Energy’s ‘urgent’ methane problem 

Hi all, and welcome back to Energy Source, coming to you from New York with a new look.

Over the past eight weeks, the Financial Times’ energy team has put our heads together to revamp the newsletter. We are going to give it a more global outlook and place a greater emphasis on data.

Our London-based energy experts Tom Wilson and David Sheppard, as well as writers based in Australia, Africa, the EU and beyond, will provide regular dispatches from their regions.

In response to reader demand, our Thursday edition — led by my colleague Amanda Chu — will focus on crunching data and providing informative charts on industry themes. We are also introducing a weekly item on job moves — so readers, please send us news on any “movers and shakers” switching roles within the industry. And tell us what you think about the new format at energy.source@ft.com.

To prepare for Energy Source’s relaunch I spent last week with my colleague Myles McCormick in Houston, where we met executives from ExxonMobil, Occidental Petroleum and Chevron to take the temperature of the sector.

The return of megadeals was a central theme of our discussions as the cash-rich US majors diversify and strengthen their oil portfolios. A divergence from the International Energy Agency’s view that fossil fuel demand will peak by 2030 was abundantly clear.

But with the UN COP28 climate talks beginning in Dubai in a few weeks, the industry is considering strategies to cut emissions and boost its low carbon businesses. Yesterday Exxon outlined a plan to begin producing lithium by 2027, as it seeks to become a leading player in the electric vehicle revolution. Read Myles’ note on this below.

The topic of our first story today considers how the oil and gas industry should deal with its methane challenge. Venting, flaring and leaks are a significant contributor to global warming, and tougher regulation is on the way.

Thanks for reading. — Jamie

Methane emissions reduction is oil and gas sector’s ‘Mission Invisible’

Energy Source took a road trip from Houston, Texas, to Louisiana’s Lake Charles last week to take a look at some of the liquefied natural gas plants that have propelled the US to become the world’s largest exporter of the fuel.

The LNG trade has become a multibillion-dollar industry and helped Europe wean itself off Russian gas, but it has come at an environmental cost — evident from the flaring of methane at facilities along the Gulf coast.

Unlike other pollutants emitted by oil and gas facilities, such as sulphur dioxide, methane is odourless and colourless. The potent greenhouse gas, however, is responsible for almost a third of the emissions-induced increase in global temperatures since the start of the industrial era, according to a report by Wood Mackenzie.

The report titled Mission Invisible: tackling the oil and gas industry’s methane challenge, which is due to be published this week, should provide a wake-up call to the global oil and gas industry. The consultancy says the sector is responsible for a quarter of human-caused methane emissions.

US-based companies will soon face tough rules and penalties for emissions from large-scale flaring and venting events, as well as losses from innumerable small, undetected or unreported leaks.

President Joe Biden’s Inflation Reduction Act will introduce a charge of $900 per tonne of methane emitted in 2024, rising to $1,500 per tonne in 2026. The EU is also working on laws to prevent intentional methane losses.

Methane is a primary component of natural gas and is produced by virtually every oil and gas project worldwide. When it is not cost effective to capture it, companies release it into the atmosphere via venting or burn it through flaring, which converts it into carbon dioxide.

Methane is more than 28 times as potent as CO₂ at trapping heat in the atmosphere, according to the US Environmental Protection Agency, which has proposed halting almost all flaring and venting by companies.

“Methane emissions are a huge threat to climate change and methane is a lot more powerful than CO₂,” said Elena Belletti, co-author of the Wood Mackenzie report, which warns regulation is getting serious for the first time.

The measurement conundrum

COP28 will be pivotal to global efforts to crackdown on methane emissions, as governments properly assess abatement efforts for the first time since the Paris agreement, Belletti said. This will highlight a significant shortfall in progress, according to Wood Mackenzie.

But governments and industry face a big challenge when it comes to measurement because existing technology was unable to provide complete coverage or granularity on emissions, the report will say.

