Natural gas emissions continue to decline, but providing transparency about the methane intensity is an increasingly important selling point for many buyers, according to experts.
At the LDC Gas Forums Rockies & West conference earlier this month in San Diego, executives from Southern California Gas Co. (SoCalGas), Context Labs and EarnDLT discussed how to ensure U.S. natural gas is reliable and affordable, with low greenhouse gas (GHG) emissions.
Leverage natural gas “is not a simple problem, but I think everyone’s going to walk away OK,” SoCalGas’s Elsa Valay-Paz, vice president of gas acquisition said.
SoCalGas, the largest natural gas distribution utility in the United States, serves more than 21 million customers across Central and Southern California. That translates into roughly one in every 15 U.S. citizens.
“We've seen a lot of evolutions and transitions in our state,” Valay-Paz said of the gas market. “When we talk about the energy transition today, it's something that we've experienced throughout our life. And I think it's testament of how resilient the industry is, and how we adapt and how we continue to evolve.”
In 2022, California Gov. Gavin Newsom spearheaded a far reaching plan to reduce fossil fuel consumption by 2045 to reach net zero GHG emissions. The state’s natural gas consumption continues to rise, as it’s critical to balancing the intermittent nature of renewable resources.
What SoCalGas sells, consumers want.
“California is one of the most ambitious states in the country, with very clear clean energy policy targets,” Valay-Paz said. “The reality is that one thing that we need to do as an industry is realize this is happening, whether we like it or not, whether we feel like it or not. It's happening.”
The question then becomes, “how can we participate in this space effectively?”
The answer is not a one-size-fits-all.
“Natural gas has a role to play in California, absolutely,” Valay-Paz said. However, the utility has to manage all of its energy programs, which include renewable natural gas and clean hydrogen projects.
“It's part of the solution,” she said of natural gas. “It's not one or the other.”
To meet California’s clean energy goals, SoCalGas also works to offset the carbon emissions while still keeping supply affordable and competitive. Working with California regulators is good business, Valay-Paz explained.
“I think it's important for us as an industry to be less about defense, more about being interactive, putting ourselves out there” to have a conversation. “We want to have a seat at the table…”
Valay-Paz brought the conversation back to the reliability of natural gas because “nobody wants to experience brownouts. Nobody wants to experience no power.” There is the opportunity, though, “to use clean fuels with power generation.”
Cost Barrier?
To that end, certified natural gas may be another “tool in the toolbox” for SoCalGas. Differentiated gas is designed to give buyers more transparency about the GHG emissions produced across the gas supply chain.
While it’s proving to be a useful tool for some buyers, buying differentiated gas has “challenges” and a premium cost, so it’s not the end-all, be-all.
Natural gas traded at SoCal Citygate, which includes deliveries to SoCalGas’ customers and storage deals, averaged $1.565/MMBtu on Monday (Aug. 26), roughly on par with the National Avg. of $1.55.
“SoCalGas doesn’t ask for certified gas,” Valay-Paz said of the utility’s supply needs. “We are looking for the best supplier. Certified gas is a value add. We just need to buy gas that is reliable, safe, cost effective, clean – and it shows up when we need it…” If the gas is certified, that’s a “value add.” It’s not a must.
It’s also important to confront when stakeholders want information, Valay-Paz told the audience.
Asked how to confront allegations of greenwashing, i.e. allegedly making false or misleading claims about a product’s environmental impact, she said, “Be authentic. If you go on defense, that’s not going to end well. As an industry, we need to practice active listening more.”
Analyzing a company’s natural gas supply chain assets to measure the amount of emitted carbon can give companies asset grade data, Context COO Nathan Brawn said.
Context provides decarbonization as a service (DaaS). It acquires direct methane intensity measurements from multiple detection sources, from the wellhead to the end user. The resulting measurements are then independently verified by third parties, such as KPMG US.
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“For us, it comes down to irrefutable proof of performance,” Brawn said of the DaaS platform. Ensuring that gas is affordable and reliable is “100% critical but…we should be able to demonstrate that we’re as good as possible at producing it, moving it and consuming it.”
By providing a pathway for natural gas producers to decarbonize supply, “we get to change the context of the discussion.”
‘Get To That Truth’
Verifying natural gas emissions has evolved over the past several years, expanding from measuring the emissions from individual wellsites. Measurements now are taken at each level and cross checked against weather events and other data.
“It takes multiple source measurements to get to the intensity and to get to that truth," Brawn said. “You have to measure the full value chain to the end customer, to demonstrate what you're doing…We're moving away from this world of certified gas, and who certifies you, into an era of data, third-party verified sources…”
Instead of trading gas based only on geography and price, carbon intensity “should be a third element of that discussion,” Brawn said.
Verifying emissions data also is going to be of paramount importance as data centers proliferate, he noted. The mega data center sponsors have made company commitments to reach low- to no-carbon emissions.
“The data centers…are also some of the companies with the most aggressive net-zero goals,” Brawn said. “They are looking for energy sources in whatever way they can find them,” which are “low-carbon intensity, reliable and affordable.”
Trading environmental attributes of gas supply also is evolving.
For example, Context is collaborating with EarnDLT to use quantified emissions tokens, or QETs, in addition to their existing trading platforms. The “DLT” stands for digital ledger technology.
The QETs are designed to meet domestic and international standards for emissions data. It’s basically like providing a “nutrition label” for buyers, EarnDLT’s Liz Arthur told the LDC audience. She is global head of enterprise strategy for the software company.
Those standards are set to become more onerous for international LNG buyers and sellers. U.S. natural gas producers are expected to be under increasing pressure to differentiate the methane intensity of their liquefied natural gas cargoes as Europe cracks down on carbon emissions.
Ministers for the European Union, representing one of the biggest markets for domestic LNG, finalized rules in late May that would impose "maximum methane intensity values" on imported fossil fuels. Without reducing methane intensity to a certain level, a cargo could be rejected.
The QETs would bring all the relevant information together, Arthur said. “That's going to help you run circles around other people in your space…” It’s about “positioning yourself differently…What is your carbon intensity? What is your methane intensity?…It mitigates the risk” because the imports have been “measured, reported and verified.”
Getting up to speed on differentiating gas supplies is a lengthy process, Brawn admitted.
“Start wherever you are with data,” he told the audience. “One thing holding us back is that everyone assumes you go from 10 mph to 100 in three weeks. That’s not reality. We have different digital maturities. Start where you are and build from there.”
Arthur also advised the gas buyers to “ask for what you want.”
When building a business to measure gas attributes, “scalability is key, otherwise, it’s a science project,” she said. “My advice is…think about the project and set strong metrics…Set metrics for success over a year. Work with partners to get to scale.”
