Episode 444: The next big commodity in gas markets is not gas, it is data

Hello and welcome to another ICIS Energy Podcast. As Europe grapples with stricter carbon border rules, methane regulations and the phase-out of Russian gas, data transparency is becoming as important as the physical molecules flowing through the system. In this episode, I invited Mr. Simone Pugliese, CEO of Attributes, a pioneering independent digital traceability platform designed to bring unprecedented transparency to natural gas and LNG supply chains.

I invited Simona to explore how Attributes is helping energy companies navigate the rapidly evolving regulatory landscape, from CBAM compliance and methane emissions reporting to Repower EU requirements and Russian gas phase-out. Beyond compliance, the question is what exactly is increasingly driving customer demand? Is it decarbonisation, methane transparency, energy security or sanctions related due diligence? And whether origin certification could become as important as, and traceability could become as important as carbon intensity certification for European gas buyers?

And what is the future of digital energy credentials? credentials? Will the industry move towards perhaps a single tradable certificate that combines carbon footprint, methane intensity, country of origin and sanctions compliance information into one trusted digital asset? Join me for a very deep dive along with Simone into the future of energy traceability, transparency and compliance in the global gas market.

So I would start with the first question, Simone. How would you describe attributes and what novel does it bring to the global energy sector? Good morning, Ora, and thanks for having us in this ICIS podcast. Our pleasure to be here.

When we speak about traceability, the first thing to consider is that the energy markets and systems were actually built to move molecules and physical flows, not so much trusted information. What we are seeing today is that as regulation expands and also market-making requirements, companies face the challenge or the increasing challenge to have to move both. And by both, we mean the molecule itself and the information attached to it. What we do at Attributes, we provide the digital infrastructure that allows trusted information to travel alongside the commodity.

As you rightly mentioned, we mostly focus on gas and LNG, although we have offerings for crude, hydrogen, and power, among others. Basically, any commodity with the adequate data, we will explain that during our discussion today, can be properly traced and managed through our platform. In a nutshell, what we can say is that we help energy companies attach clear, reliable information to any transaction, whether it is for commercial, reporting, or regulatory purposes. The novelty of what we do is not simply creating another digital claim or traceability record.

It's really to make sure that the data behind each digital claim can actually be used in real business or regulatory context. You might remember the old mantra about the fact that you cannot manage what you cannot measure. So we can say that actually we help measure the energy system and flows together with its content and qualities. The main three user cases we address are related to capturing value on the commercial transactions from certain qualities of the underlying molecules.

That would be either emission content, origin, or any other requirement as per the contractual terms. We can also help improve internal reporting, like scope-free emissions that can be properly traced and managed through a chain of custody, but also comply with specific regulatory requirements like UMR. Basically, we help energy markets prove that what is used in the transaction can be assumed. And that actually, that implies where the energy flows are coming from, what is the emission profile they carry, and what is the digital evidence that sits behind each claim.

That's very interesting. And I guess you have pretty much answered my second question. but still maybe you could give some concrete examples on how does the attributes platform support the carbon border adjustment mechanism, methane and Russian gas reporting requirements. Certainly.

You mentioned actually three different regulations that to some extent push towards the same direction. Companies today need stronger evidence and better traceability to manage their claims and documentation. So if we take the three examples you just mentioned, obviously, as the audience might know, but let me quickly just remember, SIBAN mostly is about embedded emissions in imported goods into the European Union. The EU methane regulation creates claims and expectations around methane data, again for gas, crude and coal imports.

And what we see about the ban on Russian gas and LNGs mostly is about increasing the evidence about the country of origin and production to reduce exposure in the supply chain in the broader context of security and supply. What we do is mostly we have today an offering for European methane regulation and for origin, we don't yet work much on SIBAN. And what we do there is that we help companies organize the information into a structured traceable evidence layer that they can support against their regulatory claims These claims have to be prepared managed and what we transfer are important data points about the different aspects required together with the underlying methodologies as we will see later, that actually substantiate those digital claims.

What's important is that we see all these rules as part of the same market shift. So we energy companies today are asked to move from broad claims to structure evidence as more markets move from voluntary to actually regulated frameworks, both for emission claims as well as for origin, among other data fields. And how do you work with the data to ensure consistency between your certificates and data reported under these regulations? For example, maybe you could give us one concrete instance where someone needs to provide reporting and verification of CBAM, for example, or of methane.

How do you ensure that type of consistency that I just mentioned? Yeah, this is the key aspect. So you use the word consistency and what we believe is that consistency starts with discipline, data management and governance. Through our platform, what we do is that we connect the traceability records to the source data, methodologies, documents and underlying transaction records.

