US natural gas producers are scrambling to find a home for a new wave of output that meets tougher emissions standards and could help secure the industry's place in a lower-carbon future.
They are hoping to find buyers willing to pay a premium for what is known as "certified" or "responsibly sourced" natural gas — essentially gas with lower carbon emissions associated with the production process. A third party certifies or otherwise guarantees that the means of production meets certain carbon emission targets.
Some producers already have struck deals to provide this differentiated gas to end users. But those deals are far from uniform. And questions remain about how a market for certified gas will evolve. What is clear is that a large amount of certified US gas is awaiting a home.
"The whole industry is looking for a framework" that allows the US gas market to buy and sell certified gas, said Orlando Alvarez, chief executive of BP Energy, the largest marketer of US gas. The framework for that market "is starting to build," he said.
The US boasts the world's biggest natural gas market. US gas production, which is approaching 100 Bcf/d (2.8bn m³), is collected from fields across the country. Those supplies are mingled in a vast web of interstate pipelines, placed into storage sites and ferried to power plants, industrial users and homes. It is also put on ships and dispatched to overseas markets as LNG.
The complexity of the pipeline network makes it difficult to establish a physical pricing point or to distinguish certified gas from more conventional gas production. The network of long-distance transmission lines and the local markets they serve are designed to handle gas that meet certain industry standards.
Large gas producers such as Chesapeake and Southwestern Energy have long hailed natural gas as offering a cleaner-burning alternative to other fossil fuels, because gas produces about half of the heat-trapping gases blamed for climate change as coal. Producers are now facing more scrutiny from investors over the methods used to extract gas from shale formations, as well as how their operations affect the surrounding communities. Certifying emissions helps companies appeal to buyers and address those concerns.
In August, Chesapeake said it reached a three-year agreement to supply 300mn cf/d of certified gas from the Haynesville to the 18.1mn t/yr Golden Pass LNG terminal in Texas. The contract was a first for Chesapeake.
The supply agreement was a "good step" toward recognizing what certified gas means to international buyers of LNG and helped establish Chesapeake as a preferred seller into the international market, Chesapeake's chief executive Nick Dell'Osso said on 3 August. Those sellers can demonstrate low emissions, access to long-term supplies and the connections to critical infrastructure that allow gas to reach export terminals.
Financial details of the deal were scant. The company said it could not go into the pricing details but did say that it sold the gas at a discount to a Nymex price and received a better price than putting it on a pipeline and selling it into the spot market.
Southwestern Energy, another major producer, has agreed to sell certified supplies to a subsidiary of German utility Uniper to meet customer needs in the US and demand for LNG in international markets.
French utility Engie ended talks in 2020 for LNG supplied from the planned Rio Grande export terminal in Texas amid regulatory scrutiny related to upstream emissions. The company earlier this year agreed to a 15-year deal for 1.75mn t/yr, or about 230mn cf/d, from the terminal after Rio Grande pledged to capture 90pc of its CO2 emissions through carbon capture and storage and said the acquired gas would have a certified low-emissions profile.
The gas producer-led push to move away from a homogenized market, where all gas has the same attributes and meets the same standards, may face future challenges to broad acceptance.
Without a public market and concrete standards, it will be difficult for certified gas to demand a premium price, said Matt Haggerty, an analyst with BTU Analytics. Absent that premium or pressure from investors, "you cannot expect the entire industry to move in that direction."
Ultimately, the market will be the final arbiter of what price advantage certified natural gas should have, what standards that gas will meet and whether that gas will displace supplies with a higher-emissions footprint.
