In the past few weeks, the Darcy team has been introducing different topics related to renewable fuels. For instance, we had Nacelle presenting RNG in our last ET Forum. To stay in line with our "Renewable Fuels" Program, we are glad to have the people from Project Canary speaking about their Natural Gas Certification next week.

WHAT?

Similar to other ESG certifications - like LEED for buildings or ENERGY STAR for appliances - a Natural Gas Certification is obtained by meeting specific criteria. Following the standards and technologies defined by them result in a reduction of the environmental consequences (including a reduction in GHG emissions).

HOW?

Independent third-party companies have developed certifications that evaluate, audit, and rate individual wells or entire organizations following specific criteria to go above and beyond local regulations. Once a company has undergone the certification process, it receives a rating based on its Performance Score and Inherent Profile. Among the things evaluated, the main are:

• Practices (casing, cement, etc.)
• Emergency programs,
• Environmental programs
• Spill prevention
• Spill response, and
• Waste management, among others.

The criteria used to assess the organizations are performance metrics and data, on-site testing, corporate procedures, methane emissions reports, and venting documentation.

WHY?

So why should you, as an O&G producer, pursue a natural gas certification? Here are several reasons:

1. It provides a framework for natural gas production, understanding that it needs to be as environmentally friendly as possible; it would certainly help achieve Scope 1&2 emissions.
2. It is a cost-effective, near-term solution that enables the first steps towards net-zero and leads the way for further decarbonization measures. (We will dive into costs later). By certifying natural gas, there is no need for downstream infrastructure changes.
3. Pressure: banks, investment funds, endowment, and society care about this. There is constant pressure from all sides, specifically for the energy sector, to be friendlier with the environment. It wouldn't be a surprise to hear more endowments saying: "Hey, we are thinking about divesting". For instance, J. P. Morgan published three key investment themes that are guiding investment decisions of 2021: Digital transformation, Healthcare Innovation and Sustainability, and Environmental, Social, and Governance (ESG). Darcy Survey results have also shown that 58% of the investors put Significant Pressure on ESG. Finally, in a Pickering Energy Partners survey, 70% of the executives said ESG is at least a top priority. And about 60% of the executives find ESG more important now than one year ago.
4. Companies that can evidence strong environmental performance using trusted data have an opportunity to reduce interest costs.

WHERE? WHO?

If you were to certify your natural gas, which third-party certifiers are there? Where?

1. Project Canary has developed Trustwell - a NG Certification that classifies companies according to their enterprise environmental performance into Rated, Silver, Gold, or Platinum. Trustwell™, combined with continuous monitoring (also provided by Project Canary), gives operators empirical data from actual operations, making ESG reporting verifiable, credible, and trustworthy. Project Canary evaluates procedures across all the enterprise levels (including programs, spill response, spill prevention, waste management, and GHG emissions report, among others).
2. MiQ has developed a certification that helps demonstrate a credible evaluation of methane emissions performance. MiQ Certification is based on a Standard that assesses at the facility or platform level. This more granular assessment creates transparent metrics for practically comparing gas supplies based on their methane emissions performance. MiQ is currently piloting the Standard. To carry MiQ Certification, an upstream onshore or offshore Facility must demonstrate performance across: Methane intensity below a threshold; company practices that promote and ensure a culture of emissions management; and comprehensive monitoring technology deployment that enables detection of unintended emissions. Companies that do not fail the certification process are rated from A to F - being A the lowest in methane intensity and F the highest methane footprint eligible for certification.
3. Equitable Origin is an independent, voluntary certification system that publicly distinguishes energy developers that operate under the highest environmental and social standards. To participate in the Equitable Origin System, energy developers and site operators implement the EO100 Standard by adapting or supplementing their existing management systems and submitting to conformity audits by independent third-party assessment bodies. The EO100™ Standard is compatible with ISO14001 and other standard programs. EO100 Certification is obtained after an independent assessment body conducts an audit of the vendor's activities. If it complies with the EO100™ Standard, the third-party assessment body recommends the vendor for certification and assigns it a score.

BUTs

Natural Gas Certification can reduce emissions up to a certain extent (~8% reduction). It is not a long-term solution but a first step. Across the life cycle, certified natural gas can only reduce emissions by a portion (most emissions are combustion). In the future, production ways will need to adapt to the environment's needs.

HOW MUCH?

Darcy's proprietary data and insights have proved that certified gas is slightly more expensive than non-certified natural gas. Our estimations show that certified gas has a price of about $3.27/MMBtu versus $3.17/MMBtu for natural gas. Costs from Darcy's cost curve come from the continuous monitoring assumed required for certification.

WHAT'S IN THERE FOR UTILITIES?

The benefits of utilities purchasing and selling "Responsible" or "Certified gas" lies in the fact that it improves its brand image. Certified gas is slightly more expensive than regular natural gas, but it comes with associated GHG reductions.

Regulatory changes are bound to happen as well. Many times, voluntary certifications end up leading the way for stricter regulations. In this game, there are kings and pawns. You either want to be a leader, or you want to follow that's how you differentiate.

CONCLUSION

Certified gas is a clear near-term solution in the way towards decarbonization. It provides a framework for natural gas production, and helps organizations evidence their environmental performance. Therefore, it leads to a better brand image. However, it has its limitations: the resulting fuel is slightly more expensive, and the GHG reductions are limited to some 8%. In any case, give the low costs, it is definitely something worth considering to contribute with other enterprise projects driven towards a friendlier relationship with the environment.

Come join is next week to discuss this at our Energy Transition Forum

References

• https://washingtongasdcclimatebusinessplan.com/wp-content/uploads/2020/03/Fact-SheetCertified-Natural-GasvFINAL.pdf
• https://www.projectcanary.com/operationalize/
• https://www.equitableorigin.org/eo100tm-site-certification__trashed/adopt-eo100/
• https://www.equitableorigin.org/eo100tm-site-certification__trashed/benefits-of-certification/