EXPERT VIEW: Methane is the key for energy security

Russia's invasion of Ukraine and the subsequent shutdown of virtually all Russian pipeline supply to Europe have put natural gas at the center of a global debate on how to protect energy security while radically slashing greenhouse gas emissions.

Energy security, sustainability and affordability have become a new mantra for managing our energy future. The problem is forging agreements on practical paths forward. There is an available solution that is on our doorstep today that can address this energy trilemma. That solution is methane.

The world continues to vent or flare vast quantities of gas every day, even as governments and business leaders scour the globe in search of spare supply. Capturing and commercializing this wasted resource could unlock a vital source of new supply while also contributing meaningful emissions reductions. No other action could have a greater impact on climate change and energy security in the short term.

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Lost supply

The volumes are significant. A recent study by S&P Global Commodity Insights found that within one to three years more than 40% of the natural gas that Russia has cut to Europe could be replaced with gas that is currently escaping into the atmosphere.

Europe imported 139 Bcm of natural gas -- about 50% of its imports -- through pipelines from Russia in 2021. Nearly all of that supply, equivalent in energy content to 25% of the world's global LNG trade in 2021, has been lost not just to Europe, but to the world. No pipelines exist that can transport this amount of Russian natural gas to other markets. And the withdrawal of foreign investment and technological know-how has left Russian companies without the capacity to convert this gas to additional LNG exports that could flow anywhere.

Last winter, Europe faced soaring prices to generate electricity, to run industries and to heat homes. Economic downturns ensued. At one point in September 2022, Europe paid more than 15 times more for natural gas than US consumers. Even after a mild winter, weak demand in China and herculean efforts to cut gas consumption and secure new gas and LNG imports, Europe is paying four to five times more for natural gas than the US.

Such large volumes of natural gas are not easy to substitute. The US has maxed out its LNG export capacity, and the first new projects will not come online until 2026. The story is similar for other major additional and potential new LNG exporters -- Qatar, Australia, and Canada. Should China's economy rebound before then, LNG prices could spike again in 2024.

Urgency

Hence the increased urgency -- together with the battle against climate change -- to capture gas that is flared, vented or leaked and turn it into a productive fuel. Natural gas is predominantly made up of methane, and methane is the world's most potent greenhouse gas. When measured over a twenty-year period, its impact on global warming is over 80 times greater than carbon dioxide. A concerted effort to cut methane emissions can move the dial disproportionately to reduce overall greenhouse gas emissions.

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About 40% of the today's anthropogenic methane emissions come from the oil and gas sector. Our study found that investments in leak detection, measurement, valves, and basic infrastructure could capture 80 Bcm each year of lost methane and natural gas that is currently flared with positive economic returns. That means it is not a cost to companies and economies but can actually be turned into a profit. Focused action in North America, North Africa, Central Asia-China, Nigeria, Aussie-ASEAN and the Eastern Mediterranean could deliver 40 Bcm of incremental natural gas to global markets in less than three years.

For Europe, this would mean the fastest and most secure replacement for a third of the pipeline gas it has lost from Russia. For the world, capturing this methane would take out 750 million mtCO2e, an amount approximately the size of Germany's total annual emissions. That would be a major leap in advancing the Global Methane Pledge, expanded at COP27 to over 150 countries, to reduce the world's methane emissions by 30% by 2030. Without this accelerated action on methane, the climate targets of the Paris Accord cannot be met.

All the necessary technologies exist. Initiatives such as the OGMP2.0, an initiative coordinated through the United Nations Environment Program, have been launched to develop protocols and systems that help companies reduce methane emissions in the oil and gas sector. Furthermore, OGCI, a CEO-led effort that drives climate action in the oil and gas industry, launched the Aiming for Zero Methane Emissions Initiative to encourage the whole industry to eliminate its methane footprint by 2030.

Stumbling blocks

So, what needs to be done? As ever, the problem areas are incentives and red tape. Captured methane needs to be certified to avoid fictional claims. Countries have to streamline approvals to capture methane and turn it into natural gas. Importers need to execute long-term contracts that ensure that captured methane will generate revenue. Banks have to step in with financing to detect, measure and capture the methane and gas that is currently flared.

All these can be made part of the normal commercial supply chain for global gas, but each piece needs to be fine-tuned. The capacity to act quickly exists.

"A revolution in sensor technology makes identifying, capturing and verifying methane reductions faster and cheaper than could have been imagined a few short years ago," said Matt Watson, vice president of Energy Transition at The Environmental Defense Fund.

Egypt, the host of COP27 and a major gas producer, issued a roadmap at Sharm-El Sheikh to pave a path to change bureaucratic delay into rapid action.

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A senior World Bank official and the President of the U.S Export-Import Bank stated on-the-record at COP27 that, when it comes to financing measures to capture methane, their institutions are all in.

US Special Presidential Envoy John Kerry has added the backing of the US, affirming "that no action is more immediately crucial to curb climate change and advance energy security than to capture methane and meet the world's demand for natural gas."

The challenge now is to bring these pieces together -- for Europe, the US and exporting countries, as well as financing institutions to act. The commercial framework to capture methane is clear. It needs to be matched with political will.

Carlos Pascual is Senior Vice President, Head of Geopolitics and International Affairs, S&P Global Commodity Insights. As the energy envoy and coordinator for international energy affairs for the US, Pascual established and directed the new Energy Resources Bureau at the US Department of State and was senior advisor to the Secretary of State on energy issues. He was previously also a US ambassador to both Mexico and Ukraine.

Eleonor Kramarz is Vice President, Energy Transition Consulting, S&P Global Commodity Insights, working primarily on cross-sector issues throughout the energy value chains. With more than fifteen years of experience leading multi-million-dollar consulting engagements in the energy sectors, she has worked previously with private companies, governments and NOCs defining their strategic direction and evaluating their portfolio and their investment decisions.