In just a few years, the image of natural gas markedly shifted from the bridge fuel of the energy transition to just another fossil fuel that emits an even more polluting and dangerous gas than carbon dioxide—methane. Sure, natural gas burns cleaner than coal does. But the wave of net-zero pledges from governments and businesses has shifted the focus of the liquefied natural gas (LNG) market onto the carbon footprint of the entire LNG supply chain— from the extraction and liquefaction of LNG to shipping, regasification, and emissions generated by end-users.
The green energy drive is changing the way LNG developers and sellers are planning for future projects as buyers are increasingly demanding proof that the cargoes they have paid for are “green”—that is, carbon neutral.
Over the past two years, amid the net-zero and clean energy push, LNG buyers have increased their scrutiny of the carbon credentials of the cargoes they look to contract.
This is just the beginning of a major trend in the global LNG market to make the ‘cleanest’ fossil fuel even cleaner by offsetting emissions with nature-based projects and directly reducing pollution at the liquefaction stage with carbon capture and storage (CCS) solutions.
Inevitably, the economics of future LNG projects will change. Developers will be looking (and they already are) to pitch their projects as a lower-emission facility than those of their rivals. At the same time, banks and other capital providers will agree to finance the construction of LNG facilities only if they are coupled with emission-reduction technology.
Related: U.S. Government Considers Making Ransom Payments Illegal As it stands, no new investment in new natural gas supply ever again—as the International Energy Agency (IEA) has recently suggested—is not a viable solution. Gas demand in Asia is set to jump by more than 70 percent between now and 2050, according to Wood Mackenzie’s base-case outlook. After all, Asia and the world’s two biggest energy growth drivers, China and India, have a lot of coal-fired electricity to replace. Until renewables and battery storage allow for zero-carbon electricity, it will be natural gas that will fill the gap.
Despite the rosier long-term prospects for natural gas compared to oil in the energy transition, LNG developers and traders have started to listen to the buyers and look to address the emissions problem of the fuel.
Shell and TotalEnergies, the biggest LNG traders, have already delivered their first carbon-neutral cargoes in recent months. Shell offset the emissions of an LNG cargo delivered to Europe with nature-based carbon credits to offset full lifecycle emissions, including methane—from exploring for and producing the natural gas, to its use by the final consumer. TotalEnergies offset the emissions of its first carbon-neutral project with VCS (Verified Carbon Standards) emissions certificates financing a wind power project in China and a project to protect Zimbabwe’s forests.
LNG developers have also started to address market and society concerns about emissions. For example, approving the world’s largest LNG project earlier this year, Qatar Petroleum announced plans for a CO2 capture and sequestration system as part of the project, saying that “a significant portion of the project’s electrical power needs will be provided from Qatar’s national power grid,” as well as solar power procured under corporate deals.
In the United States, developers are also betting on showing a lower environmental impact as they compete with Qatar and Australia for global LNG export leadership.
NextDecade announced in April a deal with Mitsubishi Heavy Industries to develop a post-combustion carbon capture technology at NextDecade’s Rio Grande LNG project in Texas. This came months after reports emerged that French utility giant Engie had pulled out of a major long-term deal with NextDecade over emissions concerns.
Venture Global LNG also plans to capture and sequester carbon at its Calcasieu Pass and Plaquemines LNG facilities.
America’s top LNG producer and exporter, Cheniere Energy, announced a collaboration with natural gas producers and leading academic institutions to implement quantification, monitoring, reporting, and verification of emissions performance at natural gas production sites.
“Collaboration with our natural gas suppliers is a key component of Cheniere’s focus on quantifying and improving environmental performance,” President and CEO Jack Fusco said.
The growing climate action around the world will change the way LNG developers plan and design future projects. Emissions reduction initiatives will have to be an integral part of development if LNG sellers want to win buyers and secure funding.
“Targeting full life-cycle emissions across the entire LNG industry is a big ask, but progress towards emissions reduction in the upstream, liquefaction and transportation of LNG is coming into focus and at the very least, proof or visibility of supplier carbon credentials will become the norm,” says Gavin Thompson, Vice Chairman, Energy - Asia Pacific, at Wood Mackenzie.
By Tsvetana Paraskova for Oilprice.com
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