LNG Traders Grapple with Carbon Offsets: Report
Today's LNG oversupply is a good opportunity for LNG buyers to press their sellers to include carbon offsets as regulatory pressure for clean energy rises, according to a new report by gas importers' group GIIGNL.
Since June 2019, several agreements for the delivery of “carbon-neutral” LNG cargoes have been signed, with two more deals announced June 22, the report's publication date.
Carbon capture and storage and the use of wind-powered electricity can only remove so much carbon: after that, offsetting LNG with audited credits from projects such as reforestation, is one way forward. But there are not enough projects to cover global oil and gas demand, meaning that more carbon sinks must be created.
"The current LNG market environment characterised by oversupply is an unprecedented opportunity for LNG importers to request more transparency. For both emission reduction and offsetting, a robust emission monitoring, reporting and verification system (MRV) is a prerequisite to guarantee the effectiveness of each solution," says the report's author and secretary-general of GIIGNL, Vincent Demoury.
There are some obstacles regarding transparency: Jera Global Markets sold an LNG cargo to India a year ago where the amount of carbon dioxide equivalent to the emissions associated with the production and transportation of LNG, originating from Abu Dhabi, could not be determined. So Jera instead offset the emissions generated by the downstream use of LNG in India.
Each credit represents 1 metric ton (mt) of CO2 removed or reduced from the atmosphere as a result of emission reduction projects. The UK government's greenhouse gas (GHG) Emission Factors are sometimes used, and these put about three quarters of the CO2 emissions after the delivery point: 2.54 kg of CO2 equivalent/kg of LNG, compared with 0.88 kg of CO2 equivalent/kg of LNG for the extraction, refining and transportation.
But an accepted framework which can assess emissions at all stages of the LNG supply chain could take a long time to be developed for all segments of the LNG value chain. "When it comes to offsetting mechanisms, not all initiatives are of equal quality and the various emission reduction standards should therefore be thoroughly evaluated and benchmarked," it said.
On average, the product lifecycle emissions of a conventional LNG cargo (175,000 m³) are generally estimated at around 250,000 mt CO2 equivalent. But the source of the LNG, the type of liquefaction technology, the vessel used to transport the LNG, or the equipment and procedures in place at the regasification terminal all affect the final figure.
But the report says that "before any offsetting, avoiding and reducing emissions from the LNG value chain should remain the priority, as they are the most rapid, effective and sustainable ways to achieve carbon neutrality. Since ecosystems are impacted by climate change, the more global warming progresses, the more difficult to implement emission reduction solutions will become. Carbon offsetting mechanisms should therefore not replace emissions reductions, but they could well become a significant piece of the industry’s efforts to curb climate change."