Several recent announcements by midstream natural gas operators could lead to the ability to move natural gas certified for environmental friendliness directly from producers to end-users.
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With natural gas drawing increasing scrutiny for its emissions footprint, the industry has responded with a cleaned-up version of its traditional product: certified gas. While a universally accepted definition has yet to emerge, broadly this means gas that has been verified by an independent third party to have been produced in a manner consistent with certain environmental, social and governance standards.
Methane emissions have emerged as a key performance metric for certified gas, with an emphasis on monitoring and measurement.
Producers, such as Southwestern Energy and EQT in Appalachia, were among the first to embrace the concept during the first half of 2021. Since then, interest in certified gas among producers has expanded to the Haynesville Shale with Chesapeake Energy and its pending acquisition of Vine Energy, and most recently, to the Permian Basin where ExxonMobil intends to certify a facility in New Mexico.
Although a handful of utilities have signed deals to purchase certified gas, the demand side of the market has generally been enthusiastic but skeptical. Some end-users have told Platts they prefer physical molecules as opposed to offsets. But without dedicated pipeline capacity to carry certified gas, there was no way to ensure they were getting the cleaner molecules.
That barrier might be about to fall, with midstream operators announcing intentions to dedicate capacity to transport certified molecules to end-users:
- DT Midstream has proposed expanding its Haynesville gathering, boosting and transport system and creating a "carbon-neutral wellhead to water" service for certified gas to flow south to LNG exporters, according to a Sept. 30 presentation. The midstream operator's LEAP pipeline already provides a potential route for Chesapeake Energy's soon-to-be certified Haynesville production to flow directly toward the Cameron and Sabine Pass LNG export facilities. Under the proposal, electric compression would be provided by renewable generation and facilities would be paired with carbon capture and sequestration.
- Tallgrass Energy inked a multi-year partnership with Project Canary to assess and certify the bidirectional 4.4 Bcf/d Rockies Express Pipeline to a standard focused on environmental stewardship, operational practices and real-time emissions detection and monitoring. A major objective of the partnership is to "enable tip-to-tip certification and tracking of gas molecules," according to a Sept. 28 statement. This will be facilitated by REX dedicating specific capacity to transporting certified gas from Appalachia to Midwest markets.
- Kinder Morgan announced earlier that its Tennessee Gas Pipeline would partner with Southwestern Energy to transport its certified gas in Appalachia to "benefit a large market in the Northeast," according to a Sept. 21 press release. Southwestern partnered with Project Canary in mid-June to certify approximately 3 Bcf/d of Appalachia gas production to its IES TrustWell standard, continuing a relationship that dates back to the first known certification deal in 2018.
In addition to formal proposals, representatives from other major midstream operators, such as Williams – owner and operator of Transco Pipeline and Northwest Pipeline – and Boardwalk Pipeline Partners – owner and operator of Texas Gas Transmission and Gulf South Pipeline – mentioned interest in certified gas at the Oct. 12 LDC Gulf Coast Forum.
There have been two distinct certification waves: in 2018-19 and 2021. One of the earliest certified gas transactions took place in 2018 between Southwestern Energy and utility New Jersey Resources, with IES – now part of Project Canary – certifying to its TrustWell standard.
Currently, there are three major standards:
- Project Canary's TrustWell Certification: IES was the original gas certifier and merged with Colorado-based continuous monitoring firm Project Canary in 2020. The TrustWell Certification assesses data points in 24 operational categories, ranging from water management to well integrity. It is frequently paired with the deployment of Canary X methane continuous monitoring sensors.
- Equitable Origin's EO100: Equitable Origin is the most qualitative of the three standards, focusing on Indigenous People's rights, corporate governance and ethics, fair labor and working conditions, climate and biodiversity, as well as community engagement. This standard does not include a methane emissions measurement component, which has led Equitable Origin to partner with MiQ on several certification deals.
- The MiQ Standard: MiQ -- which is a partnership between RMI, formerly the Rocky Mountain Institute, and SYSTEMIQ, a global sustainability consultancy, grades on methane intensity, technology deployment, and operational best practices. MiQ's focus includes developing an international governance framework for certified gas, in reflection of the increasingly global gas market.
Certification first took off in Appalachia in 2021. Environmental Protection Agency data shows that Appalachia has the lowest natural methane intensity of all production regions in the contiguous United States. Starting with a lower methane intensity lowers the bar for the production to meet certification standards.
