This is Dana Perkins and you're listening to Switched on the BNAF podcast, and today we talk about methane leaks and how to find them. Methane is a potent greenhouse gas with a shorter half life than carbon dioxide, but with more global warming potential in that shorter life. So while methane might be the simplest hydrocarbon with just one carbon and four hydrogen atoms, it is a complex problem. Today we welcome Maria Olivia Porce from our oil team.
While there's plenty of methane coming from agriculture, she's actually going to share how methane is being monitored in the oil and gas industry. Satellites have changed the way we detect leaks, illuminating just how flawed previous monitoring and reporting were in addition to the leaks themselves. But what are
oil companies doing with this better information? B and EF subscribers will be able to access several research notes on methane, and I recommend taking a look at the oil and gas methane monitor super emitters in the US as well as oil and a methane fixed more likely with growing un group and the methane bill facing US oil and gas. These can be found at BNEF dot com and at BNF go on the Bloomberg terminal. If you like this show, give us a review or subscribe, and it will help
make us more discoverable by other listeners like you. Right now, let's get to talking about methane. Maria, thank you very much for joining today.
Thank you for having me.
So we're going to spend this entire show talking about methane, which we often talk about in carbon equivalence. But let's start by just talking about methane as methane, not as an equivalent to anything. Why for those people who are focused on climate change and interested in limiting the effects of climate change, whether paras aligned or otherwise, why should we care about methane?
Sure? So, methane is the main constituent of natural gas, so that's gas of fossil origin, and it makes up about seventy to ninety or even slightly over in ninety percent of the gas composition. It is colorless and odorless, which means that it's virtually invisible to the naked dye. However, methane is a very potent greenhouse gas. So what that means is that over a twenty year period, methane traps eighty two point five times more heat than carbon dioxide.
And here I'm referencing the twenty year figure because methane has a very short atmospheric lifespan of about twelve years before it gets oxidized and converted to carbon dioxide. However, methane is the second largest contributor to climate change, so it means that if we're able to reduce methane emissions in the short term, we will be able to limit the global rise in temperatures.
So when we're talking about methane methane and depending on how you pronounce in what part of the world you're from, this is a greenhouse gas that is really important that we think about intervening on right now. So this zero point in the future when we talk about carbon emissions being out in twenty fifty, is potentially much more urgent when it comes to methane and we're thinking about warming and the effects that it could have immediately. So let's
talk about where it comes from. So I know, first of all that it comes from cows, and there's a lot of discussion around that part of the agricultural system. But where are some of the other places and potentially what we're going to talk about a little bit more detail on the show today.
Sure, you're absolutely correct. Agriculture is in fact the largest source of methane emissions, so about forty percent, followed by oil and gas, and depending on the inventory, oil and gas would be between twenty to something like thirty percent. So, because it is a natural gas, it is a very common product in oil and gas production and operation, so there it can leak at various points across the supply chain and that's how it ends up in the atmosphere.
Well, so let's talk about that within the oil and gas universe. Some of this must come from extraction and then transportation and then actual use. So can you break down the different sources within oil and gas where there are methane leaks?
Sure, so the sector where most of these emissions are coming from is actually the sectors are the upstream and midstream. There isn't that much on the end you side, just because it is combusted. So when you combust it it turns into CO two. But if we think about upstream and midstream, we can break it into three different main sources. So we can think about equipment we can think about
operations and we can think about the economics. So if it's to do with equipment, these can include things such as faulty equipment, so devices that are not working properly, or devices that have been designed to function in a way such that they release natural gas when they need to carry out and processes, whether it's regulating pressure, temperature, And here I'm describing something that's called pneumatic devices, which in the US, according to data that company is self
report to the Environmental Protection Agency or the EPA, they represent the largest source of emissions for operations. In some cases, they're designed in such a way that they can be improved so that you can limit the amount of gas that escapes from various processes. And then with economics, so it could be because, for instance, the amount of gas that is being produced is very small, so that it doesn't make economic sense to treat and transport that gas.
