Permian methane: The good, the bad and the ugly
New technologies and industry focus will enable significant reductions in methane emissions in the world’s most important oil and gas basin.
Published: March 13, 2024
Highlights
The Permian Basin, the world’s most important oil and gas production area, is an emissions bellwether since it acts as both a microcosm of the oil and gas emissions universe and a decarbonization laboratory.
Stakeholders are rightfully focused on methane emissions because they are powerful climate influencers and because solutions exist today. Unfortunately, methane emissions have been devilishly difficult to quantify, with estimates generating more controversy and noise than signal.
New technologies have catapulted methane measurement forward. S&P Global Commodity Insights has partnered with Insight M, formerly Kairos Aerospace, to generate reliable, measurement-informed methane emissions estimates for the Permian.
Framing the answer is critical. Expressing emissions in absolute terms or as a percentage of natural gas output results in a surprisingly large number. However, emissions appear relatively contained when considered in the context of total energy or value produced.
Basin averages are essential but misleading if applied to specific companies.
We expect progress in methane reduction to accelerate significantly in the next three years. Many companies will beat their 2030 methane reduction targets well ahead of time.
The question of how much methane the oil and gas industry is emitting from leaks and venting has moved to center stage. At the COP28 climate summit, international oil companies made a wave of promises, all revolving around methane. Company spending on solutions has risen sharply. And because methane leakage is the key determinant of the relative climate performance of gas versus coal, it may be the largest factor in whether the Biden administration resumes LNG permitting.
In this article, we offer what we believe to be the most accurate assessment to date of the methane emissions in the heart of the US oil and gas revolution — the Permian Basin of western Texas and southeastern New Mexico.
The Permian matters
In the last decade, the Permian Basin has become the most important petroleum basin in the world. Three dimensions drive its prominence:
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Size and scale: Current output of 5.5 million b/d of oil and 23 Bcf/d of gas are concentrated in roughly 20 counties home to just 500,000 people. If it were a country, the basin’s oil and gas output would rank as the third-largest producer in the world. The 10-plus GW of installed solar and wind only add to the total energy produced.
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Financial impact: The Permian’s explosive growth (see chart) propelled the wave of US output from 2014 to 2019, drove global oil price formation and undercut US natural gas prices by generating huge volumes of associated gas. The Permian’s relentless expansion crowded out growth opportunities for established petroleum powers in OPEC+ as well as new entrants. Beyond influencing commodity markets, the Permian also creates wealth, generating approximately $200 billion in annual petroleum revenues, of which approximately $35 billion flows directly to individual and corporate mineral rights holders.
Greenhouse gas emissions: The Permian is undeniably an emissions hotspot. More importantly, it acts as both a microcosm of the larger oil and gas emissions universe and a laboratory for testing decarbonization opportunities. Beyond simple scale, the basin has some structural characteristics that drive emissions and tend to exacerbate GHG intensity in upstream operations:
Oil dominance: Oil is the dog; gas is the tail. Despite the basin’s massive gas output, oil generates 80% or more of total revenue.
Remote locations: Most wells are several hours away from oilfield service centers. For example, Loving County, Texas, boasts more than 3,000 active wells but only 42 residents.
Decentralized assets: The Permian has over 75,000 individual well pads containing approximately 130,000 active wells, plus a legacy of more than 100,000 shut-in wells. This translates into tens of millions of components handling pressurized natural gas around the clock for decades.
Water handling: It is a world-scale water handling business. Mixed in with its oil and gas, Permian wells produce more than 22 million barrels of water every day — about four barrels for each barrel of oil. All this water must be separated, moved by pipe or truck, and reinjected into the subsurface.
In the GHG context, CO2 emissions are quite large, relatively easy to calculate accurately and fairly difficult to abate. Methane, which comprises more than 80% of natural gas production, is the current focus of the industry’s emissions-reduction efforts. Methane is 25 times more climate-forcing over 100 years than CO2, and emissions represent forgone revenue. Unfortunately, most methane emissions are also devilishly difficult to estimate because they are typically released unintentionally.
Methane measurement is quantifying the invisible
The exact amount of methane emissions from upstream activities in the Permian Basin, or elsewhere in the world, is unknown. The issue is controversial, with available estimates varying by roughly an order of magnitude. Methane is a colorless, odorless substance that disperses almost instantly in the air. It is usually released either as a normal part of oilfield equipment operation or as “fugitive” emissions that appear intermittently and accidentally due to malfunctions, accidents or system upsets. Fugitive emissions also extend beyond upstream activity to midstream, storage and long-distance transportation. Even where atmospheric methane concentrations are accurately measured, the emissions must be attributed to specific sources within the observed area and distinguished from natural sources of methane emissions.
The final source of complexity is the role of “super-emitters,” which are leaks of more than 100 kilograms per hour. Usually resulting from malfunctions or other unexpected events, super-emitters occur at less than 1% of sites, making it a challenge to find and repair them quickly. They also offer an opportunity since some studies indicate that they can account for 80% of total emissions. (Source: Research Square, “Quantifying oil and natural gas system emissions using one million aerial site measurements.”)
