(Editor’s Note: This story is one in a series providing expert forecasts for the global natural gas and oil markets in 2022. Look for NGI’s extensive coverage of what happened in 2021 and what can be expected in 2022 and beyond in terms of prices, the LNG export markets, ESG, Mexico’s production and project prospects, North American midstream infrastructure plans and exploration and production strategies.)

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The liquefied natural gas (LNG) industry is poised for a milestone year on the path toward establishing emissions measurements across the value chain, particularly in the United States, where suppliers have made progress in a way that could give them a commercial advantage.

The first U.S. cargo filled with certified natural gas is expected to be exported this year. The nation’s largest LNG exporter, Cheniere Energy Inc., is in the final testing stages as it prepares to offer its first cargo tagged with emissions estimates from the wellhead-to-discharge point. And for the first time, a pair of global frameworks is in place to better track and report greenhouse gas emissions (GHG) associated with LNG cargoes.

“I think the pressure LNG suppliers are under is just to show what their actual emissions profile is. No one really knows,” said the Boston Consulting Group’s Alex Dewar, senior director of the Center for Energy Impact. 

“Step one to all of this is really to know,” he told NGI, referring to efforts aimed at measuring, reporting and verifying emissions along the LNG value chain. “When you know, and you have actual data, whether you’re an LNG producer or an LNG buyer, you can then start to make informed decisions and procure or sell LNG with best-in-class methane emissions intensity.”

Table Stakes

Methane emissions tied to the oil and gas industry were for years poorly quantified. Limited data and inaccurate estimates made the sector’s contributions to global methane emissions difficult to determine. That’s changing with more stringent standards to quantify pollutants that are verified by independent third parties. 

“What we expect is that this will move toward a table stakes type-of-thing,” Dewar said. “The jury is definitely out on what standards will win in all of this, but the principle of it will become table stakes – some form of methane emissions measurement and reporting.”

To stay competitive, LNG buyers and sellers are seeking ways to track and mitigate the emissions tied to their operations. 

There’s an imperative to do so. More than 100 countries signed the Global Methane Pledge to cut emissions by 30% by 2030 at the United Nations’ Conference of Parties, aka COP26, climate conference in November. Nations are also working toward individual climate targets. In Europe, a top destination for LNG, a legislative proposal was unveiled late last year that would require the oil, gas and coal sectors to measure, report and verify (MRV) methane emissions. Importers of fossil fuels would also be required to submit information about how their suppliers measure and verify emissions.

“Transparent MRV of emissions has become a non-negotiable requirement for the international gas community,” said researchers at the Oxford Institute for Energy Studies. “A lack of this information undermines claims that natural gas can play a significant role in the low carbon energy transition. The longer it takes to establish such documentation, the more likely it is that countries will adopt alternative energy options.”

A Broad Shift

While more progress has been made on measuring upstream emissions, less data has been collected from other parts of the LNG supply chain, including from liquefaction sites and the shipping segment. That’s changing.

Equitable Origin, MiQ and Project Canary have certified, or are in the process of certifying, a combined 32 Bcf/d of natural gas production in the United States and Canada. To put the figure in perspective, that was more than 30% of U.S. daily natural gas production in 2021. 

The certification companies measure hundreds of data points and emissions to gauge climate impacts and certify that operations are conducted in an environmentally responsible way. For now, the companies are only certifying natural gas production in North America. 

PureWest Energy LLC CEO Christopher Valdez said his company, one of dozens that have undergone certification, is working to have most of its production validated by Project Canary. Valdez expects that both international and domestic gas buyers will increasingly expect a product that details emissions. 

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PureWest develops oil and gas in the Rockies and is removed from U.S. export centers, but Valdez told NGI that he sees a future for the company’s certified production overseas. Volumes could eventually make their way south toward the Energía Costa Azul LNG export project under development in Mexico and then to customers in Asia.

As more North American producers look to tap a growing international gas market, the LNG sector must first grapple with a disparate supply chain. Production fields are spread across the continent, moving natural gas via pipelines that pose greater risks for methane leaks. The same molecule of U.S. LNG could be exported with varying emissions intensities depending on where it originated in the value chain. 

The variability in potential emissions has created uncertainty around the GHG-intensity of U.S. LNG for buyers and sellers. Supply chains almost entirely controlled by integrated operators like those in Russia or Qatar are simpler.  

To tackle the mitigation issues, the entities that certify production now are working on the LNG value chain. Project Canary has partnered with NextDecade Corp. to measure GHG emissions associated with LNG cargoes delivered from the proposed Rio Grande LNG terminal in South Texas. Operations are to be certified from the wellhead to the ship. 

