"Carbon-neutral" liquefied natural gas is in the spotlight, with leading customers in Asia increasingly calling for carbon emissions to be outlined in their tenders and the first such deliveries recently being made.
LNG ranks among the most emission-intensive resources across the oil and gas sector. Significant emissions are released through the combustion of gas to drive the liquefaction process and any carbon dioxide removed before entering the plant is often vented into the atmosphere, noted consultant Wood Mackenzie Asia Pacific vice chair Gavin Thompson.
In his weekly APAC Energy Buzz blog post, Thompson spoke with colleague Lucy Cullen, principal analyst in WoodMac’s Asia Pacific gas and LNG team.
"To begin with, ‘carbon neutral’ does not mean the LNG cargo creates zero emissions. Instead, the carbon emissions associated with the upstream production, liquefaction, transportation and, if required, combustion of the gas is measured, certified and offset through the purchase and use of carbon credits, which support reforestation, afforestation or other renewable projects,” Cullen said.
However, she cautioned that measuring emissions is a major challenge, with no consistent definition, methodology or reporting structure in place.
“While emissions can be offset in different ways, what’s more critical is the carbon that is measured and included in the first place. Deals that have been agreed to date have not applied a consistent approach and have not considered emissions or offset these emissions in the same way,” Cullen added.
These are early days for "carbon-neutral" or so-called "green" LNG. To date, seven such cargoes have been delivered or agreed, all to buyers in Asia, with more understood to be under discussion. Singapore’s Pavilion Energy recently awarded a 10-year contract for 2 million tonnes per annum of "carbon-neutral" LNG to Qatar Petroleum.
“I am in no doubt that demand for cleaner LNG will only grow, with the carbon footprint of LNG cargoes set to become an important differentiator for buyers and sellers alike,” Cullen said.
Cullen explained that, if the life-cycle emissions of an LNG cargo is broken down, regardless of its source or where it is finally consumed, combustion dominates the emissions footprint. The second-largest components — upstream and liquefaction — are much more dependent on project and location.
Huge offsetting effort
Over an average cargo life cycle, about 270,000 tonnes of CO2 equivalent is produced, requiring about 240,000 trees to offset the emissions, which she said is achievable for a small number of cargoes and currently the cost of these offsetting projects is relatively cheap.
“But is this achievable across the entire LNG industry?" Cullen posed. "[Last year] saw around 5500 LNG cargoes sold, which would require around 1.5 billion trees or carbon credit equivalent. That’s just for a single year’s cargoes. As LNG demand grows, so the number of cargoes, carbon offsets and trees required will also grow.”
For suppliers, a more focused approach that targets reducing emissions in upstream and liquefaction may be more achievable. This will also align with efforts already under way as suppliers come under greater public and investor pressure to manage their carbon footprints.
Differing emissions footprints
WoodMac noted there are significant variations in the carbon emissions from different LNG projects, not only from the liquefaction process but also because of the range of CO2 concentrations in the gas reservoirs themselves.
The greatest opportunity to reduce liquefaction emissions is with the feed gas — about 8% to 12% of feed gas, sometimes more, is used to generate electricity to run the plant and fuel the liquefaction process. Higher efficiency plant designs or using renewable energy to replace feed gas can help to reduce emissions, according to Cullen.
For upstream, the biggest opportunity is said to lie in reducing CO2 venting, creating an opportunity for carbon capture and storage, which could cut emissions by as much as 25%. Several projects — including Snohvit in Norway, Gorgon in Australia and Qatar's North Field projects — are exploring this option, although it remains expensive.
The cost of cargoes will also be a consideration for LNG buyers going forward, she said.
“Innovative ways of reducing costs and an affordable market for forestation projects right now have helped create competitively priced volumes in the current market. But looking forward, any significant cost premium could see a divergence in buyer attitudes — those that are carbon conscious and those whose primary concern is price.”
Cullen believes that, while "carbon-neutral" LNG is sold at a premium, “there’s no doubt that positive headlines are motivating deals”.
“For a modest premium, companies have been rewarded with widespread coverage of their green credentials. An easy win. But beyond this, deals have also allowed buyers early experience with 'carbon-neutral' transactions and marketing, valuable experience for what lies ahead,” Cullen said.
This might just be the beginning of the journey for green LNG, but what’s certain is that carbon consciousness is not going away, she added.
“As LNG demand continues to grow, so will demand for greener LNG and I expect that future legislation, shareholder obligations and project financing terms will likely require that all LNG cargoes come with detailed information about the emissions associated with their production and delivery.
“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.
"I expect this will lead to greater buyer scrutiny and differentiation between projects, with impacts for pricing," Cullen added.