While large-scale release can be picked up by satellite technology, aircraft, drones, regional sensors and optical gas imaging cameras, there is not yet a widespread network of such equipment due to the high cost of installation. Smaller leaks, which are typically caused by faulty or loose valves and venting from tanks and wellheads, are extremely difficult to detect and measure with current technologies.

Methane is also highly dispersible: a methane molecule can travel from North America to South Asia in less than two weeks, adding to the measurement challenge.  

The complexity of measuring emissions suggests methane losses are far larger than current estimates. A 2022 study by The Royal Society of Chemistry estimated actual methane emissions from the UK oil and gas sector could be five times current estimates.

Looking forward

Wood Mackenzie says better measurement technologies are coming. Next year, the Environmental Defense Fund, a US nonprofit group, plans to launch MethaneSAT — a satellite that can provide high-resolution coverage of methane emissions from at least 80 per cent of global oil and gas facilities.

But the consultancy recommends that industry should not wait, and called on all oil and gas producers to “turbocharge abatement” of methane, noting it is one of the most achievable ways for companies to make a sizeable dent in their greenhouse gas emissions.

Reducing venting and flaring is a pressing task that does not require technological improvements, and capturing this methane and channelling it into sales can generate revenue and offset abatement costs. Governments should also step up to the plate by properly enforcing new regulations, collaborating with industry on targets and support funding for new measurement and abatement technology, according to the authors.

“Tracking and tackling methane have never looked more urgent,” said Wood Mackenzie. (Jamie Smyth)

ExxonMobil is going into the lithium game 

After months of speculation, ExxonMobil, the biggest western oil producer, yesterday announced its latest gambit: from 2027 it plans to produce lithium — a battery metal that is crucial to the energy transition. 

Here are some takeaways from my conversation with Dan Ammann, Exxon’s president of low carbon solutions, in the wake of the announcement. 

1. Exxon is betting on an EV boom

For a company whose main product is the life blood of the combustion engine, Exxon is confident that electric vehicle demand is set to surge in the coming years. 

“We think electrification plays a key role in the long run for light vehicles in particular,” said Ammann. 

“It’s important to remember that for everything that’s occurred in the EV space so far, 1 per cent of the US vehicle fleet is electrified. So still 99 per cent to go. So there’s still a huge untapped opportunity ahead.”

2. Lithium is in the company’s ‘wheelhouse’

Unlike its European rivals such as Shell or BP, Exxon has long resisted calls to diversify into wind and solar. Renewables, it argues, are outside its area of expertise. With lithium, though, it believes it has an edge.

“If you look at the approach we’re taking to production, where you’re drilling wells 10,000 feet underground into these saltwater reservoirs — that’s obviously directly in our wheelhouse and capability set,” said Ammann.

3. It wants to be a big player in the space

Exxon did not say exactly how much it planned to spend on its lithium business. (Ammann said investment would “ramp up into the billions”.)

But it intends to be more than a bit-player, transforming the US into a significant supplier of the battery metal, production of which is dominated today by Australia, South America and China. 

By 2030 Exxon wants to be producing about 100,000 tonnes of lithium carbonate equivalent annually, it said — or enough to charge 1mn EVs.

“We wouldn’t go into it unless we intended to play a major role,” said Ammann. “We think we’re going to build a profitable and high-growth business for the long-term here. So it’s a big deal.”

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(Myles McCormick and Amanda Chu)

Power Points

• Exclusive: Almost no Russian oil is sold below $60 price cap

• Glencore consortium seals $9bn deal for Teck’s coal business

• IEA says oil market to return to surplus in 2024

• Ørsted shakes up management team after shelving US projects

• Baker Hughes’ CEO has warned that geopolitical risk is at a 50-year high.

• Oil majors have called on the EU and US to intervene in a bitter LNG dispute.

• US 2030 offshore wind goals will be missed, parts manufacturers have said. The target was “widely and regretfully acknowledged” to be unrealistic.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and David Sheppard, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.