And this would be very common where gas is an associated product, in other words, where a well produces primarily oil and some gas, So that would be the case where the volumes are quite small, or it could be that there isn't enough spare capacity in the pipeline, so that the operator may not have the option to store the gas and reuse it for instances fuel on site, and they have to dispose of it.
So we know where it comes from various sources, actually lots of places that it comes from. We know where it comes from, and we know why we should care about it as a greenhouse gas. When you go to analyze something, it always starts with a data set and where are you getting the information from that you are analyzing when you're looking at current state of play with methane leaks, and really the beginning of how we fix the problem, how do you find the problem?
So we think that we should make use of all the available data that we have now rather than wait for perfect data. And we can start with inventories. So this could be whether it's a country level inventory, which wouldn't be too granular. We could look at data that companies self report to the agencies, like the one that
I mentioned from the us EPA. But we have been quite lucky in the past and we've had a number of satellites that are able to observe methane emissions from space, so we've been able to interg rate data that is now measured rather than being estimated. A problem that we have with these inventories is that they tend to underestimate. So from studies that have been done again, the figure in the US that we've seen is that these methane emissions from oil and gas could be under reported by
sixty percent, which is quite a lot. So that's when we turn to measure data in order to understand or to fill in these discrepancies.
Okay, so you've established that we now know that the information that's coming to us from the companies that are reporting their methane emissions is dramatically underreported. So then we turn to this satellite information. Talk to me a little bit about the benefit of the satellite data and then some of the areas where maybe that satellite data is a little bit less reliable and why this is a really tricky area to analyze.
Sure, first of all, let me just briefly explain how satellites actually measure methane.
That'd be great.
So satellites use. Most of the satellites that are observing methane currently, they rely on a principle called backscattering, so they use incoming sunlight which is then reflected from the Earth's surface, and as it travels through the atmosphere, it will be absorbed and re emitted by the gases that it encounters, and those gases will leave a distinctive fingerprint in the incoming sunlight. That which is the satellite spectrometer.
So that's simply a device that splits light into different components. So the incoming light which is the satellite and is being analyzed for the methane wavelengths in other parts is looking for the methane signature. What we didn't do because that would be the concentration of methane. We didn't need to do further processing to turn that into aliqu rates. So how many kilograms or tons of methane per hour? And you're correct in pointing out satellites do have limitations.
So although they don't work very well in areas of high latitude, also limited by atmospheric conditions where you have a very high cloud cover, they obviously can't really see very well. And also offshore they tend to although that space is changing now and there have been progresses made. So satellites do struggle offshore because the sea absorbs most of the sunlight so that it cannot reach the satellite spectrometer.
To overcome these challenges, companies have looked at aligning the satellite in such a way that then the sea surface essentially acts as a mirror and it can reflect most of the sunlight and the satellite can analyze that for the methane fingerprint. But the huge benefit of having satellite observing the Earth is that it's essentially remote observations. We are measuring it rather than relying on imperfect and less optimal methods that are calculating methane. And when you're doing that,
you're adding another layer of t cosparency. It's data that's independently measured, so it's getting us closer to the actual numbers when it comes to understanding methane emissions. The other I'm not sure if I wouldn't necessarily call it a limitation,
but is something to be aware of. So different satellites they would have different resolutions, So what this means is that when they're observing the Earth, for instance, they could see essentially two distinct emissions event appear as one just because they're not able to resolve at a very fine resolution. And that becomes important when we're talking about superimeters. For instance,
but again the space has been fairly exciting. In the past year alone, we've had two satellites being launched, so that's the Environmental Defense Funds Methane AT and Carbon Mappers TANAGER one. So whilst methinks that will be focused on methane, the Carbon Mapper satellite will be looking at methane as well as carbon dioxide blooms.
So to what a stent are the mirrors of methane? You're also utilizing this data or is it largely being embraced by third parties like ourselves and by like the Environmental Defense Fund.
