What is needed to improve methane abatement in upstream oil and gas?

According to McKinsey’ report titled The true cost of methane abatement: A crucial step in oil and gas decarbonization, since 2021, when many oil and gas players committed to the Global Methane Pledge (GMP), the call to cut methane emissions has only grown stronger, with mounting regulatory, corporate and social pressure to further reduce methane emissions. At COP28 in December 2023, organisations representing up to 50% of global oil production signed the Oil & Gas Decarbonization Charter (OGDC), targeting ‘near-zero methane emissions’ and ‘zero routine flaring’ by 2030.  

These two commitments alone could reduce emissions by 0.6 GtCO2e per year by 2030, translating to a 15% reduction in upstream oil and gas emissions and a 1% decline in global GHG emissions, suggests McKinsey.  

The Middle East, where a large proportion of players have made abatement commitments, and Africa and Latin America, where methane emissions represent a large proportion of upstream emissions, show the largest abatement potential, it adds.

Meanwhile, players responsible for an additional 10–15% of oil and gas production have ‘announced their intent to reduce methane but haven’t yet translated this into actionable plans or made their plans public’, continues McKinsey. It believes ‘an additional push to do so may come from several recent global methane-regulating policies, including the EU Methane Directive, which standardises oil and gas operations in the European Union and sets stringent methane emission intensity targets for oil and gas products imported into the European Union’.

Furthermore, beyond existing commitments to reduce emissions by 0.6 GtCO2e per year by 2030, there is potential to eliminate an additional 1.4 GtCO2e with cost-neutral or low-cost solutions such as maximised operational efficiency or leaked gas recovery, addressing another 35% of upstream methane emissions, claims McKinsey. This combined total of 2 GtCO2e per year could halve the carbon footprint of the upstream oil and gas sector, and cut total global GHG emissions by up to 4%, it says.  

‘No other sector could cut emissions by this much solely by addressing its own operational inefficiencies,’ it adds.

Existing solutions

Current technologies can abate 80–90% of methane leaks, a major emissions source in the upstream oil and gas sector, according to the report. These solutions include boosting operational excellence at extraction sites by increasing the energy efficiency of processes, monitoring and capturing methane venting, reducing flaring, electrifying extraction equipment, and capturing and storing combustion gases or directly vented CO2.  

Many of these approaches are already available and proven at scale, making them relatively easy to adopt. Implementation costs are expected to decrease further by 2030, promising financial benefits as well as environmental gains, forecasts McKinsey.

Investment challenges

However, achieving methane abatement targets outlined above will require significant investment, estimated at approximately $200bn. This includes $120bn for extensive infrastructure such as natural gas pipelines and transportation facilities, and $80bn for core abatement technologies, suggests the market analyst.  

The large capital requirement will need innovative financing mechanisms and close cooperation among international majors, national oil companies and smaller local players, while targeted investment funds and regulatory schemes could unlock additional abatement potential, it adds.