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Methane reductions key to US climate agenda in 2022

30 December 2021 Kevin Adler

Setting in motion additional methane reductions across the US economy—and especially in the oil and gas industry—is high on the Biden administration's agenda in 2022.

Through rulemakings, funding programs, executive orders, and, possibly, congressional legislation, the US is ramping up its efforts to reach the 30% reduction goal in methane emissions below 2020 levels by 2030. This reflects the pledge signed by Biden and leaders from more than 100 countries at the COP26 meeting in November, representing nations that account for about 70% of the world's methane emissions annually. At the time, Biden called it "the single-most effective strategy we have to slow global warming in the near term."

Concurrent with that announcement, Biden unveiled the US Methane Emissions Reduction Action Plan in early November, which outlines both current actions and potential future measures.

One of the most prominent developments under the plan is the US Environmental Protection Agency's (EPA) draft regulation for controlling methane emissions from new and existing oil and gas wells.

The oil and gas industry is the largest industrial source of methane emissions in the US, emitting about 197 million metric tons (mt) in 2019. That's more methane than the total emissions of all greenhouse gases from 164 countries combined, EPA said.

The proposed regulation was published in the Federal Register on 15 November and is open for a comment period through 31 January before the last step to finalizing.

The rule for the first time extends methane reductions at an estimated 300,000 existing oil and gas wells and processing equipment, EPA said. The prior rules covered only new and modified sources.

EPA said the rule would reduce 41 million mt of methane emissions from 2023 to 2035, the equivalent of 920 million mt of CO2. By 2030, EPA claims, this rule would reduce methane emissions from sources covered in the proposal by 74% compared to 2005 levels, and would help the country move towards Biden's goal of a 50-52% national reduction in GHG emissions from 2005 to 2030.

The rule also requires that states develop plans to limit methane emissions or enforce a program developed by EPA.

EPA said the cost to industry would be $4.5 billion per year through 2035. Though that's a large figure, it amounts to just a few cents per barrel of oil produced.

The Environmental Defense Fund (EDF) sent a comment letter in November, commending EPA for "historic" regulations and indicating that it "strongly supports several aspects of the proposal." However, EDF said it wants EPA to upgrade the monitoring provisions for smaller wells, end gas flaring, and impose an eventual ban on gas-fired pneumatic devices such as controllers and pumps.

The American Petroleum Institute (API), the largest trade group for the US oil and gas industry, sent an initial letter in support as well, while indicating a more comprehensive comment letter will follow. API has backed direct regulation of methane for more than a year, in a turnabout for the industry. API applauded EPA's inclusion of an "alternative fugitive emissions monitoring option" that it said would give companies flexibility to quickly adapt new technologies that achieve methane goals, rather than EPA imposing a limited number of technological approaches.

However, API noted that the rule could require retrofits at hundreds of thousands of existing sources. Given the manpower that will take and the current challenges in supply chains, API indicated it might ask for slower implementation of the rule than EPA proposes.

Methane fee

API's point about needing additional time to implement new technology could undermine what environmental advocates say is the key to the methane equation: speed. Methane is about 86 times more potent as a greenhouse gas than CO2 (over a 20-year period), and that's why environmental groups in the US and globally have pushed so hard for major reductions in methane emissions in this decade.

The US Congress is considering a methane fee that would have the benefit of quick implementation, as part of the budget reconciliation plan and the Build Back Better agenda. The Methane Emissions Reduction Act of 2021 would begin at $900 per ton for emissions reported in 2023, rising to $1,500/ton in 2025. The initial figure is half of what Democrats originally proposed in September, but it still faces immense opposition from the oil and gas industry.

The fate of Build Back Better is up in the air, with the methane fee one of the most sensitive elements that has delayed a vote on the package in the Senate until at least January.

API is strongly opposed to the methane fee, stating in September when the legislation was introduced that it would be redundant, given the planned EPA methane regulation. API called it "an unreasonable, punitive fee on methane emissions only from oil and natural gas facilities that could jeopardize affordable and reliable energy with likely little reduction in greenhouse gas emissions."

API's points appear to resonate with West Virginia Senator Joe Manchin, Democrat, who so far has been the lone Democrat who has not said he would vote in support of the current version of Build Back Better. "If they're basically complying with the regulations, then they shouldn't be subject to the fee," he said on 8 December.

Without Manchin's vote, Build Back Better is stuck, as no Republican has voiced support for the $1.7-trillion spending plan.

At $900/mt and rising annually, the methane fee could have a significant impact on emissions, according to Resources for the Future (RFF). It analyzed different fee rates from $500/ton to $2,000/ton and concluded that a fee of $1,000/ton would reduce methane leakage by about one-third.

RFF found the cost to industry would be about $0.14 per million Btu (MBtu), or less than 5% of the average Henry Hub spot price in the last few months. To a retail customer, the cost increase would be less than 1%, RFF said.

It should be noted that RFF's analysis is based on a 2018 study by EDF and researchers from Stanford and Penn State who found that actual emissions of methane from the upstream oil and gas industry is about 1.9% of the gas produced, rather than the 0.9% that EPA has been using in its modeling. Using that EDF 1.9% leakage figure, the $1,000/mt fee would reduce leakage to 1.2%, RFF found.

