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ESG

Analysis: Benchmark of Big Oil on methane emissions shows ‘significant gap’ between reality and reporting

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Chevron personnel work at a fracking site near Midland, Texas, U.S. August 22, 2019. Picture taken August 22, 2019. REUTERS/Jessica Lutz

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Tackling methane emissions, a greenhouse gas 84 times more potent than CO2 in the short term, should be low-hanging fruit for oil and gas producers: something they can do cost-effectively, and with far greater climate impact than investing in renewables, or in further-out technologies such as hydrogen and carbon capture and storage.

And unlike CO2, which is 90% about the end use of their products, methane sits squarely in the industry’s wheelhouse. A main component of both natural gas and oil, the odourless and colourless gas is either intentionally released or leaks during the drilling of wells; through incomplete combustion of gas; and in production, processing, trans¬portation and storage.

Because methane is shorter-lived in the atmosphere, it has taken a backseat to CO2 in the fight against climate change. But that changed in May, when the UN Environment Programme reported that cutting methane emissions by half this decade could stave off nearly 0.3° of warming by the 2040s. Its message was supported by the IEA’s Methane Tracker, which found that oil and gas operations worldwide emitted more than 70m tonnes of methane into the atmosphere last year, equal to the energy-related CO2 emissions from Europe.

“Early action on methane emissions will be critical for avoiding the worst effects of climate change,” says Dr Fatih Birol, executive director of the International Energy Agency (IEA). “There is no good reason to allow these harmful leaks to continue, and there is every reason for responsible operators to ensure that they are addressed.”

Certainly the big listed oil and gas producers have made a play about efforts to reduce methane emissions, which they report to investors and regulators, including the U.S. Environmental Protection Agency (EPA). But numerous academic studies using satellites have shown that the sector’s methane emissions are substantially higher than annual greenhouse gas estimates (GHGI) by the EPA.

Research carried out for the Environmental Defense Fund in 2012-2018 found actual methane emissions were 60% higher than data reported to the EPA, while the latest study, in the journal Atmospheric Chemistry and Physics, estimates that in its latest GHGI the EPA under-reports methane emissions from oil production by a factor of two.

Now a new dataset, seen by Reuters Professional, has become the first to attribute methane emissions to individual companies and benchmark them on their performance, using global satellite data of 7km resolution as well as ultra-high-resolution satellite probes in Canada and U.S., which have accuracy of 25m or better.

It finds some significant discrepancies between expected emissions from the major oil and gas producers, based on their disclosures and policies, and how they are performing in reality, according to Geofinancial Analytics, which is collaborating with Signal Climate Analytics in a year-long project with Reuters Professional assessing the climate performance of the biggest 250 global emitters.

Geofinancial Analytics’s MethaneScan® benchmark scores the oil and gas producers based on observed methane emissions in the year to this July. This first snapshot, of the top 15 producers, finds that oil super-majors Royal Dutch Shell and Chevron are the worst performers, followed by ConocoPhillips, Marathon Oil and ExxonMobil.

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While Suncor, TotalEnergies and Pioneer Natural Resources performed better among the group, all scored well below “best”, an indication of no methane emissions.

The benchmark also compares observed emissions with how the companies would have been expected to perform based on a combined metric of their methane intensity reports, regulatory filings, commitment to transparent reporting, and safety incidents. Again, Shell and Chevron under-performed, while scores for Equinor, EOG, ENI, Suncor and Total were relatively well aligned with company self-disclosures and expectations.

Mark Kriss, CEO of Geofinancial Analytics, said “Scientific studies are showing a very significant contribution [from oil and gas producers] and a very significant increase in that contribution in the last 10 years on this critical issue. We need to know where these point sources are coming from, not just at the regional level, but at the company and wellhead level.

“We are starting to see that some companies are managing this better than others… They are all clustering in the ‘not so good’ area, and some are hovering on poor, but none are anywhere near the ‘best’ zone.”

Geofinancial analysed 600,000 medium-resolution satellite scans of 3m wellheads in North America, Brazil, Australia and Europe, but ultra-high resolution satellite imagery is currently only available for facilities in the U.S. and Canada. Outside North America, the benchmark is built on association with elevated methane at 7km of resolution.

In the North American context, Kriss said Shell’s performance was the biggest surprise, given its commitment to net-zero emissions by 2050 and its announced target to keep methane emissions intensity for operated oil and gas assets below 0.2% by 2025.

