Is there a carbon neutral LNG illusion in the name of betterment of the environment?

Nowadays a new trend in oil and gas sector is gaining momentum. And this is carbon neutral LNG. Companies such as Shell and Gazprom have also claimed to sell the first carbon neutral LNG cargo in Europe.

Meanwhile, 15 gas buyers in Japan also formed the Carbon Neutral LNG Alliance to promote the purchase of this fuel.

So in such an environment it becomes very important for us to know now that this carbon neutral LNG is what is the problem and why we should be worried about the emergence of this industry.

So let’s know firstly what is this carbon neutral LNG.

Worldwide, LNG or liquid natural gas has been considered a low-carbon alternative to oil or coal.

But according to the definition of carbon emission, LNG can emit carbon in the same way as coal. Carbon emission occurs at every stage of the process of making LNG. From liquefaction to transportation and in regasification and also on LNG burning.

The main part of LNG is methane gas, and methane gas is a major greenhouse gas that accounts for more than 90 percent of the warming of the climate compared to the carbon it contained in the atmosphere during the first 20 years.

Carbon neutral LNG does not mean that there was no carbon emission in its production. Rather it means that the carbon emissions associated with the cargo have been equalized or hidden, in general it should be replenished through the purchase of carbon credits, but this is not the case, depending on the individual transaction.

Now the question arises what is the problem in this.

Petroleum economist Matt Smith responds to this by stating, “Even though carbon neutral LNG has created a positive fiz for companies, the way it measures or offsets emissions is disorganized and disputed and there is no consensus from industry is.”

As seen, there is no way how carbon or methane emissions are measured or reported at the global level, which means that emissions are not measured in a uniform way and depend on each individual transaction. How the seller defines the way carbon is measured.

Depending on the agreement, the amount of carbon emission keeps decreasing depending on the offset in different ways. In some cases the carbon offset comes only from the upstream component, which means that it is only a minor offset.

According to NRDC’s Han Chen, emissions that result from the bulk of the gas and cargo used in power plants are not offset. At the same time, according to Jonathan Stern, a fellow at the Oxford Institute for Energy Studies, “If companies don’t detail the methods of measurement, reporting, and investigation used to calculate the emissions of both LNG cargoes and outsets, it certainly does.” Can be called as accused of greenwashing and can be held responsible for this. Full details of how the calculus is executed are needed to determine whether the business agreement is actually carbon neutral and whether the cargo is comparatively seen to be carbon neutral. “

Now know how LNG is offset.

In Shell’s press release, carbon offsetting is defined as “adopting a natural way to reduce the amount of carbon dioxide produced by the production, distribution and use of fuel, such as: through planting trees” ] Or be saved from deforestation. “

Even though Shell has measured its emissions strictly, the second statement of this view is highly problematic.

Offsetting gas is an inappropriate method of managing carbon emission. In 2019, approximately 5,500 LNG cargoes were sold, offset by which LNG would require a carbon credit of 1.5 billion trees or its equivalent to equal a single-year use carbon emission. The possibility of misuse of nature-based carbon credits is also high, and if the projects are completed incorrectly, they are not really good for the health of the forests and the actual emission of global greenhouse gases Can increase.

Nature-based solutions also cannot do anything to reduce emissions from methane because they can only reduce CO 2. As stated earlier, methane is even more powerful in warming the climate than CO 2, and the main part of LNG is methane gas.

The question here is, does carbon neutral help to bring the LNG industry closer to the Paris targets?

Indeed, it is unclear whether the carbon offset associated with carbon neutral LNG cargo is already counted by the government as a contribution to National Determined Contribution (NDCs).

To this, experts at Wood Mackenzie state that “there is no doubt that positive headlines are driving a surge in deals. Only companies are rewarded with extensive coverage of their green credentials for a nominal premium.” It would be considered an easy victory. “

According to him “LNG is considered to be one of the most emission enhancing resources in the oil and gas sector. To run the liquidation process, the gas is burnt which results in higher emissions and removal of CO2 before entering the plant.” As it moves into the environment. Asia has been at the forefront of LNG buyers and carbon footprint of LNG comes under scrutiny. It is the need of the hour that carbon emissions should be properly detailed in all tenders. We are now the world’s first It has also seen delivery of carbon-neutral cars that have reached Asian markets. Measuring carbon emission is a major challenge, with no uniform definition, methodology or reporting structure. “

If these have already been counted, then all these deals cannot be meaningful in any way because they do not prove carbon offset to be true and meaningful in any way. In other words, it is a PR game and not a meaningful change in the company’s business policy.

Trevor Sikorsky, lead LNG analyst at Energy Aspects Salt Association, said, “There are no rules to prevent LNG sellers or buyers from offsetting themselves. Shell’s interest or interest is to offset all downstream emissions – so they do it now Can. In this way, it seems that two different things are coming together, just to run the contract – and it can be easily separated later. “

Sikorsky said that there is still ambiguity as to how the host governments will adjust their NDC trade, with the subject expected to be resolved in COP 26 this year.

So, is there any good news in it?

Is, of course. And that is that the marketing of carbon-neutral LNG ‘shows that an understanding or awareness of greenery has started among Asian gas buyers, even though it is still beset with problems. This is quite interesting because there are no emission regulations in Asia yet. The analyst is not yet agreed on the reasons for this, but it is suspected that the corporates it is associated with in Asia are aware of the need to adopt environmentally friendly policies for ESG reasons.

But this is the only way to guarantee that the only way to reduce warming by 2 ° C is to take concrete steps to reduce LNG consumption by reducing the emission of the atmosphere.

Since offsetting only reduces carbon emission and does not prevent it from being released initially. The large-scale planned expansion of gas trade, production and exports, although branded, is not meaningful in achieving the goals of reducing emissions of the global environment.

Can ‘carbon-neutral’ affect LNG trading dynamics?

The beginning of this trend depends on the increasing interest of the shareholder to increase transparency on the footprint of gas emissions.

New methane regulations in Europe that will also clarify how much methane is in a cargo of imported gas can change trading dynamics in the region. According to a source, the discussion is still in its early stages, but there is also talk at the government level about whether Japan too will follow the same rules after a decision by Europe?

If gas cargo is also linked to the footprint of emissions, some buying options become more attractive than others from a climatic point of view. For example, according to estimates by Keros and Boston Consulting, US Permian Basin gas is estimated to contain 30 times more methane than gas from Russia. Similarly Qatari cargoes often travel short distances due to the geographical proximity of the country to the LNG trading basin.

So why does it matter now?
There are many approaches that bring us down to 1.5 or 2 degrees by reducing emissions into the atmosphere. They depend to some extent on NETs. The widespread logic in the climate is that NETs are still not available on a large scale and therefore we should prioritize emission reductions and not rely on NETs. This is certainly true, but scientists are telling us that we cannot achieve Paris goals to some extent without NETs, ​​while they also emphasize that NETs alone cannot be considered a strong strategy . Municipal corporations are paying attention (although it should be seen whether they are serious for investment, or are just doing so to meet volatile emissions targets using these unproven technologies), while many climate organizations negotiate these technologies It seems apprehensive to join in what these techniques can be and they can be used here.