European gas supply crisis amplifies US market debate on regulation, climate goals

The US natural gas industry faces a delicate balancing act in offering energy security to Europe and the world while still meeting tough new climate challenges that require greening the gas stream.

Over the past week, Russia's invasion of Ukraine has been something of a wake-up call for western European nations, raising alarm over the Continent's dependence on Russian energy supply.

Germany is among the most exposed of the western European countries; last year, Russia's state-controlled Gazprom sold more than 50 Bcm of gas to Germany, or about 4.9 Bcf/d. Net gas imports to Germany in 2021 totaled about 84 Bcm.

With other European nations facing varying degrees of exposure to Russian energy dependence, the US and its allies are facing growing calls to respond to the crisis by offering Europe new, diversified sources of energy supply.

On March 1, in an emergency ministerial meeting of the International Energy Agency, member counties announced a decision to collectively release an initial 60 million barrels of oil from strategic petroleum reserves, with US President Joe Biden pledging roughly half of that volume from the US SPR.

"We will continue advancing ongoing efforts to accelerate Europe's diversification of energy supplies away from Russia and to secure the world from Putin's attempts to weaponize energy supplies," Secretary of Energy Jennifer M. Granholm said in a statement released by the Department of Energy.

Industry, Republicans respond

In a statement published just hours before President Biden's State of the Union address March 1, American Exploration and Production Council CEO Anne Bradbury said, "American energy can and should be encouraged to support our allies, undermine rogue regimes, and support low-energy prices."

The industry group called on the Biden administration to ensure continued US production offshore and on federal lands, to promote sensible, cost-effective methane regulations and to support infrastructure expansions needed to move energy from the wellhead to customers.

Infrastructure expansions have been a key component of calls made by Senate and House Republicans. On Feb. 28, Republican Senators Bill Cassidy of Louisiana, Marco Rubio of Florida and Mike Rounds of South Dakota called on Congress to pass their "Expediting Natural Gas Exports to Allies Act." That same day, ranking Republican members on the House Energy and Commerce Committee and House Committee on Natural Resources introduced separate legislation targeting a permit approval for the abandoned Keystone XL Pipeline and a plan to fast track US LNG export permits and approvals.

Greening production, exports

For the US natural gas industry, though, analysts say staying committed to earlier pledges to go green will be key to competing successfully for domestic and export customers in the years ahead.

"Green gas, carbon-neutral LNG and certified gas will remain a part of the conversation and increasingly so," said Ross Wyeno, lead analyst for LNG Americas at S&P Global Commodity Insights, in a recent interview.

Late last year, in a first-ever EU legislative proposal on methane emissions reduction in the energy sector, the European Commission proposed a two-step approach for regulating imports — requiring suppliers to provide detailed information on emissions measurement, reporting and verification practices, along with documentation demonstrating how those emissions are mitigated. A second step proposed by the commission is engagement in diplomatic dialogue with international partners with a plan to review methane data and regulations by 2025 and introduce more stringent requirements.

According to Wyeno, the strategies for offsetting carbon are an imperfect solution, but might be just enough to bring some new buyers on board considering the ongoing Russia-Ukraine crisis.

For 2022, S&P Global Commodity Insights forecasts some three to five US LNG export terminals will reach final investment decision, potentially bringing new supply to market within the next 18 to 24 months.

In a recent investor presentation, Tellurian Executive Chairman Charif Souki said the company's proposed Driftwood LNG export terminal in Louisiana would begin construction by April, regardless of the financing status for its first phase of development.

Wyeno sees Driftwood as a major contender for FID this year, along with Venture Global's proposed Plaquemines LNG — a 20 million mt/year project that would use modular liquefaction trains which could reach commercial production relatively quickly compared with legacy liquefaction technology.

Haynesville as RSG supplier

As Gulf Coast LNG exports ramp up in response to new demand in Europe and globally, the Haynesville Shale formation is rapidly emerging as a prime contender for supplying responsibly sourced gas to discerning end-users.

For customers demanding certified molecules, the Haynesville could offer RSG credibility that goes unmatched by other supply sources given the basin's proximity to Louisiana's coastal export terminals.

In recent months, operators in the Haynesville have committed to certifying just over 6 Bcf/d of gas production by the end of 2022, 1.2 Bcf/d of which has already been completed, according to public declarations from producers.

Southwestern has been a front-runner in the certification process, announcing in early February an agreement to complete third-party certification for the entirety of its Haynesville production in partnership with environmental performance analysis firm Project Canary.

Other Haynesville producers that have signed up for third-party gas certification include Comstock Resources, Chesapeake Energy and BPX Energy. The total volume of gas currently undergoing third-party certification is likely higher than that publicly announced, with some companies waiting to receive certification results before making efforts public. Based on public commitments alone, certified gas will account for about 45% of the Haynesville's gas production by the end of 2022.