Raw materials 2022: COP26 commits to continue focusing on methane emissions for the gas sector

Strong points

Standards potentially favorable to American gas exports

Upcoming review of country plans, emissions data

Market pressures keep US LNG use high

Following increased attention to methane emissions at the United Nations Climate Change Conference in Glasgow, the challenge will turn to implementation efforts by countries and companies, with implications for the fuel sector. American natural gas.

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Joining an initiative launched by the US and the EU, more than 100 countries signed the Global Methane Pledge at COP26 in November to reduce global methane emissions by 30% by 2030 from levels from 2020.

The prospects for a US methane emissions levy recently collapsed with a deadlock on budget reconciliation legislation, but concrete action on methane emissions is still awaited through regulation.

Some analysts believe this could support long-term opportunities for the U.S. gas industry as buyers grapple with CO2 reduction targets.

“Any announcement or promise that brings the United States back onto the global stage when it comes to tackling climate change is certainly overwhelmingly positive for American industry,” said Erin Blanton, researcher, most recently at the Center on Global Energy Policy at Columbia. Concrete actions, such as the US Environmental Protection Agency pursuing its proposed methane regulation, could help increase transparency, especially with respect to production from other countries like Algeria, Nigeria or Russia, she said.

Regulatory milestones

The US EPA aims by the end of 2022 to put in place more stringent methane regulations, forcing US oil and gas producers to conduct increased emissions monitoring on new wells and put nearly 700,000 older wells compliant. European regulators are also pursuing leak detection and repair requirements to address ventilation and flaring.

The stages coincide with the dynamics of the world market and prices recently favoring US gas exports.

The Dutch day-ahead price of TTF hit a record high on December 21, close to $ 60 / MMBtu. It has since fallen to $ 31.87 / MMBtu, as of December 24. And Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia, was valued on December 28 at $ 32.467 / MMBtu after hitting a record high of $ 56.33 / MMBtu on October 6.

High global LNG prices have resulted in higher utilization rates for all LNG export facilities in the United States in 2021 as well as for new construction. The additional capacity brought into service drove LNG export rates to the United States to exceed 13 Bcf / d on December 21, a record on that date, according to S&P Global Platts Analytics.

Provided the overall cost of the proposed U.S. regulations are not substantial for the production and delivery of gas, the new EPA requirements could be fairly well supported by the industry, said Dan Klein, head of future energy pathways. for Platts Analytics.

Some US exporters are hoping that more consistent standards will help the US carve out a position as a source of low-carbon produced gas.

“We are very encouraged by what I believe is a growing alignment between policymakers and industry on upstream methane emissions,” said Brian Lloyd, regional vice president of external affairs for Sempra LNG. “At the end of the day, when we talk about Europe but also Asia, there is soon a day when every LNG cargo, the end buyer, will want or maybe need to know what the carbon content is. , [or] the intensity of the methane, that is, up to the wellhead. “

Implementation plans

Mark Brownstein, senior vice president of energy at the Environmental Defense Fund, said after the methane commitments he would look for evidence of tangible action plans in 2022.

“The simple fact is that those countries which have now signed this pledge must now come to Egypt and to the COP 27 [in November] with concrete plans on how they are going to go about achieving the commitment they made. “

In the United States, EDF is urging the EPA to strengthen controls on routine flaring and address leaks from abandoned wells, as the agency considers in March to supplement its regulatory proposal.

It also keeps the pressure on the emissions performance of the oil and gas industry. On December 15, EDF published a study revealing that 40% of the 900 oil and gas sites analyzed in the Permian basin were releasing “large plumes” of methane.

EQT CEO Toby Rice argued that the emerging consensus at COP26 to move away from coal for power generation creates a major opportunity for US gas.

“If you want to phase out coal, US natural gas in the form of LNG exports is the biggest green initiative on the planet, and it’s not even close,” he said.

In 2022, he predicted, “you are going to see this industry have a huge impact on communication and also on performance when it comes to methane emissions,” he said. “I am very optimistic that this industry will step up and eliminate this concern that a lot of people have.”

Still, environmentalists have suggested that the change in conversation at COP26 shows public confidence in the oil and gas sector is at an all-time low.

In a development that has affected the US gas sector, the US has joined a side deal with 40 other countries opposing relentless new international public funding of fossil fuel projects. In 2022, industry and environmental players will be watching closely whether the United States, in practice, will make exceptions to this for gas infrastructure in markets with high growth potential.