Carbon-Neutral LNG Needs Universal Standards to Take Off

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A long-term deal announced this week by Chevron and Singapore-based Pavilion Energy signals that carbon-neutral LNG is gaining momentum as buyers and sellers look to improve their green credentials amid carbon-neutrality pledges from major Asian buyers (WGI Sep.16'20). The six-year contract is for around 500,000 tons per year starting in 2023. Sales of at least 10 carbon-neutral spot cargoes have been reported since June 2019, when Royal Dutch Shell signed a pioneering agreement with Japanese firms Tokyo Gas and GS Energy. Sellers pledge to offset the life-cycle emissions of a cargo from production to delivery. But there is no single approach. Some buy credits from carbon removal projects linked to afforestation, reforestation or renewables, or invest in such projects directly. Others tout cuts in gas flaring or use of more environmentally efficient LNG plant equipment. Industry First If carbon-neutral LNG is to become a permanent feature of future trade, a universally accepted system for measuring, monitoring and verifying carbon emissions is a must. Pavilion is moving in this direction. It signed the first term contract for carbon-neutral LNG with Qatar Petroleum (QP) last November. Like its second deal with Chevron, the sides have committed to co-develop an emissions monitoring, reporting and verification system. Each cargo will be accompanied by a statement of greenhouse gas emissions measured from wellhead to discharge terminal. In its tender, Pavilion sought a defined carbon content and asked sellers to explain their methodology, providing accompanying certificates. It was the first time a buyer had required such data, according to Steven Miles, a nonresident fellow at Rice University's Baker Institute in the US. But the accompanying methodology has not been defined, says Jonathan Stern, research fellow at the Oxford Institute for Energy Studies in the UK. “We don’t know if those cargoes were measured for CO2 [carbon dioxide] and methane or how those calculations were equated with wind or forest offsets,” he says. Global platforms and standards are needed to measure emissions and avoid double counting. It will take time to bring together regulators, producers, buyers, traders and downstream users, according to Rystad Energy Vice President, Gas & Power Markets Xi Nan, but major players like Shell and Total involved in the whole value chain "may step forward in the standardization process.” Trading houses could have problems. “How does that trader convey to prospective buyers the upstream carbon emissions and reductions associated with different purchases it has made, after swaps, etc.?” Miles asked. Coming Clean Verification will require the publication of data and methodologies, with the data verified “not by a desk research exercise but a technical process including sampling of emissions from the value chain,” Stern says. Companies that use "confidentiality as the reason for not providing this information will need to accept that their claims of greenhouse gas neutrality will have little credibility." Little detailed emissions data is currently available at company level. Stern says Russia’s Gazprom is the only firm to provide certified data -- audited by KPMG -- broken down by production, transmission and storage. “We can all debate the validity of the data and the certification process, but the fact is you can read it." Data also varies by region, with progress lagging in areas with undeveloped carbon markets or low energy use. In carbon leader Europe, the EU methane strategy published last year specifies that gas suppliers will have to provide transparent and verified emission measurements. Brussels also backed the establishment of an international methane emission observatory with the UN Environment Programme, Climate and Clean Air Coalition (CCAC) and International Energy Agency. The majors are already signed up to the CCAC Oil & Gas Methane Partnership, a voluntary initiative to help firms reduce emissions. Stern says they are either offered technical assistance to derive their own measurements or assigned a default methane emissions value on which they are rated. In the US, where LNG exporters face increased scrutiny over methane emissions from shale gas feedstock, President Joe Biden has asked the agriculture department to establish ways to promote "nature-based solutions" to absorb carbon (WGI Dec.9'20). The treasury and energy secretaries were also directed to work with the US Export-Import Bank (Eximbank) and US International Development Finance Corp. to identify steps to "promote ending international financing of carbon-intensive fossil fuel-based energy," while advancing sustainable development. “Presumably, Eximbank will need to determine how it will measure carbon reductions and what information and verification it will require,” Miles says. Carbon Credit Skepticism Nature-based solutions like afforestation need “a lot of science to get comfortable that the offset is being achieved and will be sustainable over the long term,” Miles says. The quality of the emissions reduction projects that generate carbon credits or offsets can vary greatly. “If the industry is smart and successful, it will grasp carbon capture and sequestration,” says Thierry Bros, visiting professor at SciencesPo Paris. “The LNG industry needs to become greener and prove to the world that it's cleaner." The question is who pays (WGI Nov.18'20). Assuming a cost of $10 per ton of carbon dioxide equivalent for reforestation projects, the GIIGNL reckons a conventional cargo with total emissions of around 250,000 tCO2e would cost an additional $2.5 million, or 60¢ per million Btu (WGI Jul.1'20). The industry group says end-users account for 75% of the CO2 emissions in the LNG value chain (WGI Dec.16'20). “If a customer says it wants to buy green LNG it would be a bit rich to just assume the producer will absorb all those costs,” says Andrew Seck, former LNG marketing and shipping vice president at Mozambique LNG. “A split would be more natural." Over time, he reckons producers will make plants' carbon footprint a "permanent selling feature." He points to Shell's 14 million ton/yr LNG Canada, which intends to use electric compressors powered by hydro-electricity and advertises its gas as the greenest LNG available. Alexandra Chapman, London

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