Sign in to get the best natural gas news and data. Follow the topics you want and receive the daily emails.

Energy Transition | NGI All News Access | NGI The Weekly Gas Market Report

Despite its somewhat hazy parameters, the certified natural gas market could experience strong growth this year, according to experts. 

Dustin Meyer, vice president of Natural Gas Markets for the American Petroleum Institute (API), told NGI he sees a “quite profound” opportunity for certified, aka responsibly sourced gas (RSG), “because…it allows buyers and sellers in a credible way to develop means to ensure that gas really can be part of the low-carbon trajectories they’re on.”

The array of differentiated gas designations collectively could also be called environmental, social, and governance (ESG) gas, highlighting adherence to criteria by buyers and sellers. The differentiated gas is positioned to command a premium price to account for the ESG association.

[Business Process Optimization: Are you an NGI data subscriber? You can sync your data automatically and easily. Find out how. ]

NGI’s Patrick Rau, director of Strategy & Research, said “pledging to reduce flaring and lower methane emissions to miniscule levels” is the primary driver for exploration and production companies to embrace gas certification. For buyers, meanwhile, the main benefit is “being recognized as purchasing certified natural gas,” Rau added.

“Are they doing this out of the goodness of their hearts? Sure, at least to some extent,” Rau said. However, buyers and sellers of certified gas “both benefit from achieving better ESG scores from the multitude of emerging rating agencies.”

Rau pointed out that improved ESG scores can yield financial benefits. “For example, some publicly traded companies won’t be on the radar of the investment community and may not have the same access to capital, or at least not on as favorable terms, without satisfactory ESG scores.”

There are several prominent certification agencies for ESG gas in North America, some of which include Equitable Origin, MiQ and Project Canary. Oil and gas producers have made deals with the entities, each applying different standards, to certify some of their gas supplies.

Also, the Gas Technology Institute’s Project Veritas initiative is seeking to “standardize” the process of measuring and reconciling factor-based and observed emissions, said executive director Jim Kibler of Our Nation’s Energy Future, also called ONE Future. Project Veritas “has the promise of adding materially to the science,” he said.

Kibler added the United Nations Environmental Programme’s Oil and Gas Partnership is “staking a strong claim in this space” with its methane emissions reporting initiative. The collaboration is “building in a process for measurement, reconciliation and verification that could help create something approaching an international standard for methane emissions certification.”

Standardized criteria would build the credibility for certified gas among suppliers and buyers and help to inform policymakers and regulators, Meyer said.

API has been “agnostic in terms of what platforms or which purveyors end up being some of the leading entities here,” he said. “But I do expect that inevitably, yes” there will be more standardization in terms of what constitutes certified gas.

Coupled with pending Environmental Protection Agency (EPA) methane regulations on new and existing gas production sites, gas certification should boost the standing of U.S.-sourced supplies on the world stage, Meyer said.

“I think that really positions the United States out there among all of the suppliers of natural gas as being at the absolute forefront of producing gas in a way that is as clean as possible and as transparent as possible,” he said. “And I think that that’s a pretty powerful development that we can look forward to this year.”

EPA has estimated its regulations would curb methane emissions by about 41 million tons by 2035.

“That is something that API, in the industry, we fully support…having a very rigorous, very stringent methane regulation that kind of sets the baseline right,” Meyer said.

The Biden administration has also touted orphan well plugging and new pipeline rules as ways to limit methane emissions.

Kibler told NGI that he sees “strong producer response to early signals of market demand” for certified gas.

He also said policymakers and regulators are taking steps to accommodate growth in the ESG gas market. For instance, he noted the National Association of Regulatory Utility Customers included a panel discussion on the topic at its Winter Policy Summit this week.

“Most states have some form of policy dating back to the energy crisis of the 1970s that imposes collars on local distribution company gas purchases from a price perspective,” Kibler said.

He added that “very few states“ have enacted a gas purchase policy that encourages a life-cycle analysis of cost, such as finding the upside for consumers when their local distribution company (LDC) shields them from climate regulation risk. 

Though “many LDCs are socializing the concept with their regulators” via certified gas pilot projects and other announcements, the deals largely represent “a fraction of an LDC’s load,” Kibler said.

LDCs rely on bilateral contracts with producers that are “designed to support longer term minimum daily forecasted load, and most LDCs have load curves associated with winter peak days,” he said.

“Week-ahead, day-ahead and intra-day deals to support varying winter loads are much harder, if not impossible, to do with bilateral producer-LDC contracts,” Kibler said.

He noted that “some physical disconnect” exists between certified gas supply and market areas. Although methane emissions trading platforms might help to bridge the gap, the lack of a single certified gas standard represents a “key issue” that raises questions “about which standards are appropriate…

“Convergence of standards is a necessary utility for broader adoption, and we are seeing that accelerate,” he said.

Although the supply side has commanded considerable attention in market development for certified gas, Meyer said the demand side continues to materialize. 

“I think a lot of the interest is going to come on the buyer side, you know, through this year and going forward after that,” he said.

The liquefied natural gas (LNG) sector has emerged as an early demand-side certified gas adopter. LNG players have made strides toward common ground on better tracking and limiting the greenhouse gas emissions associated with cargoes.

“I think what’s happening is you’re seeing this expansion of interest from the LNG buyers,…especially a lot of the European LNG buyers,” Meyer said.

He noted that electric utilities, which “need to have natural gas in their portfolio to ensure reliability for the long term,” are showing interest in certified gas. 

“They want to build a lot of renewables,” he said. “They want to build a lot of wind and solar, they recognize that they’re probably going to have to limit their coal assets or close on the coal assets, but they know that they’re going to need natural gas to maintain reliability.”

Besides electric utilities, pipelines have also shown interest in gas certification.

Meyer suggested a significant learning curve may exist, opining that “a lot of buyers out there…may not even fully understand” what certified gas represents. But once they do,…they’ll recognize that this is a tremendous opportunity.”

The relatively high cost of certified gas, however, makes it more tangible to larger companies.

For the certified gas market to evolve to something more formidable, it might need “just a bit more time,” Rau said. He expects certified gas to soon become “the majority” of U.S. natural gas production  “and will very likely become a license to conduct business.”

Physical market transactions that “we know about to date” have consisted of longer-term deals between direct parties, Rau said. However, “if certified gas becomes the majority of production, then those deals will necessarily begin to trade in the general spot market, and therefore that gas will be accessible to everyone.”

© 2022 Natural Gas Intelligence. All rights reserved.

ISSN © 1532-1231  |  ISSN © 2577-9877  |  ISSN © 1532-1266  | 

Related topics: certified natural gas RSG

email matthew.veazey@naturalgasintel.com

Daily Gas Price Index – Trending

NGI’s Daily NatGas Price Tracker

Listen to NGI’s ‘Hub and Flow’

With drought conditions set to continue in the coming months – and likely intensify in some areas – more than half of the United States and portions of Canada could struggle to meet electricity demand this summer in the event of extreme heat, according to the North American Electric Reliability Corp. (NERC). The Midcontinent faces…

Believing that transparent markets empower businesses, economies, and communities, Natural Gas Intelligence (NGI) provides natural gas price transparency and key news, insights and data for the North American energy markets.

1.800.427.5747 info@naturalgasintel.com Washington DC | New York | Houston | Pittsburgh | Mexico City Calgary | Chile

© 2022 Natural Gas Intelligence. All rights reserved.

You have 3 free articles remaining. Get access to 100,000+ more news articles & industry data.

View Subscription Options Sign In