“Emissions of climate-busting methane from fossil fuel operations are 70% higher than national governments are reporting… the gap between the reporting and the reality is “massive” and “alarming.””
2022 edition of the Global Methane Tracker released February 2022 by the International Energy Agency (IEA).
All of this is happening against the backdrop of a sharp increase in US NatGas prices which rose 60% from last year to $4.50 p/mcf, and with even higher peaks in recent months. We can expect these price levels to last for some time because of geopolitical pressures in Europe arising from the Russo-Ukraine conflict. We also know these prices support profitable methane capture and mitigation, so irresponsible production practices cannot any longer be tolerated.
The US government is under pressure to supply as much LNG to Europe as physically possible. It has pledged to assist Germany and the rest of Europe by supplying US LNG at a sufficient rate to plug the gap represented by the postponement of certification for NordStream2, a key sanction used to counter the rising threat of Russian aggression against Ukraine. These circumstances will dictate that prices for US natural gas will remain elevated for an extended period thereby creating a windfall for US producers. The use of proceeds from the windfall will have a substantive impact not only on the shape of US regulations of the industry, but public perception which feeds directly into the industry’s social license.
If the industry’s response is to continue, or worse, increase incidences of methane flaring or venting, it is asking for increased government sanctions. If the cost to abate methane has become profitable, the excuse NOT to abate is unreasonable and unsustainable. US natural gas producers need to be taking every opportunity to mitigate methane emissions while it has the wherewithal to do so. Anything less would be irresponsible. Technologies exist to measure and mitigate methane emissions, so the solutions can be implemented readily. Environmentally responsible actions taken by the industry will go a long way to supporting its social license to continue to operate. The opposite will expose the industry to vile criticism. In short, the oil and gas industry has the ability to shape its future image as one that respects climate mitigation, supports liberal democracy, and is a partner with the government in fighting imperialist actions of authoritarian dictators. Which shall it be?
Should the natural gas industry choose the right path and begin substantial curtailments of methane emissions, it would be very reasonable to assume it can rely on the support of the Federal Government to encourage actions to increase production and expand LNG export facilities. The US stands to gain the most from replacing Russia as Europe’s main gas supplier. I can visualize the possibility of long-term firm price contracts arising out of the geopolitical uncertainty, which will remain with us for the medium term. The combination of higher demand, higher prices, and the certainty of term contracts will reduce risk substantially for producers, allow them to reduce relative debt, while at the same time achieving higher returns for its stockholders. But this boon will bust if the producers shy away from implementing the ESG standards and principles that will help them prolong their social license. Its future, once again, is in its own hands.