Joint Ventures Mask Global Oil & Gas Emissions Risk

(WASHINGTON, D.C.) The world’s major oil and gas companies face a significant emissions risk within the industry’s vast web of joint ventures, according to a new analysis by Environmental Defense Fund. By not incorporating methane emitted by facilities they own but do not operate into their commitments to reduce global methane emissions, companies are leaving a crucial opportunity to reduce potent greenhouse gas emissions on the table.

The EDF paper, The Next Frontier: Managing Methane Risk from Non-Operated Assets, analyzes the so-called ‘non-operated assets’ (NOAs) of the eight publicly traded companies participating in the Oil & Gas Climate Initiative – BP, Chevron, Eni, ExxonMobil, Occidental, Repsol, Shell and Total. Oil and gas produced just by the eight companies’ NOAs accounts for fully one-fifth of world production.

“Non-operated assets account for up to two-thirds of the companies’ production, but they’re not included in most of their pledges to reduce methane emissions,” said the report’s lead author Isabel Mogstad, a methane mitigation expert with EDF+Business and former management consultant at Schlumberger. “Expanding those commitments to include the assets they own but do not operate would increase the coverage of their commitments by three- to five-fold.”

For example, BP operated 1.3 billion barrels of oil equivalent (BOE) in 2017, but was a partner on assets producing over 5.5 billion BOE – almost 10 percent of global production. Shell operated 2.5 percent of global production, but partnered on assets representing almost eight percent. ExxonMobil operated three percent of global production, but was a partner on nine percent of global production.

Companies in the Spotlight

Industry commitments to reduce methane emissions have accelerated among both publicly traded and state-owned producers. Earlier this year, for example, BP, ExxonMobil and Shell announced individual methane targets. In September, all 13 members of the Oil and Gas Climate Initiative pledged to reduce collective methane emissions from oil and gas operations to 0.25% of production by 2025.

The new EDF analysis is particularly important as industry, investors and regulators step up focus on methane, a potent greenhouse gas responsible for a quarter of the warming we experience today. As stakeholders scrutinize carbon footprints, a growing fleet of satellites (including EDF’s MethaneSAT) is bringing new visibility into higher emitting projects and geographies.

“Methane itself is invisible, but new technologies are making it a lot easier to see where it’s coming from,” said Mogstad. “Companies that fail to account for NOA emissions in their own reporting may find that stakeholders will soon have the means to fill in the blanks themselves.”

Unique Leverage

72 percent of NOA production by OGCI members comes from assets operated by non-OGCI companies. These include large national oil companies like Qatar Petroleum, Abu Dhabi National Oil Company, and Sonatrach. Non-operating companies may be able to influence their joint venture partners in ways others may not. The 10 largest NOAs account for a quarter of the companies’ total NOA production, which means big benefits could be achieved by focusing on a relatively small number of assets.

As oil and gas companies design and implement strategies to manage methane emissions from non-operated assets, EDF recommends three initial steps:

• Identify key partners. A significant portion of non-operated production owned by the eight companies studied is concentrated among a few key assets and partners. These companies can achieve significant methane reductions by focusing on management practices of these key assets and partners.

• Leverage joint ventures. Governance structures already exist for Health, Safety & Environment (HSE) management through joint venture agreements. If harnessed appropriately with the help of joint venture experts, they can be effective channels for spreading methane mitigation strategy to non-operated assets.

• Gather data and information. Managing methane risk from non-operated assets requires reliable information regarding emissions, and concrete strategies to monitor and reduce them. Companies aiming to reduce emissions from non-operated assets can start by assessing data availability and gaps.

While there are strict accounting requirements for financial reporting on joint ventures, standardization has not yet crossed over to HSE reporting, esp­­ecially for methane. For example, only two of the eight companies analyzed, BP and ExxonMobil, report methane emissions associated with all of their holdings, rather than just company-operated assets.

Capitalizing on this opportunity is a critical challenge. Unless industry’s overall methane emissions are minimized, the role of natural gas in a low-carbon economy is at risk. According to the International Energy Agency, “the role that natural gas can play in the future of global energy is inextricably linked to its ability to help address environmental problems,” including air, water and climate pollution.