US natural gas producers hope customers will pay more for “green gas”

A liquefied natural gas (LNG) tanker is pulled towards a thermal power plant in Futtsu, east of Tokyo, Japan on November 13, 2017. REUTERS / Issei Kato

June 30 (Reuters) – U.S. natural gas producers hope electric utilities and climate-conscious gas exporters will pay a premium for what they say is “greener gas” that has been certified as sourced from low-emission operations or renewable sources such as landfills.

EQT Corp, Chesapeake Energy, and liquefied natural gas companies Cheniere Energy and NextDecade Corp are among the companies considering low-carbon certifications from groups such as Denver-based Project Canary. Gas certified as “responsibly produced” and contributing to lower emissions could reach up to 5% above market prices, or up to 15 cents per thousand cubic feet (mcf), according to the promoters .

So far, few customers have been willing to pay the premium – a problem for companies trying to sell low-carbon versions of fossil fuels. Some European buyers have shunned US shale gas, and several US cities, including New York and San Francisco, have sought to ban new residential gas connections for environmental reasons.

In 2020, the pandemic rocked the economy and gas prices in the United States fell to their lowest average level in 25 years, at $ 2.11 per million cubic feet. Inactive drillers lowered US gas production by 2%, the first annual decline in four years. While power plants consumed a record amount of gas in 2020, wind and solar gained market share as preferred alternatives to dirtier coal for power generation.

With the economic recovery, benchmark gas prices in the United States have risen more than 40% this year to around $ 3.70 per mcf.

“When you talk about trillions of cubic feet of global gas production, mere cents of fluctuating prices can make all the difference between profitability and loss,” said Kentaro Kawamori, managing director of Persefoni, which develops tools to measure gas. carbon footprint of a company. .

Utilities, the biggest buyers of gas, have approved net zero emissions targets, “but that doesn’t translate into supply services,” said Chris Kalnin, managing director of US shale gas producer BKV Corp.

WILL THERE BE A CLEANING BONUS?

BKV aims to certify its fuel as being produced “responsibly” and expects a commitment from power producers, he said. Continuous monitoring for certification can cost 1 to 2 cents per mcf, which is a barrier with competing measures. Executives also noted that utility regulators who approve tariff increases for gas purchases have yet to factor carbon emissions into price revisions.

Cheniere, the leading US exporter of liquefied natural gas (LNG), believes cleaner gas could become a requirement for producers and exporters.

“We don’t expect to pay a premium, we don’t expect to charge a premium” for certified greener gas, said Anatol Feygin, commercial director of Cheniere. The company is the largest purchaser of gas in the United States for its LNG plants, accounting for about 7% of American production.

One problem is the lack of standard measurements. Cheniere has launched an effort with five shale companies to assess and measure emissions, Feygin said. Project Canary, Rocky Mountain Institute (RMI) and their Environmental Defense Fund are also pursuing their own techniques to assess environmental footprints.

Cheniere said he had been in talks with gas suppliers for about three years over emissions, but “this is just the start and we have not stopped at the methodology” to assess the producers.

“POLITICALLY COMPLICATED”

Pension funds and other large institutional stock market investors also want energy companies to reduce their carbon footprint. Producers who account for 10-11% of gas production in the United States have adopted ratings, primarily with Project Canary. The Denver firm has dozens of large companies planning to use its metrics, a spokesperson said.

To achieve its green rating, Project Canary is monitoring 600 elements, including methane emissions, use of hydraulic fracturing fluids, and sewage disposal.

It can also take time for buyers and sellers to agree on the terms of the contract. Utilities would need regulators to approve higher tariffs for gas from responsible sources. This, said Chris Romer, CEO of Project Canary, requires “a politically complicated process.”

Romer hopes LNG buyers will ask producers to have their production and transportation processes checked. About 7% of US gas production last year was exported as LNG to Asia, South America and Europe.

“Foreign LNG buyers are raising the bar,” he said. LNG developer NextDecade signed with Project Canary after losing an agreement with French electrician Engie SA over environmental concerns.

RENEWABLE NATURAL GAS

So far, no utility has incorporated low-emission sources into routine gas purchases, although some, including the Southern California Gas (SoCalGas) unit of Sempra Energy, Xcel Energy Inc and New Jersey Natural Gas, have purchased cleaner gas for small parts of their operations.

SoCalGas wants to source 5% of the gas it sells from renewable natural gas by 2022 and 20% by 2030, said Jawaad ​​Malik, environmental director at SoCalGas. Legislation that would allow the utility to buy the fuel has yet to be passed, he said.

Gas produced from livestock farms and landfills, called renewable natural gas, sells for above market rates, but niche fuel supplies are much more limited than conventional gas and very expensive.

RNG can cost anywhere from $ 15 to $ 100 per million cubic feet depending on contract volumes, as it is largely methane, a potent greenhouse gas. Even using RNG for a fifth of gas supplies can offset a company’s total carbon emissions, said Aaron Ruby, spokesperson for Dominion Energy Inc.

“It doesn’t take a lot of RNG to get a lot of climate for your money,” Ruby said. Dominion plans to collect RNG from livestock farms, which would capture 3.5 million metric tonnes of carbon dioxide (CO2) equivalent emissions per year.

Reporting by Liz Hampton in Denver and Scott DiSavino in New York; edited by Gary McWilliams and David Gregorio

Our Standards: Thomson Reuters Trust Principles.

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