Lower Carbon LNG – Will Others in the Supply Chain Help Achieve That Goal?

What’s the issue?

FERC has approved LNG export terminals with a total expected capacity of over 150 million metric tons of LNG that have not yet begun construction, mainly because they have not yet been able to attract sufficient interest in their projects from buyers of LNG. It appears that one aspect that can differentiate a project is its greenhouse gas impacts, in that buyers are requesting a greener version of LNG.

Why does it matter?

There have been a number of announcements recently about how the owners of the terminals and even the ships used to move the LNG are working to reduce the carbon footprint of the delivered LNG. But the liquefaction process is not the largest contributor of greenhouse gases in the LNG supply chain, so there would appear to be room for others to reduce the need for offsets by providing lower-carbon alternatives.

What’s our view?

Some LNG buyers are interested in LNG that has a lower carbon footprint. If this interest grows, others in the LNG supply chain, e.g., producers and pipelines, may find it advantageous to reduce their carbon footprint to achieve a competitive advantage as well.


 

FERC has approved LNG export terminals with a total expected capacity of over 150 million metric tons of LNG that have not yet begun construction -- mainly because they have not yet been able to attract sufficient interest in their projects from buyers of LNG. There have been a number of announcements recently about how the owners of the terminals are working to reduce the carbon footprint of the facility itself and even the ships used to move the LNG.

LNG buyers appear to be insisting on LNG that has a lower carbon footprint. A recent example of this had Cheniere paying to purchase offsets of the greenhouse gas (GHG) impacts of its product, upstream of the point when it was loaded on the ship at its facility. If such measures become common, it is likely that there would be an opportunity for the entire LNG supply chain to participate in reduction efforts because, as we discuss more fully below, the liquefaction process is not close to being the biggest emitter of greenhouse gases in the LNG supply chain from wellhead to end-user.

 

In Search of Buyers

Over the last few years, FERC has approved a large number of LNG export facilities that are still in search of buyers that will allow them to make a final investment decision (FID) and begin construction.

 

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When we last wrote about this issue in Greener LNG as Annova, Texas LNG and Rio Grande Race to Reach FID, we noted that according to press reports, the French energy company Engie had announced that it would not pursue commercial negotiations with NextDecade with regard to a purported $7 billion contract for LNG from NextDecade’s Rio Grande terminal because of concern about the GHG footprint of the LNG. Apparently, the concerns were not only about the operational characteristics of the facility itself, but also about the source of the gas used to create the LNG.

Since then, Cheniere Energy announced that its Sabine Pass facility had supplied a carbon-neutral cargo of LNG to Shell as part of the companies’ long-term LNG Sale and Purchase Agreement. Cheniere and Shell worked together to offset the full lifecycle GHG emissions associated with the LNG cargo through use of nature-based offsets to account for the estimated CO2e emissions produced through the entire value chain, from production through use by the final consumer. The carbon-neutral LNG cargo was supplied from Cheniere’s Sabine Pass Liquefaction facility and delivered to Europe in early April. Cheniere purchased the offsets from Shell’s global portfolio of nature-based projects for the portion of the emissions attributable to all of the activities upstream of the loading of the LNG onto the ship, including production and liquefaction. According to Shell, the average LNG cargo of about 70,000 metric tons of LNG emits approximately 240,000 metric tons of carbon dioxide equivalent (CO2e) across the value chain.

 

Reducing Carbon Footprint

As the owners of the LNG facilities seek to attract buyers, a number of them, including NextDecade, Sempra and Cheniere, have also announced plans to reduce their carbon footprints by capturing and sequestering the carbon that is produced during the liquefaction process. The most recent announcement came just last week when Venture Global announced that it was planning to capture and sequester carbon at its Calcasieu Pass terminal (currently under construction) and its Plaquemines LNG terminal (still awaiting an FID). In its announcement, Venture Global said it had completed a comprehensive engineering and geotechnical analysis and was launching a shovel-ready carbon capture and sequestration project that would compress CO2 at its sites and then transport it and inject it deep into subsurface saline aquifers where it will be permanently stored.

Venture Global said the project would enable it to capture and sequester an estimated 500,000 tons of carbon per year from each of the two facilities. While that number appears to be a large one, the environmental reports for those two facilities show that during operations, the combined CO2e emissions from the facilities will be over 12 million tons annually. However, capturing that amount of emissions would qualify the project for a substantial tax credit for carbon capture and sequestration projects that can be placed into service by 2025 under a recently extended deadline.

 

Liquefaction Emissions Can Vary

The focus on the carbon emissions from LNG facilities is almost certainly being driven by the foreign markets for LNG, and perhaps by the above-mentioned tax credit. A review of the LNG facilities that have been approved in this country to date shows that the carbon footprint for those facilities per one million metric tons of LNG that they are capable of producing varies widely.

 

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As seen above, the facilities seem to cluster around about 300,000 tons of CO2e per million metric tons of LNG. But the clear winner is the Corpus Christi Stage 3 expansion, which will be using electric motor-driven refrigerant compressors and associated cold boxes. While this allows them to exclude any CO2e from those units in their FERC application, it is unclear how much CO2e would be included in a calculation of the facility’s GHG emissions in negotiations with buyers. When we last wrote about this issue, Annova LNG was promoting itself as the lowest carbon footprint facility because it, too, was using electric-driven trains, but had also committed to power those trains with 100% carbon-free renewables. This clear advantage, however, did not result in sufficient interest to keep the project viable, and since we last wrote about this topic, it has been canceled.

 

Liquefaction Isn’t the Biggest Emitter in the Upstream Portion of the Supply Chain

While the owners of the liquefaction facilities can control the carbon footprint of their facilities, the example of the Cheniere/Shell deal shows that the buyers expect the seller of the LNG to be responsible, at least economically, for all of the emissions upstream of the point when the LNG is loaded onto the ship at the facility’s port. This would appear to be an opportunity, then, for the other participants in that supply chain, namely the producers and pipelines, to also participate in the reduction of the carbon footprint and lessen the costs associated with purchasing offsets as in the Cheniere/Shell transaction.

A study conducted on behalf of the U.S. Department of Energy by the National Energy Technology Laboratory calculated the long-term GHG impacts from the production and use of LNG for delivery to Europe and China from the United States.

 

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As seen above, the vast majority of the GHG emissions in the entire supply chain occurs when the natural gas is actually used, representing over 60% of the total emissions. However, even upstream of the point when the LNG is loaded on the ship, the liquefaction process is not the primary producer of emissions. The production, gathering and processing represent about 13% of the overall emissions, and the pipeline transport is about 10% of the total. The liquefaction is just 6% in both cases. Thus, as the LNG operators look to differentiate their product on its environmental characteristics, it would seem that they should include in those considerations the entire chain from the producer and through the pipeline to their facility. Such considerations may actually result in lower-cost reductions in GHG emissions as does their current focus on carbon capture and sequestration from their own facilities.

We recently wrote about the use of renewable natural gas and responsibly sourced natural gas in Green Premium for Lower Carbon Natural Gas, but the focus there was on the domestic market. If buyers are already insisting that sellers like Cheniere pay for offsets for upstream GHG emissions, this may be another market for producers and pipelines that can demonstrate that their product has a lower carbon footprint than that which is assumed in any offset program. But as with all markets, whether emerging or established, efficiency can only be achieved when key stakeholders have transparent access to material information to make commercial decisions, which will likely evolve to include the lifecycle of emissions.

Get in touch if you’d like to go deeper on this topic with the ArboIQ team.

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