A thought piece by Capterio. 850 words, reading time 4 minutes.
The latest UN climate discussions (COP25) closed last week in Madrid with limited agreement. Under current policies (and continued inaction), the world is heading for 3.2 degrees of warming by the end of the century according to the UN.
In the Paris Climate Agreement of 2016, countries agreed to determine, plan, and regularly report on the nationally determined contributions (NDCs) they each committed in order to mitigate global warming. Three years later there is some progress, but it is not enough, as the UN emissions gap report outlines. There is, at least, an opportunity for our industry to lead, as Mohammad Sanusi Barkindo (OPEC’s Secretary-General) said at the last COP meeting:
“The scale of the challenge means … the contribution of an entire industry or group of countries cannot be overlooked. This is not a race to renewables alone; it’s a race to lower greenhouse gas emissions. The [oil and gas industry] industry possesses know-how and experience for reducing our environmental footprint”
A recent McKinsey article, which outlines ways that the oil and gas industry can decarbonise, correctly highlights the opportunities arising from reducing flaring, venting and leaking of natural gas. Capterio’s own analysis suggests these 3 sources of waste amount to 7% of the total gas supply, add 7 billion tonnes of avoidable CO2e emissions p.a., and represent a lost revenue opportunity of $40 billion dollars p.a. Figure 1 aggregates the figures: note we use a 20-year GWP factor for methane (and other assumptions are detailed here).
Figure 1: The size of the global prize from tackling flaring (burning of waste gas, often incompletely), venting (deliberate release of methane) and leaking (accidental release of methane). The total waste from these 3 sources is 7% of total gas volumes (and revenue). The full lifecycle emissions of the natural gas supply double from 7.2 billion tonnes of CO2 (from end-use combustion) to 14.8 billion tonnes of CO2e (when flaring, venting and leaking is accounted for, assuming a 20-year GWP for methane and a 10% global combustion efficiency). Data from World Bank GGFR and IEA.
Tackling flaring is a quick and easy win to generate revenues and work towards NDCs
Capterio is primarily focussed on flaring (with a secondary emphasis on venting and leaking) since flares are highly visible “point sources” which can be addressed profitably with relative ease using proven technologies. Flaring is, therefore, one of the lowest-hanging and most profitable solutions to the climate change challenge. And what’s more, it is delivered by the oil and gas industry directly. Attractive flare abatement projects have a negative abatement cost around $15-50 per tonne CO2e (i.e. the investments make money, whilst also decarbonising), which is compelling.
Tackling flaring is a win-win for countries, creating additional revenues whilst contributing towards Paris NDCs. By tackling flaring alone, countries like Nigeria, Venezuela, Algeria or Iraq can, each, unlock more than $1 billion additional domestic revenues plus deliver more than 50%+ of their existing NDCs. Figure 2 (which assumes a more conservative 100-year GWP for methane, in addition to an optimistic combustion efficiency of 97%) shows the opportunity.
Figure 2: Country overview of the opportunity for flare abatement to generate revenues ($b p.a.) and meet unconditional nationally determined contributions (NDCs), presented as a proportion of the total. The size of the bubble reflects the potential for emissions reduction of flare abatement. For the countries analyzed, tackling flaring alone meets 11% of total committed unconditional NDCs (the NDCs themselves are equivalent to 43% of the total CO2 emissions for these countries in 2018). This case assumes a more conservative emissions case of 100-year methane GWP and 3% combustion efficiency in flaring. Data from Climate Watch, World Bank GGFR and IEA.
The opportunity to meet NDCs is, however, even larger if vents and leaks are included
As outlined above, there are also opportunities to decarbonise the oil and gas sector by tackling the venting and leaking of natural gas. Taken as a whole, tackling flaring venting and leaking in oil and gas could meet 53% of selected countries NDC ambitions on a 100-year GWP basis. And, by tackling venting and leaking an additional 40% revenue can be created, offering an even larger win-win from decarbonising the oil and gas sector.
Figure 3: Overview of the opportunity represented by the abatement of flares, vents and leaks to not only generate revenues ($ billion p.a.), but also meet unconditional nationally determined contributions (NDCs), presented as a proportion of the total. The size of the bubbles reflect emissions reduction of all activities. Assuming a 100 year GWP, tackling flaring, venting and leaking meets 53% of the NDCs for the example countries. Assuming a 20 year GWP, it is 143%. Data from Climate Watch, World Bank GGFR and IEA.
Whilst COP25 closed with limited agreement, we think that flare monetisation (and addressing venting and leaking) is one of the decarbonisation levers that everyone can agree on. By doing this, we create a “triple win” for asset owners, for governments and citizens, and for the planet.
To deliver, we need to find new ways of working, with agile teams that react quickly and do not compromise the quality, integrity and safety of operations.
Today it is realistic to solve the flaring issue with existing, proven technologies. It is environmentally urgent to solve and can unlock $750 per second.
Times have changed. Let’s get moving.
Capterio is an agile project developer focussed on monetising waste gas in oil & gas energy systems. We build solutions to capture waste gas and utilise it, taking it to pipelines, injecting it (for storage, enhanced recovery or disposal), converting it to power, liquids (e.g. CNG, LPG, GTL, LNG, etc) or other creative solutions. We screen and source opportunities, we select and procure technology, we negotiate commercial contracts, we provide project financing – and oversee construction and operations. We bring together assets together with technologies, know-how and financing to deliver on-the-ground, real-world, safe and reliable solutions.
We would like to thank Chris Elvidge (NOAA) who published a thought-provoking paper, and discussion on this topic. We are grateful for colleagues at McKinsey & Company for lively discussions on this subject. Thanks also to Climate Watch and Climate Action Tracker for tracking and assessing country NDCs.
Join our email list and keep up to date with our latest Insights