NextDecade has taken a number of steps to reduce Rio Grande’s carbon footprint. That move came following reports in 2020 that the French government had nixed a proposed offtake deal with utility Engie SA over concerns about U.S. gas supply emissions. Rio Grande also wants to implement carbon capture and sequestration (CCS) technology at the terminal. 

Other U.S. export facilities, including Calcasieu Pass LNG, Freeport LNG and Plaquemines LNG are also planning to utilize CCS technology.

Why Certify The LNG Supply Chain?

MiQ CEO Georges Tijbosch said Engie’s move was a “very clear statement” that offtakers will increasingly need to know the emissions profile of LNG. MiQ is preparing to offer a certified LNG supply chain, with standards that would cover the upstream, liquefaction, shipping and regasification segments. Tijbosch told NGI that the company expects to export certified U.S. natural gas this year.

“Ultimately, what it allows the European buyer to do is to compare U.S. landed gas with Norwegian pipeline gas, with Algerian pipeline gas, with Qatari LNG gas coming in,” he said of the planned LNG certification standards. “The same would be true for a Japanese or Chinese buyer. You can compare apples-to-apples as opposed to guessing, which is currently what most people are doing.”

Cheniere is taking a different approach. It has no plans to purchase certified natural gas and is not working with any of the entities that offer it. Instead, the company has joined forces with some of its largest gas suppliers operating in the Appalachian and Permian basins, as well as the Haynesville Shale, to implement better quantification, monitoring, reporting and verification (QMRV) of GHG emissions at natural gas well sites. Besides being the largest exporter, Cheniere is one of the largest U.S. gas buyers.

The research and development initiative is using ground-based, drone, aerial and satellite monitoring technologies to establish baseline emissions levels. The protocol is being verified by academic institutions participating in the project. It could one day serve as a standard for the rest of the LNG industry, or be incorporated into other standards to better measure and limit emissions, said Cheniere’s Fiji George, senior director of climate and sustainability.

“We know our customers are concerned about the methane issues, the European customers especially, and more broadly climate issues,” George told NGI. “Cheniere has taken a position that we need to be at the forefront – or to lead the efforts – to come up with a credible plan to mitigate.”

Cheniere’s QMRV initiative is meant to complement others it has undertaken, including a life-cycle assessment of its operations and work with researchers to better understand shipping emissions. The efforts would help inform plans to offer cargo emissions tags for every vessel it loads in Louisiana and Texas. Spearheading its QMRV initiative, company officials said, would make it easier to offer those tags, which are on track to begin this year. 

“Our primary goal here is to communicate with our customers” across the world “with different climate targets and different operations,” said Cheniere spokesperson Eben Burnham-Snyder.

Cheniere views its efforts as a way to both improve environmental performance and differentiate itself commercially, George added. 

Looking At Emissions Profiles 

LNG suppliers across the world are also focusing more closely on their emissions profiles. More than 30 carbon-neutral cargoes have been delivered since 2019, when Royal Dutch Shell plc made the first shipment. Standards have varied widely, however, making it difficult to determine how much carbon has been mitigated, emitted or offset. 

The International Group of LNG Importers (GIIGNL), which handles 90% of all imports worldwide, unveiled a framework late last year to better standardize the criteria for both reporting and offsetting emissions associated with cargoes. Separately, Pavilion Energy Trading & Supply Pte. Ltd., Qatar Energy and Chevron Corp. released a methodology to quantify and report the GHG emissions of delivered LNG cargoes. 

The companies said the methodology is intended to be adopted industry-wide as it would complement efforts to better report and curb cargo emissions — specifically GIIGNL’s framework.

Tijbosch said MiQ plans to eventually certify natural gas assets across the world too. The company is in discussions with multinationals and national oil companies that could play an outsized role in reporting methane emissions overseas. 

“You have to approach this globally,” Tijbosch said. “This needs to be global. It’s a global industry, and you have to look at this from a global perspective.”

As the market for certified natural gas expands, it remains unclear if buyers would continue to pay a premium for differentiated gas or whether sellers could face a discount without standards in place. Digital registries and exchange listings have also emerged to better track certified gas in the United States, including those from Comet, MiQ and Xpansiv. 

If the market becomes more liquid, it could continue driving change toward more methane transparency and abatement.

“What we’re hearing from any potential offtakers, one of the first questions, is not so much price, but how green is your gas?” said Equitable Origin principal adviser Jennifer Stewart. “They want to know how it is being produced. How do you evidence that without some type of independent certification?”