IEEJ：May 2022© IEEJ2022

Reducing Methane Emissions From
Global Gas
Institute of Energy Economics, JapanMay 25, 2022
Ben Cahill
Senior Fellow, Energy Security and Climate Change ProgramIEEJ：May 2022© IEEJ2022

Why methane matters

NOCs and the Energy TransitionIEEJ：May 2022© IEEJ2022

Invisible foe
Methane is odorless and colorless. Finding leaks requires special equipmentand monitoring.

Image source: New York Times, “It’s a Vast, Invisible Climate Menace. We Made it Visible,”https://www.nytimes.com/interactive/2019/12/12/climate/texas-methane-super-emitters.html.

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Technology and markets enabling progress
Oil and gas methane emissions have been
underestimated for many years. “Bottomup” estimates fail to account for “superemitter” wells and leave aside smaller or
marginal wells.
New methane detection technologies areemerging fast:• Ground-based monitoring• Airplane and drone surveys: can cover wideareas• Satellite technology: enables wide sweeps
There is a big push from regulators in the
United States and the European Union on
cutting methane emissions.
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Image source: https://www.bbc.com/news/science-environment60203683. Data from Carbom Mapper.

IEEJ：May 2022© IEEJ2022

How will the methane push affect global LNG?
Significant progress on methane last year:• Global Methane Pledge: 112 countries• Proposed U.S. Environmental Protection
Agency (EPA) methane standards• Proposed European Union (EU) methanelegislation

What does this mean for global LNG?
• Will demand develop for cleaner gas?
• What momentum beyond the U.S. and EU?

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Image source: Kevin Lamarque, Reuters.
https://www.pbs.org/newshour/science/the-new-global-methane-pledgecan-buy-time-while-the-world-drastically-reduces-fossil-fuel-use.

IEEJ：May 2022© IEEJ2022

LNG players are a diverse bunch
State gas and power utilities, NOCs, supermajors, andtrading houses have different ownership structures, market
roles, and stakeholders.
Their climate and methane commitments are highly variable.

NOCs and the Energy TransitionIEEJ：May 2022© IEEJ2022

CSIS research: survey of global LNG players
From November 2021 to March 2022, CSIS interviewed
companies, regulatory agencies and financial institutions, toask how much they are focusing on methane issues.
3

U.S. LNG exporters

3Japanese trading houses

2

Large Japanese gas buyers

2

Commodity trading houses

2Supermajors

1

Australian LNG exporter

1SE Asian LNG exporter

3

SE Asian government agencies

2

Leading LNG consultancies

2

Price reporting agencies

1 the Energy
Exportcredit agencies
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Key themes on methane and global LNG
Emissions intensity is not yet a bigfactor.
Companies focusing on their own
operational emissions.
Asian buyers: coal to gas switching isalready a climate win.
Divided views on “carbon-neutral” LNG:
solution or fad?
Bigger long-term threats to LNG thanCH4 intensity.

Financial backers not yet pushing hard.
NOCs and the Energy Transition“Market demand is notthere yet for differentiatedgas. Price and commercial
terms are paramount.”– LNG marketer“Most investors still
believe that LNG provides
net climate benefits to theworld and will for a longtime to come.”– U.S. LNG exporterIEEJ：May 2022© IEEJ2022

Key themes on methane and global LNG
For Asian utilities, there are bigger
levers to cut methane than LNG.
Some are looking to hydrogen, notcleaner gas, to meet net-zero goals.
Impact of the Global Methane Pledge isuncertain.
Data providers have an important role toplay
Familiarity with methane detection
technology varies

Cleaner gas is a big potential advantage
for U.S. LNG.
NOCs and the Energy Transition“Carbon-neutral LNG andlower-emissions LNG arehappening in spite ofgovernments, notbecause of government
drivers.”– LNG consultant“It is necessary toimprove the detection,accuracy, and cost [ofmethane detection
technology] to make theseservices moreaccessible.”– Japanese LNG buyer

IEEJ：May 2022© IEEJ2022

Downstream emissions are key challenge in Asia

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How to cut methane emissions from global LNG
Each individual player in global LNG—seller, buyer, bank, or regulator—
interacts with many others.

To make progress, we should take an ecosystem approach and focus on theinteractions of these players and their influence in each country or region.
Upstreamproducers• Better monitoring, reporting, and verification (MRV)• Stronger leak detection and repair (LDAR)

LNGexporters• Offer differentiated gas and invest in life-cycle emissions analysis• Tollers: press upstream producers for better emissions data

National oilcompanies• As buyers, ask for emissions cargo tags and better emissions accounting• As producers, apply better LDAR

Gas and power
utilities
Regulators• Exercise market power: prioritize low-emissions gas• Fix leaks at storage tanks and pipelines• Enact stringent rules for upstream producers

Banks and• Commercial banks: prioritize emissions intensity as a lending risk factor
export credit• ECAs: examine methane emissions intensity in assessing projects
agencies (ECAs)

NOCs and the Energy TransitionIEEJ：May 2022© IEEJ2022

Risk factors in commercial LNG decisions
Buyers might prefer gas with lower methane intensity—but thisis part of a complicated matrix of risk factors they consider
over a 15-year plus time horizon for projects.

Will gas
supply be
reliable?

Are thesponsors
credible andcommitted?

Is there a
supportiveecosystem?

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Is therestakeholder
buy-in?

Is the projectcommerciallyviable?

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Where might methane intensity fit in?
Buyers and sellers negotiate over many contract parameters.
• Volume• Price• Duration• Delivery terms• Destination flexibility and other commercial terms
Typical gas sale and purchase (SPA) agreements cover gas quality, but as
an operational issue—for example to account for extra processing to strip
out ethane and butane. This can add or subtract value.
Methane intensity could become one of the criteria that buyers
consider in decisions about what gas to buy and under what terms. It
could become a negotiable term between buyers and sellers, if cleaner
gas fetches a premium.

NOCs and the Energy TransitionIEEJ：May 2022© IEEJ2022

Takeaways and points for discussion• Policy drivers and market drivers for differentiated (cleaner)gas may not spread from one country/region to another.

• Market innovations in gas and LNG take time (e.g.,
destination flexibility, pricing).

• LNG project sponsors, buyers, and lenders consider an array ofrisk factors—which over time could include methane intensity.

• Gas quality is an operational issue, methane intensity is not.
• LNG lenders (public and private) have varying concerns oversustainability and emissions intensity.

• The gas and LNG ecosystem is diverse. The levers of influenceon state utilities, NOCs, financial institutions, etc. will vary.

NOCs and the Energy Transition

Contact: report@tky.ieej.or.jp