4 Takeaways from the 2018 World Gas Conference

For years, conversations at major oil and gas industry conferences focused on one thing: the shale revolution. Excitement about the surge in economical new supply of unconventionally produced oil and gas was palpable, as panelists spoke of the potential for shale to transform everything from the geopolitics of American energy supply to the price of hydrocarbons. With such an unexpected and seismic change, a supply side story carried the day, with a focus on “below ground” drivers of energy abundance.

But today, the shale revolution is simply the new normal and the conversation has changed. “Above ground” factors like increasing competition from renewables, greenhouse gas emissions, and license to operate will affect demand for natural gas for years. How industry confronts such challenges – both in the United States and internationally – will have a lot to do with industry’s longevity in putting resources to productive use in a changing world demanding cleaner energy

At last week’s World Gas Conference in Washington, DC, difficult questions swirled about whether industry has done enough to earn societal trust that natural gas has a constructive role to play in the transition to a low carbon economy. The biggest buzz of all surrounded one key issue: methane emissions, a core strategic challenge for the oil and gas industry.

I remember from experience that methane began as a niche issue years ago, mentioned by engineering and science teams, not CEOs. World Gas Conference 2018 left no doubt that those days are over, and that tackling methane must become part of business as usual. Here are four key takeaways. Read more

Your investors are asking about methane risk: here’s why, and what you can do

This article was originally published in Petroleum Economist.

With the corporate annual shareholder season coming to a close and the World Gas Conference around the corner, one thing is abundantly clear – investors are strengthening their stance on climate, and they want the oil and gas industry to step up and reduce methane emissions.

In an open letter in the Financial Times earlier this spring, investors overseeing more than $10.4 trillion wrote they are expecting the oil and gas industry to change how it operates and transition its operations and corporate strategy to a low-carbon economy.

In the past three years, nearly 40 methane shareholder resolutions have been filed, and it doesn’t require a crystal ball to know that more are coming. This year’s shareholder season included 11 methane issue resolutions; eight were withdrawn (meaning the companies took action on their own without a vote). Chevron shareholders generated a 45 percent vote in favor of a methane resolution, and Range Resources’ resolution passed with a majority vote, while Kinder Morgan garnered a strong 38 percent shareholder vote.

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How virtual reality can help the oil and gas industry confront its invisible challenge: methane

I’m a certified oil and gas tech nerd, and I’ve never before been this excited about my job.  I love data and the insights that it surfaces, along with the immense possibility of applying those insights to catalyze continuous improvement. There are few decisions I make without an Excel spreadsheet – and, after spending several years working for an oilfield services company, I’m passionate about solving one of the biggest environmental problems of our time: methane emissions.

Methane is the main ingredient in natural gas and a common byproduct of oil production. Unburned, it’s also a powerful greenhouse gas. Worldwide, about 75 million metric tons of methane escape each year from oil and gas operations (through leaks, venting and flaring) – making the industry one of the largest sources of manmade methane emissions.

As methane risk is starting to draw increasing attention from public officials, major investors, and leaders within the industry, tech solutions are booming and “digitization of the oilfield” is becoming industry’s hottest new term.

The good news: many of these tech solutions are available today and easy to deploy on a wellsite. Unfortunately, many stakeholders involved in this global challenge have either never been to a wellsite or don’t spend much time on a wellsite. And even if they do, methane is invisible.

That’s why EDF worked with the creative agencies, Hunt, Gather and Fair Worlds, to build a new virtual reality (VR) experience, called the Methane CH4llenge, that brings the wellpad to you and showcases the power of tools like infrared cameras and portable analyzers to experience first-hand what methane leaks look like.

I recently spoke with Hunt, Gather / Fair Worlds Creative Director Erik Horn, my partner in crime for this project, about developing the VR, which you can experience at the World Gas Conference next week. Here are five takeaways from our discussion, which you can watch in full here. Read more

Investor concern on methane rises in 2018 proxy season

At Chevron’s annual general meeting last week, a shareholder resolution calling on the company to improve its methane management and disclosure received a 45% vote. This strong vote follows a majority vote at Range Resources, where 50.3% of voting shareholders supported a similar methane disclosure resolution (up from just 20% in 2013). Oil and gas industry shareholders are sending a powerful message– methane is a material risk that companies must manage to compete in a capital- and climate-constrained world.

