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Methane Emissions from Oil and Gas

Not on track
Methane emissions from oil and gas

In this report

Fossil fuel operations generated nearly one-third of all methane emissions from human activity. Action on methane is therefore one of the most effective steps the energy sector can take to mitigate climate change. Global methane emissions from oil and gas operations fell around 5% in 2020 to 76 Mt, mostly due to decreased oil and gas production, and are likely to rebound in 2021. Conversely, the Net Zero Emissions by 2050 Scenario requires that total methane emissions from fossil fuel operations fall around 75% between 2020 and 2030.

Considering average natural gas prices from 2017-2021, almost 45% of current methane emissions from oil and gas operations could be avoided with measures that would have no net cost. Policymakers have at their disposal well-established policy tools that have already been demonstrated in multiple contexts to drive these emissions reductions, for instance Leak Detection and Repair (LDAR) requirements, staple technology standards and a ban on non-emergency flaring and venting.

Oil and gas sector methane emissions in the Net Zero and Announced Pledges scenarios, 2015-2030

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Tracking progress

Methane emissions are the second-largest cause of global warming today. They come from a range of anthropogenic and natural sources – in the energy sector, from oil, natural gas, coal and bioenergy. Due to the near-term warming potential of methane emissions, reducing their level will be critical to avoid the worst effects of climate change.

Estimates of methane emissions are subject to a high degree of uncertainty, but the most recent comprehensive data in the Global Methane Budget suggest that annual global methane emissions are around 570 Mt. This includes emissions from natural sources (around 40% of emissions) and those originating from human activity (the remaining 60%). The largest source of anthropogenic methane emissions is agriculture, responsible for one-quarter of the total, followed closely by the energy sector, which includes emissions from coal, oil, natural gas and bioenergy. 

Sources of methane emissions

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It is important to tackle all sources of methane emissions arising from human activity, but there are reasons to focus on emissions from oil and gas. First, oil and gas operations are likely the largest source of methane emissions from the energy sector. Second, our analysis shows clear potential to reduce them cost-effectively. Methane – the main component of natural gas – has commercial value: additional methane captured can often be monetised directly, and this is typically easier in the oil and gas subsector than elsewhere in the energy sector. This means that emissions reductions could generate economic savings or at least be carried out at low cost.  

Annual investment of around USD 13 billion would be required to mobilise all methane abatement measures in the oil and gas subsector. This is less than the total value of the captured methane that could be sold (based on average natural gas prices from 2017 to 2021), meaning that related methane emissions could be reduced by almost 75% at an overall savings to the global oil and gas industry. 

In the Net Zero Emissions by 2050 Scenario, oil and natural gas continue to comprise a large part of the overall energy mix to 2030. Natural gas in particular can play an important supporting role in the energy transition by replacing more polluting fuels or enabling low-carbon hydrogen production with carbon capture and storage. It may also deliver services that are difficult to provide cost-effectively with low-carbon alternatives, such as peak winter heating, seasonal energy storage and high-temperature heat for industry. However, fulfilling this role requires the minimisation of adverse social and environmental impacts: immediate and major reductions in methane emissions are central to this. 

The intensity of methane emissions currently varies widely across countries that produce oil and gas. Based on annual data for 2020, we estimate that the emissions intensity in the worst-performing countries is around 100 times higher than in the better-performing ones. This indicates that many countries could rapidly achieve considerable performance improvements. 

Total methane emissions and methane intensity of production in selected oil and gas producers in 2020

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The IEA Methane Tracker Database tracks oil and gas methane and provides detailed country-by-country estimates of emissions, abatement technologies, costs and regulation. Oil production is currently responsible for around 40% of methane emissions, with leaks across the natural gas value chain accounting for the remaining 60%. Upstream oil and gas operations lead to more than three-quarters of total emissions, with the downstream segment accounting for the remaining share. 

The 5% drop in methane emissions in 2020 occurred mainly because of the fall in oil and gas production and emissions are likely to rebound in 2021. In the Net Zero Emissions by 2050 Scenario, methane emissions decline rapidly for the next ten years, falling to be lower 75% in 2030 than in 2020. This results mostly from rapid deployment of emissions reduction measures and technologies, which leads to the elimination of all technically avoidable methane emissions within this decade. 

