Oil and gas industry knows it has to cut methane emissions but worries about costs, regulatory risks: Calgary climate conference

Author: Mark Lowey

Source: http://www.envirolinenews.ca

Publish Date: Tuesday, September 27, 2016

Alberta’s oil and gas industry knows it has to reduce its methane gas emissions but is concerned about the cost and the risk of a different provincial government scrapping regulations in the future, a climate conference in Calgary heard.

The industry will need some sort of financial or other incentives, especially with low oil prices, to achieve the 45-per-cent reduction (from 2014 levels) by 2025 committed to by the NDP government, some panellists said at the Pembina Institute’s annual Alberta Climate Summit on Tuesday, Sept. 20.

“Simply doing methane reduction because it’s going to be economic is not going to hit the radar,” Mark Taylor, vice-president of the climate policy assurance team at the Alberta Energy Regulator (AER), said at a breakout session on “methane regulatory design.”

Even if natural gas prices go higher and companies can sell the methane they capture, they will always be able to get a higher return from other capital investments such as drilling new wells or building new infrastructure, he said.

The AER, which has established a multi-stakeholder group to work with the regulator and the government on a proposed regulatory framework for reducing methane, is “looking for efficiency” in achieving the target, Taylor said.

The oil and gas industry is the largest source of methane emissions in Alberta, with 31.4 megatonnes (CO2e) emitted in 2014 – 48 per cent of all methane emitted in the province.

Although methane (CH4) doesn’t last as long in the atmosphere as carbon dioxide, CH4 is at least 25 times more potent a greenhouse gas in contributing to global warming than carbon dioxide. About 25 per cent of current global warming is associated with methane emissions, according to the UN Intergovernmental Panel on Climate Change

Mark Brownstein, vice-president, climate and energy at the U.S.-based Environmental Defense Fund, said venting is the biggest source of oil and gas methane in Canada, accounting for 34 per cent of emissions, followed by compressors (22 per cent), fugitive emissions (22 per cent), pneumatics and pumps (16 per cent) and tanks (five per cent).

“The vast majority of emissions can be addressed simply by reducing the amount that’s vented and leaked,” Brownstein said.

The cost of cutting oil and gas methane emissions in Canada will amount to $2.70 per tonne of methane (CO2e) reduced, he said. That figure is based on a report last year by industry research firm ICF International that was commissioned by the Environmental Defense Fund.

Reducing 45 per cent of the 31.4 megatonnes of methane emitted in 2014 would require a cut of 14.13 Mt by 2025. At $2.70 per tonne, that would cost the industry about $38 million.

Tim McMillan, president of the Canadian Association of Petroleum Producers, told the media last November that meeting the methane reduction target will cost industry “in the tens or hundreds of millions of dollars over the next five years.”

Brownstein pointed out that Colorado has successfully used regulations for 1 ½ years to reduce methane emissions. He cited a Bloomberg News story headlined: “Colorado tried methane caps on drillers, and they worked.” A state analysis estimated that the rules cost companies – which sell the gas they capture – about 0.4 per cent of their annual revenues.

Regulators in Colorado found that 80 per cent of the methane leaks could be fixed onsite by an inspector with a wrench, while 20 per cent could be repaired with a service call, usually within two or three days, Brownstein said. “This is not rocket science, folks, this is auto mechanics.”

Even Wyoming, the most conservative of U.S. states based on voting records, has implemented regulations to reduce the oil and gas industry’s environmental impacts, Brownstein said, citing a New York Times story headlined: “Strong rules on fracking in Wyoming seen as model.”

Reducing global methane emissions by 45 per cent would yield a climate benefit equal to closing 1,000 or one-third of the world’s coal-fired power plants over the next 20 years, he said.


Specific standards, systemic solutions needed

 Jackson Hegland, president of Modern West Advisory Inc., told the session that his company works with mid-sized oil and gas producers on “doable, functional” projects, including methane emissions reduction. Producers are well aware that methane needs to be managed for the industry to continue to operate, he said.

However, the economics “get strained” particularly with retrofit projects because companies have capital constraints, Hegland said. The industry also will have to spend more on methane monitoring and verification programs. There perhaps needs to be some novel financial mechanisms to incentivize methane reductions, said.

Another issue is what process or mechanisms will be used to achieve the 45-per-cent methane reduction target.

In Alberta and the rest of Canada, energy regulators have shifted to more of a performance-based approach based on outcomes, rather than prescriptive regulations, in regulating industry’s environmental performance.