Such resolutions are effective at driving change, even for non-majority votes like the 38% of shareholders at Kinder Morgan who supported a methane resolution. For example, last year ExxonMobil’s methane resolution received a 39% vote, and the company responded with a new methane emissions production program, which now includes a quantitative methane reduction target.

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Cummins CEO says innovation, sustainability, and regulations are good for business

At Environmental Defense Fund, we believe that environmental progress and economic growth can and must go hand in hand. EDF+Business works with leading companies and investors to raise the bar for corporate sustainability leadership by setting aggressive, science-based goals; collaborating for scale across industries and global supply chains; publicly supporting smart environmental safeguards; and, accelerating environmental innovation.

This is the sixth in a series of interviews exploring trends in sustainability leadership as part of our effort to pave the way to a thriving economy and a healthy environment.

I’ve worked with many business leaders over the course of my career, and there are few more forward-thinking on sustainability and environmental innovation than Tom Linebarger, Chairman and CEO of Cummins, Inc.

As head of the largest independent maker of diesel engines and related products in the world, Tom has set lofty environmental goals for Cummins, including cutting energy intensity from company facilities by a third by 2020.

Under Tom’s leadership, sustainability and community engagement have become core parts of company culture – including efforts to establish technical education programs around the world to lift youth out of poverty and publicly favoring tough, science-based and enforceable environmental regulations.

I recently had a chance to catch up with Tom and learn more about the formation of Cummins’ sustainability goals and the importance of long-term protective standards in the trucking industry.

Here’s an edited transcript of our conversation.

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Methane leadership is a competitive advantage, says global investor

Environmental Defense Fund Q&A with Tim Goodman, Director of Engagement at Hermes Investment Management

Tim Goodman, Director of Engagement at Hermes Investment Management

Early oil and gas industry adopters of methane management strategies and technologies are starting to see these reductions as an opportunity to gain a competitive edge.

Just last week, ExxonMobil announced  a new methane reduction program for its XTO Energy subsidiary, underscoring that the industry is paying close attention to the issue.

Methane, the main ingredient in natural gas, is leaked and vented across the oil and gas supply chain every day as the world energy mix shifts towards greater natural gas usage, according to the International Energy Agency. The oil and gas industry wastes billions of dollars a year of methane that simultaneously acts as a climate change accelerator, harming the brand of natural gas as a cheap and clean fuel source. Methane is 84 times more powerful as a heat-trapper than carbon in its first 20 years in the atmosphere. Read more

Leading methane commitment from Exxon’s U.S. driller: Why it matters

The degree to which the oil and gas industry can be trusted to play a constructive role in a low carbon future depends in no small measure on whether and how it reduces climate pollution today. That’s why company insiders, investors, and policy makers should take careful note of the sensible and innovative commitments announced by XTO Energy, the ExxonMobil subsidiary that leads the United States in natural gas production.

The industry’s many outside stakeholders both in the U.S. and around the world are increasingly calling for emission reductions and greater commitment to cleaner production. Companies that heed those calls, and advance new technologies, will be much better positioned to answer society's demands for responsibility. Read more

Global investor touts methane opportunity with oil & gas industry

Institutional investors worldwide are increasingly encouraging oil and gas companies to improve and disclose their management strategies to minimize methane risk.

Methane – an invisible, odorless gas and main ingredient in natural gas – is routinely emitted by the global oil and gas industry, posing a reputational and economic threat to portfolios.

Natural gas is widely marketed as a low-carbon fuel because it burns roughly 50 percent cleaner than coal. But this ignores a major problem: methane. Natural gas is almost pure methane, a powerful pollutant that speeds up Earth’s warming when it escapes into the atmosphere.

Last month marked a significant milestone in investor action on the methane issue. The Principles for Responsible Investment (PRI) launched a new initiative representing 36 investors and U.S. $4.2 trillion in assets that will engage with the oil and gas industry across five different continents to improve its methane management and disclosure practices. The PRI initiative complements existing methane engagement efforts focused on the U.S. led by the Interfaith Center on Corporate Responsibility and CERES.

EDF Senior Manager Sean Wright recently sat down with Sylvia van Waveren, a Senior Engagement Specialist with Robeco Institutional Asset Management, a Dutch-based investment firm managing over $160 billion, to discuss the matter and understand why some investors are keen to affect the status quo on methane.

Wright: Why is methane a focus of your engagements? What do you see as the risks of unmanaged methane emissions? 