Nevertheless, measuring methane emissions has vaulted forward in the past decade. While estimates using static emissions factors for various equipment types still dominate regulatory reporting, oil and gas producers have tested a wide variety of technologies to understand the strengths and limitations of each. Industry leaders have been deploying them for a few years now, and the effectiveness of these measurement techniques has given companies confidence that they can achieve good results. The recent methane reduction pledges announced at the COP28 conference stem from this buy-in to the ability to see, quantify and act on methane emissions.
All the leading technologies for quantifying methane have been deployed in the Permian. Each offers a different trade-off of the six dimensions of the ideal: resolution, frequency, threshold, coverage, reliability and affordability. For the purposes of this discussion, observations made by airplane-mounted detection equipment on regular trips covering at least 80% of the basin offer a unique blend of factors that make it possible to generate reliable and accurate methane emissions figures.
155 Bcf is the answer. What is the question?
S&P Global Commodity Insights partnered with Insight M, the leader in airplane-based detection, to obtain the measurement-informed methane emissions estimates. We believe these are among the most accurate estimates that exist and can provide a sound basis for a benchmark figure against which to assess future progress.
Based on Insight M data, S&P Global Commodity Insights estimates that upstream activities in the entire Permian Basin emitted approximately 155 Bcf of methane (2.9 million metric tons) during 2022. This is equivalent to 70 MMt of CO2.
Putting this number into context is necessary to understand it, and the most common method is to frame the absolute metric in terms of its relationship to the benefits of the operation. At the same time, these emissions were the cost that was incurred in the process of producing energy. How do those two metrics compare?
The calculation of this methane emissions intensity is a simple ratio, but there are several options for calculating that lead to significant differences and create confusion and debate on the issue. The table provided shows the two most common intensities — as a share of gas production and as a share of energy produced — and includes a novel “intensity related to economics value” metric that S&P Global Commodity Insights has developed, which provides additional insight.
The flaw of averages
Using S&P Commodity Insights’ preferred metric of methane emissions per barrels of oil equivalent, the Permian registers at about 1%. It is important to remember that this number does not include midstream processes (gas gathering, processing and transport), which, after the allocation of emissions to assets, is estimated to be roughly equal to the upstream emissions. In addition, it equals a loss of 430 MMcf/d and forgone revenue of just over $1 billion dollars at today’s gas prices. There is room for great progress to be made.
That diversity extends to the competitive landscape; the competitive landscape reflects that diversity. Despite the consolidation that has made recent headlines, the Permian is the least concentrated of any basin in the world. The headline number of 1,200 companies with current operations is misleading because the overwhelming majority of those are micro-operators with one or two wells with scant production. What is more revealing, however, is that no company operates more than 10% of total production.
This heterogeneity and the granularity of the S&P Global data sets offer an opportunity to unlock insights into the methane emissions data by examining granular data and applying emerging machine-learning techniques. Leveraging the Insight M data and focusing on the methane emissions attributed to a set of upstream oil and gas producers, we discover that the Permian basin really is a case of “the good, the bad and the ugly.” Some operators in the basin are squeaky clean, emitting well below the factor-driven estimates provided to regulators in some cases. At the same time, some assets show high observed methane emissions.
Looking forward: Expect progress to accelerate rapidly, but with sound and fury
This wide distribution of methane emissions performance has an important implication: The Permian situation defies simple answers. Strategic and economic decisions will result in companies moving at variable speeds. However, the overall direction remains clear, and the industry will continue evolving toward more efficient, less polluting operations. Recent proposed regulations from the US Environmental Protection Agency integrating direct measurement into reported numbers and enacting methane taxes on excess emissions will also force action. The ramifications of the Permian embracing methane abatement will drive behavior changes elsewhere as operators compete on methane.
We expect Permian methane reductions to accelerate over the next three years, with many companies exceeding their 2030 targets well ahead of time. The reality is that the leaders have already made significant progress quietly. The first campaigns have focused on increasingly frequent overflight and site inspection programs and on replacement of certain categories of equipment with high emissions venting rates. They have piloted a wide range of emerging technologies, with mixed success, and are now deploying those solutions best suited to their particular assets. Laggards, meanwhile, have upside from the low-hanging fruit still available to them, and avoiding the EPA-proposed methane fees coupled with the existing benefit of selling captured methane emissions should boost economics.
Along this path, a wide range of stakeholders — investors, policymakers, environmentalists, producers and consumers — will all grapple with how to understand a complex issue, measure success and failure, and design solutions. The inevitable result will be an enormous amount of noise, with claims, counterclaims and materially divergent numbers bandied about. S&P Global Commodity Insights will be part of this debate. Our approach is to marry the rising tide of robust methane measurements that “quantifies the invisible” with a deep, AI-driven analysis and subject-matter expertise that interprets the reality for our customers.
Learn more
- S&P Global Webinar: Contrasting Upstream Emissions in the Williston Basin
- S&P Global Commodity Insights Upstream Enhanced Emissions
- GHG Intensity of Offshore Brazil Production in 2022
- North Sea Emissions Uncovered
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This article was authored by a cross-section of representatives from S&P Global and in certain circumstances external guest authors. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent and are not necessarily reflected in the products and services those entities offer. This research is a publication of S&P Global and does not comment on current or future credit ratings or credit rating methodologies.
