The Greener Green Gas

[Editor's note: A version of this story appears in the January 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

“We’re really changing the world.” The thought hit Jennifer Stewart, senior vice president of government and regulatory affairs for Southwestern Energy Co. (NYSE: SWN), in Washington, D.C., while presenting at the World Gas Conference last June.

Stewart participated in two panel discussions on the importance and role of methane-emissions mitigation and strategies to improve companies’ environmental footprint. As the fourth-largest U.S. natural gas provider, Southwestern’s clean-burning fuel is being exported worldwide.

But her thought was tempered by realization that “climate benefits are only going to be realized if the industry as a whole addresses methane emissions,” she said.

“It’s not just the right thing to do for the environment. It’s a risk-management approach, a differentiation approach, and it’s also a value approach. Any methane that’s leaked is methane that’s not sold. So it just makes sense from a bottom-line perspective.”

For Southwestern and other producers—as well as midstream and downstream companies—efforts to reduce methane emissions have been long term. Their goal was to reduce their cumulative methane emissions to 1% by 2025.

In November, after a four-year effort, a group of 16 energy companies called Our Nation’s Energy Future (ONE Future) released its first report detailing how it’s fared in achieving its aggressive 1% goal. In 2012, the overall gas industry’s methane intensity—the ratio of net emissions to throughput volumes—was 1.44%, federal data show.

ONE Future participants surpassed their 2025 goal eight years early: The group’s combined methane intensity was 0.55% in 2017.

ONE Future’s numbers are not fanciful or puffery. For years, the group laid the groundwork for its efforts, working with the U.S. Environmental Protection Agency (EPA), the Obama Administration and environmental groups to ensure its results would be seen as legitimate.

Its protocols were developed in partnership with the U.S. Department of Energy and its results independently reviewed by the National Energy Technology Laboratory and by Innovative Environmental studies.

The ONE Future participants collectively account for 10% of U.S. gas production, 32% of gas-transmission miles and 9% of distribution. Other companies, including oil and gas majors, have joined similar groups to increase profitability and to demonstrate their stewardship of the environment.

Efforts by ONE Future have largely gone unnoticed outside of the industry. And investors and consumers are increasingly concerned about using fuel perceived as harmful to the environment.

“What ONE Future’s report validates is that targeted investment in abatement technologies can significantly reduce methane emissions across the natural gas supply chain,” said ONE Future executive director Richard Hyde.

“We are demonstrating that natural gas can indeed meet the growing energy needs of our country in a sustainable manner, and, as our coalition continues to grow, we look forward to helping new members across the country achieve their methane-reduction goals.”

The coalition’s members operate in 11 of 19 U.S. basins and in additional regions of the country. Its members include Antero Resources Corp. (NYSE: AR), Apache Corp. (NYSE: APA), Berkshire Hathaway’s BHE Pipeline Group, BHP Group Plc (NYSE: BHP), Dominion Energy Inc. (NYSE: D), Equinor ASA (NYSE: EQNR), EQT Corp. (NYSE: EQT), Hess Corp. (NYSE: HES), Jonah Energy LLC, Kinder Morgan Inc. (NYSE: KMI), National Grid Plc (NYSE: NGG), Noble Energy Inc. (NYSE: NBL), Southern Co.’s Southern Company Gas business (NYSE: SO), Southwestern Energy, Summit Utilities Inc. and TransCanada Corp. (NYSE: TRP).

Southwestern, a founding member, surpassed its methane leak/loss-rate goal of 0.36% of gross production with a 0.22% methane intensity. Its efforts have proven profitable beyond just sparing gas from escaping, including signing up a utility that wants more “responsibly produced” gas.

‘War Stories’

During a span of about four weeks in 2015, a turbocharged Mooney TLS Bravo M20M flew over the gas operations in Arkansas’ Fayetteville Shale. The purpose was to conduct a series of top-down emissions measurements—and solve a scientific riddle. Readings on the ground and in the air didn’t match.

Colorado State University, the National Oceanic and Atmospheric Administration (NOAA), the Colorado School of Mines and others teamed up for the study. But capturing the precise measurements required E&Ps to open up their sites to scientists.

