Is carbon neutral LNG setting a new standard?

Shell and Jera recently made a number of ‘carbon neutral’ LNG deals. So far, six carbon neutral cargoes have been delivered or agreed, and one long-term supply tender has been launched.

But what is carbon neutral LNG? Lucy Cullen, Principal Analyst, Asia-Pacific Gas & LNG, Wood Mackenzie, set out to answer this question at the Gastech virtual summit in September. ‘Carbon neutral does not simply mean a cargo creates zero emissions but rather that emissions are measured, certified and offset,’ she told delegates. ‘There is no consensus yet on which emissions should be offset. Various definitions have been applied so far, ranging from an ambitious objective to offset full life-cycle emissions of LNG cargoes, to offsetting part of the value chain.’

While the concept of carbon neutral LNG is still in its infancy, Cullen said there is a need for industry to consider how best to achieve carbon reductions in the long-term. ‘Regardless of how we define carbon neutral LNG, emissions measurement and transparency on these emissions is a challenge which must be addressed. Measurement methodologies and standardisation will be critical if carbon-neutral LNG is to become more mainstream.'

She continued: ‘Gas will play an important role as a transition fuel globally. Even under the IEA sustainable development scenario, which envisions aggressive carbon reductions. The continued rise of renewables will change the competition space for gas and LNG. By bringing greater lower carbon competition, focus will increasingly shift to emissions. Gas is cleaner on a combustion basis, but is it clean enough? That question will be especially important for LNG, as Wood Mackenzie expects its share of the mix to grow at a faster rate than gas overall.’

‘Full life-cycle carbon offset makes a great news headline. It is ambitious, but can it be adopted widely by the industry? Perhaps not, although it may be achievable for a smaller subset of cargoes or for certain players who have visibility over the full value chain emissions. A more focused approach targeting emission reduction in the upstream/liquefaction segment – by adopting carbon capture and storage (CCS), and increasing plant efficiency, for example – may be a more achievable long-term objective that can be adopted more widely across the LNG industry.’

While sellers are looking to make projects as carbon competitive as possible, what is motivating buyers? Cullen said there is an element of early mover advantage at play and good news headlines. ‘These first deals have offered participants experience with carbon neutral transactions. This is important as we move into a lower carbon future. But these deals were not solely motivated by green ambitions and future proofing. Economic and strategic realities still weighed heavily on these decisions and ultimately innovative ways of minimising the impact of the carbon neutral cost premium for buyers helped to create the right opportunities. Until firmer regulation comes into play, these factors will continue to be considerations.’

Cullen added that as LNG demand continues to grow, so will demand for greener LNG. ‘Targeting emissions reductions in certain segments of the LNG value chain seems an achievable route to carbon neutral LNG and wide-scale adoption in the industry,’ she said. ‘But more needs to be done on emissions measurement, standardisation and policy to increase participation and confidence and to encourage buyers. We may very well see that – at the very least – proof or visibility of supplier carbon credentials will become as norm. This will lead to greater buyer scrutiny and differentiation between projects, and prices.’