Methane emissions are one of the more challenging carbon equivalent problems in part because it is lots of small emitters, associated with many thousands of wells and many thousands of miles of pipelines, rather than a large source of CO2 that can be eliminated with a specific investment. The API carbon tax, proposed last week, has a condition in the proposal that would prevent any other emission-based legislation for many years to evaluate the effect of the tax. This will not drive lower methane emissions unless it is a broad carbon “equivalent tax”, which could potentially drive a very punitive tax on methane and would get an almost instant response from those that own the wells and the pipes. Some of the abatement solutions are easier than they first appear and all pipeline operators should look at the technology offered by Pipeotech, for example. Wellhead emissions are more problematic but not beyond the engineering skills that exist within the major E&P companies. The harder problem is what to do with emissions from abandoned wells – here the tax idea would not work as there is no one to pay the tax and a fairly complex financial structure would be needed to encourage someone to take on the role of cleaning up these properties. That said, all these pathways will need to be explored to get to the targets outlined below.
Source: NGI, IEA April 2022
Separately, the linked CCS capacity article is a little misleading as it suggests more CCS capacity available than is likely in the early years. The chart in the article may be a reflection of what has been announced, but there is some foot-dragging, especially in the US while potential projects await more favorable incentives, and the estimates do not account for the lengthy approval process or assume that it will be shorter in the future. We would model less available US capacity in the 2025-2028 period and then an aggressive ramp up, with the ramp very dependent on the outcome of the carbon tax proposal. If we get a $50 per ton carbon tax in the US and maintain the $50 per ton 45Q CCS credit, we could see an avalanche of blue hydrogen projects, especially on the US Gulf Coast. If the tax happens the estimates for 2030 in the article for the US could be too low. For more see our Macro blog from today highlighting more of our research.
