By Chris Romer, Project Canary CEO
Climate commitments, sustainability reporting, and ESG-driven performance are becoming material matters for companies across the energy value chain, and that’s a good thing. However, to meet the Paris Accords and avoid impending climate challenges, the world needs oil and gas producers, pipeline operators, LNG buyers, and utilities at the table, working on practical, realistic, and cost-effective solutions to reduce emissions.
At what point, though, do investors, regulators, and customers say enough is enough, reject platitudes, and require action?
Goal setting and scenario planning are essential steps, but emissions need to be curbed now if net-zero commitments are to be achieved.
Consider NextEra Energy’s CEO Jim Robo, who recently brushed off net-zero targets as “disingenuous.” His company is the largest U.S. utility by market cap and one of the top solar and wind producers; but, NextEra hasn’t followed its peers in making long-term net-zero commitments.
“So I think it’s very disingenuous for many folks in our sector to come out with net-zero commitments when they don’t really have a view to getting to what I call ‘real zero,’ Robo asserted during S&P Global Sustainable 1’s’ Accelerating the Transition to Sustainability conference.
He’s not wrong – scenario planning is a roadmap, and for many companies, it’s an important first step, but the action taken on that roadmap is what matters. NextEra, for example, is on track to reduce its carbon emission intensity by 2/3 from 2005 levels by 2025, amounting to a 40 percent cut in absolute emissions.
It’s not necessarily the government or regulators calling for climate action. Importantly, the key drivers right now are the investment community and energy buyers. Meanwhile, regulators are developing plans to address and reduce methane and other fugitive emissions.
Annual meetings of ExxonMobil and Chevron, and a recent Dutch court decision involving Shell, shows Wall Street’s shifting expectations for companies to take meaningful action around emissions. From the Dutch court requiring Shell to deepen planned emissions cuts to investors approving a proposal for Chevron to cut Scope 3 emissions – those generated from the use of its products – to a tiny, activist hedge fund securing three ExxonMobil board seats, the climate bar has been raised. There’s no reversing this ESG-driven trend.
“Engine No. 1 had gained a foothold at the board of Exxon Mobil based largely on the strength of its argument that failing to plan for the impact of climate change could spell the demise of a business.” NYT June 23, 2021.
Let’s be clear – from the supermajors to the independents, midstream operators, and end-users, companies across the energy value chain are incorporating climate action in their core operations. And that’s encouraging, as the International Energy Agency’s (IEA) recent report on methane suggested targeting the oil and gas sector is the most efficient and effective means to quickly curbing emissions.
“Reducing methane emissions from oil and gas operations is among the most cost-effective and impactful actions that governments can take to achieve global climate goals,” the IEA reported in a January 2021 analysis. “One of the aims of any new policy effort should be to improve measurement and reporting of emissions data, which can, in turn, lead to more efficient regulatory interventions.”
The emergence of a differentiated market for Certified Responsibly Sourced Gas (RSG) is one crucial tool to eliminate fugitive methane emissions from the natural gas value chain and will enable its role in the global energy transition.
Third-party Certified RSG is a differentiated product in which an upstream producer achieves best-in-class environmental ratings, as certified by an independent source. Xcel Energy and Southern California Gas – two of the country’s largest utilities – have made commitments to sourcing certified RSG for use across their operations as they see gas certification as a means to addressing Scope 2 emissions – or those from their suppliers – and achieving emissions reductions and climate targets.
“We are committed to reducing methane emissions from our operations and using our buying power to encourage our suppliers to reduce their emissions as well,” said Alice Jackson, president, Xcel Energy – Colorado, in announcing her company’s RSG commitment.
Like New Jersey Natural Gas, Virginia Natural Gas, and Colorado Springs Utilities, others have also joined this emerging trend in which utilities are specifically seeking RSG as part of their broad sustainability strategy.
These confirmed RSG transactions demonstrate a clear market trend in which RSG is valued as a differentiated product produced with the highest standards and practices across all phases of operations.
Certifying gas production is a win-win-win. Energy Producers enhance their ESG ratings, gain better access to, and lower the cost of, capital, and, in many cases, receive a market premium for their product. Buyers are confident that the gas in their operations – be it domestic distribution markets or utilities abroad – is produced under the most rigorous environmental, climate, and responsibility standards.
Over the past 24-months, ESG action – especially for companies in the hydrocarbon business – has accelerated. And those baseline expectations are only going to rise. But will companies that produce, transport, and use natural gas rise to the occasion?
One already did, SWN. Southwestern Energy announced today that they have signed an agreement with Project Canary to certify and continuously monitor potential emissions from all of their Appalachia production operations. This is a watershed moment for the production sector.
“Creating sustainable value through responsible energy development is a core value of SWN. We are proud to have been first-movers in ESG, including leading performance, disclosure, and transparency. This includes emissions performance leadership through rigorous operational design standards and methane reduction initiatives, returning more freshwater to the environment than is used in our operations, and robust chemical disclosure management,” said Bill Way, Southwestern Energy President, and Chief Executive Officer.
Companies that take measurable, accountable action – be it through certified responsibly sourced gas or other means – will reap the market-driven rewards. And importantly, they’ll be doing right for the future of our planet, too.