Fugitive Emissions

Engagement follow-on from Safeguard work

In our last report, we wrote about our work to map listed companies to the safeguard mechanism facilities list and our initial observations.

Since then, we have started to extend our conversations with portfolio companies impacted to understand what technologies they have available to them to reduce and mitigate fugitive methane emissions, what those technologies cost and when they are likely to be available at scale.

As a quick recap, over 20% of the total emissions covered by the facilities list in 2023, over 20% were linked to coal mining activities.

Source: CER, Longwave (2023)

Of these, there are several companies in our portfolio that are included in the facilities list and face required emissions reductions.

Source: Longwave, company reports (Mar 2024)

Two types of fugitive emissions mitigation technology, still in commercial development:

Fugitive emissions are gases released unintentionally during the extraction, processing, and transportation of fossil fuels. Methane (CH₄), a potent greenhouse gas, is the primary focus due to its global warming potential being 25 times greater than CO₂ over a 100-year period. Several Australian organizations, including the Commonwealth Scientific and Industrial Research Organisation (CSIRO), universities, businesses, and government entities, are working together to address this issue through innovative technology trials aimed at reducing these emissions.

There are two primary methods for dealing with these fugitive emissions:

• Methane capture and utilization technology. Methane drainage systems are enhanced to capture the gas before it enters the atmosphere. This captured methane is either flared or, increasingly, used to generate electricity. This mitigation technique has economic barriers to use, however.  The installation and maintenance of methane drainage systems, such as boreholes and capture pipelines, require significant capital investment. The economic feasibility of these systems depends on the volume of methane captured, and in some coal seams, methane concentrations are too low to justify large-scale drainage operations.  Furthermore, methane drainage systems add operational complexity to mining activities. Borehole drilling must be carefully managed to avoid disruptions to mining operations and ensure worker safety. Additionally, managing gas flow and maintaining the integrity of the drainage infrastructure can be technically challenging, requiring specialized expertise and resources.
• Treatment of Ventilation Air Methane (VAM), which is methane diluted with air and typically vented from underground coal mines.  CSIRO and other research organizations are testing oxidation technologies such as regenerative thermal oxidation (RTO) to destroy methane in VAM. These systems convert methane to CO₂ and water vapor, significantly reducing its environmental impact. Companies like MEGTEC, working with Australian coal mines, are also trialling large-scale VAM oxidation systems to assess their feasibility in commercial mining operations.

VAM thermal reactor technology works by oxidising almost all the methane (>99%) in a combustion chamber heated to approximately 1000º Celsius. At this temperature the methane is converted to water and carbon dioxide (CO2), which has a significantly lower warming potential than methane. A key feature of the technology is its ability to be self-sustaining as it doesn’t need additional energy to maintain the temperature in the combustion chamber. (NSW Resources Regulator report). 

This current commercial version of VAM has significant drawbacks.  Because of the high temperature they operate at, the systems have significant maintenance requirements and safety issues on a mine site.  They are also unable to process very dilute VAM streams (i.e. mine ventilation exhaust with low methane concentrations).  More effective, catalytic converter technology that processes dilute VAM at lower temperatures has been developed by CSIRO.  Their recent 2023 pilot trial at a South32 site found that “compared to the case of no VAM mitigation, when processing 0.1 vol% VAM, the reductions of CO2 emissions were 63.8 and 67.6% for 90 and 95% methane conversion, respectively. The higher the VAM concentration is, the more significant CO2 emissions reductions the catalytic VAMMIT can achieve” (Source: CSIRO S32 VAM Project Final Report 2023).

Australian company participation in commercial VAM is limited, many are testing solutions:

We have recently had conversations with three of the coal miners with a view to understanding what their plans are around implementing technology to comply.  We’ve learnt the following so far:

• Not all coal mines are the same – depending on the seam and the location a coal mine can be more or less Co2 equivalent heavy (content of methane).
• Open cut mines are harder to deal with from an emissions perspective. Where-as underground coal mines include de-gassing and ventilation in their BaU mine plans, open cut coal mines require an entire mind-set shift in terms of mining execution and design.  They need to be de-gassed ahead of the mining schedule which can present logistical challenges if a mine-plan is already in train.
• VAM technology appears to be the solution of choice at this point for underground coal mines, but companies indicate that this has challenges from a safety and technical perspective.
• In most cases, companies have not paid for the capital expenditure for pilot or test systems. CAPEX funding has come from government grants.
• Companies are reticent to discuss observed or predicted economics of the technology. We see this as an area to continue the research as future capex vs ACCU purchase obligations will need to be considered in financial models.

Voting Observations

In the year to 30^th June 2024 we cast 632 ballots for 123 company AGM’s.  Of those, 18% were AGAINST votes, but this hides the fact that we voted against at least one resolution in 42% of the AGM’s we voted on.

Many of these AGAINST votes (again) related to Remuneration practices (both Remuneration reports and Equity issuance to executives or board members).

Download the complete ESG Observations and FY2024 Proxy Voting Report