CA2SIG Research Project Description: 

Break-even analysis of the methane emission reduction technologies in the oil and gas industry

Research Project Leads

Bertrand Rioux: bertrand@tworavens.consulting

Sherwood Moore: woodymo@gmail.com

Research Background

In the CA2SIG one-pager, we detail our mission to leverage DLT and related technologies to create a more efficient marketplace for environmental data. By making the emissions data of company supply chains accessible, costless and trusted we can enable capital market forces, government regulation and consumer demand to incentivize corporations to decarbonize their supply chains. Learn more here.

Finding innovative ways to help incentivize corporations to decarbonize their supply chains is critical to solving the challenge of climate change.  The climate crisis is creating new market conditions that are affecting cost, demand, and access to capital for corporations.  These market forces, combined together, can help corporations overcome the risk of innovation and make supply chain decarbonization core to every corporate strategy.

• Emerging Government Regulation is beginning to introduce a new cost of carbon to corporations for the carbon they emit.
• Consumer Demand is seeking lower carbon goods and impacting corporate revenue
• Green Finance is rewarding corporations with preferred interest rates to corporations that can prove they are reducing their carbon footprint

The CA2SIG Lab has developed an award winning prototype for reducing methane emissions using supply chain tokens. It took first place in an accelerator for the IBM Call for Code Challenge and also the Hyperledger Challenge.  This research project has been designed to inform our go-to-market strategy. It supports efforts by the oil and gas industry to reduce methane emissions as a waste product, while optimizing its use in regional and international natural gas markets.

This research project will support the development and go-to-market strategy for a Platform as a Service (PaaS) business to support the verification of methane emission data by the oil and gas industry. The platform is designed to address existing complexities in the management and processing of emissions data. The objective is to reduce transaction costs for the measurement economy of methane emission data and accelerate the adoption of decarbonization technologies. 

The research will focus on the current market reality (shown below) of methane flaring/leakage mitigation technologies and how a more efficient marketplace for environmental data can shift the cost curve to drive increased adoption of methane reduction technologies. It is estimated that more than 266 billion cubic meters of natural gas is vented and leaked from the oil and gas supply chain annually with a multi-billion dollar revenue potential.

Source: IEA Global Methane Tracker (2022)

Research Objective: Break-even analysis of methane emissions abatement technologies 

This research will provide a break-even analysis of the adoption of methane emission reduction technologies made possible by a more efficient emission certification marketplace. The objective is to identify specific methane abatement solutions and relevant stakeholders to target within our solution. Also to help customize tools provided to help stakeholders identify and value opportunities for methane emission reduction. 

The break even analysis will investigate methane emission reduction options in one or more regions and resource types (onshore/offshore, conventional/unconventional).  It should incorporate sensitivity analysis to show how changing market conditions will impact the incentives for decarbonization in the oil and gas industry, such carbon pricing, sustainable finance incentives, voluntary carbon markets, discussed in more detail below.

We have identified four stakeholder groups described below. A list of examples from each group are provided in this google spreadsheet:

• Oil and gas producers and service providers of methane abatement technologies
• Data providers: companies offering independent emission data collection and analysis services for oil and gas producers.
• Onsight services instrument and measurement services (e.g., Project Canary).
• External/ remote sensing : satellite remote sensing, aircraft, drones ...
• Verification agencies: 
• Auditors that examine emission reports from oil and gas producers
• Verifiers that issue prove record that emission report accounts are true
• Green and Sustainable Financial Markets seeking to allocate capital to projects that with emission reduction as a measurement performance indicator. 

The project will set up three or four prototype methane abatement project scenarios, based on the following example:

• Oil extraction in remote/undeveloped regions where associated gas is flared or vented in large volumes to prioritize oil production. E.g., offshore and unconventional drilling
• from natural gas extraction (associated/non-associated) where distribution networks are available but detection and capture technologies are lacking.
• from natural gas transportation networks and processing networks (e.g. distribution pipelines, liquefaction and regasification plants. 

For each scenario conduct a sensitivity analysis to identify how different incentives impact the commercial viability, or break even conditions, of different reduction projects:

• the rising cost of carbon emissions through taxation and regulated trading
• preferred interest rates based on performance based financial instrument that can impact the cost of capital for a project. E.g., sustainability linked loans or bond
• voluntary markets targeting consumer demand for sustainable resource certificates (e.g., responsibly sourced gas).

The sensitivity analysis will need to take into consideration the following market segment factors related to each stakeholder group:

• The cost structures of available methane emission reduction (abatement) solutions.  Focus on emission reduction technologies with the largest potential impact, ranked by economic feasibility. A good starting point are the methane abatement potential by policy and by specific technology from the IEA summarized in the abatement curve above.
• The cost structure of complementary technologies used to process captured methane when traditional infrastructure is not available. E.g., modular gas processing and distribution (gas to chemical, CNG and LNG) to substitute a gas pipeline network.
• The cost of data collection, auditing and verification services to comply with emission reporting requirements related to carbon pricing, performance based financing or voluntary carbon markets.
• The value secured by and emission reduction project based on 
1. avoided carbon taxation
2. reduced cost of capital from performance based financial instruments
3. selling voluntary carbon market certificates

The outcome of this research project should help us identify what market segments for emission abatement technologies to target and why?

• Which market segment has the strongest pain point that we can solve?
• Which market segment has addressable barriers to entry for new technology adoption?
• Which market segment has the power to influence other stakeholders to adopt?

Research Deliverable:

This research report will be published on the CA2SIG site.  Once completed, we would also like to invite you to present your findings and recommendations to the SIG.

Research Resources:

Outreach language and links:

The Climate Action and Accounting Special Interest Group (CA2SIG) is an open source network of technologists, strategists and environmentalists using blockchain, ai, iot, and big data to create climate accounting solutions. We are a part of Hyperledger which is the Linux Foundation's Open Source Distributed ledger Technology (DLT) or "Blockchain" Network.  

The mission of the CA2SIG is to leverage DLT and related technologies to create a more efficient marketplace for environmental data. By making the emissions data of company supply chains accessible, low-cost and trusted we can enable capital market forces, government regulation and consumer demand to incentivize corporations to decarbonize their supply chains. Learn more here.