“The airborne methane in the environs of Chevron and Shell across all their on-shore wellheads in the geographies we cover were slightly higher than Exxon’s,” he said. This is particularly the case in facilities in the Gulf region, he said.

Geofinancial’s findings were shared with Shell, ConocoPhillips and Chevron, which all defended their efforts to tackle methane emissions, including their own use of high-resolution satellites, while taking issue with the benchmark’s methodology.

A ConocoPhillips spokesman said: “We believe the benchmark has limitations such as emissions in a certain area being attributed to a company based on wellhead density, and other non-well site emissions being ignored (for example, third-party pipelines). Furthermore, in areas like the Permian, where operators work in close proximity to one another, our experience has been that it is hard for satellites to accurately pinpoint the source of emissions.”

A Chevron spokesman said: “We are concerned that the underlying data and assumptions used in [Geofinancial’s] analysis may not be sufficiently robust to accurately attribute emissions to specific operators or support the generation of a company-by-company credit-style ranking for methane emissions in select basins in North America.” However, it added: “Over time, their models and analysis have the potential to improve as additional information becomes available to them.”

Shell took issue with the large number of wellheads Geofinancial had attributed to the company. “Shell currently owns and operates fewer than 2,000 onshore wellheads in all of North America”, a spokesperson said.

She added: “We are taking actions to effectively reduce our emissions and have previously announced a target to keep methane emissions intensity for operated oil and gas assets below 0.2% by 2025, which we are achieving.”

Kriss said ownership data used in the benchmark, which includes majority-owned subsidiaries, is based on corporate filings to the U.S. Securities and Exchange Commission and other regulatory agencies. “There’s always a lag between publicly available data and what the company knows is true. But we need to rely on the public data, because that’s the only way we can have an objective, comprehensive view of what’s going on,” he said.

Geofinancial’s methodology doesn’t let companies off the hook in the case that they may have divested of high-polluting and aging assets, and attributes methane emissions of divested assets for five years, but at a declining rate.

Kriss said that in Shell’s case, the discrepancy may be partially accounted for by the large number of inactive wells associated with Shell’s legacy operations over decades as well as recent divestitures, which have not yet been discounted in MethaneScan’s scores.

He pointed out that all scores incorporate abandoned wells, which, though no longer on companies’ books, “can be a significant source of recurring methane emissions over long periods of time”.

An analysis of EPA data from 2019 by energy consultancy M.J. Bradley & Associates in May showed that methane leakage doesn’t go away when big oil and gas companies divest of older and dirtier assets – often to smaller players where there is far less transparency, and less incentive to tackle the issue.

The analysis found that five of the industry’s top 10 emitters of methane were little-known oil and gas producers. The biggest polluter, privately owned Hilcorp Energy, had bought up old gas wells in northern New Mexico from ExxonMobil in 2017, which that year reported its greenhouse gas emissions had fallen 20%.

It’s a trend that will only accelerate as the heat gets turned up under the industry in the wake of this week’s report from the IPCC.

Kris described the current MethaneScan® benchmark as “just the beginning of a new era of radical transparency” on methane emissions by the oil and gas sector. He said future benchmarks would be improved as Geofinancial added observations from another eight ultra-high-resolution satellites by the end of 2022.

David Lubin, chairman of Signal Climate Analytics, said that Geofinancial Analytics’ methane emissions observations are a critical component of Signal’s ongoing work with Reuters Professional tracking the levels of transparency among the 250 largest publicly traded greenhouse gas emitters.

Later in 2021, he said, Signal will add a Transparency Ratio™ to its company-level assessments, which will compare their public disclosures with real-world requirements for transparency on emissions where they have the most impact.

“While companies are surely disclosing volumes of emissions data, and metrics, often in support of company narratives on climate action, real transparency can only be achieved when the most critical emissions for a sector are fully disclosed by the company,” Lubin said. “From the work of Geofinancial, it’s clear that for the oil and gas sector any claim of transparency must include a full accounting of methane emissions.”

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Signal Climate Analytics is studying 250 of the world’s biggest CO2 emitters to analyse the impact of their plans to cut emissions in line with the Paris Climate Agreement. Reuters Professional has an agreement with Signal to publish stories based on these datasets.

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