The sponsors included Southwestern as well as Exxon Mobil Corp. (NYSE: XOM) subsidiary XTO Energy Inc., Equinor, Chevron Corp. (NYSE: CVX) and the American Gas Association.

The genesis of ONE Future began with Southwestern setting a goal of achieving methane leakage below 1%, Stewart said. Initially, seven other companies joined. To make it work required cooperation among all the companies, as well as the EPA, the White House, universities and researchers, and environmental groups.

ONE Future participants have invested in reducing emissions since 2014, upgrading and replacing pipeline infrastructure as well as actively seeking and repairing system leaks.

Southwestern has gone to great lengths to create an engineering philosophy in which it tries to build facilities and use equipment that loses as little methane as possible. “As much as we can, we ‘design out’ the loss of methane,” said Clay Murral, who oversees Southwestern’s air-quality program.

The coalition advocated for technologies that complied with—but weren’t mandated by—the state or federal level. For the industry operators, emitting less means increased profitability. But the organization worked out differences with EPA-approved reporting protocols to demonstrate “credible and measurable results,” ONE Future reported.

As a group, participants also learned from one another. “One of the benefits of having a coalition like this is you’re able to share war stories, so to speak, and best practices,” Hyde said.

“As we started talking through this, we found additional ways that companies could deploy technologies or use an existing technology maybe in a more cost-effective way.”

ONE Future pushed a policy framework that incorporated science-based performance targets, giving operators across the value chain the flexibility to deploy their capital and resources as they saw fit.

Capitalist enterprises need goals, not processes. ONE Future wanted outcome-based measures “rather than a one-size-fits-all process for every producer, pipeline company or gathering company across the U.S., no matter the size or geography,” Stewart said.

Southwestern sees a responsibility to mitigate venting methane into the atmosphere, she said. The role of natural gas as a low-carbon fuel could be offset by uncontrolled methane emissions. But it also is cost-effective.

“You can’t look at one side of the equation,” she said. “You have to look at both sides.”

And while environmental stewardship is important to the company, its efforts were not a reaction to outside activists or other pressures. “It’s not a defensive posture. It’s more of a proactive posture,” she said.

“We recognize that natural gas is a low-carbon fuel, clearly. It’s a much cleaner fuel than coal—or oil, for that matter. But it’s primarily methane, which we know is a greenhouse gas due to its heat-trapping ability.”

Before ONE Future, Southwestern already had a robust leak-detection and -repair program, Murral said. “At that stage in the game it was a voluntary program, which we continue to this day,” he said. “We survey all of our facilities, regardless of regulatory requirements.”

Southwestern’s efforts to work with regulators have given it flexibility to test new technologies and methods as they were developed, providing feedback to developers even when some ideas weren’t accepted by existing regulations.

The company’s partnership with Colorado State University’s Methane Emissions Technology Evaluation Center has also enabled research space to conduct studies in a semi-controlled environment that mimics actual facilities.

“CSU is able to operate this facility, coordinate studies and have industry, technology companies and regulatory agencies test existing and emerging technologies,” Murral said. “It’s been an extremely successful operation that they have there.”

“They narrowed down where that difference came from, and it had to do with timing of the measurements,” Murral said. “It was a seminal study that has basically solved this conundrum that had been going on for a while between these two different methodologies.

“And it validated them both. They’re both correct and quite accurate. It’s just the timing—relative to activity—and what can be deduced from each that provides the best sort of answer.”

Another study is evaluating the efficacy of leak detection and repair conducted with optical gas-imaging and the human factor. “It had been assumed for the longest time that [optical technology] would reveal 100% of the leaks,” Murral said.

“What they’re finding is that’s not truly the case. What this research does is provide a basis upon which emerging technologies can be evaluated in the leak-detection realm that I think is going to lead us to that step-change, the next major improvement in that field.”

Under Pressure

In October 2017, scientists at Stockholm University warned of “strong emitters” in the Baltic Sea that were responsible for an estimated 9.5% of the area’s greenhouse-gas emissions. The culprits: seaworms and Limecola balthica, the latter better known at dinner tables as the clam.