IEA analysis estimates that it is technically possible to avoid around three-quarters of today’s methane emissions from global oil and gas operations. Moreover, considering average natural gas prices from 2017 to 2021, almost 45% of these emissions could be avoided at no net cost, as the cost of abatement is less than the market value of the additional gas that could be captured.  

Despite increasing efforts from industry and policymakers to reduce methane emissions from oil and gas operations, significantly greater ambition is needed to achieve reductions compatible with a net zero pathway. Certain policy measures that have been well established in multiple settings could very effectively put methane emissions on track. 

Methane abatement potential of well-established policy measures

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These measures, called “established policies”, have been proven both effective and relatively straightforward to administer. Most standards in this category do not require a robust measurement-based monitoring regime to verify compliance, although a quantification and reporting system is usually necessary. The related abatement actions also tend to fall on the lower end of the cost curve. Established policies include leak detection and repair (LDAR) requirements for fugitive sources, equipment mandates for sources known to emit significant volumes of methane, and measures designed to limit non-emergency flaring and venting. 

Global methane abatement cost curve, by policy option

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LDAR programmes are the primary strategy for addressing fugitive emissions from leaking components and malfunctioning equipment. The reduction potential of LDAR programmes depends on their scope as well as inspection method and frequency. Current techniques often involve on-the-ground inspections with optical gas-imaging cameras, but new and emerging technologies, including continuous monitoring sensors, aircraft, drones and satellites, have significant potential to reduce the cost of detecting fugitive sources when used in combination with less frequent on-the-ground surveys.  

The more often inspections take place, the more quickly leaks are detected and abated; however, costs increase with frequency. For the purposes of this assessment, we assume quarterly on-the-ground inspections, a frequency that has been successfully implemented in a number of jurisdictions. Quarterly LDAR would reduce fugitive emissions by roughly two-thirds, which would reduce annual methane emissions by close to 14.5 Mt if applied to all oil and gas operations. 

Technology standards are designed to reduce emissions associated with the normal operation of certain equipment, such as compressors and pneumatic devices. A range of alternative technologies can perform the same function as these components, but with lower or zero emissions. Therefore, regulations that limit emissions from certain types of equipment or that require their replacement with lower- or (preferably) zero-emitting alternatives can reduce emissions significantly.  

For the purposes of this analysis, this category includes measures that mandate the installation of well-known technologies at new facilities or the replacement of higher-emitting components with lower-emitting alternatives at existing projects. If policymakers adopted these measures, annual methane emissions would drop by up to 9 Mt. 

Policies designed to achieve zero non-emergency flaring and venting can significantly reduce methane emissions from intentional flaring and venting activities – by as much as 15.5 Mt. Many alternatives to flaring are available to companies: while pipelines are one option, others are capture and reinjection, capture for use on site, and capture for compression to be trucked to processing facilities and sent to market. However, restricting methane flaring can create an incentive simply to vent it, which is much worse from an emissions perspective. This highlights the importance of taking an integrated approach to flaring and venting. 

Further reductions could be realised through policies that provide more flexibility for companies but rely on more robust measurement and verification systems, such as performance standards or emission taxes. We estimate that putting a price of USD 450 on each tonne of methane emitted (equivalent to USD 15/tCO2-eq) would be enough to deploy nearly all the abatement measures.  

Another option is to set company or facility-specific emissions limits aligned with country-level climate goals. Lastly, when companies do not have the technical or financial resources to invest in methane abatement, offsetting systems or financing mechanisms could enable reductions. These instruments are particularly relevant for legacy sources such as abandoned and orphaned wells. 

In parallel with government action, industry initiatives have an important role in driving rapid cuts and leading abatement efforts. In certain countries, companies may be able to effectuate emissions reductions more quickly than the government can, particularly where regulatory capacity is limited. Multiple international oil companies have set targets to restrict emissions, or the emissions intensity of production, and many voluntary, industry-led efforts are attempting to reduce methane emissions from oil and gas operations: 