Sylvia van Waveren, Senior Engagement Specialist, Robeco Institutional Asset Management

van Waveren: Methane is one of the most important drivers of engagement with the oil and gas industry. We invest in oil and gas companies worldwide. A year ago, we started engaging them, specifically on climate change – and within that the methane issue is included.

In the past, methane was viewed as a U.S. shale gas issue, but more recently it has become important in Europe as we learned that methane is a powerful greenhouse gas. So in that sense, we learned a lot from the U.S. discussions and we still do.

I would like to stress that we see the methane issue more as a business opportunity than a risk. What we often say to companies is that methane is a potential revenue source. It would be a waste if companies do not use it. 

Wright: The scope of PRI’s initiative is global, with investors from 3 different continents as far away as Australia and New Zealand, and a plan to engage with companies from the Latin America, Europe, North America and Asia-Pac. What does this level of global collaboration convey about methane emissions? 

van Waveren: I am happy and it is good to see that others have taken up the seriousness of this issue, as well.  Methane is no longer a U.S. only problem. The issue is being raised and discussed in all kinds of geographies.

I’m a firm believer in collective engagements. They can be a powerful force when the issue is not contained within borders. That is the case with greenhouse gases. So yes, I’m happy to see the PRI initiative taking off and I am an active believer in getting this solved and bringing attention to this subject.  

Wright: In your conversations thus far with companies about methane, what resonates best when making the business case for improving methane management and disclosure?

van Waveren: When we talk about motivation at the company level, I have to be honest, it’s still early days. The European companies are talking in general terms and just now conceptualizing methane policies. If we’re lucky, they have calculated how much methane is part of their greenhouse gas emissions. And if we’re more fortunate, they are producing regional and segregated figures from carbon, but it’s really very meager how motivated the companies are and what triggers them most.

I really feel we should emphasize more with companies to get them motivated and to really look at the seriousness of methane. One issue that is particularly bothersome is that many companies do not know how to calculate, estimate and set targets to reduce methane. It is still a mystery to many of them. That’s why we come in with engagements. We need to keep them sharp on this issue and ask them for their actions, calculations and plans. 

Wright: Who are other important allies that have a role in solving this problem, and why?

van Waveren: We always would like to have an ally in the government. For example, carbon pricing or carbon fixations are all topics that we look for from the government. But in practice, that doesn’t work. Governments sometimes need more time. So we do not always wait for the government. When companies say they will wait for government, we say, “You should take a proactive approach.”

We rely very much on our knowledge that we get from within the sector. We review data analyses and make intermediate reports of scoring. We find best practice solutions and we hold companies accountable. There are also times when we name names. So in that sense, that is how engagement works. The data providers and other organizations with good knowledge and good content on methane – and EDF is certainly one of them – are very instrumental to get the knowledge that we need.

Wright: Can you give me an example of a widespread financial risk facing an industry in the past that was proactively improved by investors leading the charge – similar to this initiative?

van Waveren: More than 20 years ago, we had a greenhouse gas issue – acid rain. Investors helped solve that problem. Because of this, I’m hopeful that investors can also play a positive role in reducing methane.

I would also say the issue of Arctic drilling. Not so long ago, this was top of mind when we talked to our portfolio companies. A lot of companies have now withdrawn from Arctic drilling, especially from offshore Arctic drilling. I think investors were quite successful in sending a clear signal to the industry in a collective way that we didn’t see Arctic drilling as a good process. Maybe profitable – if at all – to the companies, but certainly not for the environment.

Wright: Thank you, Sylvia. We really appreciate your time and your thoughtful answers showing how investors can be part of the solution on methane.

Careful what you wish for: Trump’s environmental attacks will harm industry

In the same week Apple raised $1 billion through green bonds to invest in clean energy, and Amazon put solar panels on a million square foot processing facility, the Trump administration – at the urging of the worst elements in the oil and gas industry –proposed a two-year delay of sensible rules that would limit emissions of methane and other air pollutants. While a federal court since struck down a previous 90-day delay as unlawful, the two-year delay is still subject to public comment, and many expect the administration’s attacks on methane safeguards to continue through other means.

Natural gas, which is mostly methane, has been put forward as a cleaner alternative to other fossil fuels and as an energy resource that can play a key role in the transition to a lower-carbon future. But now more than ever, that proposition is now called into serious question.

How will natural gas compete in a changing world?

