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Pressured gas sector urged to probe segments across value chain to cut emissions


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Pressured gas sector urged to probe segments across value chain to cut emissions

From production to end-use, pressure on the gas industry to curb emissions is driving companies all along the value chain to take a hard look at their operations.

The financial community has turned up the heat on the oil and gas sector, pressing the industry to cut its greenhouse gas emissions. And companies in the space are responding.

The number of large European and North American oil and gas companies making pledges to reach net-zero greenhouse gas emissions by 2050 or earlier continued to climb in the first half of 2021, with Canadian companies, in particular, adding to their ranks, an S&P Global Market Intelligence analysis of the industry's emissions pledges found.

The analysis found European majors, such as Royal Dutch Shell PLC and BP PLC, continue to be more likely to have made net-zero pledges than their U.S. counterparts, including Exxon Mobil Corp. and Chevron Corp.

But recently both U.S. majors have been the target of shareholder activism tied in part to climate concerns. Shareholders, aligned with previously passive index funds such as BlackRock Inc., voted against management to name new board members at Exxon and demand that management at Chevron develop new plans for a low-carbon energy future. Exxon and Chevron's current climate goals call for reductions in greenhouse gas emissions but are well short of the net-zero ambitions of the Europeans.

For the U.S. upstream natural gas industry, the transition to a low-carbon energy future raises tough questions about environmental impacts and measures to mitigate them. The shift also threatens to end nearly 20 years of growth in gas production.

The low-carbon narrative has become a recurring theme among upstream companies and their investors, cropping up across conferences, investor presentations and earnings calls. In the 2020s and beyond, that narrative promises to dramatically alter the shale gas producer business model.

As boardrooms and legislatures now scrutinize the carbon costs of drilling, the producers' mandate is one of discipline and stewardship. First and foremost, low-cost, maintenance-level production will remain key to survival. Beyond that, though, intensive carbon-tracking and emissions reductions will likely become critical to success.

For U.S. LNG, while natural gas could continue to play a key role in a decarbonized global economy, there might be significant regional differences and conflicts with local decarbonization goals that could influence the sector's future, according to a study from the research nonprofit organization Energy Futures Initiative.

The study, released June 14, summarized a series of regional expert workshops focusing on the place of gas in a world committed to deep reductions in carbon emissions by midcentury. One takeaway: North American LNG is an attractive fuel in other regions of the world, but carbon abatement policies will increasingly influence the future of the fuel.

"We think it's going to have a significant role, and yet there is an obvious tension as we get more and ambitious," said former U.S. Energy Secretary Ernest Moniz, the CEO and founder of the Energy Futures Initiatives, during a launch event hosted by the think tank Atlantic Council. "Even in a country like the United States with a substantial amount of coal left which could be displaced, the reality is that natural gas is a significant contributor overall to carbon emissions, and that will have to change, at least in terms of unabated natural gas combustion over time."

The downstream gas segment's eyes are turned towards renewable natural gas, or RNG, and One Gas Inc. executives believe the path to greater RNG demand in Texas, Oklahoma and Kansas runs through the states' factory floors and tech firms.

The Tulsa, Oklahoma-based gas distributor is homing in on industrial and large business customers as potential off-takers for RNG projects that One Gas aims to develop. These customers could provide a crucial demand base that helps to drive uptake and collapse the cost of the pricey fossil fuel alternative.

"Everybody knows RNG is more expensive than wellhead gas, so you have to find a party that's trying to solve a different problem," One Gas Senior Vice President and Chief Commercial Officer Curtis Dinan said in an interview at the American Gas Association's virtual Financial Forum.

This problem is the challenge of meeting publicly announced goals for greenhouse gas emissions reductions, Dinan said. RNG is pipeline-quality biofuel refined from methane waste sources like farms and landfills. It presents a pathway to decarbonization, but it costs roughly $5/MMBtu to $15/MMBtu compared to benchmark natural gas prices of roughly $3/MMBtu.