The study, which has been cited more than 500 times since, is considered one of the most comprehensive undertaken about methane, as it included ground-based and airborne measurements across areas that account for about 32% of US gas production. The authors said that EPA's models miss many of the high-emitter conditions or do not account for the length of time that a well or other operation was emitting abnormally high levels of methane.

The findings from that study have led to calls by EDF, Sierra Club, and other environmental groups that EPA revamp its analysis of US methane emissions, in order to get a more accurate figure—which could represent another methane pressure point on the oil and gas industry.

Congressional concern about methane also is indicated by a letter sent by the US House Energy Committee on 8 December to CEOs of the largest oil producers in the Permian Basin, asking them for information on their methane leakage rates over the last five years.

Federal funding

US producers have achieved substantial reductions in methane leakage in the last decade through voluntary measures that enabled them to capture formerly flared or vented gas that can be resold. API said that "methane intensity," which is methane leakage per unit of oil or gas production, has dropped by 70% from 1999 through 2018.

The government recognizes the benefits of voluntary programs, and it's why Build Back Better would include $775 million for grants, rebates, and loans available to oil and gas producers to deploy technologies to stop methane leaks.

This funding would be on top of 12 grants for a total of $35 million issued by the US Department of Energy on 2 December to reduce methane emissions in the oil, gas, and coal industries. These include new designs to improve the efficiency of flares and advanced gas-fired engines for pipelines that will destroy up to 99.5% of methane.

Other funds will begin to flow early in 2022 under the Infrastructure Investment and Jobs Act, which was signed by Biden on 15 November. The bill provides $4.7 billion to states and Tribal nations to increase the pace of plugging of abandoned wells. Those funds, supported by industry and environmental groups, would go a long way to tackling the backlog of an estimated 60,000 abandoned wells nationwide.


The US government's tougher approach on methane could expose the oil and gas companies with the highest methane profiles to new challenges.

"Some companies have been more active on reducing methane, and some are just starting to look at it. Some companies have a competitive advantage because of how they have dealt with methane to this point," said Jack Belcher, principal with Cornerstone, an energy policy consulting firm.

A report published in June by the Clean Air Task Force and Ceres found wide discrepancies in the methane intensity and total methane emissions of individual operators in the US, based on their mandated reporting to EPA. "Among the 20 largest hydrocarbon producers, the highest methane intensity is 34 times greater than the lowest, and the highest greenhouse gas intensity is 24 times greater than the lowest," the report stated.

To cite one comparison, ExxonMobil is the largest hydrocarbon producer in the US, with about 476 million barrels of oil-equivalent in 2019. Hilcorp Energy was 19th, at about 158 million barrels of oil-equivalent. But their total GHG emissions in 2019 were almost the same, with ExxonMobil at 7.1 million mt and Hilcorp at 6.8 million mt. And Hilcorp's methane emissions (141,000 mt) far exceed ExxonMobil's (99,000 mt).

The report also found wide variations in gas venting and flaring by producing basin. In the oil-rich Permian Basin, venting and flaring of "associated gas," which is co-produced with oil, contributes 25% of total GHG emissions. But in the gas-oriented Marcellus and Utica basins in Appalachia where the purpose of drilling is to produce gas, the analysis found flaring or venting "is limited or non-existent."

Broadly speaking, larger and integrated oil companies have more extensive methane strategies, Belcher said. And some have taken a particularly aggressive look at the future of methane reduction. "The ones that have Project Canary or MiQ or another company to certify their gas as responsibly sourced are betting on a future premium for their product," he said. "They are going to be in a stronger position in the long run as methane rules are in place."

Investors are rewarding those companies as well, said Belcher, and he believes they have better access to capital for their operations because they are perceived as having lower risk and environmental regulations are increased.

A report from GlobalData released in December used EPA's data set and EDF's analysis to draw another important conclusion about methane reduction on a company-by-company basis. GlobalData found most of the methane emissions reductions announced by individual companies to date come from divesting assets, rather than from actually reducing emissions.

"When emissions are reduced by divestment, those emissions have not disappeared but simply moved around. Emissions intensity has been reduced in many cases, but in the face of increasing production, more efforts will be necessary to meet national and international climate targets," said Miles Weinstein, energy transition analyst at GlobalData.

GlobalData found Hilcorp to be the US's largest methane emitter among upstream operators three consecutive years, thanks to a big acquisition. "Hilcorp's emission intensity tripled in 2017, the same year a large number of wells were acquired from ConocoPhillips. Meanwhile, ConocoPhillips' emission intensity decreased 50% that year," Weinstein explained.

With global oil and gas production on track to rise by 8% from 2021 to 2026, according to the International Energy Agency (IEA), methane reduction, not just methane intensity, must become a priority.

"Methane emissions are the second-largest cause of global warming today…. Due to the near-term warming potential of methane emissions, reducing their level will be critical to avoid the worst effects of climate change," IEA said in a report this fall.

While IEA's report stated "the world is not on track" to reduce methane emissions sufficiently, the US seems to have the issue firmly in sight, if the efforts of the oil and gas industry and new government programs and regulations progress as intended.


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