Do Lower Gas Prices Alter Conclusion of the ICF Study on Methane Reduction Costs?

hqdefaultLast week, the industry-sponsored Energy In Depth (EID) launched a critique of an analysis by ICF International showing that oil and gas companies can achieve major reductions in their methane emissions at relatively modest cost relative to the price of the natural gas they’re selling. In particular, EID emphasizes that natural gas prices have fallen substantially since the study was done, undercutting the result.

It’s true that natural gas prices have dropped, but the basic conclusion of the study still stands. While commodity prices fluctuate, the fundamental rationale for action hasn’t changed. In fact, over the same timeframe, EPA and other estimates of industry emissions have increased dramatically.

The bottom line is that reducing oil and gas methane emissions remains one of the biggest, most cost-effective opportunities we have for addressing climate change. Here’s why:

  • Substituting what EID calls a “more realistic” price of three dollars per thousand cubic feet of natural gas (McF for short) for the four dollars used in the ICF report, a 40% reduction in methane emissions results in an average net cost that is still less than a penny per McF of natural gas produced.
  • In fact, according to ICF, even at $2/McF, where prices hover today, the cost of emissions reduction per McF produced is just over one penny (about one and one-third cents, to be exact).
  • EID also misreads (or misstates) the ICF calculations, incorrectly suggesting that capital costs are in addition to the net costs documented in the report (they’re not).
  • EID also fails to note that ICF’s report projected prices for 2018, making its critiques of ICF’s price numbers two years premature. Indeed the current NYMEX forward curve pegs the Henry Hub gas price at roughly $3/McF, which as EID concedes is a case contemplated in the ICF report.

EID also continues to argue that oil and gas industry methane emissions have fallen, despite the fact that emissions are rising across key segments of the natural gas supply chain. Indeed, the most recent EPA estimates indicate oil and gas industry methane emissions overall are actually 27 percent higher than earlier calculations had indicated.

EID might not like EPA’s numbers, but that’s what they say (and the agency has been more than transparent in how they’re calculated). EDF believes the real number is probably higher still, based on reams of real methane measurements in the field.

Finally, EID and others like to point out that other sources besides the oil and gas industry – livestock, for example – also emit lots of methane. Nobody is disputing that point. But it doesn’t change the fact that oil and gas operations in this country emit at least 9.3 million metric tons of methane a year, equal to the carbon pollution of 200 coal fired power plants over twenty years. And that’s way too much.

Image Source: Google Images

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