Yes, so, apart from the academics that are using this data to better understand where methane emissions are coming from, there are third party organizations. So one of them would be the International Methane Emissions Observatory or IMEO, which is a United Nations initiative. And what they do they collect data from a number of satellites and they made these observations publicly available. Did you disaggregate the data by sector only?
So oil and gas, coal and waste, But there isn't any further granularity beyond that.
So for anyone who wants to look at this data, set though, the IMEO has that available right now, I can Google search it and there it is. I can see bisector where this methane is coming from globally.
Yeah, that's correct. You'll be able to see the plumes on a map, and you'll be able to know what rate they're associated with, so how much methane they leaked, and you'll be able to see the sector.
But the data that you looked at was much more granular. So what were some of the key takeaways from your analysis when you did look a little bit deeper into this data.
You're right, So we actually used the Imeo data, but because of the issue of the sector level granularity that I mentioned, we thought that our research could fill in this gap for more transparency, and we really wanted to add more context around you know, where these methane plumes are coming from, so what are the emitting facilities? Who are their operators? So we analyzed about three hundred methane plumes in the US that occurred between January last year
and Apro this year. But yeah, all the data came from from Imeo. What we did differently was that we looked for the nearest oil and facility to a plum and we try to map those so that we were then able to understand again facilities and operators, how difficult is it.
To reduce the amount of mething being emitted.
So for oil and gas, it's actually the sector where you have the highest potential for the fastest and relatively inexpensive large methink reductions, because as we were talking earlier, is really about fixing leaks. So it could be optimizing processes, or it could be replacing equipment, but generally these reductions they do come at a relatively inexpensive cost.
Presumably one of the challenges with addressing these leaks is finding them. But as this satellite data is becoming much more prevalent, you'll be able to find them even better. And some of these companies are actually able to then
locate leaks and sometimes very remote areas. So this is certainly a tool that were a lot of people are embracing at moment, whether on the third party side like we are, or within these oil and gas companies themselves now the IOSes, so the international oil companies, many of them are reporting and including their environmental, social and governance data and making it available because they are publicly listed in their investors but the national oil companies do not
have this reporting imperative our national oil companies also looking at this data. Are we really then still talking about the listed companies when it comes down to targeting this source of emissions.
So there has been a lot of traction among different operators, whether IOSS or national when it comes to methin I just wanted to flag that some have for instance, and I'm referring to the ioces here, some have started fairly early and their mitigation METHA mitigation programs have involved things such as working with third party detection technologies, whether it's to develop drones to sensor, So there has been a
lot that has happened in that field. When it comes to THENCS in all fairness, iconing one that has done to the same level that an IOC has done.
So there's the pressure coming from investors, which impacts some companies. But then there's policy, and there's international policy, and one of the places where countries come together and talk about climate is at the COP meetings. So last year COP twenty eight in Dubai, methane featured quite heavily and this certainly could be a place where targets and methane emission reductions would really come from at a national oil company level.
Can you talk a bit about what those discussions were last year at cop when in regard to methane specifically.
Sure you are correct, methane was really in the spotlight at last year's COP and just to recap a couple of the things that were agreed and happened there when it comes to methane. So we had the Global Methane Pledge, which increased the number of countries that are now adhering
to that. So the last time I checked that was one hundred and fifty eight and the Global Methane Pledge they are aiming for reducing methane across all emitting sectors by thirty percent by twenty thirty and the countries that signed the pledge they agreed to have more transparent policies
and to pursue methane reduction efforts. We also had the launch of the Oil and Gas Decarbonization Charter, which is a company led initiative, and we also heard about progress in terms of financing, so the Methane Finance Sprint that was an initiative that was launched by the US government and then invited other governments as well as financial institutions and the private sector to contribute in we've heard that, but by COP twenty they've raised one billion in in funding.
Specifically to address methane emissions and missions more on the oil and gas side and targeting these leaks or across everything including agriculture.
