Emissions Reduction Fund onshore stream – Program outputs report

Methane matters: Canada's path to net-zero emissions

Canada is committed to achieving net-zero greenhouse gas (GHG) emissions by 2050, which means balancing the GHG emissions released with those removed or offset. Methane (CH4) is a significant climate-forcing GHG. It is estimated to have 25 times the global warming potential (GWP) of carbon dioxide (CO₂), and is responsible for a quarter of today's global warming. In Canada, it is classified as a toxic substance with damaging impacts on human health, wildlife, agriculture and the environment. However, because methane breaks down much more quickly than CO₂ (about 10-15 years, whereas atmospheric CO₂ persists for potentially hundreds of years), it responds quickly to changes in emission rates. As a result, eliminating methane emissions at their source proves to be a highly impactful way to fight climate change.

More than half of the methane emitted globally comes from human activity in three areas: agriculture, fossil fuels, and waste. In Canada, the oil and gas sector is the biggest industrial contributor to methane emissions, through the production and processing of crude oils, bitumen and natural gas. With upstream operations involving tens of thousands of facilities, hundreds of thousands of wells, and millions of components with the potential to emit, methane sources represent about 21 per cent of the fossil fuel industry’s total GHG emissions in carbon dioxide-equivalent (CO₂e).^{Footnote 1}

Methane from conventional oil facilities is emitted by means of intentional venting or as fugitive emissions. Methane is vented from equipment for safety reasons; when there is no infrastructure to conserve gas and deliver it off-site; and when there is no immediate need for the gas as fuel. Fugitive emissions, on the other hand, can result from the intentional flaring (thermal combustion) and unintentional leakage of methane-rich gas during the production, processing, transmission, and storage of fuels. Fugitive emissions from accidental leaks or equipment failures typically result from the deterioration of equipment, especially seals and fittings, or from improper installation or operation of equipment.

It can be difficult to measure methane emissions affordably, frequently and with precision due to factors including gas composition, access to gas gathering infrastructure, the age and technical standards of equipment, and differences in maintenance practices. Field studies using a range of approaches applied in different Canadian locations have repeatedly found methane measurements that exceed the predictions in our National Inventory Report (NIR) by 50 per cent or more.^{Footnote 2} Peer-reviewed analyses have documented both a disproportionate impact of high-emitting sites to total emissions detected, as well as significant emission sources at specific locations that remain unreported altogether.

Canada was the first country to establish national legislation to reduce methane emissions from its oil and gas activity. The initial set of federal methane regulations entered into force in 2020, requiring oil and gas operators to follow stricter emission limits and implement leak detection and repair (LDAR) measures. Under the Emissions Reduction Plan for 2030, the Government has plans to reduce its oil and gas sector methane emission by at least 75 per cent (from 2012 levels) by 2030, with further reductions targeted for 2035.

Canada's COVID-19 response and the Emissions Reduction Fund

The Emissions Reduction Fund (ERF) Onshore Program was launched in 2020 during the COVID-19 pandemic to help the oil and gas sector reduce methane emissions while dealing with uncertain demand for fossil fuels. The Program provided repayable and partially repayable loans to companies carrying out infrastructure and clean technology projects that reduce or eliminate the intentional venting or flaring of methane-rich gas.

The ERF funding has helped to preserve jobs across the fossil fuel industry, which at the time of the pandemic represented nearly one quarter of Canada’s energy sector employment.^{Footnote 3} This was accomplished by sustaining industry actions on methane abatement, and by supporting direct and indirect employment in methane mitigation activity. The two main outputs of the program are:

• Support for the deployment of methane gas conservation infrastructure, especially in under-serviced regions where the methane would otherwise be vented into the atmosphere or flared
• The delivery of emissions reductions that achieve additionality – industry operators obtain ERF funding only if the projects result in deeper emission cuts than what is required by federal or provincial methane regulations

Projects that eliminated venting and flaring or exchanged high-bleed pneumatic devices for zero bleed were eligible for partially repayable contributions. The rest of the funding was provided as a repayable contribution. The Program used a sliding repayability scale to encourage the use of cost-effective, readily available technologies, while driving emission reductions. The lower the cost-per-tonne of the project, the lower the repayable portion of the ERF program funding. For example, if a project achieved methane abatement at a cost of $20 or less per tonne of CO₂e, the repayable portion of the federal contribution was 50%; whereas at a cost of $51-100 per tonne, the repayable portion was 80%, and upward. The costs for these projects are typically modest compared to other oil and gas investments, and conserved gas can also generate new revenues for operators when processed and sent down sales lines. Industry partners are expected to repay all repayable funding amounts by the end of the 2028 fiscal year, in addition to meeting their performance reporting requirements.