So what we do is we create a clear audit trail that, so to speak, follow the volumes. one of the key aspects about creating this consistency in between the trace data and obviously the claim is that for instance it lowers the risk of having companies reporting different information in different places and what one additional aspect that is key is that we only accept on the platform third-party audited data that's quite important in voluntary markets usually this data comes from established auditors or government agencies and regulators for certain you ask for a specific example typically for european regulation what the law is requiring is to have accredited independent verifiers So as you see, there is a first layer of protection, which is where the data is coming from and who has validated the data set at source.

When it comes to origin, we have worked in the past with some European countries. And again, there were third-party data auditors that actually validated the claims. for instance if you take pipe gas when injection point data is available we can build sort of a country level mass balance based on this reported audited data that can help us identify volume wise imports versus exports and therefore aggregate the claims based on the origin it's important to understand with these systems, which are becoming the new backbone of any transaction in the energy sector, is that a digital claim is only as strong as the evidence behind it.

And therefore, we focus on keeping the claim, the data source, and the supporting documentation connected. This is really a key point. Basically, we are building the digital infrastructure that makes trusted information usable according to either market requirements or regulatory ones for each user case. That's all very good.

And obviously, you need to work with data that is already audited, as you said. But how does your platform verify the country of origin for natural gas, for example, and LNG cargos? of course this is going to be increasingly important particularly in the light of the Repar EU regulation which will fully come in place next year so I'd be very curious to hear your thoughts on this Yes, so today most when we talk about LNG cargoes or gas pipe our methodology is based on combining multiple documentary sources depending on the supply chain.

When we talk about LNG cargos, there is plenty of evidence that can help us substantiate the origin, such as bills of lading, terminal documentation, discharge reports, and additional contractual chain of custody records. So along this chain of documents, you will find the origin and we can reconstruct the data trail, if that's the right word. So origin is proven with evidence, not by claiming basically that every molecule can be tracked once it enters a mixed system. It's quite important to make an analogy here, perhaps also with how do we measure or how do we trace the emission data.

For instance, you mentioned before EUMR, the European Methane Regulation. And as you know, methane intensity needs to be treated with a lot of discipline in order to understand that the number we provide is a digital claim. It's only useful if we have the right source, the right methodologies attached, and the verification status are clear. So basically, the approach is always the same, combining existing data sets that can trace up to the source.

And those data sets have to be properly audited and verified by independent third parties. I guess you explained it quite well on this. but still if someone was to assess the level of traceability, what sort of level can you provide to demonstrate that gas supply to a company does not originate from Russia, for example? Yes the strength of the claim Aura will really depend on the quality of the documents that support it Okay So in this quality of the document can be filtered through two lenses One is a market making lens, the other one is a regulatory one.

Okay? Okay, so for the ban on Russian gas and the origin, we are working on some solutions that we have used in the voluntary markets, but we haven't yet seen regulatory evidence of what is the level of documentation required. Certainly, as soon as it will be made public or we'll be aware of it, we will adapt the documental trail, the documental information trail to that requirement. What we have done in the past, we have used claims from TSOs and data at injection point, whereby we were able to discriminate volumes according to their origin as reported.

Now, also, how challenging is it to certify gas origin when molecules from different sources are mixed within the pipeline network? This is a very challenging topic. And because, as you say, once gas, like other commodities, is mixed, really the digital claim depends on the chain of custody, the allocation rules, for instance, and what are the documents that are accepted by market methods. Again, we shouldn't forget that actually we cannot treat a gas molecule like a parcel with a barcode once it is mixed in a network.

So really the individual molecule physical traceability is not possible. So exactly to address this challenge is why we have a traceability infrastructure that matters. So we need to have a way to distinguish between physical movements, contractual claims, and certificate-based claims. As we mentioned before, a lot of that depends on the quality and source of the data.

However, there are additional methodologies that we add on top in order to optimize the traceability and veracity of the claims. one is related to for instance the chain of custody rules so at attributes what we do is that we followed what is called in the jargon a bundled approach by which we do not allow separation of the volumes from the qualities that we trace through the information trail so basically the physical flows and the information flows they travel together and they cannot be separate.

As a consequence, every time that a volume is transferred, this is transferred with the attached qualities that we validate and verify and certify on our platform. So that massively minimizes the risk of having actually information traveling and being reused separately from the volumes. So basically what we do is that we build in that case a defensible evidence trail around the commercial claim. So just to summarize it is, as we mentioned before, what is the data required?

What are the underlying methodologies? Plus our digital trail, which is obviously auditable and cannot be manipulated. And the calculation methodologies like our bundling approach that do not allow volumes to be separated from the information traveling with them. This definitely will add another layer of credibility to the volumes, but also to the information behind the volumes that are traded inside a particular system.

