By Noah Rothstein
U.S. natural gas producers are hoping climate-conscious electric and gas exporters will pay additional premiums to safeguard the environment. Premiums for “greener gas” have been certified as coming from low-emission operations or renewable sources such as landfills.
EQT Corp, Chesapeake Energy, and liquefied natural gas firms Cheniere Energy and NextDecade Corp are among the companies considering low-carbon certifications from groups such as Denver-based Project Canary. Prices for gas certified as “responsibly produced” and contributing fewer emissions could reach 5% above market prices, or up to 15-cents per thousand cubic feet (mcf), proponents said.
EQT. Corp, America’s largest natural gas driller, has already made the step to set a target to eliminate emissions from its operations and energy use in just four years. The harder problem will be tackling pollution from customers.
So far, not many customers have been willing to pay the premium. Some European buyers have shunned U.S. shale gas, and several U.S. cities, including New York and San Francisco, have sought to ban new residential gas connections over environmental concerns.
During the pandemic, U.S. gas prices fell to a 25-year low average of $2.11 per mcf. Idle drillers pushed U.S. gas output down 2%, the first annual drop in four years. While power plants consumed a record amount of gas in 2020, wind and solar gained market share as preferred alternatives to coal for electric generation. With the economy recovering, U.S. benchmark gas prices are up over 40% this year to about $3.70 per mcf.
“When you’re talking about trillions of cubic feet of global gas production, mere pennies in price movement can make all the difference between profitability and losses,” said Kentaro Kawamori, chief executive of Persefoni, which develops tools to measure a company’s carbon footprint.
Utilities, the biggest gas buyers, have endorsed net-zero emissions targets, “but it is not being translated into procurement departments,” said Chris Kalnin, chief executive of U.S. shale gas producer BKV Corp.
Accounting for about 7% of U.S. production, Cheniere is the largest buyer of natural gas in the U.S. for its LNG plants. It believes cleaner gas may become a requirement for producers and exporters.
“We don’t expect to pay a premium, we don’t expect to collect a premium” for gas certified as greener, said Anatol Feygin, chief commercial officer at Cheniere.
One problem is the lack of standard measures. Cheniere has launched an effort with five shale firms to evaluate and measure emissions, said Feygin.
Pension funds and other big institutional stock market investors also want energy firms to reduce their carbon footprints. Producers who account for 10% to 11% of U.S. gas production have embraced ratings, mostly with Project Canary, a foundation involved with the energy ESG marketplace.
No utilities have built low-emissions sources into routine gas purchases, although some, like New Jersey Natural Gas, have purchased cleaner gas for small portions of their operations.
Gas produced from animal farms and landfills, called renewable natural gas, sells at a premium to market rates. Still, supplies of the niche fuel are vastly more limited than conventional gas and very costly.
“It does not take a lot of [renewable natural gas] to get a whole lot of climate bang for your buck,” said Aaron Ruby, a spokesman for Dominion Energy Inc.
Dominion plans to collect renewable natural gas from livestock farms that would capture 3.5 million metric tons of carbon dioxide (CO2) equivalent emissions per year.
