Will Greener Gas Collect a Premium?

fROM REUTERS

Natural gas producers are hoping responsibly produced natural gas will attract premium above-market rates. Proponents say gas certified as "responsibly produced" and contributing lower emissions could get up to 5% above market prices, or up to 15-cents per thousand cubic feet (mcf).

Certification

One problem with asking a premium for green gas is the lack of standard measures, but efforts are in the works.

Cheniere, the biggest buyer of gas in the United States for its LNG plants, has launched an effort to evaluate and measure emissions. 

Other organizations, like Project Canary and the Rocky Mountain Institute (RMI)’s Environmental Defense Fund, also are pursuing their own techniques to rate environmental footprints.

For example, Project Canary monitors 600 items including methane emissions, use of fracking fluids, and waste water disposal. Dozens of big companies use and plan to use its measurements. 

Energy companies are navigating unfamiliar risks, opportunities, and challenges brought on by evolving environmental regulations, emerging carbon markets, and a growing end user demand for sustainable energy. 

Recently, Highwood Emissions Management produced a free report on Voluntary Emissions Reduction Initiatives for Responsibly Sourced Gas outlining the differences in programs for verifying, committing, and certifying GHG emissions.

Demand

So far, not many customers have been willing to pay the premium—a problem for companies trying to sell lower-carbon versions of fossil fuels.

In 2020, the pandemic rocked the economy and U.S. gas prices fell to a 25-year low average of $2.11 per mcf. With the economy recovering, U.S. benchmark gas prices are up over 40% this year to about $3.70 per mcf and recently are approaching the $4.00 per mcf mark.

It could take time to get buyers and sellers to agree on contract terms. Utilities would need regulators to approve higher rates for responsibly sourced gas. According to Project Canary CEO Chris Romer, it’s "a politically complicated process."

A market for premium, certified responsibly sourced gas is still young—you might even say green.