Every year, oil and gas operations around the country emit some 8-10 million metric tons of methane into the air. Methane is a highly potent greenhouse gas, responsible for about a quarter of the climate warming we’re experiencing today – and those emissions come mingled with a host of other smog-forming and carcinogenic pollutants.

There are cost-effective, proven ways to reduce these emissions, and leading companies are already implementing them. The problem is, many companies refuse to address the problem on their own. And now they’re looking to the Trump administration for a free pass to pollute.

When trade associations like the American Petroleum Institute attack cost-effective policies that protect public health and the climate, it sends a signal that the natural gas industry will do everything it can to maximize short-term profits – even at the risk of damaging the reputation of the industry in the eyes of the public and jeopardizing its ability to operate over the long term.

The question is: In an increasingly carbon constrained world, what is the natural gas industry’s plan for the future?

We’re not arguing that gas is at risk of going away tomorrow. The United States leads the world in natural gas production, as new technologies and processes have unlocked massive, cheap reserves. But make no mistake, the transition to cleaner energy in the U.S. and across the globe is irreversible and accelerating. In this context, fighting reasonable and necessary emissions rules only magnifies risk for the natural gas industry and its investors. It’s a head-in-the-sand approach that ignores the realities of what consumers, communities and markets demand.

Capital markets shifting to cleaner companies and forms of energy

The Trump administration’s recent moves come at a time when environmental concerns informing investment decisions are reaching record highs. For example, investors with $10 trillion in assets under management have committed to the Montreal Carbon Pledge to reduce the carbon footprint of their portfolios, with an eye towards portfolio de-carbonization in the long run.

As part of the shift to assets in lower emitting companies and industries, investors are demanding better carbon and methane disclosure as well as proactive environmental management. The recent watershed Exxon vote, in which 62% of investors (including industry titans like BlackRock and Vanguard) demanded better climate risk disclosure from Exxon management, showed that carbon risk considerations have hit the mainstream.

Increasingly, investors see methane simply as a form of carbon risk in need of management, not neglect. And methane waste can be cost-effectively managed – as proven in states like Colorado where production has continued apace even as strict methane rules have come on the books.

On top of investors’ efforts to shift portfolios towards cleaner companies, the divestment movement also continues to grow, driven by a range of environmental risks of owning fossil fuel stocks. Just recently mainstream investor CalSTRS divested from coal. Going forward, increasing numbers of investors will look carefully at the environmental record of oil and natural gas companies in determining their comfort level in continuing to invest.

Some companies lead but no substitute for commonsense rules

Companies like Southwestern Energy, Noble, Shell and others have led on methane emissions by setting methane targets, supporting state-based regulations, and working with the Oil and Gas Methane Partnership to disclose methane emissions. Their efforts certainly deserve recognition, and are supported by some investors who factor strong methane management into investment decision.

Still, voluntary actions by the few are no substitute for rules and oversight that require responsible operations by the thousands of oil and gas companies operating in the United States. Some of these companies simply lack a commitment to sustainability and to operating over the long-term, and will not rein in emissions unless they are required to do so by law.

Methane safeguards serve the long-term interests of industry and investors

As the scientific reality of climate change and consumer demand steer the world toward a cleaner energy future, will attacks on environmental protections inflict lasting damage on the oil and gas industry? Only time will tell. It’s likely, however, that if the loudest industry voices continue to oppose rules that could guide it toward a cleaner future, the industry as a whole will suffer.  Unfortunately, that will include the more forward-leaning companies, which will be dragged down by their intransigent peers. This outcome will become all the more likely thanks to the Trump administration’s erosion of environmental safeguards that are fundamental to responsible development.

It’s time for oil and gas operators and mainstream investors with a long-term view to take a look at what rules and regulations are needed to rein in methane emissions in their industry. And they also need decide if they want to align themselves with an administration whose policies may be unwittingly handicapping the very industry it attempts to serve.

Smart Money: Top Investors Press Oil & Gas Companies to Tackle Methane Emissions

A global group of 30 leading institutional investors coordinated by the PRI (Principles for Responsible Investment) has announced a new initiative that will encourage oil and gas companies, including gas utilities, around the world to initiate or improve efforts to measure, report, and reduce methane emissions. The move is the latest evidence that investors are concerned with the financial, reputational and environmental risks associated with unmonitored and unchecked methane venting and leakage.