- EQT, the largest US gas producer, has taken an expansive approach to certified gas, announcing a pilot program to certify two well pads with Project Canary in January, followed by a deal in April with MiQ and Equitable Origin to certify 100%, or approximately 4 Bcf/d, of the company's Marcellus production. Because no market consensus has been reached about what kind of certification will best attract buyer interest, EQT has covered all the bases with this strategy.
- Northeast Natural Energy signed a deal in May with MiQ and Equitable Origin to certify a production field in West Virginia, using Baker Hughes LUMEN Terrain ground-based sensors on one well pad for an emissions monitoring pilot.
- Range Resources announced a pilot program in June to have Project Canary certify gas from two well pads in southwestern Pennsylvania. An unspecified European multinational energy utility contracted with Range to buy the gas, according to the June 15 press release.
- Southwestern Energy, a first mover for certified gas, made public a deal with Project Canary in late June to assess the entirety of its 3 Bcf/d of Appalachia gas production. This commitment signified the largest deployment to date of Project Canary's continuous monitoring technology.
- Chesapeake Energy was the next regional producer to announce that it would certify 100% of its approximately 1.3 Bcf/d of Appalachia gas production. The company partnered with MiQ and Equitable Origin, with the certification expected to be completed in the second quarter of 2022.
- Antero Resources signed with Project Canary for a pilot program to certify two well pads in late July, with the certification expected to be complete by the first quarter of 2022.
- Seneca Resources announced in early September that it would work with Equitable Origin to certify all of the company's Appalachia gas production. The company also signed a smaller certification partnership with Project Canary to install continuous monitoring at three well pads and certify 300 MMcf/d to the TrustWell Standard.
With its proximity to US LNG export facilities and the basin's naturally low emissions intensity, the Haynesville Shale in northern Louisiana and East Texas has emerged as a second major basin for certified gas.
- As part of Chesapeake Energy's mid-July announcement that it would work with MiQ and Equitable Origin to certify its Appalachia production, the company also made plans to certify 100% of the company's Haynesville production by the end of 2021.
- Vine Energy, which is to be acquired by Chesapeake through a deal announced in August, also pursued certification, working with Project Canary to deploy Canary X sensors and certify its 1 Bcf/d of production to the certifier's TrustWell standard.
- TG Natural Resources, which is jointly owned by Japanese utility Tokyo Gas and commodities merchant Castleton Commodities International, announced a pilot project with Project Canary Oct. 4 to install continuous emissions monitors on a number of Haynesville well locations. The wells will also undergo TrustWell certification.
In addition to Appalachia and the Haynesville, the Permian, Denver-Julesburg and Green River basins have each also had at least one producer seek certification so far this year. Outside of the US, Canada has also seen several certified gas deals, supported by Quebec gas distributor Energir's Initiative for Responsible Procurement of Natural Gas.
As of Oct. 14, companies had committed to certifying nearly 7 Bcf/d of production by the end of the year, according to a Platts survey of certifiers. An additional 5.3 Bcf/d is anticipated to come online in 2022, bringing the total to 12.3 Bcf/d, or around 14% of US gas production. The full amount of certified gas coming online is likely slightly higher, as a number of pilot projects have not disclosed their expected volumes.
Beyond physical transactions, certificates for environmental attributes – similar to Renewable Energy Certificates, or RECs, in electricity markets – are another possible route for certified gas market development. Platts launched Methane Performance Certificates Oct. 4, with Xpansiv hosting the registry. The Platts MPC methodology provides a framework and path forward for producers whose certified gas meets certain parameters to mint certificates through Xpansiv. These certificates can then be traded on the exchange and monetized. MiQ also has plans to issue certificates in a registry.
The strength of end-user demand for certified gas – either physical molecules or certificates – will determine whether this nascent market takes off or fizzles. Regulated utilities are scrutinized by state commissions on how much they pay for gas and pass through to ratepayers. This suggests LNG exporters are to be the real first-movers in certified gas as they seek to satisfy the environmental demands of offtakers in Europe and Asia.
Already, LNG export developer NextDecade signed a deal with Project Canary in April to certify its proposed 27 million mt/yr Port of Brownsville facility, Rio Grande LNG. The agreement could help the project secure sufficient offtake agreements for NextDecade to take FID.
Steep competition for LNG cargoes ahead of an undersupplied winter market might delay LNG sourced from certified gas in the near term, but the momentum of energy transition and increasing availability of both certified gas and dedicated pipelines to transport it means that it may only be a matter of time.