Miller/Howard ESG in the News:
Methane Leaks May Be Climate Tipping Point*

Proxy Preview 2017

Luan Jenifer
Chief Operating Officer, Miller/Howard Investments

Methane makes the news regularly. We know it's worrisome and invisible. But what is it?

Methane, the primary component of natural gas, is a greenhouse gas. It is found in the production and transportation of fossil fuels, and can "also result from livestock and other agricultural practices and by the decay of organic waste in municipal solid waste landfills."

Why it matters: The enemy of my friend is my enemy

Methane emissions have one thing going for them: they're easy to oppose. Environment? Business? Operations? There is no shortage of reasons to be concerned about methane emissions:

  • Outsized environmental impact: The Environmental Defense Fund says methane "is more than 100 times more potent at trapping energy than carbon dioxide (CO2), the principal contributor to man-made climate change…its impact on an integrated weight basis is 84 times more potent after 20 years and 28 times more potent after 100 years."
  • Loss of revenue: Forbes reports that leaked methane represented $30 billion dollars of lost revenue in 2012.
  • Operational integrity: Oversight is a key indicator of management quality and governance. If a company is not tracking loss of saleable product, investors may wonder about other weaknesses in policies or practices.
  • Industry security: Failure to minimize methane emissions jeopardizes the oft-touted environmental benefits of natural gas over other fossil fuels, as The Guardian notes.

What's so "super" about super-emitters?

There are over 400 gas storage facilities around the country. Identifying and targeting the riskiest offenders helps investors and others push for improvements where they will make the most impact. A 2016 Stanford University study found that "just a few natural gas wells account for more than half of the total volume of leaked methane gas in the United States. Fixing leaks at those top emitters could significantly reduce leaks of methane…"

What many investors want to see

We believe that strong programs of measurement, mitigation, target setting, and disclosure reduce legal risk, maximize gas for sale and bolster shareholder value. This could help avoid accidents such as the 2015-16 failures at Aliso Canyon Storage Field in Los Angeles, which many followed with grave concern. A casing failure precipitated the release of over 100,000 tons of methane into the atmosphere, at one point "doubling the rate of methane emissions in the entire Los Angeles Basin." Similar problems loom; Kinder Morgan has over twenty storage facilities that may face similar risks, for instance.

Methane vs. Investors

Environmental risks are not mitigated by regulatory negligence: while hard-earned regulations are in jeopardy, and a regulatory floor that would ensure a base level of protection is fast disappearing. But the investment risks remain.

Both methane and investors can play an outsized role in climate change, with opposite effect. One exacerbates it, and the other has a unique opportunity to mitigate it by ensuring science-based targets and operational integrity remain paramount, whether for pipelines or storage facilities.

*Article from Proxy Preview 2017: Helping Shareholders Vote Their Values, page 17.

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