Third Party Certification of Natural Gas in North America
Published 8th September 2021
by David Stent, Content Manager, Energy Council
As the energy industry commits to energy transition and net zero strategies, it has begun to identify a range of new business opportunities and niches that align with investors’ increasingly stringent ESG criteria and can support the shift to a cleaner, more sustainable energy landscape. The emergence of carbon trading, for instance, has created a market for companies to practically reduce their carbon footprint and profit while doing so. Similarly, EV penetration looks set to turn the motor industry on its head over the coming decades. However, the world cannot turn its back on Oil & Gas, as withdrawing investment from the industry will not force an energy transition; it will simply force a supply crisis and compound emission intensity among those who remain in the space. Focus must instead be placed on producing the natural resources that the world needs in the most responsible manner possible, and third party measurement and verification are the key to defining the environmental standards for energy production, picking out the good from the bad and changing the rhetoric surrounding the industry.
Natural gas and LNG have been earmarked by many nations as the “bridge fuel” – a low carbon alternative to oil and coal that can support industrial growth until alternative energy solutions can be deployed at sufficient scale to meet the world’s energy needs. China is set to double its gas demand by 2030, together with the expanding ASEAN economies, and the United States will be the primary supplier to these markets. However, traditional natural gas production has significant methane emissions and many argue that it is losing its credential of being a transition fuel. While many of these emissions can be mitigated, third party measurement and certification is required to hold producers accountable and demonstrate to financiers, investors and regulators that emissions reductions are being taken seriously.
While still a relatively nascent concept, progress is being made and the first movers are starting to set a precedent for others to follow. For example, the first certificate was recently issued to Chesapeake Energy Corporation for their efforts in monitoring and measuring emissions across Appalachia and Gulf Coast Basins.
Problems with Gas Production
Finding appropriate methods that will allow nations to maintain their economic growth objectives, while simultaneously shifting to cleaner energy solutions has become a core focus for energy and geopolitical security. On one hand, the demands for greater adherence to ESG principles and the energy transition may appear to create barriers to growth. On the other hand, the consequences of insufficient action will undoubtedly prove to be far more damaging and disruptive to economic and social prosperity over the long term.
Methane emissions are the core problem for natural gas producers; although their half-life in the atmosphere is significantly shorter than carbon dioxide, the heating intensity capacity is far greater. A large part of this concern is natural gas venting and flaring, the process by which unwanted gas is released directly into the atmosphere instead of being reused on site or reinjected back into the ground.
According to the IEA, the quantity of gas flared in 2018 (145bcm) was ‘broadly equal’ to the entire gas production of Africa. Not only is this inefficiency damaging the atmosphere, but it is doing the world a disservice as a finite natural resource is lost at the source. Bans on gas flaring and venting have come into effect across many states, with the Biden administration reinstating federal rules on methane leakage established under Obama, but the industry needs to go further and take responsibility upon itself.
This has no doubt caused consternation among traditional energy players and states who are seeking to overturn the federally imposed restrictions. Regardless, it has shown a need to develop a more sustainable and efficient sector through integrating gas infrastructure capable of utilizing, rather than wasting, natural gas.
Why measurement solves these problems?
Gas is facing a fork in the roads; one path takes it down the route of coal and oil production, the other is the bridge to a revised energy landscape. However, in the complex political environment of the USA it takes time to mandate regulation across the board. In lieu of this, standardized certifications can fast-track corporate compliance to aid climate action.
As with any corporate enterprise, regulatory reporting is necessary to ensure financial compliance, in the energy sector this is already expanded to include a range of environmental compliance too. With the emergence of ESG regulations, the reporting requirements will continue to expand to align national commitments to the Paris Climate Accords. However, there is a distinct lack of standardization in the measuring and thereafter, the auditing of greenhouse gas emissions.
If a gas producer adheres to emissions reductions and ESG regulations, they can obtain a Responsibly Sourced Gas (RGS) certificate. These would then be audited similarly to how any financial reporting would be. Acquiring an RGS certificate means a company has produced a premium product, one that is actively seeking to reduce GHG emissions through integrating more efficient processes, reducing or stopping gas flaring and powering production with renewables – with the intention to reach net-zero emissions.
RSG establishes a domestic industry standard for achieving supranational climate goals, and while some producers remain skeptical and committed to traditional practices – in the medium-to-long term it will be those who adapt and embrace innovation that will interest industrial and commercial buyers who must also respond to increasing environmental pressures and adhere to ESG expectations.
While on the surface this may appear to many management teams and their investors to be an expensive solution for an already capital intensive industry, it will bring about more sustainable practices and there can be no questioning the long term benefits that embracing this change will bring, and must be embraced as part of the structural change that the industry is going through.
Who is measuring? Case studies on early adoption
This is where the likes of MiQ, Equitable Origin and Project Canary have stood out as third-party certifiers, providing their capabilities to quantitatively measure emissions, test leak detection and provide qualitative assessment of broader ESG compliance.
Recently, Chesapeake Energy Corporation became the first natural gas producer to be handed an RGS certificate for their efforts in monitoring, measuring and reducing their GHG emissions. The company began a pilot project in partnership with Project Canary, to develop a broader ESG policy structure. Following this successful trial, Chesapeake integrated the MiQ methane monitoring technologies on their Gulf Coast and Appalachia Basin operations. Additionally, introducing Equitable Origin’s ‘EO100™ Site Certification’ framework that engages the concerns of stakeholders to ensure the ‘Social’ & ‘Governance’ aspects of ESG are attended to alongside the ‘Environmental’.
MiQ – is an “independent, not-for-profit partnership between RMI and SYSTEMIQ aiming to facilitate a rapid reduction in methane emissions from the oil and gas sector.” The company grades gas producers across upstream, LNG and pipeline operations depending on the level of their emissions as a percentage of gas produced, from Grade F (≤2.00%) to Grade A (≤0.05%). Intensity levels greater than 2% are not considered for verification.
Equitable Origin – The Equitable Origin System drives positive change that reduces the social and environmental impact of energy development operations by fostering stakeholder dialogue and helping companies measure and benchmark their performance against the EO100™ Standard.
Project Canary – Has developed a platform and technologies to obtain the ‘TrustWell certification’ – a framework that monitors and analyses the data “pertaining to inherent risks and control measures. The data is then separated into the categories of Water, Air, Land, and Community.” Once the data is separated, the framework will ascertain certification based-off its “Performance Score and Inherent Profile.” The rating comes in four classes: Rated, Silver, Gold and Platinum.
Chesapeake has emerged from a difficult year like many other major producers due to Covid demand decline, staving off bankruptcy and now, reinventing itself as the producer of premium “green’ natural gas. The intention is set the company apart from the crowd, reclaim the position as a market leader and in that role, lead the industry toward better, more sustainable practices. Net-zero can be achieved by natural gas producers who show the right impetus and they will more likely than not reap the rewards.
Join us at the Northam Energy Capital Assembly on the 14th October 2021, where our panel of experts will be discussing the topic of The Role of Third Party Certification in Establishing a Premium Natural Gas Market in even greater detail.
- Nick Dell’Osso, Executive Vice President & Chief Financial Officer, Chesapeake
- Mark Moyer, Vice President – Natural Gas, EQT
- Soledad Mills, Chief Executive Officer, Equitable Origin
- Lara Owens, Manager Methane Intelligence, Rocky Mountain Institute
- Roy Hartstein, Managing Director, Responsible Energy Solutions
North America Energy Capital Assembly
Returning to Houston in 2024
The most senior & influential finance and investment meeting for the North American E&P sector.