New report: Why investors should pay attention to methane risks

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More than $21 million worth of natural gas escaped from the Aliso Canyon leak between Oct. 23, 2015, and Feb. 11, 2016.

Editor’s note: This post was updated on Oct. 28, 2016.

No one likes uncertainty, least of all investors. Good, actionable information is their most important tool for risk management and key to successful investing – because without proper data, investors are flying blind.

After the massive methane leak at SoCalGas’ Aliso Canyon facility a year ago rose awareness of risks associated with oil and gas production, investors are beginning to ask more questions. A new guide helps them probe risks estimated to run as high as $30 billion annually.

And yet, none of the 65 oil and gas companies reviewed in a January 2016 study by Environmental Defense Fund disclose targets to reduce methane emissions, the main ingredient in natural gas.

What’s more, less than one-third of these companies voluntarily disclose emissions, and what disclosures exist are vague and overly qualitative – making it difficult for investors in these companies to hedge risk.

What investors deserve to know

Aside from potential liabilities from accidents such as the one in California, investors need to know how much money companies are losing when their facilities leak natural gas.

They should also know if the companies they invest in have a plan to reduce emissions to limit impacts from such leaks, and how prepared they are to comply with forthcoming regulations.

It’s difficult to find out any of this, and that’s a problem.

At 84 times more powerful than carbon dioxide in the short-term, methane emissions represent a potent and fast-emerging form of carbon risk.

Preparedness to comply with forthcoming rules to address methane pollution is inconsistent across the industry, however. What’s more, methane emissions undercut the natural gas industry’s ability to play a role in a carbon-constrained world.

$30 billion in lost product annually

Last but not least, leaking natural gas systems amount to an estimated $30 billion in lost product annually worldwide, losses detrimental to sound investments.

Without reduction targets, how can investors know that management attention is focused, and that the emissions, and thus risk, will be reduced? And if less than one-third third of companies voluntarily disclosure emissions, how can investors hedge methane risk by investing in companies with comparatively lower emissions?

As a former equity analyst on Wall Street, I can’t help but worry for these investors. I used to spend my days pouring over data, trying to spot opportunities and risks.

The numbers were trustworthy and actionable because figures in financial filings must be audited and reported according to strict accounting rules.

Not so in the methane world.

Our Rising Risk report offers practical solutions, including a set of methane metrics that can help turn much of the raw data companies already have into meaningful information.

Investors should urge companies to report these emissions, which will send a signal that it is an issue that needs oversight.

Because if an investor asks a company how much natural gas it’s losing through leaks at their facilities, and if the company is unwilling or unable to answer that question, shouldn’t that give the investor pause?

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Sean Wright

Sean Wright

Sean Wright is a Senior Manager at EDF's Corporate Partnerships program. 

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