The cleaning of U.S. natural gas; evolution of differentiated gas and related crediting mechanisms

This paper discusses the concept of differentiated gas, the emerging role of crediting mechanisms in promoting its adoption, and the prospects for demand growth and its evolution. After rapid growth in the supply of U.S. differentiated gas through late 2021 and 2022, demand is rising from domestic utilities and industry as well as European energy companies. Nascent crediting products that reflect the environmental attributes of specific differentiated gas volumes have also emerged. Environmental attribute crediting/tokenization facilitates the unbundling of these attributes from the underlying gas, offering the possibility to expand the potential market beyond those that can take delivery of differentiated gas volumes. Two entities offering these credits include Xpansiv, which produces Methane Performance Certificates (MPCs), and EarnDLT, which produces Certified Emissions Tokens (CETs) and expects to issue Quantified Emissions Tokens (QETs) before year-end 2023. These credits differ in their treatment of methane, with MPC issuance volume tied to zero emissions relative to the national average. Higher demand for differentiated gas can be expected in the short and medium term, from a few sources. These include: (1) domestic utilities, if their state governments authorize cost recovery of the modest premium associated with differentiated gas (generally less than 1% of the purchase price of conventional gas); (2) European, likely Asian, and other buyers of low methane emissions intensity liquefied natural gas; and (3) industrial buyers of natural gas as feedstock that are focusing on lowering their Scope 3 emissions. However, one would expect significant demand to be contingent on buyers having greater confidence in the methane emissions intensity and other environmental attributes of the differentiated gas. Such confidence is likely to include greater use of direct measurement of methane (and other) emissions for differentiated gas designation, versus. The primary use of emissions factors currently.