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Investors Squeezing Oil & Gas Developers To Cut Methane

Investors Squeezing Oil & Gas Developers To Cut Methane

Oil and gas developers may soon be feeling the effects of a one-two punch — an adverse court ruling dealing with their methane emissions and now an investor-led initiative pushing them to be more transparent.

Natural gas, of course, has become the fuel of choice — a fuel that markets itself as far less pollutive than coal. But methane is its main component, which is 84 times more potent than CO2, although its lifespan is 20 years compared to 100. Indeed, methane makes up about 25% of the global warming today.

That’s why the Principles for Responsible Investment (PRI) is rounding up the support of the investment community to get those energy companies to measure their methane releases, report them to shareholders and to work to capture them by using “off-the-shelf” technologies. The methane could then be resold and the oil and gas companies would have a positive pay-back. Altogether, PRI says its initiative represents 35 investors who control $3.8 trillion.

What’s the difference between these shareholder initiatives and those centered on cutting CO2?

“Investors are ramped up on all types of climate risk,” Sean Wright, senior manager at the Environmental Defense Fund, said in an interview. “To appropriately address climate, we have to address carbon and methane. We are concerned about methane. There are clear and immediate financial implications. When methane is captured, it is a valuable product.”

Indeed, ICF International figures that oil and gas companies could cut their emissions by 40% below the projected 2018 levels. And it wouldn’t be expensive — less than one cent per thousand cubic feet of natural gas produced. That amounts to a capital investment of $2.2 billion, which which Oil & Gas Journal data shows to be less than 1% of annual industry capital expenditure.

The investment in those technologies will be needed. BP said in its global energy outlook that between 2015 and 2035 oil, natural gas and coal will each comprise about 27 percent of the energy mix. Indeed, major oil companies — BP, Royal Dutch Shell and Chevron Corp. — are on board with cutting CO2 emissions because all cite their efforts to drill for natural gas, which is in high demand not just for electric generation but also for chemical and manufacturing processes.

EDF, in fact, says that Big Oil is concerned about its brand and has thus formed the Oil and Gas Climate Initiative — a $1 billion initiative to accelerate low-carbon technologies. The main focus, it says, is advanced carbon capture and storage as well as to limit and capture methane releases. The oil companies taking part are BG Group, BP, Eni, Pemex, Reliance Industries, Repsol, Saudi Aramco, Shell, Statoil and Total

“Methane risk is a potent form of carbon risk, and left unmanaged it can literally leak away shareholder value. This is both an enormous risk and opportunity to improve performance in the oil and gas industry,” said Thibaud Clisson, BNP Paribas Investment Partners, in a release.

The investment community is doing its part. And so is the judicial system, which earlier this month said that Donald Trump’s Environmental Protection Agency could not suspend methane rules adopted by the Obama administration. The U.S. Court of Appeals for the District of Columbia ruled that the Trump administration must immediately begin enforcing the regulation.

The methane rule, enacted in May 2016, had been part of the Obama administration’s overall effort to cut the level of methane emissions by 40-45 percent by the year 2025, from 2012 levels. If escaping natural gas could be captured and resold, industry could increase its revenues by as much as $188 million a year, it added.

Trump’s EPA had been more sympathetic to the oil and gas producers, who said that the rule is too onerous and that it duplicates those already monitored by the states.

Furthermore, the American Petroleum Institute pointed to a study by EPA that said methane emissions have been falling, making the trade group question why new rules have even been necessary. The report released in March shows that methane emissions from all petroleum systems decreased by 28 percent since 1990. EPA attributed this improvement to decreases in emissions from associated gas venting and flaring.

“Investors see methane as global risk and opportunity, regardless of geography or where companies are in the value chain,” says EDF’s Wright. “We see progress regardless of who is in the White House. We are not waiting on government,” he adds, although he would like to see policies that leverage the technologies available to oil and gas developers.

Corporate governance and environmental management go hand-in-hand. Companies are thus under greater pressure to disclose their non-financial metrics, which in this case is not just CO2 but also methane releases. It’s ultimately about bettering both the environment and the bottom line — and something that will drive a competitive advantage while building brand loyalty.

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