By: Dominic Pituch and Ory Zik
On May 12, 2020 Alberta announced it achieved a preliminary methane reduction deal with the federal government. The province has revised the Alberta Energy Regulator’s Directives 060 and 017 to align with the draft equivalency agreement to give the oil and gas industry a single and clear set of rules for methane reduction.
The recent momentum of methane regulation and incentives in Canada is expected to accelerate the decarbonization of the natural gas supply chain in the region. Prioritizing projects based on their Emission Reduction Ratio (ERR) would improve the efficient utilization of methane mitigation funding. A simple measure of mitigation efficacy is the environmental benefits per public dollar. Funded technologies should eliminate at least a certain amount of GHG per dollar investment. The measurement is straight-forward and dovetails existing methodologies that are already used in Canada, such as the carbon credit analysis used in Alberta and Emission Reduction calculation used in British Columbia. Qnergy has successfully used this ranking with its customers, to help them deploy their own capital effectively.
The following analysis shares the methodology and data from a practitioner’s viewpoint.
ERR is defined as:
Where $Y and $Z represent the grant received and additional public money (respectively). X is the estimated greenhouse gas emission reduction in tons of CO2 equivalent (tCO2e).
For example, a project that receives $1,000,000 in grant money or royalty reduction and abates 50,000 tCO2e over 10 years will have an ERR of $20/tCO2e:
Under current market conditions and uncertainty, Qnergy recommends using a three-year time horizon.
ERR can be used to evaluate the efficient deployment of public or private funds. For example, consider a Tesla car. It costs approximately $75,000 over three years and abates about 15 tCO2e over that time period (assuming that it is charged with renewable energy). Therefore, the Tesla ERR would be $5,000/tCO2e.
A few of Qnergy’s customers are using the same ratio with their own capital. The calculation is essentially the same. For instance, if a system cost $150,000 over three years in terms of the Total Cost of Ownership (TCO) and abates 500 tCO2e per year (1,500 tCO2e over 3 years), then the ERR is 150,000/1,500 = $100/tCO2e.
Pneumatic devices powered by pressurized natural gas are widely used in the oil and gas industry for process control and chemical injection. These devices vent spent gas directly into the air threatening the clean fuel advantages of natural gas. Qnergy’s innovative CAP3 (Compressed Air Pneumatics) solution provides reliable electric power and clean dry instrument air. Considering the GWP (Global Warming Potential) of Methane is 25x worse than CO2 (IPCC AR4 100y), a typical CAP3 system can eliminate over 1000 tCO2e emissions per year. The table below compares the emissions reduction efficiency of a few instrument gas to air (IGIA) projects.
Note that this ERR approach is a straightforward application of the Marginal Abatement Cost Curve (MACC). Evaluating methane mitigation projects this way can aid industry in achieving emissions reductions in a cost-effective manner.