The macrofauna help produce an unhealthy share of gas—the worms by disturbing the seabed; the clams, in the usual, digestive way—according to research published in the journal Scientific Reports.

While not all sources of emission may be as clear cut, industry-led groups have banded together, as with ONE Future, to plug the leaks. The motives vary. CEOs at major oil companies have thrown support behind addressing climate change; others feel more pressing concerns from investors and activists.

“The investor community has really pushed for how companies are going to behave in a sustainable way with a lot of issues—methane being one of those,” ONE Future’s Hyde said.

In 2018, investor groups, including As You Sow, an environmental-protection and -conservation nonprofit, led a charge against several companies in an attempt to force oil and gas producers to disclose more about their methane emissions, policies and procurement.

Along with other groups, Anadarko Petroleum Corp. (NYSE: APC), Chevron, Devon Energy Corp. (NYSE: DVN), Dominion, Kinder Morgan, Energen Corp., EQT and Range Resources Corp. (NYSE: RRC) all faced shareholder initiatives. Miller/Howard Investments Inc. filed several measures, as well, though they were withdrawn after Devon, EQT, Energen and Anadarko agreed to improve disclosure.

In May, Range held a vote on the matter after a measure was introduced for the E&P’s annual meeting. Shareholders narrowly defeated the measure, coming within one-half of a percent of approving it.

Other companies are voluntarily moving to share more with the public for multiple reasons. The American Petroleum Institute’s The Environmental Partnership and the voluntary, CEO-led Oil and Gas Climate Initiative (OGCI) have pledged to reduce emissions.

The OGCI members represent about 30% of global oil and gas production. Royal Dutch Shell Plc (NYSE: RDS.A), an OGCI member, has targeted methane-emission intensity below 0.2% by 2025. The target covers all oil and gas assets Shell operates.

Occidental Petroleum Corp. (NYSE: OXY) is a member of both organizations. “Industry innovation and collaboration have a critical role to play in addressing climate change,” said Richard Jackson, Occidental senior vice president, operations support.

“The OGCI can be a catalyst for change and Occidental will be working with the other members to contribute to a collective goal of achieving significant reductions in methane emissions by 2025.”

The OGCI aims to collectively decrease emissions by stepping up the speed and scale of the initiatives individual companies are taking. The details of how that work will progress is still taking shape, but Occidental will look to identify and develop emission-reduction opportunities across the value chain.

“We are still very early in our engagement with OGCI,” Jackson said, “but look forward to transparently sharing emission-reduction techniques and technology.”

Occidental has already joined efforts to be more open about how it’s trying to limit emissions. It voluntarily participates in the EPA’s Natural Gas STAR Program. It was also one of the first companies to join API’s The Environmental Partnership in 2017.

However, it committed to going beyond the partnership’s requirements by saying it would “report our progress in implementing initiatives annually on our website,” Jackson said.

Since 1990, Occidental has implemented a broad range of projects to reduce methane emissions, resulting in preventing 17.2 billion cubic feet reaching the atmosphere through year-end 2016. However, the continued advancement in technology will be key in identifying and quantifying emissions.

“Occidental is advancing carbon capture, utilization and sequestration (CCUS)—with specific focus on CO₂ EOR where we are an industry leader,” Jackson said. “This technology has the potential to help achieve global goals for reducing emissions with the benefits of doing so in a relatively short timeframe.”

A steady advancement in the breadth and sophistication of technology for identifying and quantifying emissions is helping. Occidental uses forward-looking infrared (FLIR) cameras to identify possible emissions leaks on equipment and components, such as pneumatic valves, plunger lift systems, storage tanks, compressors and glycol dehydrators.

OGCI, through its $1-billion Climate Investments fund, is also supporting promising technologies and seeking additional collaboration opportunities. “Looking ahead, scientists are working to advance aerial-survey and satellite techniques from the laboratory to commercial ventures and Occidental is one of the member companies helping to facilitate this process,” Jackson said.

