A large box must be ticked before LNG can be considered a cornerstone of the 21st century energy basket – and that is its de-carbonization.
LNG has fairly been heralded as a coveted jigsaw piece in the global energy transition; an energy market to bridge the traditional fossil fuel industry of the past with the renewables portfolio of the future. But it can do more.
The environmental microscope on LNG will only intensify. Momentum driven by agreements like the ‘national visions’ of Arab Gulf governments, the EU’s Green Deal, Singapore’s Carbon Act and more have been joined by net zero targets by some of the world’s biggest economies and companies.
We, for one, plan to neutralize the carbon footprint of our entire European operations by 2035.
Decarbonizing LNG has always been a point on business agenda, but this backdrop means it is now a pertinent issue that needs immediate attention. Inaction risks dulling the environmental competitiveness of the LNG market as other and cleaner energy sources – solar, wind, biomass and hydrogen – gain traction.
Even if renewables are not as competitive as firms and governments would like – the returns are not as fruitful as fossil fuels when oil prices are higher – we have a social responsibility to protect the planet.
LNG is considered the ‘greenest fossil fuel’ with 117 pounds of CO2 produced per million British thermal units (MMBtu) equivalent of natural gas, detailed the Energy Information Administration (EIA). This is versus 200 pounds and 160 pounds for coal and distillate fuel oil, respectively.
But LNG is still a fossil fuel market, which has polluting supply chains clashing with the global push for a net zero future. Our collective goal should be reducing the emissions (both methane and CO2) along the value chain with carbon neutral LNG, which would make this already highly attractive market even more relevant for the 21st century climate agenda.
A fine balancing
So, what is the carbon neutral LNG of the future that industry must achieve? It does not mean that a cargo does not cause emissions, but the emissions can be offset through the purchase of credits from carbon removal projects. Examples of such projects – many already tried and tested via clean development mechanisms (CDM) – include renewable and reforestation projects.
For true carbon neutrality, methane emissions must also be mitigated – another journey that LNG stakeholders must embark on.
But there is a catch; offsetting is not cheap. The price tag could particularly sting in today’s economic environment of depressed oil prices and a 6.5 per cent retraction in the global growth outlook for 2021, flagged the International Monetary Fund (IMF).
For example, when investing in reforestation projects to offset the carbon footprint of a cargo, the cost can easily rise to $10/tCO2e or more. At this cost, if one assumes the total GHG emissions of a conventional LNG cargo at around 250,000 tCO2e, offsetting GHG emissions for one LNG cargo amounts to $2.5 million per cargo, according to the International Group of Liquefied Natural Gas Importers.
But seeing this from a cost perspective only risks being narrow-minded. Firstly, companies will increasingly want – and need – to be able to show they have premium LNG that boasts carbon awareness and neutrality, especially as climate-related finance gets more support.
Now’s the time
Plus, proactivity now will keep propelling the attractiveness of LNG – already considered a greener fuel by many – as its fossil fuel cousins grapple for relevance with financiers. Illustrating the shift in sentiment, more than 1,200 institutions worldwide managing $14.5 trillion in assets have committed to divest from fossil fuels, up from 181 managing $50 billion five years ago, said international movement Fossil Free.
LNG wants to be on the right side of this conversation – and it can easily be if it accelerates decarbonization.
* The first step is to improve measuring, monitoring, verifying, and reporting, including an accounting methodology for the life-cycle assessment (LCA) emissions of LNG and the carbon footprint per LNG cargo.
* The second move focuses on reduction, which includes assessing and ranking abatement options, implementing emissions reduction actions efficiently, and reporting emission reductions.
* The third step is to increase offsetting. This encompasses originating green certificates, designing offsets per customers’ requirements (quantity, quality, origin, and so on), and creating a premium LNG product. All three steps are needed, each tying into one another; one cannot offset CO2 emissions if monitoring has not been done effectively, and one cannot monitor efficiently if there is no accounting methodology, and so on.
Clearly, there is no silver bullet to carbon neutral LNG, but as the proverb goes: ‘What comes easy won’t last and what lasts won’t come easy’.
- John Roper is CEO Middle East at Uniper Global Commodities.