Is Natural Gas a Cleaner Energy Solution?

Posted on December 16, 2020

Alex Osborne-Saponja
Alex Osborne-Saponja
Associate Director, Climate Solutions
Jose Yakoubian
Jose Yakoubian
Sector Manager, Oil and Gas Research

While Oil and Gas (O&G) operations are responsible for roughly 15 percent of global energy-related GHG emissions, some energy companies have pledged the role of natural gas (NG) as a transitional fuel. At the same time, NG energy use is increasing globally, and shale-gas extraction is booming at an unprecedented rate. One factor that is often overlooked is the methane emissions across the NG value chain.

Although it persists in the atmosphere for less time, methane has a Global Warming Potential (GWP) 28 times larger than carbon dioxide (CO2) over a 100-year period. There are concerns over the NG projected role as a ‘cleaner’ fossil fuel option, mainly driven by the increasing awareness of the methane emissions related to the NG infrastructure. Exhibit 1 demonstrates key point source emissions of methane from O&G production.

Natural Gas map

Exhibit 1: Methane Emissions Point Sources[i]

Methane: A Growing Risk

Methane is increasingly facing regulatory requirements and tighter controls. In October 2020, the European Commission adopted a new strategy to reduce methane emissions, including significant actions in the energy sector to improve the measurement, reporting and mitigation of methane emissions. In August 2020, the US EPA rescinded regulations to mitigate methane emissions associated with the NG sector, ending the 2016 rule that required companies to have systems to detect and repair leaks from wells, pipelines and storage tanks. However, the future Biden administration could potentially move quickly in reversing this rollback.

Methane Management Best Practices

The largest sources of methane, the main constituent of NG, are fugitive emissions (unintentional leaks) followed by vented emissions (routine releases due to equipment design or operational practices). There is no single solution to meet this challenge globally. However, according to the O&G Industry in Energy Transitions report by the International Energy Agency (IEA), reducing fugitive emissions is the single most important and cost-effective way for the industry to bring down these emissions.

Methane emissions contribute towards a varying proportion of a company’s total GHG footprint (between 2-73%[ii]), yet the management of these emissions and targeted reductions vary greatly. Mitigating methane emissions require specific measures, especially given the range of operational emissions, demonstrating that best practice management is not employed across the board.

In 2018, the Oil and Gas Climate Initiative (OGCI) set a strong target to help its members, including many oil majors, reduce their average methane intensity to 0.2% by 2025[iii]. This ambitious initiative shows that cutting methane emissions is a key ESG issue across the industry’s operations. Exhibit 2 (below) demonstrates some O&G producers with ambitious plans to reduce methane emissions and their alignment with best practices.

CompanyMethane CommitmentAlignment with Ambitious Reduction TargetContribution of Carbon FootprintNG Production estimates (2019)
EQT Corp[iv]Reduce methane emissions across the NG value chain to 1% by 2025Not aligned72.7%95%
EOG Resources[v]Reduce methane emissions percentage to 0.06% by 2025Better than best Practice22.7%23%
Shell[vi]Maintain methane emissions intensity below 0.2% by 2025Aligned5%49%
BP[vii]Achieve a methane intensity of 0.2%Aligned6.5%41%
Exxon[viii]Reduce methane emissions by 15 percent by 2020, compared with 2016. Support Methane Guiding PrinciplesNot aligned5.6%38%
Gazprom[ix]Reduce methane emissions into the atmosphere (during repair works of gas transmission system). Participates in Methane Guiding PrinciplesNot aligned28%89%
RosneftJoined the international initiative ‘Methane Guiding Principles’ Round Table.Not aligned0.24%19%
Lukoil[x]Demonstrate reduced emissions but no targetNot aligned2.6%24%
Equinor[xi]Ensuring no routine flaring and near-zero methane emissions intensity by 2030AlignedContribution not reported48%
Petrobras[xii]Reducing methane emissions intensity by 30%-50% in exploration and production by 2025Aligned7.5%13%
Repsol[xiii]Reduction target aligned to OGCI metricAlignedContribution not reported64%
Chevron[xiv]Reduce intensity by 20-25% by 2023 based on 2016 performanceNot aligned but a member of OGCI6.7%38%
Eni[xv]Reduce in line with OGCIAlignedContribution not reported46%
Total[xvi]Reduce in line with OGCIAligned5%41%
Occidental[xvii]Reduce in line with OGCIAligned1.7%26%

Exhibit 2: O&G Methane Reduction Commitments

Orphan and inactive O&G wells, a growing concern

Similarly, orphan or abandoned wells, or pipelines or other related facilities that no longer have a legal or financial owner, are becoming a growing concern in North America in recent years, mostly due to their associated environmental risks. Although the US EPA estimates that abandoned O&G wells appear to be a significant source of methane emissions to the atmosphere, this problem’s magnitude is largely unknown as little empirical data is available. Defunct companies are typically not liable for decommissioning or cleaning-up costs. As such, these wells can leak methane for many years or even decades before any potential state-level or federal-level remediation intervention.

