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    Investing in liquefied natural gas in a carbon constrained world

Summary

On May 2, prospective exporter of liquefied natural gas (LNG) NextDecade announced the signing of a 15-year sale and purchase agreement (SPA) with French utility Engie. It was a significant event for two reasons.

by: Dr. Robert Kleinberg and Dr. Tim Boersma| Center on Global Energy Policy, Columbia University

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Complimentary, Natural Gas & LNG News, Liquefied Natural Gas (LNG), Global Gas Perspectives, Energy Transition, Carbon

Investing in liquefied natural gas in a carbon constrained world

To start, it was the first offtake agreement in a number of years between a major European consumer of natural gas, and a US supplier. The importance of European buyers in helping spur the initial wave of investments in US production and export capacity has been well documented, but had stalled in recent years, amid concerns of possible oversupply, costs, Europe’s ambitious carbon agenda, and most recently the pandemic. This lack of new investments notwithstanding, US LNG has developed into a modest but growing part of the EU’s fuel mix in recent years, and recent high prices have incentivized a major uptick of spot cargos being shipped from existing plants in the United States to European regasification terminals. The war in Ukraine has changed the calculus in European capitals with regard to their future fuel mix. The political desire to drastically curb imports of hydrocarbons, including natural gas, from Russia has left companies and governments scrambling to find supplies elsewhere. Having regained its status as a global energy powerhouse, the United States is an obvious place to look for such alternatives.

Second, it was only in the fall of 2020 that Engie halted conversations with NextDecade about a 20-year, US$7 billion LNG supply contract. Even though official statements were never made, it was widely reported that the French government had pressed Engie to back out of the deal, due to concerns over the environmental footprint of the natural gas that was to be supplied. So have those concerns been addressed, or has the war in Ukraine changed the priorities of the French government? Quite possibly both. Under the SPA, NextDecade aims to reduce CO2 emissions from its Rio Grande LNG facility by more than 90 percent via carbon capture and storage. It also aims to use net zero electricity in its operations, and sell responsibly sourced natural gas. The latter means that the company will buy natural gas from producers that use continuous monitoring devices, methane-sensing aircraft, and/or satellite imaging to monitor, measure, and independently verify both GHG emissions (in particular methane), and local air pollutants associated with gas production. Of course, we will need to wait for a final investment decision on the project, and closely examine results when operations begin after 2026. We also do not know what emissions reductions will cost, whether Engie is going to pay a price premium for its natural gas, and if so how much.

Yet with this announcement, NextDecade and Engie illustrate how investments in hydrocarbons might be reconciled with broadly shared ambitions to curtail GHG emissions associated with our energy economy in the coming decades. The deal also provides an example of what responsible investment consistent with net-zero pledges might look like. If NextDecade were to disclose more information on the terms of the deal, it would put a market price on avoided carbon and methane emissions, which would be very influential and could potentially underpin a new wave of investment decisions. The technologies to help curtail emissions throughout the supply chain are available, and should be put to use. Action to mitigate climate change can no longer wait until the 2040s and 2050s. NextDecade suggests it is willing to show the way. Nomen est omen.

Dr. Robert Kleinberg is a senior research scholar and Dr. Tim Boersma is a fellow with the Center on Global Energy Policy, Columbia University.  


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