Right time, right place for Haynesville Shale to meet global call for cleaner natural gas

The low emissions profile of Haynesville Shale natural gas and the play's proximity to LNG export terminals have made the basin a hub for third-party certification, putting it in pole position in the race to get more and cleaner US gas to global markets.

Based on current commitments to certify about 7 Bcf/d of Haynesville production by the end of 2022, roughly 53% of the basin's gas output will be certified gas by the end of the year. Around 40% of total commitments in the basin were announced in 2022, suggesting gathering momentum. Certified gas is natural gas production that has been assessed by an independent third-party as meeting certain environmental, social, and governance standards, as laid out by one of the three major standards on the market today: MiQ's MiQ Standard, Project Canary's TrustWell Standard and Equitable Origin's EO100 Standard. As the market evolves, other standards may gain traction and be added to this definition.

The Haynesville Shale has a suite of natural advantages when it comes to third-party certification, including what data suggests is a naturally lower methane intensity.

Out of the 19 US gas basins evaluated, the ARKLA-Haynesville and East Texas-Haynesville basins have consistently shown the lowest methane intensities, according to data from S&P Global Commodity Insights. In the most recent batch of monthly data, the ARKLA-Haynesville had a measured methane intensity of 0.776% and the East Texas-Haynesville was at 0.621% in March.

Although S&P Global's satellite-driven methane intensity data captures all methane emissions from a particular area, not just those resulting from gas-related activities, it does support the theory that naturally lower emissions plays a part in the Haynesville's appeal for third-party certification.

Emissions-minded LNG offtakers can buy with more confidence if they know their certified gas originated in the Haynesville as these molecules are more likely to be those that were actually certified.

In addition to the existing Sabine Pass, Cameron, and Calcasieu Pass liquefaction facilities, a herd of other LNG export projects are under construction along the US Gulf Coast, including ExxonMobil's Golden Pass LNG, Venture Global's Plaquemines project and Tellurian's Driftwood LNG.

Some midstream projects to expand the Haynesville southbound capacity, such as Williams' proposed greenfield pipeline, Louisiana Energy Gateway, have been expressly marketed as providing a route for certified molecules to reach liquefaction terminals.

War in Ukraine has shifted energy trade flows, including those of natural gas. Europeans keen to drop Russian gas are looking to the United States, significantly raising the fortunes of existing and future LNG exporters.

These advantages also help explain why the Haynesville has been a hotspot for M&A activity in 2021, with several large Appalachia E&Ps who have bet big on third-party certification acquiring smaller producers in the Haynesville. Examples include Southwestern Energy acquiring Indigo Natural Resources and GEP Haynesville, and Chesapeake Energy acquiring Vine Energy.

Producer certification

As of May 9, more than 20 Bcf/d of US gas production is set to undergo third-party certification by the end of 2022, according to data from company websites collected by S&P Global.

The profile of producers seeking certification has diversified over the last six months, with announcements from the majors (ExxonMobil, Chevron, BP, Repsol), private equity-backed players (Rockcliff Energy, PennEnergy), and smaller private operators (Ascent Resources, Olympus Energy) joining larger public E&Ps.

Operators outside of Appalachia and the Haynesville have been slower to get publicly involved with third-party certification outside of pilot programs, potentially due to higher natural methane intensities. Geologic properties vary by basin, along with enhanced oil and gas production recovery approaches.

With that in mind, certification commitments have yet to be announced in some major basins, including the Bakken, SCOOP-STACK, Fort Worth, San Juan, Piceance, Unita, and Anadarko. Of these basins, Fort Worth and Anadarko had the highest methane intensity percentages during March at 9.43% and 8.96%, respectively, according to S&P Global's methane intensity assessments.

Midstream participation

The midstream sector has continued to explore ways to support the development of this nascent product and offer more certainty on pipeline emissions. MiQ launched standards for the full LNG supply chain in Q1 2022, including gathering and boosting, processing, and transportation, through to unloading and gasification.

In mid-April, a group of midstream operators, including Williams and Kinder Morgan, partnered with Cheniere to implement greenhouse gas emissions monitoring with drones, sensors, and aerial measurement technology, as part of Cheniere's plan to provide Cargo Emissions Tags for LNG cargoes later this year.

In December, Kinder Morgan proposed to launch certified gas pooling points along Tennessee Gas Pipeline, which brings gas from Appalachia down to the Gulf Coast. While FERC rejected the proposal without prejudice on April 29, analysis from S&P Global suggests that this may merely delay, not destroy, the proposal's progress to implementation.

End-user demand

While the supply of third-party certified gas and associated certificates has so far exceeded demand, a series of purchase agreements involving end-users Xcel, Nicor and Bloom Energy in the latter half of April could reflect growing domestic end-user interest in these nascent products. Notably, multi-state utility Xcel Energy has committed to sourcing all certified gas by 2030, starting with purchase agreements with Civitas in Colorado and with ExxonMobil in New Mexico. End-users have not shown a preference yet for one standard over others.

In the export sector, certified gas could be on its way to being accepted as a solution to European LNG importers' environmental concerns. On May 2, European multinational utility Engie signed a 15-year sales and purchase agreement with NextDecade's proposed Rio Grande LNG, which has committed to source certified gas. Pushback from French environmental groups over the emissions profile of US natural gas production had scuttled a previous attempt at a long-term supply deal between the two entities.