Making the Oil and Gas Industry’s Major COP28 Announcements Truly Impactful

Some great progress, but we live in a “show me”, not “tell me” world

This week witnessed two significant announcements in the oil and gas sector. The World Bank and partners have launched a $255 million fund to support methane and flaring reduction in developing countries. Additionally, 52 companies have joined the Oil and Gas Decarbonisation Charter (OGDC), pledging by 2030 to eliminate routine flaring and significantly reduce methane emissions, plus to achieve net-zero (scope 1) operations by 2050.

Both of these initiatives are commendable. The World Bank’s initiative will channel much-needed capital into crucial markets. The OGDC, with its diverse membership of 29 National Oil Companies (NOCs), marks a bold step forward (and over 40% of global oil production), especially given the previous lack of climate commitments from many participants.  Importantly, we should not underestimate the statecraft demonstrated by many to get the 52 companies to commit.

Whilst a good start, bold and necessary, these initiatives are also not sufficient. We need to cover the other 60% of oil and gas production – and to include reductions in scope three emissions too.

Ultimately reducing waste from flaring, venting and leaking gas (255 BCM, 7% of all gas, and $70 billion in lost revenue) should be, for producing countries, a great business opportunity for producing countries (see our Op-Ed “Europe’s ban on dirty methane imports will be good for oil and gas producers as well as the planet”).  Solving flaring, venting and leaking can improve energy security, generate revenues, support producers’ “license to operate” (for now at least), and accelerate the energy transition.  Fixing it is already in the self-interest of producing companies and countries.

While the ambitions are high, there is also a potential to underdeliver. Worse, the OGDC could be perceived as greenwashing, fundamentally undermining trust in the industry and key institutions. Therefore, we must move from lofty ambitions to the hard, nitty-gritty work of on-the-ground actions.

Lofty ambitions must be followed with credible data that tracks actual delivery, ideally backed by enforcement. In a world of unprecedented transparency, we need more “show me” rather than “tell me” behaviours. We cannot just rely on what companies choose to report, not least since some data reported to existing global initiatives are hardly credible. For example, one operator reports that 29% of their flaring is routine when, in reality, independent data from Capterio confirms it is more than 96% (see Figure below).

Regulators with teeth can help. The UK’s North Sea Transition Authority has already shut down assets because they flare too much, and has said it will shut down assets if they routinely flare in 2030.

And now, for a change in mindset?

Solving flaring and methane is not technically difficult. But it is tricky organizationally and politically, especially in autocratic companies and countries where information doesn’t flow easily.   Equally, the track record of delivery on flaring, for example, is not great. Despite 100+ organisations signing up to the World Bank’s zero routine flaring since 2015, progress is almost negligible (see Figure and our paper “Gas flaring shows modest improvement – but not in the countries that matter most”).  We need a 50x step-up in implementation to deliver on the flaring promise. And something similar on the Global Methane Pledge (noting that methane from oil and gas in the IEA methane tracker is up, not down). While it’s important to note that some individual companies are making some good progress, perhaps now is – globally at least – time for a change in mindset.

Our conversations with potential investors frequently highlight three mindset-related challenges:

  • One, “we don’t want to invest in fossil fuels” (but, we must – selectively – if we want to solve flaring and methane … and no, this doesn’t “lock in” more fossil fuels).
  • Two, “most of the flaring and methane are in risky countries” (this is probably overstated, but we do also need to lower their cost of capital – and hopefully the World Bank fund will help).
  • Three, “there are not enough shovel-ready projects” (so we need to do the work to move opportunities through a robust project maturation pipeline). Here, JP Morgan’s executive director Daniel Zelikow, agrees, saying (at today’s Atlantic Council Forum at COP28): “it’s not a project financing gap, it’s a project development gap. We need greater emphasis on governments to facilitate better projects”.

So, what needs to happen next?  We believe four key steps are necessary. As the newly-appointed OGDC secretariat, we hope that the OGCI will consider each carefully:

Step 1: Build strategic alignment and a positive narrative with a clear “win-win”

Since solving flaring and methane mostly comes at a net negative cost and brings more product to market, producers should seize this opportunity with gusto. To a major gas producer, there is only upside to capturing more gas – it generates revenues, supports domestic consumption or exports, decarbonises, and accelerates the energy transition.

Let’s change the narrative from “flaring and methane is something we don’t want to admit to” (or “is more than my job’s worth to raise this issue internally”) to “solving flaring and methane is an exciting opportunity for growth”. If this means we should fess up and come clean about what we may have said before, then so be it. Equally, if it means we need a more useful definition of what “routine flaring” is, then let’s do that, too. No point in creating ambiguity and wiggle room behind which operators can selectively hide.

We outline these ideas further in our paper “Why COP28 is right to prioritise global methane and flaring reduction”, and had the opportunity to present these ideas to many OPEC members last month. 

Step 2. Start a data-led process, asset by asset to get the real picture

Because the commitments are voluntary and the data is likely self-reported (long in arrears), we need to make sure we have granular, credible, timely data that has integrity.  Why, for example, should we use monthly average (at best) data delivered three months in arrears to manage performance … when we can have daily data, one day in arrears?  

