How Green Is Carbon-Neutral LNG?

The take-off of carbon-neutral LNG trade remains in its infancy as questions over the accuracy of measurements and verification of the carbon offsets governing these transactions are still up in the air. Despite a move towards higher need for energy security and affordability following Russia’s war in Ukraine, the decarbonization of LNG is still believed to be crucial if the fuel is to meet strict net-zero climate goals going forward, particularly in Asia.

Last week, Shell and Taiwan’s CPC announced the delivery of a carbon-neutral LNG cargo into an undisclosed Taiwanese terminal, sourced from the Chevron-operated Gorgon LNG export terminal in Australia. The cargo was the first to use the emissions monitoring, reporting and verification framework for the delivery of a greenhouse gas-neutral LNG cargo from the International Group of LNG Importers (GIIGNL). The group hopes its framework, launched in November 2021, will help exporters and importers of carbon-neutral LNG counter arguments of greenwashing by adhering to a framework that has a robust, verifiable and quantifiable methodology.

Upwards of 60 carbon-neutral LNG deals have been transacted since 2019, not including term deals, but not all may have been delivered yet, industry sources say. The lifecycle greenhouse gas (GHG) emissions of these cargoes, especially those transacted in the early days of the practice, are sketchy at best, with academic studies pointing out questionable gaps in data gathering along the value chain.

Major concerns surround issues of pinpointing exactly where the feed gas has come from, and the standard of offsets used in the transactions. “There has never been a rigorous definition of how emissions from a cargo have been, and should be, estimated or measured,” a September 2022 report from the Oxford Institute for Energy Studies (OIES) said. “Nor has there been sufficient transparency (and in many cases any transparency) to provide credibility to the claim that carbon, or more accurately GHG, emissions from these LNG cargos have been offset." Key voluntary carbon offset verification provider Verra has come under scrutiny recently, with allegations that is has been overzealous in awarding credits to deforestation projects that may not have been needed.

How Is Shell Doing it?

A source close to the Shell-CPC deal tells Energy Intelligence that the cargo has lifecycle GHG emissions of roughly 190,000 tons of carbon dioxide equivalent (CO2e) emissions, which Shell has offset through voluntary carbon offset projects in Indonesia and Australia. Shell said back in 2021 that it uses UK government conversion rates that give a typical 70,000 ton LNG cargo a GHG lifecycle emission rate of roughly 240,000 tons of CO2e. The 2022 OIES report cites research that shows Shell has shipped LNG carbon-neutral cargoes with a range of 188,000-238,000 tons of CO2e.

Shell also said in 2021 that it uses credits from forest protection projects in China and other parts of the world to offset LNG cargo emissions, such as in its five-year term deal with PetroChina International. But when asked whether cheap voluntary carbon market credits at often near $10 per credit actually result in GHG removal, a Shell spokesman told Energy Intelligence that the company continues “to learn about the complexities and challenges of the voluntary carbon market sector." The spokesman added that Shell has had to make some "tough decisions, pulling out of projects where we could not agree with others involved on issues of quality".

But evidence shows that Shell is trying to get a better handle on the problem of accurately assessing the CO2e content of LNG cargoes. It is moving away from standard calculation factors, such as the UK DEFRA factors which were used in previous transactions, to a more robust system such as the GIIGNL framework. Using the UK DEFRA system, for example, "may in some cases lead to overestimate the amount of emissions attributable to the LNG cargo,” GIIGNL secretary general Vincent Demoury tells Energy Intelligence. “Instead of using standard factors, the quantification of the emissions linked to the Shell-CPC cargo was based as much as possible on primary data, using product footprint standards".

Credibility Challenge

Carbon-neutral LNG faces a "credibility challenge" because there is little to no evidence of detailed emissions accounting specific to each cargo for most of these deals, according to Ben Cahill, a senior fellow at the Center for Strategic and International Studies’ energy security and climate change program. It is "critical to measure – not estimate” each cargo’s emissions because otherwise companies will not know accurately how much to offset, Cahill says.

Measuring emissions accurately is hard to do in the US because US LNG exporters buy gas molecules from many different sources and the process involves a lot of players across the value chain: production, gathering, transmission, storage, liquefaction, and shipping. "This might be easier to pull off in other parts of the world where gas comes from a single field and the same operator may manage upstream, midstream, liquefaction, and even shipping," Cahill says. This is the case of producers in, for example, Qatar and Australia, which have just a few fields and dedicated pipelines providing feedstock gas to LNG export terminals.

The GIIGNL framework aims to fill in as many gaps in the methodology process as possible. “It’s a step forward and it’s good news that some companies like Shell are starting to adopt it for transactions," Cahill says.

The World Economic Forum said last month that it stands behind "the use of demonstrably high-quality forest carbon credits as a crucial tool in the urgent fight against climate change." While forest offsets aren't perfect, and some project developers are gaming the system, the sector is tightening up oversight, the WEF said. The sector is doing this with "independent governance bodies working to raise the integrity of supply and demand across the voluntary carbon market,” it added. A new benchmark standard from the Integrity Council for the Voluntary Carbon Market, an independent governance body, is due this quarter.