MiQ Registry’s Natural Gas Grades (based on emissions intensity of produced gas)

Source: MIQ

Key Points: Last week, Xpansiv introduced the first certified crude oil, which has specific GHG and ESG performance. This follows industry introduction of natural gas certification in 2021, coupled with trading in unbundled methane emissions offsets. These offsets can help fund emissions mitigation investment and are the first tied to hydrocarbon production.

The first “certified” crude oil. Last week Xpansiv, an exchange that specializes in environmental commodities including carbon offsets and Renewable Energy Certificates (RECs), introduced Digital Crude Oil™ (DCO) as an addition to its Digital Fuels™ program. DCO has certified Greenhouse Gas (GHG) and Environmental, Social and Governance (ESG) characteristics. The first DCO will come from Lundin Energy’s North Sea production and certification services are being provided by Intertek. This is the first certified crude oil of which we are aware.

Certified natural gas has been gaining traction very quickly. A little over 6 Billion cubic feet per day (Bcfd) of natural gas has now been certified across Appalachia and the Haynesville play; the certifications have all come since December 2021. EQT is the largest contributor, with ~4 Bcfd of its Appalachian gas production, followed by Seneca Resources (~1 Bcfd, also in Appalachia), Chesapeake (~1 Bcfd, Haynesville) and BPX Energy (0.2 Bcfd, Haynesville). The companies have received certification (and a grade, see image above) from either or both Equitable Origin and MiQ (and the certified gas can be traded through MiQ’s or others’ digital registries). Project Canary is providing continuous monitoring services for these producers.

The presumption is certified hydrocarbons will be differentiated in the marketplace. Oil companies have already offered “carbon neutral” product, with purchased offsets, but certified low-emission fuel distinguishes in that it reflects both investments in emissions reduction (Scope 1 and 2) and ongoing monitoring, reporting and verification (MRV). There is at least some policy momentum mandating both such certification and eventual reduction of emissions intensity of fossil production. For example, EU regulation proposed last December includes language that importers of fossil energy into the Union must document annually whether the exporter is measuring and reporting its methane emissions and envisions its own methane emitters monitoring tool (satellite based). Further, the proposal stipulates that by 2025 the European Commission must consider implementing constraints on emissions intensity.

Certified gas has created the basis for a “carbon offset” product to help fund necessary investments. In one example of an unbundled offering, Xpansiv and S&P Global Platts partnered last Autumn to introduce Methane Performance Certificates (MPCs). MPCs are awarded for production based on how much its methane emissions intensity is below industry average (as long as it is below 0.1%). For example, a producer with methane intensity 80% below the industry average is awarded 800 MPCs per 1 Billion BTUs of production. Prices thus far for MPCs have ranged from $6 to nearly $9 per CO2 equivalent.