Managing Methane Risks: Investors on Emissions

As investors continue to understand and identify financial, reputational and regulatory risks associated to methane emissions in the oil and gas industry, they are strengthening their stance on climate. According to the Environmental Defense Fund (EDF), investors expect the oil and gas industry to transition operations and corporate strategy to a low-carbon economy.

According to “An Investor’s Guide to Methane” (the Guide), a document by the Environmental Defense Fund (EDF) and United Nations-supported Principles for Responsible Investment (UNPRI), methane management is used by investors as a proxy for how well companies manage climate risk broadly.

Why Methane Matters

According to the EDF, investors see methane as both a material risk and a significant opportunity. Poor methane management is a sign of deficient operational efficiency. Globally, the oil and gas industry loses approximately $34 billion a year in leaked, vented and flared natural gas. Further, as governments introduce stringent methane regulations, unmanaged methane will lead to regulatory scrutiny.

The management of methane leads to cleaner energy, lower emissions and increased operational efficiency. It also demonstrates strong operational management and social responsibility. Benchmarking methane management helps investors assess how prepared organizations are for a carbon-constrained world.

Understanding where emissions are coming from improves decision-making and drives efficiency. Operators that comprehensively tackle methane risks are better positioned to address investor concerns, engage with regulators, and demonstrate responsibility to community stakeholders.

As both a pollutant and a marketable product, methane presents a series of distinct risks for oil and gas investors. Unfortunately, it’s often difficult to understand how companies are managing these risks due to lack of transparency.

What Do Investors Look For?

According to the Guide, the first thing an investor concerned with methane risks looks for is a robust and accurate inventory of emissions. A properly managed inventory is required to spot opportunities to improve and save money, accurately gauge methane risk, and create emission reduction plans.

Next, investors will analyze quantification programs to ensure they are comprehensive, employ frequent observation and use rigorous quantification. Programs that include frequent direct measurement, particularly for fugitive emissions, are favoured.

According to the EDF, investors require actionable data from oil and gas companies in order to manage methane risk and assess company performance. They look at five main methane metrics:

• Absolute methane emissions;
• Methane emission intensity;
• Emission reduction targets;
• Leak detection; and
• Repair protocols and methane policy position.

Companies that disclose reduction targets are often favoured, as inventors view target setting as a key practice to drive management attention and impact change. Investors will look for reduction plans through the adoption of proven best management practices pertaining to fugitive emissions management, gas-driven pneumatic devices, storage tanks, liquids unloading and compressor venting.

As investors continue to prioritize methane management in the future, companies who implement reduction measures early on have the potential to gain an edge over competitors. These efforts can demonstrate to company stakeholders that management is working to improve operational efficiencies, reduce the loss of wasted product, and make strategic change in their business to better compete in an emerging low-carbon economy.

Clairifi: Turn Compliance Into Capital

Many emission reduction technologies have been proven to be cost-effective. Companies that create and maintain a detailed emission inventory are better positioned to prioritize the largest and most cost-effective reductions first, providing the biggest return in terms of reductions per dollar of capital deployed.