Save for later Print Download Share LinkedIn Twitter Carbon-neutral LNG (CNL) is starting to spread in parts of Asia where buyers see it as a near-term answer to the challenges posed by decarbonization. But "carbon neutral" doesn't mean no emissions -- just that the LNG is offset by carbon credits -- and environmentally conscious consumers are already forging strategic partnerships to develop cost-effective zero-carbon technologies that could eventually supplant natural gas in the world's biggest LNG market (WGI Nov.11'20). Big in Japan CNL gained traction in Japan recently when gas utility Tokyo Gas, the first Asian buyer to import carbon-neutral LNG in 2019, formed an alliance of 14 end-users to establish the fuel as a solution to cutting carbon emissions. The lobby group wants to make evaluation of CNL easier, using environmental, social and governance factors to measure sustainability. Japanese firms are becoming more aware of CNL. Tokyo Gas reportedly recently closed its first CNL sale to rail operator JR East, running for three years, while Hokkaido Gas received its first carbon-neutral cargo from trader Mitsui. Osaka Gas is promoting CNL packaged with offsets to customers. Tokyo Gas is not yet thought to have signed a term contract for CNL, likely due to problems finding customers. Power utilities have been expanding their renewables portfolios, posing a threat to city-gas utilities. “Tokyo Gas has major concerns that its city-gas can be replaced by electricity, especially for the residential sector, which is a big consumer of city-gas,” a local analyst says. To encourage uptake, the government is reportedly considering aligning an existing domestic carbon credit scheme, J-Credit, with LNG. LNG importers' use of J-Credits could help utilities promote CNL packages. Tokyo may also introduce a carbon tax or market-based mechanism to meet Japan's goal of going net zero by 2050. Most forms of renewable energy require a lot of land, especially wind and solar photovoltaics. The problem in Asia is that most "countries do not have sufficient suitable sites. ... They are therefore dependent on offset solutions until cost-effective zero-carbon fuels are available,” Ben Smith, partner with law firm Norton Rose Fulbright, tells Energy Intelligence. “In the interim, gas is vastly preferable to other fossil fuels, and offsets do not require additional capital expenditure in plant and machinery.” Defining Problem Defining CNL and associated offsets presents its own challenges. Not all LNG is the same, and the industry needs a standard way of assessing, measuring and verifying emissions, as well as the quality of offsets (WGI Feb.24'21). "There is also a longer-term concern regarding the cost of carbon offsets and the ability to source new offset projects,” Smith says. Smith advised Singapore's Pavilion Energy in its recent term contracts with Qatar Petroleum and Chevron, the first ever to require sellers to track the carbon emissions associated with each cargo from wellhead to discharge port. Pavilion and its suppliers will co-develop and implement a greenhouse gas quantification and reporting methodology. There will likely be a finite source of credit offsets, but Smith says a key advantage of tracking emissions is that “once something is tracked, it can be reduced, even without financial incentives, such as offsets.” Picking the Winners Beyond CNL, Asian buyers are busy collaborating with suppliers, technology firms and shippers in investigating zero-carbon technologies and deciding which to adopt. Driven by government policies, as well as the lack of suitable sites for developing renewables or storing carbon, regional players have been working with producers in the Middle East, Southeast Asia and Australia to develop a hydrogen or ammonia supply chain for exports (WGI Mar.24'21). Mitsubishi is working with an Indonesian ammonia producer on a feasibility study for carbon capture and storage (CCS) near an ammonia plant, as well as the Donggi Senoro LNG project, in which carbon dioxide would be piped underground. The Japanese trader owns a stake in both plants. Unlike power utilities focusing on renewables to decarbonize, city-gas utilities like Tokyo Gas and Osaka Gas have been looking to CNL, biogas and, potentially, hydrogen. One possibility is to blend hydrogen into existing city-gas networks, as is being pioneered in Europe (WGI Apr.7'21). But this could run into technical problems, altering the calorific value of the gas. Giant power utility Jera is less keen on CNL and is going big on offshore wind and ammonia, which can be co-fired in its coal plants. Hydrogen Hype Hydrogen has attracted a lot of hype, but its low energy density by volume and the high cost of transporting and storing it have encouraged some firms to consider shipping it in compounds such as ammonia or methylcyclohexane (MCH). It takes a lot of energy to transport hydrogen as it liquefies at minus 253°C, compared with minus 162°C for LNG. Japan’s Kawasaki Heavy Industries nonetheless plans to launch the world’s first liquefied hydrogen carrier this year. It would import hydrogen from a pilot gasification project in Australia based on lignite, the lowest-quality coal, under a government-to-government project. Japan hopes to produce 3 million tons per year of hydrogen by 2030 and 20 million tons/yr by 2050 by accelerating the development of international supply networks and cultivating demand. It is backing ammonia as an energy carrier for hydrogen and as a co-combustion fuel in power plants. 'Friendly' Ammonia Major LNG buyer Korea Gas is also eyeing Australian hydrogen. “Kogas deals with LNG so we are familiar with liquefaction," an executive from the state-owned South Korean firm told a recent webinar. "We are very keen on liquefied hydrogen, while private companies try to import hydrogen using ammonia." Ammonia does not emit carbon when burned, but is toxic, corrosive and produces nitrogen oxide. “Power companies are aware of the challenges but think they can manage them," the Japanese analyst says. “Ammonia has been an excellent industrial friend. It has been effectively produced and utilized as a fertilizer, chemical raw material and recently in industrial furnaces as a fuel ... but its usage in the gas power space is still exploratory,” Som Shantanu, regional engineering director for GE Gas Power, tells Energy Intelligence. “As coal-based power generation is replaced with more efficient gas plants that utilize various blends of hydrogen, ammonia can play a pivotal role today as a transport means to safely move various versions of hydrogen from the source to gas power stations.” The US multinational, which is quitting new coal-fired power, sees a mix of renewables and gas-fired power plants in which hydrogen is blended with LNG as the next practical step toward greener energy (WGI Dec.9'20). Blending LNG with 50% hydrogen by volume achieves a 20% reduction in CO2 emissions versus a 100% LNG-fired plant, according to Shantanu. Raising hydrogen's share to 75% could lead to a 50% reduction. GE recently commissioned its first so-called 9HA.02 flagship gas turbine at a combined-cycle plant in Johor, Malaysia, capable of blending up to 50% hydrogen by volume. GE said its own gas turbine technology is ready to embrace hydrogen as a fuel. But Shantanu said the question is whether the broader industry can aid the transition with hydrogen that is affordable and on the scale needed, and with the transport and storage infrastructure required. All at Sea In the marine fuel sector, ammonia received a shot in the arm when Singapore, the world’s largest bunkering port, recently teamed up with container shipper Maersk to look at green ammonia bunkering. Maersk's CEO has said it plans to go straight to zero-emissions bunkering, skipping LNG as a bridging fuel. The shipping industry’s scrutiny of ammonia comes as more LNG bunkering facilities and LNG-fueled vessels emerge. Some analysts reckon other shipowners could copy Maersk and jump straight to ammonia as a bunker fuel. “If shipowners decide to keep burning fuel oil for a few more years until the debate about which fuel to use is resolved," Smith warns, "there are clearly adverse consequences for efforts to get to net zero.” Clara Tan, Singapore Snapshot of Asian Partnerships and Plans in Exploring Zero-Carbon Fuels Who and Its Partners Type of Fuel Plans/Targets Japan Japan-Australia consortium
