Pacific Canbriam’s EO certification may end up being lucrative for export markets as parent company Singapore-based Pacific Oil and Gas is also looking to build the $1.8-billion Woodfibre LNG project in Squamish, British Columbia. PHOTO BY REUTERS/ISSEI KATO/FILE PHOTO

Natural gas companies are hoping to earn a premium with their ESG practices

Amid intense scrutiny around methane emissions and carbon intensity, energy and utility executives argue that not all natural gas is created equal — some molecules have a lower carbon footprint than others.

While it is impossible to tell one producer’s gas from another once they are pumped into a salty storage cavern, Paul Myers is looking for a way to put an environmental stamp on the natural gas his company Pacific Canbriam Energy Ltd. is drilling out of the ground, in an effort to distinguish his molecules from those of his more carbon intensive rivals.

Calgary-based Pacific Canbriam’s president recently led his company through the arduous process of having an independent third-party audit the company’s emissions intensity, the energy content of its natural gas, its social impact and governance — or ESG — practices. The company has spent over $100 million investing in water recycling initiatives since 2008, has tried to eliminate the use of diesel at its natural gas plant by using flue gas and diverting waste heat for energy, among other initiatives.

Now, he is looking to differentiate Pacific Canbriam’s production.

“There’s more and more focus on where energy comes from,” Myers said, noting that companies are under increasing pressure to reduce emissions given climate change concerns. Pacific Canbriam announced Aug. 31 that New York-based Equitable Origin (EO) had granted the company a sustainability certification called the EO100 Standard for Responsible Energy Development, which legitimizes the company’s (ESG) practices.

In a further effort to brand how his natural gas is produced, Pacific Canbriam is collaborating with San Francisco-based Xpansiv to create a “digital twin” of his gas, which would trade on the blockchain and include information about its methane intensity, energy content, production methods and EO certification.

“How do you make purchasers of that energy comfortable that it’s being developed in a sustainable manner?” Myers said, adding that he believes trading “digital natural gas” alongside the physical commodity will reward customers for buying gas produced with lower emissions and greater social impact. “This is an evolving situation. We’ve recognized over a long time that customers want the transparency.”

Pacific Canbriam has also signed a first-of-its-kind agreement with Montreal-based Énergir, formerly known as Gaz Métro, to sell both physical natural gas through a pipeline and the “digital natural gas” on Xpansiv’s Digital Fuels Registry, which includes an “immutable digital certificate, enabling the owner to retire and claim the digital asset to meet (environmental, social and governance or ESG) goals.”

“Customers and stakeholders are seeking to participate in the energy transition, and through this initiative we’re pleased to offer natural gas sourced with greater transparency, aligned with current ESG thinking,” Vincent Regnault, director of gas supply and development of renewable gas at Énergir, said in a press release announcing the arrangement.

Gas companies — both producers and utilities — are increasingly trying to buy and sell what they are calling “responsibly sourced gas,” or RSG, which is a recently minted industry term used to describe natural gas drilled up by companies with properly vetted ESG practices.

Now, both Pacific Canbriam and Énergir hope trading digital certificates of gas that meets those standards will provide a receipt for the transaction.

Xpansiv is partly backed by Australian investment bank Macquarie Group Ltd. It currently operates a voluntary carbon market and a water market and now aims to create a “market for ESG commodities.”

“Typically, an MMBTU is an MMBTU, there’s not really any pricing difference for those types of attributes,” said Peter Schriber, vice-president of market development at Xpansiv, but added the ability to prove your fuels are produced to a higher standard may eventually allow producers to demand a premium for their natural gas, which is a fungible commodity.

“If you are making a decision that you want to make better procurement practices, it comes back to consumers wanting to know how their gas was made,” Schriber said. “My certificate can ultimately be unpacked. I can unpack that all the way back to production that happened on a certain day.”

Right now, the company’s digital fuels registry is focused on natural gas trades but Schriber said there is potential to expand its offering to other commodities like crude oil as buyers become increasingly focused on emissions reductions.

Pacific Canbriam is the second company in Canada to earn Equitable Origin certification after Seven Generations Energy announced it had been certified in Feb. 2020. Seven Generations has since been sold to ARC Resources Ltd.

In the U.S., a competing ESG-certification process led by Denver-based Project Canary is also gaining momentum among gas producers.

“The fact is there isn’t really an industry standard as evidenced in the number of agencies providing the service as well as the number of methodologies,” said Dulles Wang, North America gas research director with Wood Mackenzie in Calgary, adding the ESG-certification industry is still “very nascent.”

Wang said three factors are driving the move towards ESG certification for gas companies. First, utilities like Énergir and Minneapolis-based Xcel Energy are demanding more of gas that is sourced responsibly. Second, producers are trying to get ahead of stricter regulations around emissions. Third, utilities in overseas export markets are increasingly demanding to know more about the origin of the gas, how it was produced and its contribution to global emissions.

In Pacific Canbriam’s case, the EO certification may end up being lucrative for export markets as parent company Singapore-based Pacific Oil and Gas is also looking to build the $1.8-billion Woodfibre LNG project in Squamish, British Columbia.

Wang said natural gas companies are also getting certified with groups like Project Canary and Equitable Origin in an effort to secure premium prices for their molecules, but there’s little evidence of that yet.

“Right now, the way that we’re looking at RSG is it’s not an openly traded market. It might be priced differently but because it’s not openly traded, we wouldn’t know,” he said. “There isn’t price discovery for it right now but we think that demand is out there.”