What’s happening? Despite the oil and gas industry’s pledges to address leaking infrastructure, methane emissions from the energy sector in 2023 reached near-record highs, according to the International Energy Agency (IEA). Methane emissions have been largely stable since 2019, with a slight increase in 2023 compared to the previous year. However, the IEA noted a 50% increase in large methane leaks from fossil fuel infrastructure in 2023 compared to 2022. Despite international commitments to significantly reduce methane emissions, there are discrepancies between reported and actual emissions from companies and national governments. (Reuters)

Why does this matter? The IEA’s annual Global Methane Tracker estimates that the production and use of fossil fuels generated close to 120 million tonnes (Mt) of methane emissions in 2023. Methane is responsible for between 20-30% of the rise in global temperatures since the Industrial Revolution, meaning that rapid reductions in methane emissions are vital to limiting global warming, improving air quality, and achieving international climate goals, such as the Paris Agreements, and countries’ individual nationally determined contributions.  

Efficiency gains – The fossil fuel industry and national governments have made some progress in reducing the methane-emitting intensity of fossil fuel production. Methane emissions are roughly equivalent to 2019 levels, but fossil fuel demand has grown, suggesting that oil, gas and coal production has become less methane intensive. However, efficiency figures fluctuate wildly between countries: the least efficient operations, such as those in Turkmenistan and Venezuela, are up to 100 times more polluting than countries that have adopted best practices for limiting methane leaks, including Norway. Furthermore, the volume of methane produced is heavily concentrated among the top 10 producers, with 80 Mt of the 120 Mt total coming from these methane-heavy economies, including the US, China, and Russia.

Corporate action – In response to growing awareness of the global warming-inducing properties of methane, there has been concerted action from governments and various industrial groups to rein in methane emissions. At COP28, fifty oil companies responsible for almost half of global production committed to achieving near-zero methane emissions and ending routine flaring by 2030. Additionally, six major dairy companies, including Danone, Nestle, and Kraft Heinz, formed the Dairy Methane Action Alliance, a global initiative aiming to address methane emissions from livestock by reporting methane emissions from mid-2024.

Government action – Also at COP28, the US unveiled new regulations intended to reduce methane emissions from its domestic oil and gas industry by 80% in the next 15 years, equivalent to a decrease of 58 million tonnes by 2038. Improved regulatory standards in the US are required as the US fossil fuel industry is reportedly leaking three times more methane than government data suggests, according to a study published in Nature on 13 March. In November 2023, the EU also agreed to reduce methane emissions from its energy sector. The agreement will ban routine venting and flaring and mandate stricter reporting requirements. The myriad commitments, pledges, and contributions will not engender any material reduction in methane levels in the short term, meaning emissions are more likely to drop in the medium to long term.

Fossil fuel operational change – Although the industry initiatives agreed at COP28 are voluntary, the EU and US regulations will be legally binding, forcing fossil fuel firms to alter their operations in these jurisdictions. However, under the IEA’s Net-Zero Emissions (NZE) scenario for the energy sector reaching net-zero emissions by 2050, fossil fuel methane emissions must fall 75% by 2030. To achieve this 75% reduction, the IEA estimates that $170bn in spending is required – less than 5% of the fossil fuels industry’s income in 2023, suggesting the financial burden to comply with regulations will not be particularly high. Additionally, the IEA estimates that methane emissions could fall 40% at no extra net cost via the implementation of widely used technologies.

Methane monitoring technology – Significant developments in methane-monitoring technology should also aid global efforts to drive down emissions, posing a technology opportunity for investors. For example, the advent of methane-detecting satellites, including the MethaneSAT, which launched with support from Google and the Environmental Defense Fund, promises better detection of enormous methane leaks, such as those seen in Turkmenistan and the months-long leak in Kazakhstan.

COP29 – Looking forward, methane is expected to be a key point of discussion at COP29, hosted by fossil-fuel-dependent Azerbaijan.