments from producers and a sign of progress, but at the same time they're also the signals that there's real interest from organizations to push this process forwards, whether it's pressure from NGOs, whether it's efforts to link up industry, like what was happening with the Environmental Defense Fund. Yeah, I think on this front, most of it was actually pressure through NGOs, the Environmental

Defense Fund being a great example. UM I remember reading articles of journalists actually going out into the Permian with handheld infrared cameras and imaging individual plants or or wells too to see to photograph these meeta in emissions coming

out of the ground. And I actually just last week I was at a conference where one of the people who use data continuation missions monitoring data to help producers figure out their meeting and emissions, who showing me photos of how did the same equipment can be used to track like cow farts at a nearby agricultural facility, or

even like human farts. See, there was this one image of a of a person getting out of a pickup truck and as he opened the door, you could just see a plume movi me thing coming out that was called on the camera. So the technology made a lot of advances and like that's a great example of it. I love it is that exact, but there's just a there's a privacy element here that I don't think I'm going to be willing to go from. Yeah, none of the satellite platforms we've had access to have given us

that level of granularity. It is probably a good thing, but we know that the technology is They're half fascinating. Antoine and Nicole, thank you very much for sharing your research on what you've learned about methane monitoring and pledges, and we look forward to seeing what progress is made in the coming weeks and holy months on this potential problem and error and a real opportunity for us to

reduce emissions in the near term. Thanks Dana, Yeah, thanks for having If they know, Today's episode of Switched On was edited by Rex Warner of gray Stoke Media. Bloombergin e F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed as investment advice, investment recommendations, or a recommendation as to an investment or other strategy Bloomberg an e F should not be considered as information sufficient upon

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