But Brownstein from the Environmental Defense Fund said the performance-based approach isn’t going to work with methane reductions, because regulators don’t have the tools and resources required to monitor every well site, compressor station and oilfield facility that’s leaking methane. Specific emission standards need to be set, and companies rewarded for implementing innovative solutions, he said.

While 20 per cent of methane emissions are leaking from well sites, 50 per cent are coming from oil and gas delivery systems, so systemic solutions are needed,

After the breakout session, the ADR’s Taylor told the Daily Oil Bulletin that the regulator and industry need more detailed information on the source of industry’s methane emissions. Most jurisdictions in the U.S. have found that 10 or 15 per cent of the sites are producing 85 per cent of the methane, he said in an interview with reporter Elsie Ross. “If that is the case . . . that would help the companies focus their effort and know how to deploy their capital.

Duncan Kenyon, director of the Pembina Institute’s unconventional oil and gas program, said during the session that Pembina, working with the AER and industry, has conducted an emissions-detection survey at hundreds of small and medium-sized oilfield facilities, to determine the scope of the challenge. Results from the survey are expected within two to three weeks.

Kenyon said reducing methane emissions could be looked at as a way to create work in Alberta’s oilfield service towns, such as Grande Prairie, Whitecourt, Edson and other communities, that have been hard hit by the slump in oil prices and producers slashing capital expenses.


Risk of different government undoing regulations

A conference participant, who identified himself as a member of the investment community, said the time it takes for an oil and gas company to recoup its investment in reducing methane emissions is typically longer than the time any particular government is in power. So the worry is: companies could make the investment, yet see a new government dismantle the regulations within 30 days of being in office.

Brownstein replied that in the U.S., regulations can’t simply be undone at the stroke of a pen, especially if they are upheld by the courts. Many governments at the state level – not just the federal administration – are working on methane-reduction regulations and programs, so the effort will continue regardless of which party is in power, he said.

Hegland agreed that methane reduction and other environmental programs create longer-term resilience for companies, even if governments change.

Another conference participant asked why methane emissions can’t simply be flared – the so-called “destruction option” – rather than captured which is more expensive.

Brownstein replied that people in Texas are more uncomfortable with flaring – which can be seen – than with venting, which is invisible. In California, flaring causes air quality problems, so this option is restricted.

 The AER’s Taylor said Alberta does have service companies that offer flaring with 99.9- per-cent combustion efficiency and can also make the flaring not visible. However, the World Bank has an initiative to eliminate routine flaring worldwide by 2030, he said, suggesting that flaring might not be the best option for Alberta.

The Delphi Group is conducting a survey for the AER of all the methane-reduction technologies currently in use, the Daily Oil Bulletin reported. The Alberta government is evaluating what kind of offset credits or financial incentives it might provide for methane-reduction efforts.

One technology that western Canadian producers haven’t tried yet is a refrigeration system that reduces greenhouse gases at well sites while recovering valuable natural gas liquids and conditioned gas that can be used for onsite power generation. As EnviroLine reported, Toronto-based Berg Chilling Systems Inc. and Montana-based partner GTUIT developed the mobile technology and successfully deployed more than 30 systems in North Dakota’s Bakken oilfield.

Something Taylor didn’t mention at the breakout session is that overall flaring and venting emissions in Alberta and British Columbia recently increased, after declining through most of the past decade.

The combined volume of flared and vented solution gas increased 2.3 per cent in 2014, to 920 million cubic metres compared with 899 cubic metres in 2013, according to the most recent report by the AER. Flaring and venting from oil sands crude bitumen batteries increased by, respectively, 31.2 per cent and 3.5 per cent.

In British Columbia, flaring levels overall increased by 22 per cent, to 236.3 million cubic metres, in 2014 compared with 2013 levels, mainly due to increased exploratory drilling and well testing, according to the most recent report by the BC Oil and Gas Commission.


Other sources of methane also a problem

What about methane gas that isn’t emitted by the oil and gas industry?

Dan Scheitrum, a PhD student in agricultural and resource economics at the University of California Davis, told the session that 75 per cent of the methane emissions in California are from livestock and landfills combined.

Capturing and burning this methane as fuel is expensive and wouldn’t make sense without some sort of government subsidy, he said. Nevertheless, California last week passed a law requiring dairy farms to reduce methane emissions from manure by 40 per cent below 2013 levels by 2030, with the help of US$50 million from the state’s fee charged to polluters.

One conference participant noted that there are 50 million beef cattle in Canada and the U.S. – all emitting methane.

Brownstein said those methane emissions could be reduced by feeding cattle less corn and soy and making other changes in feeding behaviour, and if people ate less red meat. China is trying to reduce meat consumption by 50 per cent, he added.


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