Unlock the Potential for Global GHG Emission Reduction
Technology and Infrastructure for Methane Emission Reduction
The technologies for reducing methane emissions and flaring are available and mature, enabling significant strides to be made at a relatively low cost or even for financial gain. However, implementation requires a substantial capital investment in methane evacuation, such as natural gas pipelines, and transportation infrastructure like liquefied natural gas (LNG) terminals and tankers. O&G emission reduction offers some of the most effective GHG mitigation options with the right collaborative actions. Our analysis suggests that the upstream sector has the potential to halve its GHG footprint through cost-neutral or beneficial approaches. Although accurately estimating methane emissions is challenging, this reduction could be up to two gigatons (Gt) of CO2 equivalent per year, equivalent to 4 percent of global GHG emissions.
The challenge lies in the need for substantial new infrastructure and capital investment. We estimate the total investment required to unlock this abatement to be approximately $200 billion, with $120 billion dedicated to extensive infrastructure to bring recovered methane to existing pipelines or gas demand centers. In many cases, involvement beyond individual O&G players will be necessary.
The Growing Commitment to Methane Abatement
Upstream O&G companies have been accelerating their efforts towards methane and CO2 emission reduction. New and broader regulations, including methane taxes, along with a renewed focus on net zero from institutional investors and increased social awareness of climate change, have driven more global O&G players to set decarbonization targets. For example, the GMP and OGDC commitments involve more than 50 companies, including many of the world's largest. Up to 50 percent of global oil production falls under these methane abatement targets, which could reduce emissions by 0.6 GtCO2e per year by 2030, a 15 percent decline in total upstream O&G emissions and a 1 percent decline in global GHG emissions. The Middle East, Africa, and Latin America show the greatest abatement potential.
Some players responsible for an additional 10 to 15 percent of O&G production have announced their intent to reduce methane but have not yet translated it into actionable plans or made them public. Recent global methane-regulating policies, such as the EU methane directive, may provide additional impetus.
The Global Picture of Upstream Oil and Gas Emissions
GHG emissions have reached record levels, with an average of above 50 GtCO2e emitted each year over the past decade. Direct emissions from the upstream O&G sector account for approximately 7 percent of this total, with methane contributing almost half. Upstream O&G is the second-largest methane-emitting sector after agriculture. However, the extent of methane emissions is highly uncertain due to difficulties in measurement and monitoring. According to McKinsey analysis, global annual methane emission estimates range from 1.1 GtCO2e to 5.9 GtCO2e. We have used a consensus figure of 2.1 GtCO2e per year, which is likely a lower bound. Multiple satellites and ground-based instruments are now tracking methane emissions with higher resolution.
There are four main sources of emissions in upstream O&G: direct release of methane through venting or fugitive emissions, CO2 emissions from combustion for drilling and machinery, CO2 emissions from flaring methane, and direct venting of CO2 in recovered gases. Carbon and methane emission intensities are unevenly distributed globally, with the highest emissions in Africa, the Commonwealth of Independent States (CIS), and Latin America. These regions have fewer countries committed to the GMP or the Zero Routine Flaring initiative.
How to Mitigate Methane and Flaring Emissions
Some solutions for methane and flaring emission reduction are more feasible than others. Introducing energy efficiency measures and reducing methane leakage and flaring can save money, while electrification and carbon capture and storage come at a higher cost. Operational excellence principles and methane leakage and flaring reduction are mature technologies that should be relatively easy to adopt, and the implementation costs will be lower by 2030. However, no single solution is a panacea, and each location requires its optimal set of solutions based on local circumstances.
Our analysis shows that beyond the 0.6 GtCO2e already committed to methane and flaring abatement, an additional 1.4 GtCO2e could be eliminated using cost-neutral or low-cost solutions like maximizing operational efficiency or recovering leaked gas. This represents an additional 35 percent of all O&G upstream methane emissions. The solutions include methane recovery via active leakage monitoring (including with AI), operational excellence, flaring reduction, and vent capture systems. The investment needed to deploy these core abatement technologies is $80 billion.
However, these solutions often require additional infrastructure. Most sites need new gas evacuation routes or clean ways to use and monetize methane nearby. New pipelines may not be the solution everywhere, and alternative methane utilization solutions like modular LNG or compressed natural gas may be more suitable in some cases. It's important to note that using recovered gas in new ways may have other climate trade-offs.
Developing the necessary infrastructure will require innovative financing mechanisms and close cooperation among international majors, national oil companies, and smaller local players. Targeted investment funds and regulatory schemes can unlock additional abatement potential. The large capital requirement and deployment challenges make it impossible for individual players to act alone.
Effective methane reduction programs require a multidimensional approach, including establishing precise methane emission baselines, developing mitigation plans, and deploying essential enablers like securing targeted funding and fostering strategic partnerships. Targeted cooperation of upstream O&G players on methane and flaring reduction could reduce global greenhouse gas emissions by 4 percent by 2030, offering the oil and gas sector the opportunity to take the lead in net zero while addressing its own emissions. With only five years to 2030, action is needed now.