OPINION: The announcement this week that Shell is to provide “carbon-neutral” liquefied natural gas cargoes to China breaks new ground for LNG in that country.
The Anglo-Dutch supermajor, in co-operation with China National Offshore Oil Corporation, will offset CO2 emissions with nature-based carbon credits.
The oil companies claim that two first shipments will provide enough clean power for 300,000 homes over a year.
The move comes amid a slump in gas demand due to the coronavirus pandemic and increasingly polarised debate about the role of gas in a low-carbon future.
Executives and officials from Shell, the European Union, major investors and the Environmental Defense Fund (EDF) charity met on 23 June to discuss how to reduce dangerous methane emissions from gas movements.
The EDF is pushing the EU to adopt a robust benchmark to address life-cycle emissions of all gas produced, imported and used in the EU.
Other environmental groups cite the Tyndall Centre at Manchester University in the UK, declaring “there is categorically no role for bringing additional fossil fuel reserves, including gas, into production” if the Paris climate change targets are to be met.
This opposition to new gas production includes whether or not carbon capture and storage (CCS) is deployed to trap CO2 emissions, as “likely upstream methane emissions substantially restrict its (CCS’s) potential”.
Critics also fear any new gas supply will “lock in” transport and other users to fossil fuels instead of forcing them to go straight to renewables and electricity, where that can be done.
Covid-19 and the lockdown of homes and business around the world have, meanwhile, brought gas demand growth to a halt.
The International Energy Agency predicts total demand could fall by 5% this year after a decade of strong growth.
And yet there are signs the LNG sector will bounce back quickly.
Last week, China unveiled plans to construct 24 new LNG terminals over the next five years, allowing it to double its import capacity.
The world’s largest importer is also pressing ahead with building an LNG bunkering facility to encourage shipowners to use gas instead of diesel for vessel propulsion.
Many LNG export projects have been postponed as the pandemic took hold, crushing economic demand and energy prices.
There were fears, even before Covid-19, that too much new capacity was being developed to meet likely demand growth.
But some have calculated that more investment went into LNG developments in the first half of this year than in 2019 or 2018.
Poten & Partners estimates more than $8 billion was pledged during May to Nigeria LNG Train 7 and Sabine Pass on the US Gulf coast.
And the latest signals from flagship projects in Qatar and Mozambique have also indicated they intend to press ahead.
Some contract awards have been delayed, but the drilling of offshore wells for the expansion of Qatar’s giant North Field has started and a massive $19 billion order for new gas carriers has recently been placed.
Mozambique recently won confirmation that the Export-Import Bank of the United States will provide $4.7 billion of funding for the Total-led Mozambique LNG scheme.
The French supermajor is understood to have tied up a further $14 billion-worth of funding from a consortium of international banks.
The LNG sector offers opportunities for the contractor and supply sector in the short term, but the debate will continue about whether gas is a bridge to a low carbon future or bridge to nowhere.
(This is an Upstream opinion article.)