That zany Obama gets crazy on oil and gas

For about a year now there have been rumblings that Obama is getting serious about methane GHGs from oil and gas. For a while it was unclear just exactly what the US was contemplating. But today's report in the New York Times indicates that the Obama administration is considering methane targets for upstream oil and gas to be -45% below 2012 by 2025.

Fugitive emissions, which are essentially methane, are a big deal in the Canadian oil and gas sector, with about 35% of the sector's GHGs from methane. Stated differently, about 9% of Canada’s total GHGs in 2012 were from methane in upstream oil and gas. With the science of fugitives uncertain and evolving, current methane emissions are likely understated.

Given that Prime Minister Harper has indicated that moving on oil and gas regulations ahead of the US would be “crazy”, it seems with Obama’s move the climate policy craziness may come home to roost.

So, the question is just what are the implications of methane GHG regulations on Canada’s oil and gas sector?

The baseline forecast from the Deep Decarbonization Pathways Project has 2025 oil and gas sector emissions at 206 Mt, which is more or less aligned with Environment Canada’s 2014 Emission Trends Report. This doesn’t fully reflect the current low oil price environment but let’s set that aside for now.*

With methane emissions about 35% of total upstream oil and gas GHGs, we have about 72 Mt of upstream oil and gas fugitives forecast in 2025. Applying Obama’s 45% reduction below 2012 levels to the 2025 forecast works out to be about a 40% reduction in fugitives or 27 Mt. This is a 13% reduction in total 2025 oil and gas GHGs, or about one quarter of Canada’s remaining Copenhagen gap of 116 Mt.

Methane reductions are some of the cheapest available economy-wide with significant opportunities at less than $50 a tonne. Still, the costs of the Obama "proposal" on Canadian producers will likely be more than an updated double-double SGER (2x intensity to 24%; tech fund to 25%). The sector may therefore conclude that a harmonized CANUSA oil and gas regulatory approach may indeed be crazy.

Perhaps there is room for the federal government to move on oil and gas regulations after all. A plausible scenario would be that Alberta updates its SGER by June of this year to something like the double-double standard. The federal government could then move on its long and loud promises to harmonize with the US on oil and gas regulations by targeting methane.

But don’t hold your breath.

*(stay tuned but Chris Bataille at Navius is running some low oil price GHG forecasts with early outputs indicating the low oil price net effect on national GHGs is very small, with oil production declines more or less offset by more oil consumption in transport)