Why Do Oil Companies Care About Methane Leaks? It’s Not (Quite) What You’ve Heard
- August 1, 2018
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Bluefield’s microsatellite-based sensors produce a very specific and highly valuable set of data: daily, precise tracking of every significant global emitter of methane, a dangerous greenhouse gas which is 80 times more powerful than CO2 and accounts for 20% of the global warming we’re experiencing today. The oil and gas industry accounts for a huge share of these emissions, and leading companies are putting methane at the top of their agenda:
- ExxonMobil has committed to reducing methane emissions by 15% by 2020
- Eni has committed to cutting upstream emissions by 43% through 2025 through methane reductions, and is planning to set a carbon neutral target as well
- Eight of the world’s leading oil and gas companies have signed up to Guiding Principles for “continually reducing” methane emissions
Why are the world’s largest energy companies targeting methane? It’s not because they’ve suddenly become environmental activists — and, despite steadily increasing regulatory pressure in many jurisdictions, it’s not because of government climate change policies either.
In reality, these oil and gas companies want to eliminate methane leaks from their operations because it’s good for their bottom line — and it’s not just because of the reasons you might hear about in the news. Read on to learn what we’ve learned from our conversations with oil and gas industry customers over the past two years.
(It’s Not Just) Reason 1: Methane Leaks = Lost Revenues
Methane is the primary component of natural gas — and methane leaks escaping from oil and gas production sites and pipeline infrastructure are lost product that oil and gas companies could sell. In fact, these leaks are worth an estimated $30 billion in lost natural gas every year. Not only that, but the International Energy Agency estimates that half of these leaks could be fixed profitably.
(This is one reason why Bluefield has focused on methane as the first greenhouse gas to target with our remote sensing satellites — it’s worth something today, without the need for governments to put a price on greenhouse gas emissions, as is the case with CO2.)
The desire to avoid these revenue losses is easy enough to understand — who wants to lose $30 billion? That’s why news stories and press releases from non-profits and intergovernmental organizations tend to focus on this rationale in their methane coverage.
However, this isn’t the true driver for oil and gas companies. $30 billion in losses sounds like a lot, but it’s not actually that much in the context of an industry with over $5 trillion in revenues — especially when you consider that much of these losses come from pipelines owned by third parties anyway. Imagine if you could make a hundred dollars a year if you searched your entire house for loose change every single day. Of course you’d like to have the money — but would it really be worth your time?
(It’s Not Just) Reason 2: Minimizing Accidents
Accidents and liabilities associated with methane leaks are a bigger and more serious problem for the industry. Despite spending billions a year on annual or biannual surveys of natural gas infrastructure, leaks can go undetected for weeks or even months, resulting in massive climate impacts and — in a worst case scenario — injuries and even fatalities from explosions. As a result, we’ve seen a number of costly and in some cases tragic incidents in recent years, including:
- The 2010 San Bruno pipeline explosion in resulted in 8 fatalities, dozens of injuries, and $2.8 billion in costs to PG&E
- The 2015 leak from the Aliso Canyon storage facility in Southern California, the largest in American history, has cost SoCalGas nearly $1 billion to date
- The 2017 gas pipeline explosion in Firestone, Colorado killed two and is expected to result in major new regulations on the gas industry in the state
These kinds of accidents are a triple threat to natural gas companies. Safety is a top priority for the industry, and injuries to employees and/or the public are simply unacceptable. Moreover, these incidents risk their social license to operate, resulting in public fears and objections to new natural gas infrastructure. Finally, it’s simply a massive cost: as noted in the examples above, major incidents can cost a billion dollars or more, not to mention the liability insurance these companies must hold to guard against these risks.
Still, this isn’t quite enough of a reason to go all-out to reduce methane leaks. As with the lost gas revenues, billions of dollars in potential liabilities is a risk that trillion dollar companies can handle — although here again, they would much rather minimize or eliminate these potential liabilities if it was easy and cost-effective to do so.
That said, minimizing risk is central to the main reason the oil and gas industry is coming out against methane…
(The Biggest Reason Is) Reason 3: Minimizing Financing Risk
Financing is the lifeblood of the oil and gas industry; they have become the largest companies in the history of the world through their ability to successfully finance and execute complex, multi-billion dollar projects. But securing project finance at this scale requires risk to be absolutely minimized over decades of operational life — and that is the main reason why methane leaks are such a big problem.
Because, despite recent pushback on climate action from the current U.S. administration, the overwhelming scientific consensus as well as the international political consensus represented by the Paris Agreement has made it very clear: more stringent regulations on greenhouse gases, including methane, are most assuredly coming within the multi-decade investment horizon that is relevant to new natural gas projects.
Under these circumstances, the massive uncertainty surrounding current levels of methane emissions is simply an unacceptable risk for investors. For example, shareholders of Exxon, including private equity giants Blackrock and Vanguard Group, recently forced the company to agree to detailed climate risk reporting. Not only that, but banks and institutional investors representing $81 trillion in assets have formed the Task Force on Climate-Related Financial Disclosures (TCFD) to demand similar disclosures throughout the industry.
Simply put, this type of risk is an existential threat to oil and gas companies. They require hundreds of billions of dollars in financing to continue to grow and survive into the 21st century, and lenders aren’t going to provide that kind of money to projects with such big, uncertain risks.
This is the fear that we hear about most from our customers: it’s not just about the losses from methane leaks or the liabilities from accidents, it’s about the fundamental viability of natural gas as an energy source, and the long-term ability of the industry to operate profitably. In the recent words of Total’s CEO, fighting methane leaks is necessary “if we want natural gas to find space for the future.”
Bluefield’s “Space 2.0” Solution
This truly existential threat of unchecked, unquantified methane emissions — from both a business perspective and from a climate perspective — is why we’ve received so much interest from oil and gas industry customers in Bluefield’s solution: a network of microsatellite-mounted methane sensors, capable of tracking every significant methane emission source in the world on a daily basis for less than what these companies are paying for annual or biannual surveys via helicopters, drones, and trucks.
In other words, the answer to unlocking “space for the future” for natural gas lies in space. This type of solution would have been unthinkable, or at least radically uneconomic, just a few years ago. However, the “Space 2.0” revolution has brought down the cost of small satellites exponentially, making it possible for startups like Bluefield to head into orbit to collect all kinds of data on a global scale at stunningly low costs.
Indeed, while satellite-based methane detection might sound like a somewhat obscure idea, we aren’t the only ones pursuing it: for example, the Environmental Defense Fund made a big splash earlier this year with its MethaneSAT initiative, and the Canadian startup GHGSat is seeking to track methane as well as carbon dioxide from space.
We believe that our technology — a miniaturized version of a sensor flown on past NASA missions — will prove to be the best tool for the job, but we’re very glad that there are multiple approaches being pursued for this critical goal. We’ll get into that in a future post.
In the meantime, we’ve got pilot projects with multiple oil and gas industry customers on our calendar — and, after reading this post, we hope you have a better understanding of why. Interested in learning more? Drop us a line.