Colorado Firm Urges Gas Industry to Fix Its Brand

There is no shortage of acronyms in the natural gas industry, with perhaps some of the best-known ones being LNG, NGL, CNG, and LPG. A Denver-based environmental services firm aims to make another three-letter abbreviation – RSG – commonplace in the industry.

Short for “responsibly sourced gas,” RSG is a designation from a third party verifying that gas was produced with high environmental and social standards.

“RSG is the beginning of a multi-year appropriate rebranding of natural gas,” Chris Romer, CEO and co-founder of Project Canary – the independent third party ensuring that gas meets strict criteria on behalf of clients such as utilities and LNG buyers. “It’s reestablishing the appropriate brand equity with natural gas.”

Public perceptions about the natural gas industry are driving major gas customers such as utilities and LNG buyers to become more selective from an environmental, social, and governance (ESG) standpoint, Romer told Rigzone. He said that increasing demand for RSG stems from what utilities and LNG buyers worldwide are hearing from their own customers as well as government entities.

“There is a generation of Millennials around the globe who have written off fossil fuels,” Romer said. “We need to address the brand problem.”

Romer noted that addressing the brand problem begins with seeking to stop methane leaks. He pointed out that Project Canary tracks more than 300 data points at the well pad level to prove that gas is responsibly sourced. He explained that an RSG-designated well meets certain benchmarks for produced water, hydraulic fracturing fluid, well thickness casing, and other factors.

“It’s all things that if you were drilling a well within 500 feet of your grandmother’s home, it’s everything you would do,” Romer said.

Although oil and gas operators do report methane emissions data via the U.S. Environmental Protection Agency (EPA) “Subpart W” system, Romer dismisses the value of the information it collects as “almost worthless.” He said that a “very rudimentary spreadsheet” underlies Subpart W.

“The top-down and bottom-up methane numbers do not add up” with Subpart W, Romer said. “The Subpart W estimate of methane intensity is not accurate and cannot be used as the standard. EPA, EDF (Environmental Defense Fund), and industry know that Subpart W is full of BS. Peter Drucker said it clearly: if you can’t measure it, you cannot improve it.”

Romer also pointed out that major customers increasingly see the need to scrutinize well-level data.

“We’re now working with six LNG buyers who’ve already concluded LNG is absolutely going to be defined by RSG and net-zero,” Romer said. “The new level of ESG data will start at the pad and your ability to see will be based on data from the pad. The EU and Tokyo Gas will care most about the pad-level ESG rating.”

Although buyers are growing more demanding, Romer said that he sees little eagerness from gas producers to address the branding issue.

“The industry is in deep, deep, deep denial over how their brand has been wounded by the lack of attention to their role in environmental stewardship,” he said. “You can’t solve a brand problem until you realize you have it … I am a huge believer in resilient, low-carbon energy systems. We are going to lower the footprints of both the wires and the pipes, and the industry needs to get its head out of the sand and realize it needs to address the methane problem.”

Romer also contends the gas industry has been in denial about a shift underway in ESG: the movement of its center of gravity from the C-suite to the well pad.

“The new level of ESG data will start at the pad, and your ability to see will be based on data from the pad,” he said.

Producer Interest

To be sure, Project Canary has garnered interest from gas producers. For instance, in January of this year the firm reported that it had launched an RSG pilot project with EQT Corp. (NYSE: EQT) in which Project Canary will install its “Canary X” devices on two EQT well pads to measure methane concentrations every second and communicate the results to a cloud database every minute.

“This partnership aligns with our ESG leadership and to meeting the evolving needs and expectations of our stakeholders,” EQT President and CEO Toby Z. Rice commented at the time. “Further, it confirms the emerging domestic and international markets for this differentiated commodity and the important role that United States LNG will play in the future energy mix.”

Another pilot project monitors emissions data across the value chain – from the wellhead to the burner tip. Project Canary revealed on March 11 that a Colorado gas producer, infrastructure operator, and local municipal utility are partnering to promote RSG. The pilot involves the following steps:

• Bayswater Exploration & Production produces certified RSG
• DJ Basin midstream services provider Rimrock Energy Partners gathers and processes the RSG
• The Kinder Morgan, Inc. (NYSE: KMI) subsidiary Colorado Interstate Gas Co. transports the RSG to Colorado Springs Utilities.

“This partnership with Project Canary allows us to demonstrate that we responsibly develop clean natural gas by using real-time, continuous emission monitoring data along with operational best practices,” remarked Steve Struna, president and CEO of Bayswater. “Stakeholders are looking to companies to enhance transparency regarding operations.”

In all, Project Canary reports that it has partnered with nearly two-dozen large E&P companies, pipeline firms, and utilities to certify RSG. Moreover, the firm states that it has deployed its emissions tracking technology at 100 well pads.

RSG does carry a premium, Romer said. He estimates the price paid to the E&P includes a premium ranging from 3 cents to 11 cents per thousand cubic feet of gas.

“How long that premium will be in place is to be determined,” Romer said. “You can imagine a world 10 years from now where there will be RSG gas and discounted gas that isn’t certified.”

Such a product differentiation strategy may be new to the natural gas industry, but it is hardly a foreign concept with other commodities, Romer continued. For instance, he explained that prices of crude oil and coal have long been influenced by how much sulfur and mercury, respectively, they contain. Moreover, he maintains that embracing product differentiation – RSG gas vs. non-RSG gas – will be the “best thing that ever happened” to North America’s E&P sector.

“When we commit to RSG, we will have the most competitive LNG on the planet and Russia and other bad-acting sovereigns will be put out of business or will go to RSG.,” Romer said. “Our brand should be the cleanest carbon on the planet that helps to alleviate energy poverty for 2 billion people.”

To contact the author, email mveazey@rigzone.com.