The Program operated in three intake periods, with approved companies committing to report their project’s emission performance for five years. Program design changes were introduced with each intake to ensure that an appropriate balance was achieved between the incentives and flexibilities provided to funded companies. In response to the Commissioner of the Environment and Sustainable Development (CESD) audit of the Program conducted in 2021, projects approved in Intake 3 were required to show that their projects fully eliminate intentional venting or flaring, demonstrated a financial need and exceeded applicable regulatory requirements.

Projects funded by the ERF

As of April 1, 2024, the ERF supported a total of 91 projects undertaken by 24 companies in regions with active oil and gas development. For the purposes of this report, the results have not been broken down by Province/Territory to protect the confidentiality of individual projects. Of these 24 funded companies, 21 were small or medium-sized enterprises (SMEs).

Table 1 (below) depicts the ERF-funded projects and categorizes them based on Project Scope, type of Primary Project Infrastructure, and Emitting Source Type. The Project Scope for each demonstrates its objective - the lowering, or the elimination of methane and related emissions from within a defined project boundary. The Primary Project Infrastructure describes the type of methane reduction technology introduced. Finally, the Emitting Source Type represents the source of methane mitigated with introduction of the new infrastructure.

Number of ERF projects by methane elimination, infrastructure and emitting source type

Primary project infrastructure	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
Compression	4	1	-	5
Low-pressure gas capture	-	6	-	6
Gas processing plant	2	-	-	2
Gas re-injection	4	-	-	4
Pipeline	30	-	-	30
Pipeline & compression/vapour recovery unit	27	-	-	27
Pneumatic devices	-	-	8	8
Vapour recovery unit & pneumatics	-	1	-	1
Total	67	8	8	83

Number of ERF projects by methane lowering (eligible under Intakes 1 and 2), infrastructure and emitting source type

Primary project infrastructure	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
Incineration	1	3	-	4
Pneumatic devices	-	-	4	4
Total	1	3	4	8

Total ERF projects by infrastructure and emitting source type

Primary project infrastructure	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
Total	68	11	12	91
Percentage of total	75%	12%	13%	-

Most projects sought to lower or eliminate emissions from the wellhead, supporting 64 projects. Operators have focused on building new gas gathering and processing infrastructure such as pipelines, tie-ins, compressor stations, and gas processing plants. They also invested in onsite gas conservation by constructing new pipelines, tie-ins, compressor stations and gas processing plants.

Emissions from pneumatic devices were targeted by 12 projects. These are typically either pneumatic controllers, which automatically operate valves and regulate liquid levels and pressure, or pneumatic pumps, which are used to inject chemicals into wells and pipelines or circulate dehydrator fluids. In most upstream applications pneumatic devices are powered using pressurized natural gas, and high-bleed versions can be replaced with low-bleed alternatives or retrofitted to use electricity or compressed air. The ERF-funded projects have accordingly invested in clean technology conversions to electrified/solar-powered chemical injection pumps, and new or repurposed instrument air compressors.

Finally, emissions from storage tanks were targeted by 11 projects as tanks are routinely and intentionally vented to ensure that equipment does not fail due to pressure changes.

The ERF's reporting requirements: program transparency and accountability

Tracking the reduction of methane emissions requires reliable measurement, reporting, and verification (MRV) protocols. These protocols help accurately quantify the frequency, distribution, and sizes of different sources emitting methane.

Emissions performance measurement is a focus of the ERF. This includes a requirement for companies to submit baseline emissions from vented and flared sources for their projects at the time of application. A technical advisory team of engineers from Natural Resources Canada (NRCan) evaluated the reported baseline operating conditions. The Program requires companies to install meters to continuously track the gas volumes conserved. Data is reported annually to the Program for the five years following the completion of the project. This reporting requirement improves Program transparency and accountability by validating the emissions reductions achieved from each project.

Costs and value of ERF-funded infrastructure and technology

The ERF enabled oil and gas operators to submit claims for reimbursement of up to 75% of eligible project costs, which included categories such as capital expenses, engineering design, site preparation, materials, equipment, and labor. The total project costs including contributions from the Government of Canada and ERF-funded companies totalled $254.9 million. Table 2 (below) shows the total costs of the approved projects funded under the ERF, including the share of company contributions.

Project costs by methane elimination and emitting source ($M w/rounding as required)

Primary project infrastructure	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
Compression	$4.4	$0.8	-	$5.3
Low-pressure gas capture	-	$4.0	-	$4.0
Gas processing plant	$50.9	-	-	$50.9
Gas re-injection	$10.4	-	-	$10.4
Pipeline	$59.7	-	-	$59.7
Pipeline & compression/vapour recovery unit	$115.0	-	-	$115.0
Pneumatic devices	-	-	$7.4	$7.4
Vapour recovery unit & pneumatics	-	$0.5	-	$0.5
Total	$240.4	$4.5	$7.4	$252.3

Project costs by methane lowering (eligible under Intakes 1 and 2) and emitting source ($M w/rounding as required)