Methane is a potent greenhouse gas with over 80 times the warming power of carbon dioxide over a 20-year timeframe. It’s responsible for about 25% of the warming our planet is experiencing today. Globally, the oil and gas industry is among the largest man-made sources of methane.

Methane is also the main ingredient in the natural gas, the product that major global producers have marketed to investors as central to their growth in the years ahead. Companies tout gas as a clean, low-carbon fuel, ignoring the vast amounts of unburned methane escaping from their systems each year, or the lack of transparency with regard to monitoring and reduction strategies.

The owners and asset managers involved in the PRI’s methane initiative oversee more than $3 trillion. They are global in scope, representing a dozen countries across North America, Europe and Asia-Pacific. PRI plans to engage 29 companies on four continents, from across the natural gas supply chain (the names aren’t being made public). They will be urging greater transparency and stronger, more concrete actions, including setting methane targets and participating responsibly on methane policy.

A centerpiece of PRI’s ongoing efforts to improve companies’ methane management and disclosure will be the Investor’s Guide to Methane, published jointly with EDF last fall. PRI’s global methane initiative complements ongoing U.S. engagement efforts on methane led by the Interfaith Center on Corporate Responsibility and CERES.

Trumping Shortsighted Politics

This is an uncertain time for the methane issue globally. On the one hand, President Trump and many U.S. lawmakers are trying to roll back methane policies established during the Obama administration. On the other, officials in Canada are expected to release draft oil and gas methane regulations this year, and similar rules are being developed in Mexico.

Political backpedaling from methane controls is shortsighted and counterproductive for both industry and environment, ignoring one of the biggest and most cost-effective opportunities we have to slow the warming of our globe. But these major investors, whose long-term investment horizons require them to look beyond the short-term calculus that dominates both politics and executive compensation packages, are taking a view to match their financial stake in the industry’s future.

What they see is a growing liability for an industry looking to the production and delivery of natural gas a growth engine over the coming decades. The problem isn’t going to go away, no matter what they’re saying in Washington.

Producers like BP, Shell and Chevron routinely cite rising global demand for natural gas as a primary driver of growth and valuation. But in markets for new electric generating capacity, natural gas is increasingly competing on a cost basis with clean, renewable sources like wind and solar. Failure to deliver on its frequent promises to deliver a more climate-friendly energy choice puts the gas industry and its investors at risk.

That makes methane the key variable. Conservative estimates are that, worldwide, companies are releasing at least 3.5 trillion cubic feet of methane to the atmosphere each year. That’s about the same amount as all the gas sold by Norway – the world’s seventh largest producer. Besides being a huge climate problem, it’s also a huge waste of a valuable product, and perhaps an indicator that attention to the integrity of operations is not as great as what companies claim.

Industry Awakens to the Problem

Concern about methane isn’t limited to oil and gas investors. There’s growing awareness within the industry itself that methane poses a reputational risk, sparking some companies to start addressing the challenge.

For example, 10 of the world’s largest oil and gas companies – BG Group, BP, Eni, Pemex, Reliance Industries, Repsol, Saudi Aramco, Shell, Statoil and Total – recently launched the Oil and Gas Climate Initiative (OGCI), a billion-dollar investment to accelerate commercial deployment of low carbon energy technologies. Their primary focus will be carbon capture and storage and reducing oil and gas methane emissions.

Similarly, the Oil and Gas Methane Partnership (OGMP), a voluntary effort to improve emissions reporting and accelerate best methane reduction practices recently issued its first annual report, detailing emissions found in nine key source categories throughout individual operator’s systems. Launched in 2014, participating companies include BP, Eni, Pemex, PTT, Repsol, Southwestern Energy, Statoil, and Total.

First Steps toward Big Benefits

These are crucial first steps for the industry, and is a sign that companies looking for ways to adapt to the changing climate surrounding its business. But the industry still has a very long way to go. Fixing the problem could yield huge benefits: A 45% reduction in global oil and gas methane emissions would have roughly the same climate impact over 20 years as closing one-third of the world’s coal fired power plants.

Investor calls for action on methane are quickening and now industry needs to show shareholders it will take the necessary steps to deliver on the low-carbon fuel promise of natural gas. Investors want to invest in well-run companies with good governance, and increasingly look to methane as a proxy for efficient operations. As company executives think about how to attract capital, they will be well-served to note this emerging dynamic and proactively get ahead of the issue.