Surging oil and gas prices sparked by Russia’s invasion of Ukraine have led to a cash windfall for North American operators. US operators are projected to generate approximately $180 billion of free cash flow this year at current prices, according to research from Rystad Energy. And it’s a similar story north of the border in Canada, with ARC Energy Research Institute forecasting the industry will generate C$147 billion of free cash flow this year. As cash floods into the sector, a unique opportunity exists for companies to future-proof their assets against emerging legislation and ESG mandates.
ESG has soared to the top of the agenda for the business community in recent years. For heavy-emitting sectors such as the oil & gas industry, ESG performance is paramount as investors, lenders, and the general public are all increasingly scrutinizing companies’ environmental impact. However, amid stronger balance sheets and improved technology, the oil and gas industry is now positioned better than ever before to do its part to meet climate targets.
Prudent companies have already realized this and are investing in technology to lower their methane intensity and enhance their operations. Remote sensing technology can now capture down to the part per billion how much methane is being released into the atmosphere during production. And robust technology ecosystems utilizing IoT devices, such as Project Canary’s SaaS dashboard, now report leaks down to the second. Moreover, ongoing innovation and technological advancement mean continuous emissions monitoring is more affordable, accurate, and accessible than ever.
These enhanced monitoring processes have also given rise to a new commodity called Responsibly Sourced Gas (RSG), which uses third-party certification to ensure that natural gas has been produced with the highest standards of responsibility with respect to air, water, land, and community. And as pressure mounts to meet carbon neutrality goals, RSG can demand a premium price compared to non-certified natural gas.
A Golden Chance for US Gas to Go Green
As a result of Russia’s invasion of Ukraine, the EU is now scrambling to replace natural gas from Russia. And while the EU is keen to import more LNG from the US, it has in the past singled out energy imports as a major source of methane emissions and wants assurances of the green credentials of imported gas.
A look back at the failed 20-year, $7 billion deal between France’s Engie and US LNG firm NextDecade in 2020 after gas was deemed “too dirty”, highlights the resolute stance of European companies towards sustainability. Skip forward to today, and Engie is again seeking a similar deal but this time with guarantees on the green credentials of gas, specifying the requirement for RSG certification from Project Canary due to our reputation for maintaining the highest certification standards.
Indeed, the Engie deal can be seen as a barometer for the EU’s desire for low-carbon gas that meets the highest and most stringent ESG standards. The need for Europe to wean itself off Russian gas has created an enormous opportunity for North American oil & gas operators. However, European companies will still call upon those same North American oil & gas operators to demonstrate the highest standards of environmental stewardship.
As a growing number of European utilities now search for long-term partnerships, US operators would do well to learn from past lessons. The failed Engie deal is a stark reminder that if oil & gas producers do not rein in emissions and demonstrate their commitment to environmental stewardship, it will be increasingly difficult for them to sell their product overseas or compete with other sources of non-Russian supply.
Take as a counterpoint Southwestern Energy’s recent deal with the North American subsidiary of Uniper, one of Germany’s largest energy supply companies. SWN’s commitment to responsible production proves that if oil & gas producers step up their ESG standards by validating the green credentials of the gas they produce, they can protect the long-term investment in their assets and operations. That’s good news for the planet and for companies’ financial performance.