This was across all sectors. You are correct, But one thing I would also like to highlight. Despite this figure, which to me seems large, We've seen analysis done by the Climate Policy Initiative, and their analysis has shown that in order to reach fossil fuel methane abatement, we need to invest about eleven point two billion a year.
So this reminds me a bit of Austin Powers, where even the originally says one million dollars and everyone kind
of chuckles because it's not quite enough money. So just now you said one billion dollars and I'm quite impressed, and then you're telling me it needs to be eleven billion dollars, So maybe I should temper my exuberance over that amount of money, which then leads us to then there are these targets, there's money being raised, there are things being done, perhaps not quickly, enough in order to
reach some of these targets. Can you talk a little bit about how one goes about tracking progress in this space and whether or not this is something that's going to come up repeatedly at cop or if there is another forum for the pressure in progress to continue on methane reduction.
Sure. So again, for the past year, there have been a number of events that have focused on methane specifically. So we also had a forum in Geneva that was looking at specifically add methane from these three main emitting sectors, so oil and gas, coll energy, and agriculture. I think progress is something that at a very high level might be it would be where more work needs to be done.
So we know, you know, for the companies, like we said, they had targets, they have shareholder responsibility and they do report year after year how they've done against those targets. But if we're talking more collectively, I think because we've only had you know, more and more pressure and more countries joining the methane Pledge last year, were yet to
see how things have evolved. But there is there are standardized frameworks that are available to oil and gas companies for them to voluntarily join those and that would be a way, for instance, show progress. So one of these frameworks that I'm referring to is the Oil and Gas Methane Partnership two point zero, and that is a standardized reporting framework for methane emissions from oil and gas assets.
The beauty of OGMP so they do have five reporting levels, and the beauty of that is that a company can join at any level, so they don't really five is the highest, but they don't have to start at one and work their way up although to five. They can start at whatever level fits best with the company's understanding of operational emissions. So these levels they start off as being very you know, aggregated reporting, and then by level
four they already need to measure source level emissions. A level five they will need to do a site level measurement of their emissions and carry out what's called reconciliation, so that is comparing the site level measurement with the sum of all the source level measurements and understand whether there are any discrepancies and explain why those discrepancies appear.
Another nice thing about the OGMP is that they're not technology restrictive in any way, so companies do have plenty of options to choose when it comes to detection technology, and they can even use satellites provided that they have the right resolution.
So has the OGMP been popular? In effect? Who's in the OGMP?
So the OGMP has attracted companies that make up about forty percent of the world's oil and gas production. But I would have to say that some important names are still missing from the list of companies. So it's mostly the upstream producers and quite a lot actually of midstream producers. But like I was saying, we're yet to see companies like Saudi Aramco or Petro China joining the OGMP two point zero. And these companies they're important to the global
gas market. For instance, Aramco is the largest supplier in the Kingdom and they do have a target to increase their gas sells by sixty percent by twenty thirty. So I think in order to stay relevant, they'll need to attract more of the of other large companies.
So what is the OGMP really in effect doing. Is it just reporting of data so that we can track progress or are they helping these companies actually achieve their goals?
So the ODMP data will be used in conjunction with IMEO when there will be they'll be releasing this quite soon and but it won't be anything by asset, so you would know that they're reporting and maybe the number of emissions, but it won't be anything more transparent than
that unless the company opts in for it. Now with OGMP, when they reach the level five, that's quite important for the EU regulations because level five OGMP is already compliant with what the EU is saying about methane regulations for importers. So if you have level five, you're kind of fine. You can still continue to import to the EU after the rules kick in, and you don't have if a member state wants to buy gas from you don't have
to pay a fine. And the other thing with them, apart from the EU import, is that the level five also gives you responsibly sourced gas attributes, so you can trade that, so they're kind of beyond the just like the reporting.
So you had just noted the standards that the EU has for any imported oil products. Would this be the most stringent standard that we find globally?
