U.S. FERC: The Next Battleground for Defining “Responsibly Sourced Natural Gas”

The U.S. Federal Energy Regulatory Commission (FERC) is expected to issue an order later this month that could influence the development of “responsibly sourced natural gas” (RSG), natural gas certified by a qualified third party as meeting certain performance and operational criteria. Some in the energy industry have touted RSG as a way to meet net-zero and lower carbon emissions goals.

For the second time this year, FERC is being asked to consider a proposal by Tennessee Gas Pipeline, LLC (Tennessee), one of the U.S. East Coast’s largest transporters of natural gas, to implement paper pooling points where its shippers could aggregate RSG. FERC rejected Tennessee’s initial producer certified gas (PCG) pooling service option for its Rate Schedule Supply Aggregation without prejudice on April 29, 2022, because it included proposed tariff language defining PCG criteria. FERC feared that the formal tariff language “could hinder the development and acceptance of future RSG standards and third-party certification vendors, and … negatively affect a shipper’s ability to classify gas as RSG.”

Tennessee refiled the proposal on May 11, 2022, retaining key attributes concerning RSG pooling while removing the PCG criteria from its tariff. It proposes instead to post the same information on its interactive website, subject to modification from time to time to respond to evolving RSG market needs. Tennessee is seeking an effective date of July 1, 2022, for its proposal.

One party seeking rejection of the revised Tennessee proposal is the Environmental Defense Fund (EDF). In a May 23, 2022, protest, EDF deemed Tennessee’s filing “precedential” and asked FERC to reject the proposal to prevent similar filings by other pipeline companies while the RSG industry develops. It argued that approval would open the door for pipeline companies to make critical policy decisions, such as who would qualify as a third-party certifier, what standards would apply to certifiers, and the methane intensity percentage that would apply to RSG gas. EDF’s primary concern is that shippers will use an RSG label, and sell RSG at a premium, without any certainty that RSG-designated gas actually reduces emissions. However, EDF stated it would support Tennessee’s implementing its proposal as a pilot program subject to detailed reporting and metrics.

A FERC order approving the Tennessee proposal would be a significant step toward commercializing RSG, and it could unlock significant value for the natural gas industry, particularly at a time when litigation over emissions has thwarted the construction of certain liquefied natural gas export projects and interstate pipelines. A recent analysis indicated that “responsibly sourced” gas can garner up to a 2% price premium over other commoditized gas, and Tennessee has acknowledged that it will trade at a premium.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.