The upstream oil and gas sector alone could cut as much as 4% of global greenhouse-gas emissions, according to a report from McKinsey. But this will take worldwide cooperation among industry players and capital investors.
Methane emission abatement and flaring reductions are central to global decarbonization, especially for the upstream oil and gas sector. Upstream oil and gas accounts for roughly 7% of total global greenhouse gas (GHG) emissions, and half of that comes from methane.
Since 2021, when many oil and gas players committed to the Global Methane Pledge (GMP), the call to cut methane emissions has only grown stronger. Regulatory, corporate, and social pressures are mounting to further reduce methane emissions. At COP28 in December 2023, organizations representing up to 50% of global oil production signed the Oil & Gas Decarbonization Charter (OGDC), targeting “near-zero methane emissions” and “zero routine flaring” by 2030. In light of this momentum, companies without a plan to cut their upstream emissions may choose to make one soon.
We have analyzed the potential for upstream oil and gas players to cut their emissions to meet these targets. The good news is that the technologies for reducing methane emissions and flaring are available and mature enough to make huge strides at a relatively low cost or even for financial gain. But implementation will require a significant capital investment in methane evacuation, such as natural gas pipelines, and transportation infrastructure, including liquefied natural gas (LNG) terminals and tankers.
Oil and gas emission reduction could offer some of the lowest-effort, highest-impact GHG mitigation available anywhere, and, with the right collaborative actions, significant reduction is achievable by 2030. This strategy is one of many levers available to the industry for meeting climate goals. Our analysis suggests that the upstream sector has the potential to halve its GHG footprint through approaches that are cost neutral or even financially beneficial. Although accurately estimating methane emissions is notoriously difficult, this reduction corresponds to up to 2 Gt of CO2 equivalent (CO2e) per year—or as much as 4% of the world’s GHG emissions.
The challenge in achieving this reduction is that, on top of these technology costs, substantial new infrastructure—and therefore capital investment—is needed. We estimate the total investment required to unlock this abatement to be approximately $200 billion, of which $120 billion would be for extensive infrastructure to bring recovered methane to existing pipelines or to the nearest gas demand centers. The size of this capital investment will require, in many cases, involvement beyond individual oil and gas players.
Deployment of methane abatement, flaring reduction, and overall operational excellence solutions will require technology implementation and systematic approaches. Development and financing of new infrastructure will require new financing mechanisms, along with close and innovative cooperation among many stakeholders—but the result would be a meaningful decline in global GHG emissions for an attainable cost by 2030.
The Growing Commitment to Methane Abatement
Recently, upstream oil and gas companies have accelerated their efforts toward methane and CO2 emission reduction. On top of new and broader regulations that include methane taxes, a renewed focus on net zero from institutional investors and a growing social awareness of climate change have driven an increasing number of global oil and gas players to set decarbonization targets.
For example, corporate commitments from the GMP and the OGDC, including goals for near-zero methane emissions and zero routine flaring by 2030, involve commitments from more than 50 companies, including many of the world's largest. We calculate that up to 50% of global oil production falls under these methane abatement targets. Meeting these targets will reduce emissions by 0.6 Gt of CO2e per year by 2030, which corresponds to a 15% decline in total upstream oil and gas emissions and a 1% decline in global GHG emissions. The Middle East, where a large proportion of players have made abatement commitments, and Africa and Latin America, where methane emissions represent a large proportion of upstream emissions, show the largest abatement potential.
Players responsible for an additional 10–15% of oil and gas production have announced their intent to reduce methane but haven’t yet translated this into actionable plans or made their plans public. An additional push to do so may come from several recent global methane-regulating policies, including the EU methane directive, which standardizes oil and gas operations in the European Union and sets stringent methane-emission-intensity targets for oil and gas products imported into the European Union.
In light of this momentum, companies without a plan to cut their upstream emissions may choose to make one soon.
