High gas prices, energy security concerns make capturing fugitive and flared gas profitable
Energize Weekly, December 21, 2022
The combination of higher natural gas prices and geopolitical concerns about energy security is making the capture and commercialization of fugitive and flared emissions economically viable around the world, according to a report from S&P Global.
More than 70 percent of the 112 billion cubic meters (bcm) of natural gas flared or vented worldwide – about 80 bcm – could be economically captured, the data and analytics firm calculated.
“There are well established technologies to capture and commercialize vented, fugitive, and flared gas. These technologies are widely economic under the current gas price environment,” the S&P report, done in conjunction with the non-profit Environmental Defense Fund, said.
Economic gas capture projects in the target regions could cover almost 60 percent of the European Union and United Kingdom natural gas imports of 141 bcm from Russia in 2021. Russia has largely stopped exports to the West.
“With natural gas prices at historic levels and energy security returning as a global priority, accelerating effort to capture and commercialize vented, fugitive and flared methane is a no-regret approach that supports climate imperatives and energy security,” S&P Global said.
S&P Global analyzed emission losses and prospects for capture projects for six regions: North America, North Africa, Central Asia-China, Nigeria, Eastern Mediterranean, and Australia-Southeast Asia.
The largest opportunities for gas captures come in North America where there is 52 bcm flared or released, followed by Libya and Algeria with 21 bcm, and Central Asia-China with 16 bcm. The other regions account for 23 bcm.
“The current gas price environment has dramatically improved gas capture project economics compared with pre-war price expectations,” the S&P Global report said.
Since the Russian invasion, the spot price of Henry Hub gas has shot to as high as $7.20 a million British thermal units this December from $4.68 in February before the start of the war. This, in turn, has increased the 10-year revenue estimate for gas capture projects by 140 percent to 240 percent.
“Gas prices across the globe are at historic levels and are expected to stay elevated above pre-war estimates through 2030,” the report said.
Despite the promising economics, S&P Global cited a range of challenges each region faces in developing methane capture projects.
The report identifies four main barriers: adequate export capacity, financial and commercial limitations, capital availability, and security.
How this plays out in different regions varies, although adequate investment is a theme across the board. For example, in North America, Pemex, Mexico’s state-owned oil company, and smaller operators in the U.S. and Canada face challenges in accessing capital for projects.
Similarly, the national oil companies that dominate production in North Africa face challenges with capital availability to implement projects. “Instability, particularly in Libya, makes long-term projects such as new gas infrastructure difficult to finance and complete,” S&P Global said.
In the Central Asia-China region, strict domestic prices controls are a barrier to methane emission reduction projects that would be economic at market prices. Again, a lack of capital availability, in part due to limited international presence, hampers the ability to implement projects.
In Nigeria, the gas infrastructure is insufficient and unreliable due to security threats, which in turn undermines investment.
International oil companies are divesting from Nigeria, and local operators with limited capabilities are taking over production. In the Australia-Southeast Asia region, there is also a large number of small operators with limited capital.
S&P Global developed “prioritized pathways” for each of the six target regions to drive near-term efforts for methane capture.
In North America, bringing third-party developers in to capture and market gas would provide more capital. Government programs to provide loans and guarantees for projects could also be developed.
In both North Africa and Nigeria – pending infrastructure and pipeline improvements – captured methane could be used locally or exported as compressed natural gas.
“North Africa and Nigeria face the most significant barriers, but spare export capacity provides a lucrative opportunity to monetize captured gas,” the report said.
In the Australia-Southeast Asia region, capture projects could be funded by tapping liquefied natural gas (LNG) operators and buyers to raise capital for expanded infrastructure that increase the supply of LNG.
Implementing the prioritized pathways could release, the report concludes, about 40 bcm of natural gas – equal to 28 percent of the European Union 2021 Russian imports – into the global market in two to three years through economically viable projects.
