Written By: Mella McEwen, the Oil Editor for the Midland Reporter-Telegram.
Reducing, if not outright eliminating, methane emissions is a challenge the oil and gas industry is rapidly embracing. But in doing so, questions are being raised about just how to calculate emissions and which calculations are correct.
An example is a recent report by Bloomberg regarding the amount of methane emissions reductions some producers would have to undertake to avoid the methane intensity tax included in last year’s Inflation Reduction Act legislation, due to take effect next year.
The report drew the attention of ESG Dynamics, which issued a rebuttal saying its own internal analytics of Bloomberg’s results showed overestimation of emissions by the producers mentioned in the report.
ESG Dynamics, an ESG solutions and technology company focused on the oil and gas industry, said Chesapeake Energy and Continental Resources actually reported emissions below the excess emissions threshold and, like Pioneer Natural Resources and EQT Corp., should need no further reductions to meet the threshold. While the company agreed with Bloomberg that ConocoPhillips, TotalEnergies, Occidental and ExxonMobil all had some work to do to reduce emissions, the report overestimated the cuts needed by anywhere from 28% to 188%. ESG Dynamics largely agreed with Bloomberg on estimates for Endeavor Energy, Diversified Energy, Pioneer and EQT.
The graph on the right compares ESG Dynamics’ calculations of how much operators would have to reduce emissions (red bars) with what Bloomberg recently presented in a report.
“Emissions controls and performance is a case of the “haves” and “have nots,” Grant Swartzwelder, president of OTA Environmental Solutions and co-manager of ESG Dynamics, told the Reporter-Telegram by email.
“The majors are taking the lead in emissions reduction and have a significant impact on lowering total emission volumes. They are under the highest pressure due to their size, visibility and public company status. The independents have the challenge of understanding the changing rules and absorbing the costs without the support of in-house regulatory and technology experts. Accordingly, you will see a divergence between the larger and smaller companies,” he continued.
The Environmental Protection Agency and other regulatory entities are definitely catching the attention of the operators, Swartzwelder wrote, citing Matador Production’s $6.2 million fine and mitigation costs for 239 well pads in New Mexico. That, he wrote, “sends a signal to many operators that they have to take the regulations seriously. Ultimately, these fines have the desired affect from the regulatory entities as operators are spending money and time on emissions controls. As a result, the emissions volumes are dropping.
“The challenge is how the lower producing wells can withstand the costs associated with controlling emissions. Push too hard on these wells and you will force them to be shut-in and/or plugged — losing the associated reserves forever and not being efficient with the recovery of this resource.”
Despite uncertainty over how emissions are calculated, there is no doubt both methane and flaring trends are moving in the right direction, Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association, told the Reporter-Telegram by email.
Those improvements are “thanks to a concerted effort by US oil and natural gas companies to reduce emissions through innovation, collaboration and ongoing investments in greenhouse gas mitigating technologies throughout the value chain. These results are especially notable given the significant increase in domestic production over the past decade, led by Texas operators and the Permian Basin,” he wrote.
He pointed to the World Bank’s 2023 Global Gas Flaring Tracker Report as illustrating that ongoing commitment. The report found global gas flaring fell roughly 3% in 2022, the lowest level since 2010 while at the same time global oil production rose from 77 million barrels a day in 2021 to 80 million barrels a day in 2022.
While the World Bank said a majority of the decline came from the United States, Mexico and Nigeria, it highlighted the US for its large share of global gas flaring reductions. The report said, in just one year, US gas flaring decreased 9% and flaring intensity dropped from 2.1 meters of gas flared per barrel to 1.8 meters of gas flared per barrel, a 14% reduction while US oil production rose almost 6% during that year’s time.
“This is noteworthy considering the key role the United States, particularly producers in the Permian Basin, are playing to ensure Europe meets its energy demand by increasing LNG and oil exports following the global unrest spurred by Russia’s invasion of Ukraine,” Longanecker wrote in discussing the report. “The fact is the U.S. energy industry has stepped up to meet this demand while simultaneously addressing demand at home.”