What the New Methane Rules Could Mean for US Early Adopters
By Amy Myers Jaffe, Kathy Hu, and Nishan Kafle
As scientific data on methane leakage from US oil and gas production and transport systems has improved, the urgency of methane mitigation policy has increased. Higher estimates for methane released in oil and gas US operations continue to be verified via ground-based facility scale measurement combined with satellite and other aerial methods, suggesting that volumes of well over 2 to 3 percent of gross US natural gas production need to be detected and remedied.
The Biden administration has earmarked mitigation of US methane releases for early action, partly because abatement of methane emissions represents low-hanging fruit that is less fractious domestically than other climate actions. Congress was already willing and able to restore and upgrade a 2016 New Source Performance Standard (NSPS) for new, modified, and reconstructed oil and gas sources, including a proposal by the Environmental Protection Agency (EPA) to require states to develop plans to limit methane emissions from existing oil and gas sources, including eliminating venting (direct release) of associated natural gas from oil wells.
Colorado has already implemented strict regulations on methane requiring oil and gas companies to find and fix methane leaks and to install technologies to limit or prevent emissions at existing operations. Colorado’s successful methane leakage rules, which also cover tanks and performance standards for pipelines in addition to production wells, are expected to serve as a national model. Technologies including sensors, infrared cameras on drones, and satellite imagery are helping the industry identify sources of leaks.
EPA has also initiated stronger rules for landfills, and the US Department of Transportation’s PHMSA (Pipeline and Hazardous Materials Safety Administration) is implementing the bipartisan PIPES Act that aims to reduce and eliminate leakage or ruptures from oil and gas pipelines, underground gas storages, and LNG facilities. Under a final rule set in December 2020, an addition 400,000 miles of onshore gas gathering pipelines would be monitored, providing an annual methane reduction of 20 MMT of CO2 equivalent[1]. The US Department of Interior will also focus on regulating oil and gas operations such as venting and flaring of methane that take place on public lands and in federal offshore waters. The US infrastructure bill includes appropriations of $4.7 billion to cap abandoned oil and gas wells that currently emit methane. Estimates of methane emitted from unplugged abandoned wells range from 64,000 to 404,000 metric tons of methane a year.
The administration’s commitment to methane emissions reductions facilitated an early success kicking off the Glasgow global climate meetings where 80 countries, including the US, signed a pledge to reduce global methane emissions by at least 30 percent from 2020 levels by 2030. The global agreement built on an earlier September 2021 announcement that the US and Europe would lower methane emissions and move to the best available inventory methodologies to quantify methane sources and emissions.
Methane leakage from oil and gas operations is an important source of greenhouse gas emissions in the US. Methane emissions from the energy sector totaled 267.6 million metric tons of CO2 equivalent in 2019, according to EPA statistics. Recent scientific studies indicate that this estimate is likely too low. The US EPA is estimating that new US methane restrictions from the oil and gas sector would reduce 41 million tons of methane emissions from 2023 to 2035 or the equivalent of 920 million metric tons of CO2.
The Biden administration’s commitment to the global methane pledge comes at a time when American oil and gas companies were already under increased pressure from shareholders to tackle methane leakage and other environmental, social, and -governance (ESG)related issues. Addressing methane pollution is also considered critical for natural gas firms to sustain access to third-party finance and end-use markets. It is also important to preserve access to European and Asian liquefied natural gas markets where requirements for certification of low carbon intensity are becoming more prevalent.
Considering tightening federal rules, a larger number of US natural gas producers are starting to take immediate action on methane and will likely already comply with the Biden administration’s tougher standards for methane leaks. EQT Corp., the largest natural gas driller in the United States, has set a target to zero out emissions from its operations and energy use by 2025 and has ended methane leaks from new wells already. Apache Corp., another large US producer, has also taken concrete steps to reduce the carbon intensity of its production, including ending routine flaring.
US midstream natural gas firms are also taking steps to position themselves for the energy transition by “future-proofing” pipeline assets to pivot transmission of low carbon fuels such as renewable natural gas and hydrogen. Several companies are moving forward on pilot projects to gain knowledge and expertise in hydrogen to give them a first-mover advantage in the high growth future business and to position themselves to have verified carbon offsets in carbon markets. Several corridors for hydrogen are already emerging in the United States, including projects that could eventually link Southern California markets with projects in nearby states in Nevada and Utah and projects that build off existing fossil fuel-based hydrogen infrastructure in Houston.
In Utah, Dominion Energy, in partnership with Siemens, Mitsubishi, is working with the city of Los Angeles, to convert a coal-fired power plant to 840 MW natural-gas-fired turbines that will run on a natural gas-hydrogen blend with the potential to switch fully to green hydrogen over time. California utilities Southern California Gas, San Diego Gas and Electric are planning multiple hydrogen blending projects for their natural gas infrastructure throughout their respective territories. US industrial gases company Air Products has also announced it will invest in a $4.5 billion hydrogen plant based on natural gas with carbon sequestration in Louisiana. The plant will have a capacity of 750 million cubic feet per day of blue hydrogen and be operational by 2026.
In another example, energy firm Entergy is currently partnering with Mitsubishi to blend hydrogen into existing plants currently running on natural gas. The firm is also considering an integrated hydrogen project that would produce hydrogen from its 8 GW nuclear fleet via electrolysis in Texas and then convert an underground gas storage facility that sits near a hydrogen pipeline network.
The infrastructure bill that just passed Congress has allocated $8 billion to create four hydrogen hubs in the United States and $1 billion for hydrogen electrolysis research and development. The hydrogen hub program will be overseen by the newly created Office of Clean Energy Demonstrations. The hubs are intended to be located in different geographic regions and at least one hub must produce hydrogen from nuclear energy, one from fossil fuels using carbon sequestration, and one from renewables.
US federal funding for hydrogen infrastructure, together with stricter methane rules, are likely to give momentum to these early adopters from the oil and gas sector and well as private investor-led investors. Clean energy projects have also been the darling of various special purpose acquisition companies (SPACs) with investors committing to over three dozen major clean technology sector deals in 2021 so far of which a handful involve hydrogen firms. But to allocate the funds into hydrogen demonstrations wisely, federal officials should weigh carefully a wide set of evaluation metrics for federal spending, including innovation benefit, the potential for technology scale-up, and geographical equity, rather than prioritizing the most shovel-ready, rapidly deployable proposals for funding. The new Office of Clean Energy Demonstrations should look to projects that will generate new skilled labor and workforce development while at the same time considering requiring diversity standards for the composition of boards of directors for firms applying for federal funds.
For more discussion on policy options for US spending on clean energy demonstration projects, click here to read the latest Climate Policy Lab brief. ∎
Amy Myers Jaffe is the Managing Director at Climate Policy Lab. Kathu Hu is an MIB student and Nishan Kafle is a MALD student at The Fletcher School, Tufts University.
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[1] The White House Office of Domestic Climate Policy, “U.S. Methane Emissions Reduction Action Plan,” November 2021