So you are correct. The EU has adopted methane regulations and in quite a unique move they're targeting not only the domestic production, but they're also targeting importers. So by twenty twenty seven, the European Union has the aim of building a methane transparency database. So what that means is that sellers looking to export the gas to the European Union they will have to disclose their methane intensity and they'll also have to disclose the methods that they've used
to measure their intent city. So it's all about transparency. And this is quite stringent because at the moment, you know, most of the rules, whether it's been in the US in Canada that they've been focused on the domestic production.
So now that we've started to talk about this in terms of geography and we've established the EU has the most stringent import rules, where are the sources of the missions globally? Is this really something that's happening all over the world and is going to take quite a united effort or are there are really a few countries or continents that have the vast majority of the methane emissions?
Sure? So, there have been actually a couple of recent studies where they've compared the number of emissions that countries
we poured with what the satellites have observed. So although we've spoken about the inventories being imperfect, so we do have countries like the US, Russia, Venezuela, and Turkmenistan when it comes specifically to methane and look looking at the satellite data, Turkmenistan has had quite a staggering number of plumes over the past years, over one thousand and these are the sort of hot spots, so as you can see, they tend to be oil and gas producing nations.
One of those oil and gas producing nations is the United States, who is a net exporter of natural gas or LNG around the world. Where do they fit in this and how stringent is the US when it comes to trying to tackle this problem.
Well, the Inflation Reduction Act in the US has really been the springboard when it comes to methane legislation. So when the IRA was passed, we had the Methane Emissions Reduction Program, and that mandates the EPA to impose a fee on the excess emissions of methane from oil and gas operations. So they set a threshold based on activity, So whether you're active in the exploration and production, gathering
and processing. You'd have different thresholds, and to give you an example, so if you are emitting below zero point two percent of the natural gas that you're selling, you're not going to pay any fee. But if it's above that threshold, that's liable to a fee. And the fee starts at nine hundred dollars per ton this year and it increases to fifteen hundred by twenty twenty six. So the US is where it all really started in terms
of regulation, and it's not really just the fee. So the EPA is working on different ways to tackle methane or at least to address methane. So this year we also had the amendments to the Cleaner Act coming into a fource, So those are regulations that are affecting new source as well as existing source. And apart from the Cleaner Act amendments the emissions charge, the US is also looking at revising their reporting program, also formerly known as SUBPARW.
So there has been a lot of momentum in the US. On top of this, I would also like to mention that the US now has a program called the Supermeter program, whereby they work with third party detection providers that inform the EPA of detections that they make, and then the EPA work in turn with operators that they identify as responsible to figure out where their emissions came from. And they're really using this in order to learn whether there
are other sources not covered by the current legislation. So again a lot of momentum in the US.
So this fee essentially functions as a tax. It's not going to be a market like a carbon market, but for methane it's a flat tax that is per ton and has been set and could change in the future, but isn't fluctuating. Yes, you are correct, and when they collect this money they're using it to find new sources.
Are they also using it to in any way subsidizer directly tackle some of the sources of emissions or that really left to the companies themselves, and it's an issue of highlighting where those emissions are.
So with the tax, I think the tension there was to try and bring in line as many operators as possible to reduce their emissions. The government has announced a number of grants and a number of financing pots to help operators reduce their emissions. So we had a program for small producing wells which have been found to be
quite a significant source of emissions. And we've had other grants that were encouraging detection technology providers to come up with solutions for the As far as like I understand the money that they will collect from this tax, I mean, I'm not sure if it goes back into like methane mitigation. I think it's used for for the overall budget. The goal is that most of these companies they won't have
to pay a lot. Basically, they will try to limit their excess emissions so that they don't have to pay because the tax is quite high. It is quite high. But what they've also done, they've allowed for something called netting. So this is where you can use a better performing and this is for operators that have facilities and they're commonership.
So if you have several assets in the SPASIN and several assets in that basin, but if you have an asset that's performing really well in terms of emissions, because you're netting git out, you can use that to offset maybe a poorly performing asset, So that really brings down the tax that you are going to have to pay. And I don't think this was again meant to be very punitive, hence the netting. Hence everything is more to.
