As buyers search for cleaner sources of energy, a growing volume of natural gas produced in the U.S. is being certified under responsibly sourced gas (RSG) standards.
Responsibly sourced gas, also called certified gas or differentiated gas, is natural gas evaluated by third-party standards to determine its environmental and methane intensity.
While still in its early days, the nascent U.S. differentiated gas market has seen a rapid uptick in activity. U.S. E&Ps have collectively certified nearly 30% of the nation’s natural gas under one or more of the three main industry standards, according to data compiled by S&P Global.
That’s a far cry from the early outlooks that many naysayers had for the RSG market, said Responsible Energy Solutions Founder and President Roy Hartstein, who sold the first volumes of U.S.-produced RSG while working for Southwestern Energy.
“We presented to our management team and said, ‘We have a differentiated product, we think we can sell this at a premium in the marketplace,” Hartstein said during Hart Energy’s Carbon & ESG Strategies conference on Aug. 30.
“And the president of our midstream company looked up and said, ‘It’ll never happen,’” he said.
But global demand for energy sources with lower carbon and methane emissions profiles, particularly by environmentally conscious consumers in Europe, is driving certification of U.S. gas by producers looking to export LNG.
“On the production side, I think in a relatively short period of time—two to three-ish years—we’ve seen a significant part of the sector move towards one version of certification or another,” said Ben Webster, director of policy at MiQ.
MiQ has certified methane emissions for around 20% of U.S. onshore gas production; those certifications each showed emissions of methane intensities of less than 0.2%, Webster said. The nonprofit validated gas production for major shale players including Chesapeake Energy Corp. and EQT Corp.
Ken Robinson, president at French utility Engie SA, said the bias by some European gas buyers toward the U.S. shale industry has been demystified somewhat over time.
In 2020, Engie pulled the plug on an LNG import deal with NextDecade Corp. and the company’s Rio Grande LNG export project in South Texas, citing the French government’s concerns over the project’s environmental implications.
But Engie eventually came back to the table with NextDecade following Russia's invasion of Ukraine and the threat that posed to Europe’s gas supply. The two companies announced a 15-year LNG sale and purchase agreement from Rio Grande LNG in May 2022—roughly five months after Russia's war began.
“We’re doing LNG, as well as some other Europeans, to displace Russian gas, but RSG will be something we’ll need to have,” Robinson said. “Unfortunately, when we started this journey two-and-a-half years ago, we didn’t realize that.”
“And now, despite needing U.S. gas — U.S. LNG in Europe — we still have a high bar to set,” he said. “We’re not just going to take any gas.”
Certifying the value chain
The upstream gas sector has made notable progress on lowering the methane emissions intensity of its operations. But the rest of the natural gas value chain has work to do.
The methane emissions intensity of the U.S. gas production sector alone is estimated to be 1%, according to a study by MiQ and Highwood Emissions Management analyzing over 300,000 flyover measurements across six U.S. basins. Methane intensity is typically the percent of gas emitted from operations compared to how much a supplier brings to market.
For the entire natural gas supply chain, the methane emissions intensity rises to 2.2%.
“Once you cover the full value chain—pipelines, LNG terminals, gas-fired plants—you really start to have even more of an impact,” Robinson said.
Factoring in emissions associated with gas liquefaction, regasification and shipping, the figure starts to approach 3%, Webster said.
Tim Romer, co-CEO of emissions data collection provider Project Canary, said his company measures other environmental risks associated with the natural gas supply chain, like CO2 emissions and impacts to water.
Buyers are seeking accurate, transparent third-party data to make purchasing decisions on differentiated gas, he said.
“To make this market grow, there is a real ability for the U.S. to differentiate their molecules,” Romer said. “There’s a real ability for companies to differentiate their operations.”
Scaling the RSG market
European demand for lower-emissions gas has been a major driver of the RSG market so far. Not only are power utilities buying RSG, but industrial customers are also looking into the space, Hartstein said.
But the RSG market is still voluntary, driven largely by the environmental goals of its participants. RSG proponents believe there’s much work to be done to bring more customers into the fold.
The Environmental Protection Agency’s so-called methane fee, included in the Inflation Reduction Act’s Methane Emissions Reduction Program, might push large-scale operators to clean up since it applies to entities emitting over 25,000 metric tons of CO2-equivalent per year.
California is considering legislation that would require state agencies to prioritize strategies to reduce methane emissions where feasible and cost effective, including emissions from imported natural gas.
Webster argues that more needs to be done to prioritize lower-emissions gas procurement by public utilities commissions (PUC) across the nation. PUC rules typically focus on purchasing the lowest cost energy resources in an attempt to reduce costs for ratepayers.
“I think that PUC rules really have to change in order to take into account the climate change scenario we’re in right now,” he said.