So I think it's a very valuable tool to consider for sure. I would also ask you to what extent do you expect origin certification to become as important as, for example, carbon intensity certification for gas bias in Europe? We have seen already the trend happening. So de facto is no longer an expectation, but I would say it's more a reality.

and however i would like to differentiate in between the two let's say user cases or needs so carbon intensity mostly is around climate performance although it's becoming obviously not only an esg topic but also a business one on the other hand origin is really about energy security, security of supply, procurement risk, and also to some extent sanction exposure and geopolitical trust. What we see today in Europe is that buyers need both types of information. A trustworthy gas transaction may need to show where the gas is coming from, and in addition to that, what is the emission profile that it carries along?

And for both, what is the evidence that supports the claims? As I mentioned before, what we are seeing is that origin and emissions are now business elements, not just sustainability details. For us, both are becoming huge markets, and we believe that both dimensions, the origin and the emission profiles, are converging into a single information layers that actually sellers and buyers, in this case of gas and energy, increasingly need. But can you tell me perhaps what is driving customer demands today?

Is it decarbonization, methane transparency, CBAM compliance or energy security? Why do you see people approaching you and asking or signing up to your services? I believe there is no longer Aura, just one main driver. And these drivers are different across geographies and commodities.

Let me elaborate on that. Energy security in Europe has made origin information urgent for gas and energy. We see less for now on crude. On the other hand methane rules again in Europe have made methane data commercially material for gas crude and coal imports The European Commission or European Union is taking a step forward into adopting this new regulation which to some extent is still in an evolutionary phase.

However, we're also seeing similar mechanism being rolled out in Asia, although for now on a voluntary basis. On the other hand, CBAM has shown that emission data can affect market access. And again, we're seeing, although it's not an offering that we have fully developed, we see interest from European buyers, but also from Asian or other areas exporters of materials like steel and ammonia, etc. So basically what we see in Europe that mostly it's around supply and ensuring that the supplies, well, it's about either gas, LNG, crude, coal, they have a clear origin that is deemed as secure and a certain emission profile according to the rules.

In addition to that, we also have the voluntary markets. and what's driving the customers there is basically how to extract value from so to speak the good molecules and when we speak good volume molecules usually these are molecules in gas or legy for instance with very good emission profiles attached we recently for instance supported a publicly disclosed transaction although obviously everything we do in the voluntary market is strictly confidential. And what we do there is that we basically in this transaction, we verify and transfer sustainability qualities associated with Norwegian gas that were digitally transferred through a platform and physically delivered to a utility company.

And thanks to that, the buyer of the gas could actually improve their CO2 reporting claims, substantiated again by our platform. So the demand, as we see, is coming from all these forces, regulatory ones, market ones. There is one key aspect, though, to be remembered, and we believe that it's here to stay. The molecules, the volumes per se, are no longer enough.

Increasingly, what we're seeing is that the information attached to the molecule is becoming part of the product and is important. And this applies so far to gas, to LNG, and it's starting to be applied into crude and coal. You briefly mentioned just a moment ago about the possibility that these certificates could merge into one. And do you also mention the importance of data underlying or the data that supports all these commodities, the physical commodities?

But I would like to ask you whether you see a future where these certificates with carbon footprint measuring, combining carbon footprint, methane intensity, geographic origin, sanctions, compliance information could really merge into one and also lead to the development of a tradable market, of a market that trades these digital assets. That is definitely the direction the market is moving. And our technology already allows for this to happen. There are two remarks I would like to share where maybe I have a slightly different view on this direction.

What you mentioned is to have a certificate that actually, or token, that assembles huge, diverse data points. In our opinion, the future is not just about making, so to speak, a bigger, more complex certificate, but it's rather about creating a comprehensive data structure to represent the molecules and underlying volumes. And this data structure can include physical, geophysical, you know, data about the molecule. So you could have subsurface data, you could have operations data about extraction, production, emission profile, and you could also add in any token, so to speak, which is a digital representation of data and documents, methodologies, calculation methodologies, reports.

You could add any required by regulatory laws, papers, etc. and what we think is that then this data structure can be used for different purposes and sliced and diced according to the user case. A key aspect behind this vision is how to have a proper discipline data architecture and data governance for energy-related qualities that can be structured and transferred. so basically we we believe that the future is more about building this trusted digital infrastructure where verified information can move as efficiently as the commodity itself in the physical system and be used for the different purposes i just mentioned that was an extremely extremely interesting uh discussion not least because it's about the future of the uh the energy industry as a whole and we're clearly moving from what used to be a very opaque industry to perhaps a very transparent and more credible environment.

And I think a company such as Attributes has a huge role to play in this future environment. So thank you very much, Simone, for your extremely interesting points raised just now. And I wish you all the best in your work. So thank you.

Thank you also to our listeners for joining us on this podcast. And of course, if you are interested, continue to follow us on icis.com or to check our posts on LinkedIn or on any other social media. So thank you very much to everyone.

And until next time, goodbye.