  • The Methane Guiding Principles, established in 2017, is a multi-stakeholder collaborative platform incorporating more than 20 companies as well as intergovernmental organisations (including the IEA), academia and civil society. The principles aim to advance understanding and best practices to reduce methane emissions, and to develop and implement methane policies and regulations. 
  • The Oil and Gas Climate Initiative aims to improve methane data collection and to develop and deploy methane management technologies; it is made up of 12 major international oil and gas companies. In 2020, members updated their target of reducing the collective average methane intensity of their aggregated upstream gas and oil operations to 0.2% by 2025 (from 0.32% in 2017). 
  • The Oil and Gas Methane Partnership 2.0, an initiative of the Climate and Clean Air Coalition, provides protocols for companies to survey and address emissions and a platform for them to demonstrate results. It consists of over 70 representatives from oil and gas companies, governments, the UN Environment Programme, and the Environmental Defense Fund. Last year, it published a revised reporting framework to provide a gold standard for companies reporting on methane emissions. 
  • The China Oil and Gas Methane Alliance aims to build a platform for technical experience-sharing and cooperation to improve methane emissions control and engage with climate governance. It aggregates seven members from the Chinese oil and gas industry, including companies from both the upstream and downstream segments. 

We estimate that if all companies participating in one of these four initiatives pursue all technically feasible abatement measures within their reach, together they can reduce annual methane emissions by over 30 Mt. Although much of this reduction could also be reached through governmental means (including policy measures and financial incentives), companies are often closer to the problem, have the required technical capabilities and can act more quickly to improve methane management. Given the urgency of the climate crisis and the extent of methane sources, it is important to pursue parallel avenues to ensure that all abatement opportunities are seized rapidly.  

Three primary categories of obstacles limit the uptake of mitigation measures: 

  • Incomplete information regarding the problem, including a lack of awareness about emission levels or the cost-effectiveness of abatement. 
  • Inadequate infrastructure or underdeveloped/saturated local markets that make it difficult to match abated gas to a productive use. 
  • Misaligned investment incentives, arising from competition for capital within companies with a variety of investment opportunities, very short payback periods, and the possibility of split incentives (wherein the owner of the equipment does not directly benefit from reducing leaks, or the owner of the gas does not see its full value).  

Policy and regulatory tools can address many of these barriers. If a lack of information poses an obstacle, policies could include measures for monitoring, reporting and verifying emissions; reference to international voluntary corporate reporting standards; and initiatives to encourage knowledge-sharing and best practices.  

For infrastructure and marketing challenges, governments could introduce requirements at the project planning stage; directly invest in new infrastructure; or adopt supportive market policies. If misaligned incentives are a hindrance, policymakers can price environmental externalities, create financial incentives for abatement technologies and remove institutional barriers to investment.

A key policy development in this context is the EU Methane Strategy, which points to legislative proposals in 2021 on compulsory measurement, reporting and verification for all energy-related methane emissions. It also cites requirements for LDAR programmes for both the upstream and downstream segments, and it aims to eliminate routine venting and flaring.  

Furthermore, the strategy presents international actions, including promoting global co‑ordination on methane reduction efforts. It refers to a methane supply index to help buyers make informed choices when purchasing fuels, as well as to an independent international methane observatory tasked with collecting, reconciling, verifying and publishing anthropogenic methane emissions data at a global level. 

In advance of the UN Climate Change Conference (COP26), the European Union and the United States announced the Global Methane Pledge, an initiative that aims to build momentum for reducing methane emissions. By signing the pledge, countries commit to a collective goal of reducing global methane emissions by at least 30% from 2020 levels by 2030, while also improving methods for quantifying emissions. As of 15 October 2021, over 30 countries have joined the Global Methane Pledge, including many of the world's top methane emitters.

More transparency, whether through satellite detection, better industry standards or other monitoring tools, can incite producers to recognise their emissions and take targeted action. 

Up until now, large emitters have been able to shield themselves from scrutiny by simply not measuring or reporting their emissions. However, as their emissions become more visible with wider deployment of measurement instruments and greater data availability, public awareness will grow and investors and financiers can take this information into account when making funding decisions. Oil and gas companies are already facing tougher scrutiny of their methane footprints, which can make access to capital more difficult and affect their environmental, social and governance ratings. 

Countries, companies and investors need to work together to expand action on methane, as it will take a range of complementary efforts to ensure deep cuts in methane emissions. 

While companies implement and spread best practices in methane management, policymakers can establish strong regulations and engage in diplomatic efforts to encourage all countries to act on methane. The financing sector can join the effort by using transparent systems to provide the right mix of incentives and funds to spur implementation of abatement measures.

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