FEATURE: LNG industry putting more emphasis on emissions reductions than carbon offsets

Efforts to reduce emissions in the production and transport of LNG are gaining more traction than the use of carbon offsets while the adoption of carbon-neutral LNG is still in its infancy.

This means lowering the carbon intensity of upstream gas production and shipping, including the use of renewables-based power, halting flaring and methane leaks, and developing carbon capture technologies.

Carbon-neutral LNG does not mean that the LNG cargo does not generate emissions but that the carbon footprint can be measured, verified, and offset using appropriate carbon credits. So, carbon-neutral LNG should be more aptly called carbon-offset LNG, executives said at the recent World Gas Conference 2022 in South Korea.

"Carbon-neutral LNG is a small but an important step, and if you think about it one cargo at a time, then you start filtering it in your decision-making process in the long-term and that's where it really makes a difference," Sid Bambawale, head of LNG (Asia) at Vitol, said.

Vitol launched a green LNG product in March 2021 under which cargo-related emissions, from wellhead to DES delivery, will be offset through carbon credits.

"How you go about measuring it [carbon-neutral LNG in general] and pricing it is not easy ... there isn't much precedence and there isn't a standardization, but you've got to make a start somewhere," Bambawale said.

"So, the way we have approached it is to look at it is as carbon footprint on water. As the carbon comes out of an LNG project, you know the LNG project it is coming from. So, you have a carbon footprint from there," he said, adding that it was possible to assess that.

"Then you look at the ship and its actual voyage and so you go from the liquefaction project to the regas project ... So that's the first step but we wanted to get it going," Bambawale said.

"The carbon thought process has got seeded for us and I hope it works like that for our customers as well," he added.

Related blog: Global LNG contracting rush leaves Asian importers in tight spot

New technologies

For now, energy security concerns have taken precedence, and few carbon-neutral LNG trades have been made public in recent months. But much of the background work on measurement, standardization and technology is still happening.

"We've seen Qatar and a number of both US and non-US LNG developers bring forward their carbon capture projects associated with LNG," said Michael Stoppard, global gas strategy lead at S&P Global Commodity Insights.

"One of the developments we're seeing is that more transparency of data is required in the contracts, at the beginning of an audit process, in order to understand what the footprint of the carbon is in its delivery," Stoppard said.

He said the first step would be gaining a better understanding of the carbon intensity of a project and conducting an audit back to the point of production. There is a lot of work to be done on governance, and a lot depends on the quality of offsets, some of which are "very serious" and others questionable, he said.

Many project developers are recalibrating their approach to carbon intensity from scratch. Mexico Pacific Ltd. is marketing its third train as low-carbon LNG to buyers.

"Customers don't want to pay for low-carbon LNG products today, it's not a priority, particularly in Asia. From a capital allocation perspective, they're far better off putting that capital into coal-to-gas switching than they are putting carbon-neutral LNG into the mix," said Sarah Bairstow, chief commercial officer at Mexico Pacific.

"We do know that over time that will change," she said. "We can provide really competitive, low-carbon LNG, have it available into the market when the market really needs it, but most importantly, do it in a really responsible manner."

She said there are a lot of projects focused on carbon capture and storage, but that requires producing the emissions, capturing them and storing them.

"For us, we're saying if we can develop technology and we can design a facility that allows us to produce low-carbon LNG without creating emissions in the first place, that's a far more responsible thing to do," Bairstow said, adding that train 3 is already starting to see contracting activity and demand for low-carbon LNG.

Demand perspective

It is important for demand to pick up from the consumers side and that will prompt more sellers to supply carbon-neutral LNG, Vikram Mansukhani, head of derivatives for Osaka Gas, said, adding that a concerted effort was needed on part of buyers and sellers to agree on the economics.

In the end, carbon-neutral LNG " has a long way to go but definitely as we move forward there will be more carbon-neutral cargoes," Akshay Singh, Petronet LNG managing director and CEO, said.