Some studies have concluded that the cumulative emissions from orphan wells may be significantly larger than the cumulative leakage associated with O&G production. The US EPA also estimated that there are over 3.2 million orphan O&G wells in the US, which collectively emitted 281 kilotons of methane in 2018, the equivalent to the emissions derived from more than 1.5 million passenger automotive vehicles.

ESG Impact

Overall, compared to the industry’s average, those committed to the OGCI’s methane reduction target typically face low carbon-related risks and intensity relating to their operations, albeit with exceptions. Furthermore, they have more progressive carbon reduction targets than their industry peers and already perform well against the target, with lower methane contribution to overall GHG footprints. Also, the larger integrated O&G companies within this group have, on average, lower contributory methane emissions and lower overall carbon intensity against the median.

Those with lower risk to “Carbon – Own Operations”, a material ESG issue (MEI) in Sustainalytics ESG Risk Rating framework, are those with targets aligned to the methane intensity target. However, there is one outlier, EOG has a better than best practice target but higher risks relating to Carbon – Own Operations than others in this analysis. Exhibit 3 (below) compares the operational carbon performance of some O&G producers with ambitious plans to reduce methane emissions.

Natural Gas graph

Exhibit 3: Carbon Performance of “Best Practice” Companies

Learn more about how Sustainalytics’ ESG Risk Ratings enable investors to understand how companies are exposed to specific MEIs and how well companies are managing these issues.



[i] European Space Agency, Mapping methane emissions on a global scale

[ii] EQT; Climate & GHG Emissions

[iii] OGCI;  Reducing Methane Emissions

[iv] ESG; Climate & GHG Emissions

[v] EOG 2019 Sustainability Report

[vi] Royal DutchShell 2019 Sustainability Report

[vii] BP; Reducing emissions in our operations

[viii] ExxonMobil Sustainability Report – Managing climate change risks

[ix] Gazprom 2019 Sustainability Report

[x]  Lukoil 2019 CSR Report

[xi] Equinor; Equnior Climate

[xii] Petrobas 2019 Sustainability Report

[xiii] Repsol; Methan Policy Recommendations 

[xiv] Chevron 2019 Corporate Sustainability Report

[xv] ENI 2019 Sustainability Performance

[xvi]  Total Climate 2019

[xvii] Occidental 2019 Climate Report







Recent Content

Physical Climate Risks: 6 Things Portfolio Managers Need to Know

The negative physical impacts of climate change are being felt by communities and corporations globally and are likely to get worse in the coming years. The knock-on costs of more frequent “once-in-a-century” climate events on economies are likely to rise. To prepare for this looming threat, investors must forecast the asset-level effects of climate change on companies in a granular and sophisticated way. Here are six things portfolio managers should know to manage and mitigate the physical risks of climate change to their portfolios and meet growing list of climate-focused reporting requirements.

human rights

Applying Business and Human Rights International Standards to Investor Due Diligence

Socially conscious ESG investors are interested in how to implement international business and human rights norms in their portfolios and understand the potential impacts of applying additional screening criteria within their strategy.

wireless users network outage

Telecom Network Outages, the ESG Risks of a Connected World

The telecom industry is exposed to several Material ESG Issues, including Data Privacy and Security, Business Ethics, Human Capital and Product Governance. Product Governance issues in the telecom industry include service quality, maintaining reliable, high-speed networks, and responding to customer billing concerns.

ESG Risk Data Center

ESG Risks Affecting Data Centers: Why Water Resource Use Matters to Investors

Data centers play a critical role for many technology and telecom companies and for their supporting servers, digital storage equipment and network infrastructure for data processing and storage. Data centers require high volumes of water directly for cooling purposes and indirectly, through electricity generation. Morningstar Sustainalytics’ recent activation of the Resource Use Material ESG Issue (MEI) within its ESG Risk Ratings recognizes water risks of data centers.