Encourage action, encourage driving down emissions across an entire portfolio for a company, but not target specific assets. Yeah yeah, correct, but moving in the right direction. So presumably there will in the future we will see potentially some ratcheting up as these goals become more attainable. But fair enough, that is conjecture on my part, which is not how it currently functions. And the Inflation Reduction Act is only a
few years old. It's still just a baby, and it's making its way through these various sources of emissions in
the economy. So we've established that there are third party groups where information is being shared and companies are voluntarily signing up to better understand and declare their sources of emissions so that we can tackle the problem that the EU has stringent standards for imports, that the US is as a part of the Inflation Reduction Act, is really taking an active role in looking at how they do
this also through fees or taxes. Now, with all of these initiatives taking place, and with this conversation coming up, I'm sure every year at COP in some respect on trying to see whether or not it's making progress. What are some of the ways that a company can verify that they're actually achieving these targets? And really, I mean, what's the piece of paper that they're able to electronically or otherwise push forward and certify that they're actually making progress to the outside world.
Sure, So we have seen over the past few years the emergence of responsibly sourced gas or producer certified gas. So what this really means is that you get essentially a label that says you have produced your natural gas in accordance to various environmental, social and governance principles. But it is usually about the methane intensity of the gas.
So there have been different providers in the space, and although there is no common standard when it comes to what represents responsibly sourced gas, these providers they do have a fairly comprehensive set of rules that a producer would have to abide by in order to get the label. So the responsibly sourced gas has already unlocked a market whereby you have a premium that's being paid based on
the intensity of the fossil fuel. So the gas can trade either bundled or unbundled from what it's called environmental attributes. So these could be the methane intensity, for instance, and that's currently happening. We've done an analysis and although premiums were quite muted earlier in the air end, as you'd expect,
refluctorate with the price of natural gas. Many producers see this as a way to prove to their investors and as a way to communicate to the market that they've been producing it in a way that has minimized methane vikage, for instance.
So, Maria, now that you've taken a look at all of this collectively, how would you say we're doing And is methane gaining momentum in terms of reduction? I suppose that's the wrong way to phrase it. But are you seeing signs that the oil and gas industry is essentially embracing the reduction of methane or is it really more at a compliance level doing what needs to be done from a regulatory standpoint, but not really at the front and center is a priority yet.
I think it has become a priority for most of the industry. And although you know, methane emissions are not really a new problem, they've been having been an industry. They have been around since, you know, the very beginnings. It's just it has received more and more attention recently as we understand what drives climate change better, and undoubtedly methane is a large contributor to that. But I think it's not uniform. So you do have places companies that
are taking this perhaps more serious than the others. But I think there have been a lot of encouraging things that have happened, from the pledges that have been signed, to the investment and the financing that has gone into this, and in fact the banks they've also acknowledged that there is an opportunity when it comes to methane, and we saw last year, just ahead of cop JP Morgan putting out a white paper on the methane opportunity and saying
that they will support their customers in this journey of driving down emissions. So I think there has been indeed a lot of action, although it hasn't happened at the same pace, and it's probably difficult to happen at the same pace everywhere, but the signs are very encouraging that more and more operators are taking this more seriously and are working on driving down their emissions.
And so how often are you looking at this data and keeping an eye on it?
So we're actually looking very often. The report that we put out where we analyze the Imeo data was our first iteration. We will be updating that now on a quarterly basis, and we're only excited about, you know, the launch of new satellites and of more data that will become publicly available. So this wave of new data, I think it will be it will be great to add more transparency and understand where where emissions are coming from. And ultimately we want this to drive action.
So as the transparency increases, I'm sure we'll have you back on the show to tell us even more. And hopefully by that point I'll have decided whether or not I'm going to refer to it as methane or methane, given that I'm an American living in the UK and seem to be adapting both pronunciations today, Maria, thank you so much for joining, Thank you for having me. Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling. Bloomberg NEIF is a service
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