As one of the highest-impact greenhouse gases, methane is an important element in Vermilion’s focus on climate-related risks and opportunities, particularly in reducing our greenhouse gas emissions from natural gas production. The economic viability of methane leakage prevention is an important element, with two factors influencing continuing developments: significant advancements in technology – fostered by government commitments surrounding climate change – and the cost of carbon. Combined, these will act to reduce the financial expenditure associated with methane leak detection and the updating of older infrastructure that is prone to sources of methane.
Measures being examined by governments in the regions where Vermilion operates have the potential for a significant impact on the marginal abatement cost curves associated with carbon reduction projects that Vermilion has looked at in the past, as well as future projects. The impact of these cost of carbon measures will result in increasing the economic viability of methane (and CO2e) reduction projects. Understanding that this is a developing area, we have teams in each business unit who are responsible to monitor regulatory development and share learnings with other business unit teams, as well as corporate groups. We continue to proactively look at our operations to determine areas where we can prevent methane releases and have a positive impact on our Scope 1 emissions and our Integrated Sustainability business pillar. We believe that we have positioned ourselves proactively and have therefore mitigated the financial impacts of regulatory-driven methane reduction programs.
Similar to any upstream oil and gas operation, the majority of methane emissions from Vermilion’s operations stem from venting, flared emissions (understanding that flaring typically achieves 98% combustion efficiency), storage emissions and process/instrumentation emissions.
Vermilion has a robust emissions quantification program in all operated business units. We also have fugitive emission programs in place that are managed through our operations groups in each business unit, with the exception of our offshore platform in our Australia operation (an oil asset with no natural gas production infrastructure). Our Leak Detection and Repair (LDAR) program varies between business units:
This demonstrates our commitment to methane detection and reduction, and we continue to examine areas where we could further improve.
In Canada, LDAR has been mandated federally and provincially. Our Canada Business Unit is therefore in scope for an expanded methane LDAR program. This will form the basis for a country-specific carbon emission inventory, which will enable us to identify the areas with the largest potential return on investment related to emission reductions per unit of expenditure.
The EDF report further recommended placing an economic value on emissions. While applying the realized cost per business unit as defined in the 2016 annual report would indicated a value of approximately $400,000, we would caution that this does not adequately account for the quality of emissions and the current technical challenges in recovering the 2% of partially combusted flared gas. We will continue to assess the practicality of accurately measuring economic value in this regard.
Part of the Vermilion advantage is our track record of being an industry leader in quantification and disclosure of the carbon emissions associated with our operations. While some initiatives, and how we complete them, are not disclosed to support Vermilion’s competitive advantage, we believe that this portion of the energy sector has benefitted and will continue to benefit greatly from open sharing of ideas.
One recent example is the additional focus that Vermilion has placed on reducing our flaring in our southeast Saskatchewan assets, through infrastructure construction and the conversion of a former waste stream into a product stream. In addition, we have successfully converted a flare in our Parentis, France location to a highly effective incinerator. We are continuing projects of this type, as they are proving successful in achieving overall emission reduction targets in these assets, and they have enabled Vermilion to significantly reduce our emissions intensity while increasing production.