This blog was co-authored with Meghan Demeter, Program Analyst, EDF
With mounting concern about the state of the climate and increasing speculation about natural gas’ role in decarbonizing energy markets, oil and gas companies face growing scrutiny from the public and investors. Some companies are stepping up with pledges to reduce emissions of methane from their worldwide operations.
But there’s a catch.
As our new analysis explains, current commitments by the industry’s most forward-looking companies mostly leave out a vast global network of assets owned by those companies but operated by another.
This is both a challenge and an opportunity.
Reducing methane emissions from the oil and gas sector is the single fastest thing we can do to slow the pace of warming. It’s also one of the most cost effective, and because methane is so potent, the climate benefits accrue quickly.
So it was good news in September 2018, when the 13 companies in the industry’s Oil and Gas Climate Initiative (OGCI) announced plans to reduce emissions to 0.25 percent of production by 2025, with a stated aspiration to reach 0.20 percent. While a strong goal, the OGCI target only applies to assets operated by its members, leaving a significant amount of production and emissions on the table.
By expanding current commitments to include methane coming from these so-called ‘non-operated assets’ (NOAs), almost half of global oil and gas production could be covered. Combined, the thirteen OGCI members operate 30 percent of global oil and gas production. If all the OGCI companies included NOAs in their methane commitments, the share of global production covered by their pledge grows from less than one third to nearly half (47 percent).
To understand the size of this untapped opportunity, we analyzed non-operated assets owned by the eight publicly traded companies in OGCI: BP, Chevron, Eni, ExxonMobil, Occidental, Repsol, Shell, and Total. On average, half their production comes from NOAs, with the individual company share ranging from 26 to 65 percent.
Few sectors rival oil and gas in its networked approach to project execution. Many of the world’s largest oil and gas companies work together to share knowledge, technology, and best practices. They also share risk. Incidents such as the Deepwater Horizon blowout in the Gulf of Mexico in 2010 have demonstrated that all partners, regardless of whether they are responsible for day-to-day operations, can be held liable.
Managing methane risk from non-operated assets opens the door to new opportunities for increasing the coverage and potential impact of ongoing emissions reduction efforts.
The size of the prize, if companies expand the coverage of methane commitments to non-operated assets, is substantial. According to our data, 67% of 13 OGCI members’ NOAs are operated by a non-OGCI company, meaning that the OGCI methane reduction commitments do not apply. If companies that have set methane targets were to engage their joint venture partners to reduce methane at non-operated assets, they could expand the potential impact of their commitments substantially.
The Power of Influence
Companies that are serious about addressing reputational risks to themselves and the role of gas more broadly need to devise a strategy to manage methane at non-operated assets. This is no small task. On average, these companies have 320 non-operated assets with over 35 different companies.
We propose three initial steps for companies ready to start this process:
- Identify key partners. A significant portion of non-operated production is concentrated within a few key assets and partners. Methane leaders can prioritize addressing methane with key assets and partners that currently lack methane management.
- Leverage joint ventures. Companies can harness existing structures to proliferate best practices for methane management at non-operated assets. Identifying close business relationships between companies can highlight priority areas of engagement.
For example, Shell accounts for almost 90 percent of the Oman Oil Company’s production. Likewise, over 70 percent of Abu Dhabi National Oil Company’s production occurs in joint ventures with Total. The significance of joint venture relationships like these may increase a company’s potential influence on methane reduction practices at assets operated by close partners.
- Gather data and information. Managing methane risk from non-operated assets will require additional data and information regarding emissions and approaches to monitor and reduce them. To devise an actionable methane reduction plan for non-operated assets, companies can start by assessing data availability and gaps.
An effective methane reduction strategy must be comprehensive. With this new analysis, it has become clear that companies can no longer pursue operated-only strategies if they intend to meet the full problem head-on and demonstrate a constructive role for natural gas in the energy transition.
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