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The Unit Economics of Methane Reduction in Under Four Minutes

Updated: Aug 29

The economics of methane reduction

Right now, as you’re reading this, millions of metric tons of methane are being leaked into the atmosphere at thousands of sites across the globe — and no one knows. Detrimental to the environment and public health? Yes. A setback in our battle against global warming? Definitely. But, methane (CH4) leaks and emissions aren’t just an environmental crisis that’s accelerating climate change (methane traps more heat in the atmosphere per molecule than CO2, making it comparatively 80 times more harmful over two decades), they’re a massive opportunity which industries across sectors can’t afford to ignore. Undetected methane leaks represent billions in lost revenue, an obstacle to participating in booming carbon markets and can lead to hefty regulatory fines when finally detected.

They also may just hold the key to funding ambitious methane goals over the next two decades.

Let’s break down some of the basics of the unit economics of methane abatement in under four minutes… A Case-Study: Reducing Methane In Oil & Gas Systems

The economics of methane reduction

The 2015 Paris Agreement and a wave of new GHG emissions regulations over the past decade are driving a race to net-zero. These regulations represent a watershed moment for the global economy. The energy sector is especially impacted as nearly a whopping 40% of total methane emissions attributable to human activity are from oil and gas operations. Despite increased reporting, these emissions are now estimated to be 70% greater than the amount national governments have officially reported to international organizations. Globally, 3% of natural gas production annually (of which, methane is the main component) is lost in leaks, flares, venting and super-emitter events. The majority of these occur in upstream exploration, production and storage, making them easier to stop if and when detected. The IEA estimates that a total cost of $75 billion over the next 7 years to 2030, or approximately $11 billion annually, would be required to cut these emissions by 75%. Several studies over the last decade have estimated the actual cost of this lost methane for oil and gas producers. In 2012, an estimated 3.6 trillion cubic feet (Tcf) of natural gas leaked or vented into the atmosphere from global oil and gas operations. This represented $30 billion in lost revenue for the same year – three times the estimated annual cost to reduce these emissions by 75%. This lost revenue represents a major missed opportunity for cost-effective methane abatement. No Net Cost Methane Reduction is Possible

Let’s break this down on a national level, using the US as an example. The U.S. is consistently the third largest global methane polluter annually. In 2021, the EPA reported 234 million mtCO2e of oil and gas sector methane emissions. These make up roughly a third of all U.S. methane emissions.

Inflation Reduction Act includes methane emissions fees

There’s no doubt that the ability of the U.S. to fulfill its commitment under the Global Methane Pledge to reduce overall methane emissions by 30% below 2020 levels by 2030 hinges on these energy sector emissions.

The economics of methane reduction

Last year, the Biden Administration passed the most robust-emissions legislation to date (the IRA) and has introduced new regulations that would cut the oil and gas methane emissions by 75% by 2030. As a result, the administration also estimates that the energy sector will deliver a 920 million mtCO2e reduction by 2035. Calculations of the cumulative cost of methane emissions abatement per metric ton vary, but consensus is growing that the vast majority of the potential methane reductions can be achieved at a cost of less than $25 per ton of carbon-dioxide equivalent (mtCO2e). Some models place this number lower. But can this be done at no net cost to oil and gas companies? With the current selling price of natural gas at approximately ~10$/mtCO2e to ~12$/mtCO2e (depending on methane concentration) the revenue the oil and gas industries lose annually in methane leaks and venting covers a significant cost of methane abatement. The remaining cost can be offset by participation in carbon markets.

The economics of methane reduction

As the global warming potential of methane over a 100-year period is approximately 25 times that of carbon dioxide, a reduction of 1 metric ton of methane is equivalent to 25 carbon credits. To date, a carbon credit has a monetary value on the compliance and voluntary carbon markets of $40 to $80. With global demand for voluntary carbon credits to increase by a factor of 15 over the next two decades, the financial incentive for methane reduction will increase . Every metric ton of methane reduced thus not only keeps methane in the pipes to be sold, it offers new avenues of revenue, investors, and incentives for the development of green technology. Put simply: methane abatement in oil and gas industries can pay for itself — while creating new, important revenue opportunities. Making This Happen Oil and gas producers and operators need the emissions intelligence to know when, where and at what rate their facilities and assets are leaking or venting methane. With accurate, real-time insights that pinpoint and quantify leaks, monitor venting and verify emissions performance over time, energy companies can move to drastically reduce their undetected emissions and leverage the results to align with new regulations and capitalize on rapidly emerging green opportunities.

The economics of methane reduction

This is exactly why we’re here. Momentick delivers this game-changing emissions intelligence on a global scale. We apply advanced algorithms to multi-satellite imagery to transcend the limitations of ground-based monitoring and provide a truly global perspective on GHG emissions — even in the most remote locations.

Methane reduction can pay for itself, but not without the data to make it happen.

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