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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Big Oil Hamstrung In Tackling Methane Problem

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When the coronavirus first spread around the world, emissions-tracking organizations reported good news: the drop in industrial activity and oil and gas drilling had resulted in lower emissions of a range of harmful chemicals. Yet despite this drop, emissions of one chemical continued to grow, unabated—and even increased. Big Oil has made ambitious pledges about methane emissions but this will not be enough to solve the problem.

A recent report by data analytics company Kayrros revealed that global methane emissions grew by as much as 32 percent over the first eight months of 2020 compared with the same period a year ago. These emissions resulted from an increase in methane leaks, whose source is almost invariably the oil and gas extraction and transportation industry.

“Such increases in methane emissions are concerning and in stark contradiction to the direction set in the Paris Agreement of 2015,” said the president of Kayrros, Antoine Rostand, in comments on the report. “Despite much talk of climate action by energy industry stakeholders, global methane emissions continue to increase steeply. In 2019 alone, our technology tracked a combined volume of visible large methane leaks of 10Mt, equivalent to over 800Mt of CO2 over a 20-year period.”

There has indeed been a lot of talk on climate action, and not just from environmental organizations but from within the energy industry itself. European Big Oil majors have rushed to make ambitious pledges to reduce their carbon and methane footprints amid mounting pressure to clean up their act.

“When you look at the future, the Achilles heel of the gas industry is the methane emissions,” the head of the International Energy Agency, Fatih Birol, said last year. “And the good news is for the industry, this can be fixed by existing technology, only using the best practices. And I can tell you that many companies are taking this seriously.” Related: Another Major Breakthrough For Solar Energy

Indeed, many companies—both in Europe and the United States—are taking methane emissions seriously, setting themselves methane leak monitoring targets, and working to reduce these leaks. But one thing that does not often draw attention is that these pledges are only made for projects where the companies are operators—on projects where they have the final say on how to do things. Many other projects, however, are what’s called non-operated assets—or joint ventures—where Big Oil supermajors with ambitious emission targets don’t have the final say.

A recent study from the Environmental Defense Fund, conducted in partnership with Rockefeller Asset Management, revealed that Big Oil’s ambitions about emissions may fall short of expectations from investors and regulators simply because they do not have the necessary control over all the assets they take part in exploiting.

“While an estimated 70% to 90% of upstream assets from public oil and gas company majors are produced from joint ventures, most targets set by those same companies only cover those ventures where the company is the operator,” one of the lead authors of the study, Rockefeller Asset Management Senior Vice President and Senior ESG Analyst Meredith Block said in the preface to the study.

The portion of non-operated assets for the nine largest public oil companies is pretty high, at 40 percent. It is the highest for Total, where non-operated assets comprise 66 percent of total assets, and for Eni, where they comprise 60 percent. Exxon is next, with 58 percent of all its assets being non-operated. BP, Chevron, and Equinor are doing better, with non-operated assets at 36, 35, and 40 percent, respectively.

What these portions mean is that for an average 40 percent of oil major’s projects, there is another company making the decision on emission reduction. That would be all fine if the other company is another public oil major. However, these are often national oil companies, and national oil companies (NOCs) tend to have different priorities since they do not answer to shareholders. Instead, NOCs answer to governments.

It is no coincidence that, according to the Kayrros report, methane emissions were particularly heightened in Russia, Algeria, and Turkmenistan. These three are major gas producers, and national oil companies are the main field operators there, even when they work in partnership with supermajors.

“NOCs operate nearly 51% of global gas and 58% of global oil production and are the stewards of approximately 60% of the world’s gas and 65.7% of the world’s global oil reserves,” the EDF/Rockefeller Asset Management report noted. This means that solving the methane problem of the oil and gas industry will require the involvement of these companies alongside the supermajors. 

How exactly this would happen remains to be seen, but it will probably include some transfer of the pressure shareholders are exercising on Big Oil concerning emissions. After all, if Big Oil turns into Green Energy, it will leave the oil and gas fields that the NOCs need to develop but can’t do it all by themselves.

By Irina Slav for Oilprice.com

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Leave a comment
  • Carlos Everett on October 21 2020 said:
    I understand the issue, but this same problem, exists not just on methane, but car emissions, manufacturing emissions and other releases, how are you going to control the rest of the world? Enforcing the Paris Trade agreement is somewhat difficult.

    It would be a wonderful idealistic goal to continue eliminating methane emissions in the United States and we should continue, but if the rest of world does not cooperate, trying to control the world and forcing them to eliminate emissions, when they do not even have a roof over their head or enough to eat., it would seem the problem is much different than you suggest.

    By the way, all of these governments have signed JV agreements with the majors on non-operated properties and these agreements require certain performance as operator, or the agreement can be amended to require change on releases , with the next step would be to take them to the Hague World Court, which would take years, but actually the methane problem is easier than you think.

    Trying to get the countries to force conversion to electric cars in places like Algeria, Nigeria, Venzuela and other 3rd world countires, that is going to be difficult.

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