By all accounts, the level of carbon dioxide emissions is declining in the United States, namely because of the transition from coal to natural gas, as well as the weaker economic output in the country since the financial crises. The success story of natural gas is the result of certain technologies having been made much more widely applicable, which has enabled industry to unlock the shale gas that is held in rock formations a mile beneath the earth’s surface. The increased supply has reduced the price of natural gas significantly, making it competitive with coal, thus setting the energy sector on a whole new course.
Natural gas is perceived by many as the perfect “bridge fuel” during a transition to a decarbonized energy system. Surely, natural gas emits less carbon dioxide during combustion than other fuels, but whether it really is the favourable bridge fuel that we are looking for is still questionable. The reason for this can mainly be attributed to methane emissions.
Methane, which is the primary component of natural gas, is a particularly aggressive greenhouse gas, packing more than two dozen times as much global warming potential as carbon dioxide. Methane emissions come both from human activities as well as from naturally occurring sources, such as seeps, wetlands, animals, etc. Estimates indicate that energy-related methane emissions represent about 30% of total emissions (EPA). For shale gas it is estimated that methane emissions are nearly 30 times higher than those of conventional gas over the lifetime of a well (Climatic Change (2011) 106:679–690). Main sources of methane emissions in the shale gas production include intentional venting, fugitive emissions, incidents involving rupture of confining equipment, and incomplete burning.
Estimates of shale gas-related methane emissions globally are still uncertain and vary from 1% to 8% (EDF). Naturally, the lower emissions the “cleaner” the fuel, and according to scientific consensus any leakage rate above 2% would make an energy source as problematic as coal from a climate perspective (Climate Central). Hence, in order for shale gas to be favourable from a climate change perspective methane emissions is not only an issue to address, it is the key issue.
Current regulation specifically addressing methane emissions is limited and of course varies from state to state. In February 2014, the state of Colorado approved new, targeted regulation, which will require oil and gas companies to regularly monitor and repair fugitive leaks of gases, including methane. This regulation exceeds regulations issued by the U.S. Environmental Protection Agency in 2012. The EPA regulations will be fully implemented by 2015 and will require natural gas wells to use technology to reduce air pollution, including methane emissions. While positive that more regulation is about to be enforced, many environmental groups argue that the EPA regulation is too weak in its way of addressing methane emissions.
However, in March 2014 the US Administration published its Strategy to Reduce Methane Emissions indicating that more regulations could be under way. The main part of the strategy looks at how to prevent leaks from natural gas wells and pipelines. Part of the strategy is to review whether new regulation is needed and, if deemed necessary, it will likely be completed before the election in 2016.
Besides regulation, industry and research have an important role to play. Some research indicates that it is cost-effective for industry to reduce methane emissions by using already available emissions-controls technologies. Nevertheless, increased and improved research would certainly aid in generating even more cost-effective techniques.
This intersection between environmental sustainability and financial viability is where we at Nordea focus as investors and active owners – and we encourage others to do the same. While many things still remain uncertain, one conclusion is clear to us: for natural gas to be a favourable bridge fuel methane emissions need to be properly addressed and managed. From Nordea RI team’s perspective this is just the start of our research efforts on shale gas and methane emissions will undoubtedly be a strong focus for us going forward.