The case for regulating downstream methane emissions from oil and gas

The downstream segment of the oil and gas value chain is a significant contributor to climate change, predominantly due to its methane emissions. Worldwide, downstream methane amounted to an estimated 16 Mt in 2020 – more than all the oil and gas methane emissions from the continent of North America combined. In major importing countries, including Japan and several European Union member states, the downstream segment is responsible for more than 80% of the methane emissions from oil and gas operations. 

Refining, transmission, storage and distribution operations are the primary sources of energy-sector methane emissions among major fuel importers. For these countries, tackling downstream emissions must be at the forefront of efforts to reduce methane emissions alongside actions to mobilise upstream suppliers to address methane abatement.

Thanks to advances in measurement technologies, significant downstream emissions have been detected across developing and developed economies alike. Using a handheld optical gas imaging camera, the Clean Air Task Force recently documented methane leaks at over 100 sites across Europe. The visited sites included many downstream facilities, such as liquefied natural gas (LNG) terminals, compressor stations, and underground storage tanks. In the Russian Federation, leaks from gas transmission pipelines were so substantial that they were recently detected from space.

Tackling downstream emissions can be challenging because it requires exacting measures, such as monitoring lengthy pipeline infrastructure and repairing equipment that is difficult to access. However, about 75% of downstream emissions can be avoided with the help of existing technologies. Solutions such as leak detection and repair programmes or infrastructure upgrades can often drastically reduce emissions from these segments. 

Although abatement is technically feasible, there are still institutional issues that can complicate efforts to address downstream methane leaks. For one, the regulators that oversee downstream operations are usually different from the ones that monitor upstream activities. Often, downstream regulatory bodies are primarily responsible for gas markets, consumer prices or public safety. The task of reducing emissions, by contrast, tends to be closer to the core mission of upstream regulators – either the environmental agencies charged with mitigating air pollution, or those empowered to protect and manage natural resources. Further, transmission operators do not always own the gas they transport, which can limit incentives for abatement action. 

The downstream segment has five major types of installations:1 oil refineries, LNG facilities, transmission pipelines, storage, and distribution systems. Within oil refineries, the main sources of methane include incomplete flaring and vented emissions from uncontrolled blowdown systems and other process vents. In LNG terminals, methane sources include incomplete combustion from flares, cold venting, fugitive sources and non-routine emissions linked to plant start-ups, shutdowns, or upsets.

The transmission sector includes compressors and large pressurised pipelines that transport gas to industrial customers, distribution networks and storage facilities. During transmission, emissions result mostly from compressors and venting associated with pipeline blowdowns – which may occur to enable maintenance and new connections or be caused by accidents. Lastly, the distribution section of the supply chain refers to the system of smaller service lines and meters that connect long-distance transmission lines to individual consumers. Emissions, both intentional and unintentional, tend to occur either during commissioning or as a result of damage.

While many jurisdictions have taken steps to regulate oil and gas methane emissions, as seen in the IEA Methane Regulatory Roadmap and Toolkit, most policies focus on upstream emissions. These often take the form of flaring and venting restrictions, leak detection and repair requirements or equipment mandates.

There are some notable examples where traditional command-and-control policies applied to the upstream projects have also been applied to parts of the downstream segment. Mexico, for example, forbids methane emissions from venting or line draining of LNG pipelines (with exceptions for emergency cases). It also sets criteria for vapour recovery units from crude storage installations, including rules for how to set up, operate, and maintain these units, as well as minimum efficiency standards and limits for emitted gas. Similarly, the US Environmental Protection Agency’s methane regulations apply to new transmission and storage facilities.

Performance-based regulations and economic instruments can also be applied to this segment. In Canada, Alberta’s Directive 060 has performance-based and economic provisions designed to reduce flaring and venting from pipelines and gas plants. These include a requirement to conduct economic evaluations documenting alternatives to eliminate or reduce flaring and venting. In the United States, Massachusetts introduced a performance-based regulation that encourages natural gas distributors to upgrade their pipeline infrastructure with newer materials by setting company-specific emissions caps that decline over time.

Although most countries do not have regulations specifically targeting downstream methane emissions, many have indirect requirements, such as safety standards and market rulings, which already affect emissions to some extent. For example, safety regulations often require measures (such as pipeline monitoring) to ensure that leaks are minimised, that malfunctions are promptly repaired, and that materials are used which minimise fugitive emissions. Germany’s Ordinance on High Pressure Gas Pipelines is an example where operators are required to take protective measures to avoid leaks, monitor operating pressures and maintain an on-call service to respond to malfunctions.

Opportunities exist to adapt current safety regulations to further address methane emissions beyond what is strictly necessary for safety purposes. The U.S. Pipeline Hazardous Materials and Safety Administration’s Gas Mega Rule includes requirements on the materials that can be used and mandates prompt repairs of leaks. Furthermore, a recent law adopted in the United States authorises the regulator to consider environmental impacts alongside safety factors. In particular, it sets new regulations mandating leak detection and repair and directs pipeline operators to update existing inspection and maintenance plans to minimise releases of natural gas both for reasons of public safety and protection of the environment. This shows that safety requirements can simultaneously address climate concerns.

Similarly, financial incentives for companies to reduce leaks can also be incorporated into energy market policies. Regulators are usually concerned with losses from transmission and distribution networks, primarily to protect consumers from being charged for energy they don’t receive. Because they often operate through price controls, such mechanisms can be a strong inducement for companies to address these emissions.

In the United States, for example, the Pennsylvania Public Utility Commission adopted a uniform definition of “unaccounted for gas” designed to encourage distribution companies to reduce losses. The Commission established a threshold, above which it was presumed that losses were not recoverable from consumers – and were therefore the responsibility of the distribution company. Although this has provided an economic incentive to reduce losses, there remain potential risks if the methods for determining losses do not accurately capture fugitive emissions.

If the world is to fulfil its climate goals, countries cannot afford to forego opportunities for methane abatement. This will require more attention and effort to regulate the downstream segment, which has the potential to unlock almost 12 Mt of emissions reductions with known technologies.

Different policy approaches can push companies to act – be it through broadening regulations that already have well-established upstream applications, adapting existing safety and market regulations to address the climate change impacts of methane, or developing entirely new strategies that are tailored to the downstream segment.

Whatever policy pathway is selected, downstream methane emissions should not be neglected. While they have some challenges, they still offer a very cost-effective way for countries and industry to minimise overall emissions.