A massive wave of market and societal forces is changing the oil and gas industry. Low commodity prices are driving out weaker players with excessive debt, and forcing those that remain to become leaner and more efficient. As climate change effects worsen and countries move to fulfill their commitments from the Paris climate agreement, public scrutiny of oil and natural gas and their impacts only intensifies.
The question is not will industry change to meet these challenges — it’s how. It’s about what opportunities can propel industry to come back stronger out of the depths of the commodity slide, as a leaner, cleaner industry standing on firm ground that it can play a meaningful role as societies work to transition to lower-carbon economies.
While natural gas remains a fact of life, and switching from coal to natural gas has helped reduce greenhouse gas emissions, scientific research has demonstrated that potent methane emissions from the oil and gas system are undermining that climate benefit. The latest U.S. inventory shows over 9 million metric tons of oil and gas methane emissions, packing the same climate impact over a 20 year timeframe as over 200 coal-fired power plants. That’s a lot of methane no matter how you slice it.
Methane standards like the rule announced today by EPA can aid industry, for three reasons:
1. (Re)build public trust
According to the 2016 Edelman Trust Barometer survey – a gauge of public trust in the business world, spanning 33,000 people in 28 countries – the energy sector is among the least trusted sectors in the business world, ranked above only financial services and pharmaceuticals. As with any industry, trust can be rebuilt, but it’s going to take fresh effort from operators to curb emissions sector-wide, communicated in an open, consistent and verifiable way.
We know that there are some better actors in the oil and gas sector, but performance across the industry varies widely. Consumers only see the bad actors getting headlines, so when leaks or accidents occur, that’s all they have to form an opinion about how industry is performing. The EPA methane rule announced today is an important step toward leveling the playing field across the industry and setting a new status quo for responsible production.
There’s strong public support for measures like today’s rule that will bring emissions down – according to a poll conducted last fall by the American Lung Association, two-thirds of voters favor strong national limits on methane. Because EPA’s rule sets a new floor on what companies must do to contain emissions from new wells and other sources, it can inspire public confidence that operators are working to solve the problem.
2. Affordable solutions readily available, keep product in the pipes
The success of a similar rule that took effect last year – Colorado’s Regulation 7 requiring best practices for reducing methane emissions – is a clear indicator that companies are seeing benefits from identifying and fixing methane leaks, which represent lost product and revenue in addition to potent climate pollution. In a report released by the Center for Methane Emissions Solutions, eight out of ten oil and gas companies found that in the long run, their compliance costs have been low, they have broken even or they have profited from the required inspections.
Colorado’s rule is increasing workers’ attention to detail and prompting them to find 2 to 3 methane leaks per inspection, most of which can be fixed in just a few days.
Since the federal rules are in many ways comparable to what Colorado put in place, the Colorado success story is evidence that operators will be able to achieve similar benefits and comply with the national standards cost-effectively.
3. Driving innovation
Colorado is a powerful example of how well-crafted rules can create business value, and operators achieved those outcomes using today’s proven leak detection solutions. With new innovations on the horizon, the already-manageable costs of minimizing leaks will go down even further.
Collaborations like the Methane Detectors Challenge, which EDF leads with a diverse set of industry, academic and NGO partners, are catalyzing new advances in methane detection technology to cut more emissions at less cost. The new systems emerging from the Challenge and the broader marketplace will automate the leak detection process and help operators identify leaks faster, bringing down labor costs and reducing product waste and pollution even more.
Importantly, the EPA rule values the promise of technology innovation and establishes a process for the agency to permit use of emerging technology for reducing fugitive emissions at well sites and compressor stations. This encouragement sends an immediate demand signal to the marketplace to accelerate innovation of alternative emission monitoring approaches, such as continuous detection systems, which can help industry boost efficiency while delivering greater emission reductions.
A triple-win for industry
Public opinion is firmly behind taking action to curb emissions, and as we’ve seen in Colorado, operators are benefiting from minimizing how much product is lost. Today’s rule will help the sector as a whole chart a more sustainable path – one that builds more value for themselves and investors, reduces risk, and starts the process of rebuilding public trust that both business and policymakers are working to solve the oil and gas methane problem.
This post first appeared on the EDF+Business blog