First shale gas sold with ‘responsible’ branding

For the first time, natural gas has been sold with a certificate attesting to the conditions under which it is produced, giving the fuel an “ethical” brand like fair-trade coffee or dolphin-safe tuna.

The certificate could help US exporters win markets in European countries where there is widespread suspicion of the use of hydraulic fracturing, or “fracking”, to extract gas from shale reserves.

Gas sold with the certificate has to meet standards for environmental impacts such as leakage of methane, which contributes to global warming, contamination from wells, and disposal of waste water.

The first deal using the new standard is a contract for New Jersey Resources, an energy utility, to buy gas from wells in West Virginia operated by Southwestern Energy, a Houston-based company that is one of the largest US shale producers.

New Jersey Resources said it was buying the certified “responsible gas” at a premium to the market price “as the next step in our sustainability efforts and commitment to reducing emissions”. It added the certificate “attests a responsible natural gas product for natural gas purchasers and end users”. 

The deal will cover 14 per cent of the supply used by New Jersey Resources’ natural gas subsidiary. The exact price premium was not disclosed, but the utility said there would be “no significant difference in cost impact to customers”. Using 100 per cent “responsible gas” would add about 90 US cents per month to the average bill, according to Independent Energy Standards, the company that runs the certification programme.

Unlike with some corporate purchases of renewable energy, there will be a direct physical connection between Southwestern’s wells and the infrastructure used by New Jersey Resources.

Jennifer Stewart, a senior vice-president at Southwestern, said the company had a longstanding policy of being an industry leader for environmental standards, and had been looking for ways to use its “green gas” to generate increased revenue. 

It decided to work with IES, which set the standards for effects on water, air, land and local communities, with help from groups including the Environmental Defense Fund and the family foundation of George Mitchell, who pioneered the use of hydraulic fracturing to extract shale gas.

IES also inspects and analyses gas wells, and rates them on their compliance with its standards. It is working to build partnerships with more gas producers and buyers to broaden the use of its certificates.

Jory Caulkins, chief executive of IES, said two groups of buyers had shown particular interest: utilities that wanted to make a commitment to sustainability to meet demands from customers, and exporters seeking to sell liquefied natural gas to markets overseas, particularly in Europe. He suggested that in time 25-50 per cent of the gas sold in the US could come with environmental certification.

Gas creates less local air pollution than coal, and gas-fired power plants typically generate about half the carbon dioxide emissions of coal-fired plants, but concerns about the environmental impact of shale production, including methane leakage, have stoked opposition, particularly in the north-eastern US and in Europe.

Gas producers and marketers have been looking at ways to get past those objections. Cheniere Energy, the pioneer of LNG exports from the Gulf of Mexico coast of the US, recently hired Fiji George from Southwestern to be its director of climate and sustainability, to work on its environmental strategy.

Ms Stewart said the deal with New Jersey Resources would not in itself make a significant difference to Southwestern’s earnings, but suggested that certification could lead to an increase in revenues, and open markets for that would otherwise be closed.

However, she added, certification meant adding cost, and “everyone wants to buy a commodity at the cheapest price they possibly can”.

Mr Caulkins said consumer demand would be critical for the spread of environmental certification. “The key in this market is the end customer,” he said. “They have got to pull that demand through.”