Primary project infrastructure	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
Incineration	$0.1	$0.9	-	$1.0
Pneumatic devices	-	-	$0.7	$0.7
Total	$0.1	$0.9	$0.7	$1.5

Total project costs by emitting source ($M w/rounding as required)

Primary project infrastructure	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
Total	$240.5	$6.2	$8.1	$254.9
Percentage of total	94%	2%	3%	-

Recent research suggests that the oil and gas industry can achieve comparable cost-savings by reducing methane emissions through abatement methods and through the carbon pricing of unabated emissions. Starting in 2024, ERF performance reporting from all intake periods, will make it possible to estimate the cost of the Program’s achieved emissions reductions. Once validated, reporting data will allow the estimation of costs-per-tonne reductions for specific mitigation measures and project infrastructure elements, such as on-site gas conservation, new gas gathering and processing infrastructure, and the conversion or retrofitting of pneumatic devices. These estimates will be updated annually until reporting is complete in 2028. Based on the Program's analysis of forecasted project costs, its approved projects are expected to demonstrate some of the lowest costs per tonne for methane elimination in the industry.

Case study: Tundra/Steel Reef project in Manitoba/Saskatchewan

The ERF provided funding to Tundra Oil & Gas Limited, a mid-sized company working to eliminate the venting of methane-rich gas into its flare systems in the Sinclair/Daly area of southwestern Manitoba. Approximately 1900 of Tundra’s wells, found across an area of 840 km², direct their light oil production to five battery facilities. At each of these sites, solution gas (gas dissolved in oil) is partly conserved for on-site use as fuel. In the past, the remainder gas was routed to flares due to the lack of takeaway capacity.

The approved Tundra project was designed to capture methane-rich gas from multiple sources and transport it through electrically-driven compressors to a new 20km, 6” diameter interprovincial pipeline, a joint initiative with the Steel Reef Infrastructure Corporation—a mid-sized company also supported by ERF. The project gained approval from the federal Canada Energy Regulator (CER) and successfully linked with Tundra's North Gas Conservation project. Together, the companies prevented methane emissions, complied with government regulations, and enhanced local and regional air quality.

This project resulted in a significant reduction of Tundra's flared emissions within the first year of project completion. Moreover, this collaborative effort showcased how oil and gas companies capable of processing gas could create an additional revenue stream by transporting gas and natural gas liquids to market.

The ERF’s outputs to date (status current to April 1, 2024)

The ERF has received annual outcome reports from most completed Intake 1 and Intake 2 projects. Intake 3 projects were completed by March 31, 2024.

NRCan has used an ISO Standard-certified GHG verifier to independently quantify the validated methane reductions that exceed regulatory requirements, based on data from the continuous metering technology funded by the Program for projects completed by March 31, 2023. Initial aggregated data on the achieved reductions for Intake 1 and 2 will be updated annually on the ERF website.

Program evaluation and assessment undertaken by the ERF demonstrates contributions to the Government’s methane objectives as follows:

1. Cost-effective decarbonization of upstream oil and gas in support of the net-zero target
   • The infrastructure investments made directly support the transition to zero venting and flaring. More than 97% of the Program’s methane emission reductions in CO₂e are projected to be achievable at a low cost per tonne, and fully eliminate the emissions targeted within funded operators’ project boundaries
   • Upstream methane mitigation indirectly supports the transition to lower-carbon energy production (e.g., electrification) and fuel switching
2. Improved energy sector competitiveness
   • ERF funding enabled operators to show a sustained commitment to environmental, social and governance (ESG) targets, helping to create a competitive advantage and differentiate energy products from Canada
   • Completed projects provide guidance for other companies seeking to implement their own future projects without ERF support
   • Conserving vented/flared gas contributed to increased revenues while achieving emission reductions across operators’ asset base
3. Enhanced understanding of oil and gas emissions data
   • ERF programming has been targeted to the largest operational methane emissions sources recognized by the research community. The Program used established engineering methods to estimate emissions based on component-level emission factors
   • The ERF’s mandatory performance reporting is accomplished using metered volumes of gas that was previously vented or flared. As a result, the ERF has demonstrated the feasibility of accurate MRV of reductions through continuous volumetric metering and reporting
   • ERF results will provide NRCan with valuable data on achieved outcomes, including conserved gas volumes at specific source points. This information can help to inform the future strengthening of methane policies and regulations, as well as improvements to our emission inventories

In parallel, ERF programming has delivered benefits to human health, the environment, and the economy. First, by helping oil and gas operators to invest in methane abatement throughout the COVID-19 pandemic, local employment was preserved in key regions for the oil and gas sector. Second, the projects funded are likely to have had positive impacts on local air quality, by reducing air pollutants released during venting and flaring. Finally, when compared against the program’s implementation costs and the financial costs to participating industry partners, the ERF has delivered considerable value for money, enabling projects which support Canada’s net-zero target and accelerate oil and gas sector decarbonization.