20 Oct 2021 | 11:20 UTC — Insight Blog
Methane performance certificates to bring price transparency to emission reduction efforts
Featuring Ira Joseph
Over the last 15 years, the global move away from coal has led to a surge in global natural gas demand. However, with that transition, it has become clearer that methane emissions from natural gas production, transportation, and end-use have exacerbated global heating.
Methane, the primary component of natural gas, is around 85 times more potent a greenhouse gas than carbon dioxide when released into the atmosphere unburned. And both oil producers and natural gas producers release a lot of it.
While flaring and venting are the most well-known of these sorts of emissions, they are far from the only ones that occur throughout the day-to-day operations of gas production facilities. Even small and inadvertent emissions — often called "fugitive" emissions — can add up through leaks, venting, and incomplete flaring. These losses can quickly negate any of the relative climate benefits of utilizing natural gas over other fossil fuel alternatives.
Effectively measuring and reducing emissions across natural gas production will be critical if gas is going to continue to play any role as a bridge fuel for decarbonization moving forward.
After months of research, S&P Global Platts introduced its new methane performance certificate (MPC) assessments on Oct. 4, further expanding out its family of carbon-oriented price assessments and adding to its suite of energy transition products focusing on decarbonization.
MPCs represent a volume of avoided methane emissions based on the methane intensity percentage of natural gas produced, with each MPC representing 1 MMBtu of zero methane emissions in natural gas production.
These new price assessments offer the market a transparent way to value and price the effort being placed on reducing emissions from US and Canadian gas production. MPCs will create a valuable pricing tool for gas producers to reduce emissions by creating a fungible certificate market, which reflects how their operations will meet the highest standard for detecting, measuring, and managing methane emissions.
Platts' new assessments coincide with Xpansiv's launch of Methane Performance Certificates, which can be freely traded via the company's exchange platform.
The Platts assessments reflect certificates that have been issued for production that is below a 0.10% methane intensity threshold. Market engagement, as well as Platts analysis of existing reporting data from the US Environmental Protection Agency, has indicated that only about 45% of US gas production (around 45 Bcf/d) meets this threshold.
Until now, the standard for measuring methane emissions was the annual Subpart W data released by the US EPA. Platts has used this data when determining the distribution of methane intensity across upstream natural gas production. Subpart W data is self-reported, frequently estimated, and largely unaudited. This has prompted concerns that it could significantly underestimate the volume of GHG emissions truly generated in upstream natural gas production.
However, even when looking at this estimated data, a wide spectrum of methane intensity remains across different natural gas producers. Based on Platts analysis of the latest available data, the industry average on methane emissions of 0.437% is considerably above the threshold established by Platts. The 0.437% industry average is derived from EPA official US Inventory of GHG emissions data.
Platts MPC assessments are designed to move away from this reliance on self-attestation of estimated emissions, and towards one that uses dynamic sets of measured data monitored and audited by an independent third party. Both the third-party and dynamic nature of this offers a significant step change in the credibility of monitoring and reducing emissions in the gas production process.
Xpansiv's platform requires third-party verification of upstream methane emissions to generate certificates, provided a producer's estimated CI already meets the 0.10% Platts threshold. Xpansiv maintains an independent governance process regarding the verification of production and methane intensity.
MPCs will also create a pricing environment that will incentivize the reduction of emissions in the gas production process. Upstream production accounts for roughly 60% of all methane emissions in the terrestrial gas value chain and is therefore an important area of focus for energy transition.
By actively metering gas production data and site-specific emission factors, a new level of trust can be established in monitoring the lifecycle of future output. MPCs will help align gas producers and consumers with emerging ESG targets and climate commitments tied to changes in shareholder, management, and employee values. In pricing MPCs, Platts creates a clear and transactable market price for the value associated with raising the bar on producing and consuming gas in a more commercial and environmentally sensitive way. The number of risk management applications created by the existence of MPCs are boundless.
Further, buyers will be afforded the opportunity to reduce the carbon intensity of gas purchases through a certification system that will allow for the establishment of a broader standard that can transcend the regional borders that have previously constrained liquidity and market growth. Now a New Jersey utility can buy MPCs from a Colorado gas producer to meet its methane emissions reduction targets.