The Great Energy Transition: Part 1

Climate Change, Methane Intensity and the RSG Opportunity

This is the first of a three-part series covering the trends, facts, data and cultural movements driving the global transition to a carbon-neutral economy and impacting the global oil and gas business today.

It’s not the strong that survive a crisis, it is those who adapt. Today’s demand-driven challenges and changing investor preferences in the oil and gas markets require Energy companies to adapt.

The global energy sector is in the process of a great transition to a carbon-neutral future, driven by changing environmental, cultural, regulatory and technological factors. Energy producers, distributors and consumers are being impacted by the collective force of these factors, and those who adapt the fastest stand to benefit the most. This three-part series is an effort to provide energy company executives, their boards of directors, investors and other key stakeholders an overview of the trends having the most influence on change and identify the opportunities they can capitalize on. Those companies that adapt the fastest stand to gain the most from the transition.

Oil and Gas Producers – Your Approach Depends on Where You Sit

In the upstream sector, a dichotomy has emerged among oil and gas producers. On one hand, many large producers, mostly companies that are publicly traded, have announced targets to reduce their emissions, and have implemented new technologies to help them meet their goals. These include Devon, Shell, Oxy, Cimarex, Parsley Energy, among others. Private companies are also making public announcements to reduce emissions, including Bayswater Exploration & Production and Crestone Peak Resources.

On the other hand, many E&Ps, primarily smaller independents, are wary of adopting new practices or changing the status quo. Given their sensitivity to any measure that might increase their cost structure amid the prevailing weak commodity prices, this resistance is understandable. In our view, however, it is only a matter of time before investors and regulators make change a reality for the entire industry.

The split was laid bare when Equinor, the Norwegian national oil company (NOC) announced in late March 2020 that it will leave industry the Independent Petroleum Association of America (IPAA) lobby group over a disagreement on climate policy. As reported by Reuters, Equinor explained, “We believe that IPAA’s lack of position on climate leaves the association materially misaligned with Equinor’s climate policy and advocacy position.”

Fortunately, the first movers to adopt new technologies and implement data-backed best practices will be situated to generate incremental profits from the growing market for Responsibly Sourced Gas. Before we get to that, however, we will cover why key stakeholders are pressuring the upstream sector to change.

Energy Development Is a Significant Source of Methane Emissions and Methane Contributes to Climate Change

The key factor in driving the Great Energy Transition is the growing pool of data showing that methane, the primary component of natural gas, is a potent greenhouse gas.

Natural gas has been identified as the bridge fuel to a carbon-neutral economy, because it burns cleaner than coal, is relatively abundant, is supported by an existing infrastructure and LNG is slowly becoming more of a global commodity instead of a regional one. Relying on natural gas as a bridge fuel, however, still has risks.

The Environmental Defense Fund estimates that in the first twenty years after a methane molecule is released to the atmosphere, it has more than 84 times the impact on climate change than carbon dioxide. Additionally, the International Energy Agency (IEA) reports that although methane in the atmosphere breaks down faster than CO2 (around 12 years as compared to centuries for CO2), it is a significantly more potent greenhouse gas because it absorbs significantly more energy than CO2 while it exists in the atmosphere.

IEA estimates that 20% of methane emissions are from fossil fuels, which includes emissions from coal, oil, natural gas and biofuels.

We recently combined data from the EIA, DOE and NOAA to investigate the relationship between atmospheric methane levels and unconventional gas production. The correlation between the two is statistically significant at 0.98899 (see chart below).

Methane Levels vs Shale Gas Output

Correlation does not always imply causation, but given the multiple points of evidence it becomes extremely hard for even the casual observer to dismiss the relationship between oil and gas development, atmospheric methane levels and climate change as mere coincidence.

Policymakers across the aisle have come to accept this fact and are actively working to find methods to reduce methane emissions at the state and national level. This year, the U.S. Ninth Circuit Court of Appeals ruled in favor of California cities and counties, allowing them to bring lawsuits against energy companies in state court. Additionally, methane mitigation efforts have become a core issue among several regulators, leading to increased Volatile Organic Compound (VOCs) monitoring requirements in Pennsylvania, and the development of new legislation in New Mexico, Colorado and other states.

Reducing Methane Emissions Can Be Profitable – The RSG Opportunity

Pragmatic leaders understand that the global economy cannot switch from reliable fossil fuels to intermittent renewables overnight, or even within a few years. In 2019, natural gas fueled about 38% of U.S. electricity power generation, followed by coal at approximately 23%. Reliance on natural gas is expected to increase as coal fired plants are retired. The technical, financial, economic and social implications of effecting a rapid transition are insurmountable, necessarily making the transition gradual. Consequently, regulators have shifted their focus on reducing fugitive emissions of natural gas from oil and gas producing operations, creating a market for Responsibly Sourced Gas.

Proactive operators can capitalize on growing regulatory pressures for their own benefit. Reducing fugitive methane emissions necessarily means more product is kept in the production system and sold downstream, increasing profits. On top of that, as monitoring for emissions becomes the norm, operators who can demonstrate low emissions with objective data have an early market advantage to tap a market for Responsibly Sourced Natural Gas, or “RSG.” RSG gas is natural gas that has been produced from well sites proven to have emissions levels below the industry average, giving utilities and corporate consumers a differentiated product that can help them improve their ESG performance. For the first time, producers of natural gas will have an opportunity to differentiate their commodity in a meaningful way that can fetch a premium price.

Although RSG is a nascent market, recent supply agreements demonstrate that is not a theoretical one:

  • New Jersey Natural Gas (NJNG) agreed to purchase RSG gas from Southwestern Energy, a public company, at a premium indexed to local Appalachian index prices. NJNG serves more than 525,000 customers in a state where environmental activist groups are becoming increasingly vocal.
  • Virginia Natural Gas (VNG) recently announced that it aims to be the first natural gas utility in America to provide its customers with natural gas that is 100% sourced, transported and distributed by companies that have pledged to reduce greenhouse gas emissions to less than 1% across the natural gas value chain. On November 1, 2019, the utility plans to purchase one-fifth of its annual natural gas supply from selected wells operated by Southwestern Energy certified as “responsibly sourced” by an independent third party.


The Great Energy Transition to a carbon-neutral global economy is underway, although still in its early stages. Recent data that has come to light with respect to methane’s impact on climate change is too compelling to ignore, and regulators and the public will continue to pressure the industry to reduce fugitive emissions of natural gas. These pressures are driving the emergence of a market opportunity for Responsibly Sourced Gas, and the producers, utilities and distributors that adapt the fastest to capitalize on RSG stand to gain the most from it.

About Project Canary

Project Canary is a climate technology company that offers an enterprise emissions data platform that helps companies identify, measure, understand, and act to reduce emissions across the energy value chain. Given its outsized impact, the Company started with methane and has since expanded to other greenhouse gasses. Project Canary’s mission is to Measure It — leveraging sophisticated software solutions to help companies improve and report on their emissions footprint. They do this by building high-fidelity sensors, ingesting data from various other technologies and sources, characterizing the accuracy of such emissions data, and deploying advanced physics-based AI-powered models to identify leaks and quantify emissions.
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