In the coming years, customers in the market for responsibly sourced gas will likely develop a preference for natural gas with a methane intensity below the current industry standard, according to Project Canary PBC CEO Chris Romer.

The methane intensity standard that has emerged for gas production is 0.2%, which means that no more than that percentage will be lost through methane emissions. Members of the industry's Oil and Gas Climate Initiative set a 0.2% methane intensity target, and the US Inflation Reduction Act used this threshold as a baseline for its methane emission fee for oil and gas producers.

Romer said he believes that there will be a "very robust market" for gas supplies with a methane intensity below 0.2%. At some point, gas supplies with a higher methane intensity will likely trade at a discount, he said during an Aug. 16 presentation at the LDC Gas Forums Rockies and West conference in Denver.

Gas that is certified as responsibly sourced, often called differentiated gas, meets certain emission intensity thresholds and other environmental, social and governance standards. Responsibly sourced gas (RSG) typically trades at a modest premium, or a few cents per MMBtu, to noncertified gas. Project Canary measures and analyzes environmental risk assessments and emission profiles for companies in its process to certify gas production.

Case for lower-methane-intensity gas

A lower methane intensity could command a premium as manufacturers aim to lower the life-cycle carbon intensity of their products, Romer said. Higher upstream methane leakage translates to a higher carbon intensity.

As an example, Romer pointed to companies that produce hydrogen from gas feedstocks using carbon capture, known as blue hydrogen. A new hydrogen production tax credit through the Inflation Reduction Act requires producers to achieve certain life-cycle carbon intensity levels to secure the entire credit or even a portion of it. Using a gas feedstock with a lower methane intensity would help producers hit these levels, Romer said.

Romer predicted that lower-methane-intensity gas from Wyoming would start to compete with higher-methane-intensity gas from the Permian Basin in the California market.

The market will also develop a preference for measured rather than estimated carbon intensity, Romer said. Measurement involves deploying technology such as sensors to calculate actual methane emissions. Measurement can be difficult and costly in some parts of the value chain, such as compressor stations, so estimates will likely remain necessary for some time, Romer said.

ESG concerns from large institutional investors and an imperative among oil and gas producers to "future-proof" their assets initially drove the market for RSG, Romer said. However, now gas utilities are considering RSG as an opportunity to decarbonize their supply while keeping energy affordable, he said. Policies like the EU's carbon border adjustment mechanism have also put pressure on sectors that use gas as a feedstock to source low-methane-intensity supplies, he said.

Downstream uptake remains a question

Mark Aufmuth, managing director for low-carbon and cross-commodity origination at BP PLC, had a similar view on market development to date. In March, the company's US onshore upstream business, BPX Energy Inc., said it had certified its entire production portfolio through MiQ, a nonprofit partnership that has its own methane emissions certification standard.

"Initially, we saw the push from the producer community in certifying natural gas, while the consumer had been holding back on transacting, studying the market, becoming better informed on what role certified gas might play in its sustainability frameworks," Aufmuth said at an Aug. 18 presentation at the conference.

"Now, however, we are seeing the speed of transactions increase as more utilities obtain cost recovery mechanisms through their [public utility commissions] and industrials like [CF Industries Holdings Inc.] and other gas-based industries increasingly using certified gas as a tool to help quantify the life-cycle carbon intensity of their products and potential Scope 3 emission obligations," Aufmuth said.

Scope 3 emissions in the oil and gas industry are those from customer use of the fuels. The US oil and gas industry has generally opposed Scope 3 disclosures, saying that estimates would be unreliable and carbon emissions would be counted twice.

As part of its net-zero plan for its gas utilities, Xcel Energy Inc. aims to certify all of its gas purchases by 2030 at about 0.25%, well below the national average.

But in the view of Marlon Santa Cruz, manager of fuel and external energy at the Los Angeles Department of Water and Power, cleaning up gas production should be the upstream sector's responsibility. Reducing methane intensity should be part of the cost of operating and maintaining production facilities, not a penalty passed on to gas buyers through a premium price for RSG, Santa Cruz said.

"If you're going to sell me the same product, it's the same methane, the same heat content ... [the certification] is not going to benefit me. So why am I paying more for this product?" Santa Cruz said on a separate conference panel on Aug. 18.

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