The operator continues to explore other innovation for its processing facilities and infrastructure where it can better consolidate, monitor and proactively manage maintenance while ensuring a high operating efficiency and enhanced environmental performance.

Plans are to unveil its new emissions targets in 2019. The company’s direct-emissions-reduction plan will include a 2030 emissions target with shorter-term milestones and actions it will take at the asset level.

A subsidiary, Oxy Low Carbon Ventures LLC (OLCV), is capitalizing on its parent’s EOR leadership by developing CCUS projects that source man-made CO₂. The company is also promoting other complementary innovative technologies that help advance its business while reducing emissions.

In November, OLCV announced an investment agreement, subject to regulatory approval, in NET Power LLC’s development of a low-cost gas/electric power system that generates no atmospheric emissions. The power system captures all CO₂ and produces no nitrogen oxide (NOx).

The Progressives

The initial eight companies that formed ONE Future in 2014—and the members that have since joined—are what Hyde calls “progressive” in that they “want to find solutions as opposed to the ‘just say no’ crowd.”

The companies, including Southern Company Gas, where Hyde was formerly in a government-relations role, came to the conclusion that methane emissions were an issue—though, from a climate-change perspective, “whether it’s man-made or not was not part of the argument.”

“The realization was you had methane emissions and, if you’re a producer, that’s basically just money going up in the air,” he said. “It makes good business sense to reduce your emissions.”

In competition, natural gas become a formidable player when methane intensity across the value chain falls below 1.3%, particularly when going head to head with coal, Hyde said.

ONE Future’s founders also saw the Obama Administration eyeing regulations of methane “under the traditional command-and-control type regulations,” he said. Instead, the companies came together to design a toolbox of technologies that could fit differing needs—“because not everybody is created equal,” Hyde said.

Within the industry, few thought that the EPA’s approach would work because it didn’t account for how each company’s operations varied. In 2014 ONE Future engaged directly with the White House and EPA, working with them “to support a voluntary, performance-based program,” he said.

The coalition also worked to get federal approval of ONE Future’s estimation methods for methane. “That was the result of Southwestern Energy leadership going to the White House on numerous occasions under President Obama’s administration and working with the EPA,” Murral said.

With the ground rules established, the companies could then implement their reduction strategies. Direct engagement also gave companies a way to minimize redundancies systemic in the EPA’s command-and-control process. ONE Future believes each member is best positioned to determine the most effective ways to reduce methane emissions.

“As we looked at those three stakeholder groups-employees, investors and customers—there’s a huge motivation to say ‘We need to address methane emissions and be intentional about how we’re addressing and reducing those emissions,’” Hyde said.

Stewart sees independent producers as the first-movers in methane-emission reduction, though, in some cases, reluctant ones. “Companies put time, effort and dollars into creating a framework for tamping down leaks,” she said.

Company leaders, to varying degrees, were skeptical about investing capital in aggressive emission-reductions goals. The balance-sheet implications weren’t promising either.

“Using ONE Future’s actual data, the cost of reducing emissions per Mcf (thousand cubic feet) was $3.35 in 2016,” Hyde said. “The price of natural gas, at less than $3 per Mcf, meant deficit-spending.”

From a safety perspective, less leakage meant less danger to employees and neighborhoods. Investors were interested in how to maximize profit for a business that lives and dies on margins.

”ONE Future also had to get nongovernmental organizations (NGOs) on board—or at least to the point of mutual respect,” Stewart said.

ONE Future member Kinder Morgan Inc. similarly raised a few eyebrows internally. However, Kinder Morgan already quietly ran a methane-emissions plan before it was brought into the open following its $21.1 billion acquisition of El Paso Corp., said Tom Hutchins, vice president of environmental health and safety for Kinder Morgan Natural Gas Pipelines.

“There were some within the organization that I would say were surprised,” said Hutchins, former chairman of The INGAA Foundation Inc., a nonprofit that provides support to pipeline operators. “We were pretty quiet, staying under the radar screen.”

However, significant opposition because of methane emissions led the company to join ONE Future.