Timely data is needed for proper performance management, delivered with a clear process, backed up by practice, practise and policy.  Capterio’s award-winning proprietary tool FlareIntel Pro helps companies and governments by providing data for every asset, company, country – every day.  In 2022, we helped our clients reduce flaring by the equivalent of taking 1.1 million cars off the road.

FlareIntel makes asset-by-asset performance data visible in real-time.  Every oil company CEO, regional manager, production manager, HSE manager – and every regulator – should, today, have a live dashboard of flaring at all of their assets – on their tablet (see Figure).  Since directly measured data is most likely unavailable, satellite data should be used (it is more reliable than alternatives). For too long, data has not been made visible to top executives, giving many a false sense of security.

A live dashboard on every executive’s tablet will, firstly, help operators to get visibility of what’s happening in the field (especially useful for so-called non-operated assets).  Secondly, a dashboard will identify performance improvement opportunities (especially with a “plan-do-check-act” continuous improvement mindset). Improvements can be made by asking the right questions to unearth the underlying root causes of flaring events. Thirdly, a dashboard brings data to life, especially relevant to “routine flaring” reduction, helping leaders identify and quantify attractive investment cases. 

Step 3: Define a data-led roadmap, opportunity by opportunity to identify change options

Data reveals opportunities. Far from being stranded, surprisingly, Capterio analytics demonstrate that 54% of all flaring is less than 20 km from an existing gas pipeline (and, separately, we profile how one operator built and commissioned, in less than one year, a 20 km pipeline in Egypt for a modest 5 million scf/day).  And instead of the rhetoric we too often hear (which can easily be disproved with data), such as “we don’t flare” or “we are already not routinely flaring”, let’s have an “amnesty” and start talking about reality (a recent Guardian article is a case in point).  If the real emissions are much larger than crude “gas-oil-ratio”-based calculations suggest, that’s great – it simply makes the investment case more attractive.  

As a case in point, we helped one client recently realize that their flaring was 10x higher than they were told by their NOC partner. Armed with the correct information, they seized the positive opportunity and, therefore, justified the investment they had long been debating.

But the real opportunities arise when countries take a big-picture view and identify and evaluate opportunities agnostic of who the operator is, or who the partners are. Regulators and governments can and should inspire joined-up thinking that best uses all available infrastructure, enabling operator A to access operator B’s gas pipeline network, rather than imposing difficult commercial complications. A clear nation-wide roadmap needs to be developed (see Figure below). Each country should stand up a national flaring and methane task force that reports to the Energy Minister (see our paper “Accelerating the transition by eliminating flaring: an Algerian roadmap“).

And to make progress, the industry needs to leverage data to bring together assets, solutions and financing.  This is a classic project development activity, largely missing today (and where the World Bank fund can surely help). Our experience working as a project developed over the last five years highlights how projects simply aren’t being developed as incumbents are not (yet) seeing opportunities or view them as being in the “too difficult” basket (or worse, denying their very existence). 

This project development activity needs to be funded.  Ideas identified on paper need to be developed by hard technical and commercial work, which takes time and money.  It’s not happening today due to a combination of lack of data, lack of capacity, and lack of dedicated capabilities.  And since project development is risky to take on (after all there is no guarantee that any individual project will succeed to a final investment decision or that it would be awarded by the regulator to the project developer), it needs to be derisked and funded.  This should be a key role and outcome for the World Bank’s new fund, and we discuss this further in our paper with the Atlantic Council.

Step 4: Finance programmes, project by project – to get going, and celebrate their success

Finally, projects need to be financed.  The World Bank fund is helpful at $255 million, but at 0.25% of what is needed, it is a drop in the bucket versus the $100 billion required by 2030 to solve flaring alone.  Nevertheless, it would be helpful to have clear guidelines on how entities can access this capital. In our opinion, it should be allocated primarily to the “missing middle” activity of project development, since serious investment is needed to mature potential projects technically and commercially to a “shovel-ready” state.

Since many would-be funders shy away from funding flare capture projects as they are “fossil fuels investments”, we need to “de-toxify” such projects.  Instead, we need to reframe flare and methane reduction projects as decarbonisation opportunities and note that they are some of the cheapest abatement options available. If the cost of capital is too high, then let’s have some forms of concessional or carbon-based financing from multilateral development banks to crowd in private capital. Since major importing blocks are big importers of supply-chain emissions (see “Why the EU should enact methane regulation for imported oil and gas“), perhaps wealthy ones, like the EU, should mobilise financing through a new “Marshall Plan” to producing countries that need help?

There are plenty of precedents of good progress and we can seek much inspiration from recently-delivered flare capture projects (see our paper “Leadership on flaring in Egypt, or “Celebrating successful flare capture projects with independent data-driven evidence).  Time to shout (and learn) more about these successes!

Let’s make it really happen

This week’s announcements have the potential to be game-changers.  But without the commitment to actually driving real opportunities with a data-led approach and unlocking the complexity of the real world, we may be disappointed.  

That outcome is entirely avoidable.  This is a moment for these nations to transition from lofty ambitions to tangible actions, driven by both economic and environmental imperatives.

Let’s make sure that this time, it actually happens.