As for Hyde, his involvement in ONE Future began while he worked for AGL Resources Inc., which was later purchased by Southern Co. AGL Resources’ corporate culture had fully backed methane reduction.

Southern is an electricity provider and producer and there was a question about the efforts because the company uses coal as a fuel source, he said. However, Southern underwent a culture shift, with management eventually becoming a “huge proponent” of curbing emissions. Ultimately the calculations added other elements.

“When it comes to employee safety and customers, you can’t put a price on that,” he said. “Some within the industry generally assumed that the cost of reducing emissions didn’t make economic sense and, a few years ago, I may have agreed. But ONE Future members have actually demonstrated that it does make good business sense.”

Stewart said its methods are now paying benefits. “It’s no longer a novel way of doing things. Now it’s just embedded in how we do business.”

Green And Gas

In September Southwestern’s emissions efforts paid off in an unexpected way, thanks largely to how consumers on the East Coast think about energy. The company entered a contract to sell gas to New Jersey Resources Corp. (NYSE: NJR), a distribution company serving more than a half-million customers throughout the state.

The utility agreed to pay a premium for gas to local indices because it is sourced from wells that are independently certified as responsibly produced under measures that include methane-emission intensity, wellbore integrity and water use.

“That premium is derived from Southwestern’s reputation and operational excellence,” she said, Stewart said. “You’re starting to see our approach to methane emissions manifest that way. We have a couple of other utilities that are talking to us about similar contracts.”

Even some that aren’t willing to pay a premium are talking to the company about how it’s reducing emissions, using water or wellbore integrity. “You’re seeing the demand side—especially with utilities that are accountable regarding sustainability to the citizens they serve—becoming much more demanding on methane-intensity-reduction efforts,” she said.

Early success by ONE Future doesn’t mean member companies will be coasting from now until 2025. Stewart said Southwestern was “beyond proud” of its early success.

“It was celebratory,” she said. “We need more people to get onboard.”

The industry has a long road ahead in getting other operators to participate, while also countering more-outspoken environmental groups that have urged institutional investors to divest from oil and gas holdings.

“To do that,” Stewart said, “requires hammering home the data: The U.S. CO2 levels are at 1990 levels.”

Energy-related CO₂ emissions fell by 42 million tonnes in 2017 and were 1% lower than in 2016. “Methane is a greenhouse gas, so the industry must focus on reducing fugitive emissions.

“But we certainly can’t ignore the climate benefits of the increased use of clean-burning natural gas for power generation,” she said.

At Kinder Morgan, the company has worked for more than 20 years to reduce emissions as part of the EPA’s Natural Gas Star program. Among a multitude of steps, the company has replaced high-bleed pneumatic devices with low- or no-bleed pneumatic devices, installed turbines or electric compression instead of reciprocating engines, and conducted leak surveys to identify and fix leaks.

With more than 84,000 miles of gas pipelines, its goal was to reduce emissions intensity to 0.3% or less. The results from the first ONE Future report show the transmission and storage sector, where Kinder Morgan resides, has already surpassed its goal, with its methane intensity in 2017 at just 0.12%.

“Having already met the goal, we will not rest on our laurels,” Kinder Morgan’s Hutchins said. “We will continue to look for technologies and best practices that will allow us to continue managing and minimizing methane emissions.”

The company wants to take part in reducing emissions because it manages the methane molecule longer than any other segment of the natural gas value chain, he said. Other companies are also showing a growing commitment to emissions practice that is not just good for business but also for the environment.

“I hear that from the folks who are glad we’re doing this: ‘It’s something I really want to do,’” he said.

At Hart Energy’s Executive Oil Conference in Midland, Texas, this fall, Shell Oil Co. incoming president Gretchen Watkins said Shell is no longer installing flares at new-well production pads in the Permian Basin.

The company has phased out greenhouse-intensive technology, such as high-bleed pneumatically operated controllers, and is also using solar energy to power its wellpads. It’s also part of the OGCI initiative.

“I trust, as an industry, we recognize that the drive to reduce greenhouse-gas emissions has both social and material value,” Watkins said.

Darren Barbee can be reached at dbarbee@hartenergy.com.