Carbon offset LNG update: March 2021

Here are some updates of the latest developments regarding carbon neutral LNG. Below the list of new updates, you can find an ICIS article that was originally posted in December 2020, giving a summary of developments up to that date.

•Japan's Mitsui has sold a carbon neutral LNG cargo to Japan's Hokkaido Gas, with the cargo due to arrive in March 2021. This is the first time either company has carried out a carbon neutral LNG trade, Mitsui said in a statement.

•Commodity trader Vitol is offering to sell carbon neutral LNG cargoes to the market. It will assess the emissions impact of cargoes, and offset the carbon by cancelling a matching number of Verified Emissions Reductions, Vitol said in March 2021.

•US producer Cheniere is to provide cargo emissions data for its customers. From 2022 customers receiving Sabine Pass or Corpus Christi cargoes will be informed of the estimated emissions total for their delivery, Cheniere said in February 2021.

•Singapore's Pavilion Energy has agreed a six year LNG deal with Chevron for 0.5mtpa of LNG from 2023. As part of the deal Chevron will provide information about the emissions impact associated with each cargo, Pavilion said in February 2021. As with Pavilion's earlier deal with Qatar last year (see article below) the LNG will not be supplied with offsets, but the information would provide the buyer with the information to know how many offsets they would need to buy.

An earlier version of the article below was published in ICIS' weekly newsletter Global LNG Markets and on market intelligence platform LNG Edge in November 2020. It was first posted on LinkedIn in December 2020.

LONDON (ICIS)--The 137,000 cubic metre vessel LNG Bayelsa arrived at Taiwan’s Yung An port on 18 November, a seemingly normal delivery.

The vessel was carrying an LNG cargo from Nigeria’s Bonny production facility, the fifth Nigerian delivery this year to Taiwan, one of the world’s biggest LNG importers.

The cargo was in fact an early example of a developing trend in the global LNG market: a carbon neutral LNG cargo.

Shell executive vice president for gas and energy Steve Hill said in a social media post that the company's delivery to Taiwanese energy company CPC that day was its second such cargo to Taiwan.

Emissions linked to the cargo, from exploration and production to final use by the consumer, would be offset by matched carbon credits, Hill said. The credits are bought from Shell’s global portfolio of carbon reduction projects.

“Compensating for carbon emissions that cannot be avoided or reduced is an important step as we find more ways to reduce emissions across the LNG value chain,” said Shell’s Hill.

SHELL, TOTAL, JERAGM ALL ACTIVE

Over the last year, there have been a growing number of such deliveries by companies including Shell and Total, and utility-backed trading firm JERA Global Markets (a joint venture of Japan's JERA and Europe's EDF Trading). Companies are looking for ways to secure a place for natural gas and LNG in the transition to a lower carbon future.

Major producers BP, Shell and Total have all this year set out plans to move to a carbon neutral status by 2050 and to reduce the carbon intensity of the products they sell to customers by up to 65% by the same date.

Shell claimed the world’s first two carbon neutral LNG sales in June 2019, with cargo sales to Japan’s Tokyo Gas and South Korea’s GS Energy.

The cargoes, being delivered by July 2019, would have their full emissions, including for final use, offset by nature-based carbon credits.

This came during a period of innovation in LNG sales by Shell and Tokyo Gas. In April of the same year the companies had signed an LNG contract with the import price indexed to the price of coal. Normally long-term contracts in Asia use an oil-price reference, while in Europe they may use oil or often spot gas prices such as the ICIS TTF.

Japanese trader JERAGM was quick to follow. At the end of the same month it announced its first carbon neutral delivery to India, sourced from the Das Island production facility in Abu Dhabi.

JERAGM said that it had obtained offsets equivalent to the end-consumption of the cargo using emissions reduction certificates from Indian renewable energy projects. However, the company had not offset the emissions from the production and transport of the cargo.

On 4 March 2020 Shell announced its first carbon neutral cargo to Taiwan. ICIS ship-tracking data shows that the cargo was likely onboard the 147,000 cbm Grand Aniva from Russia’s Sakhalin LNG to Yung An, the only delivery to Taiwan that day. Shell is a partner in the Sakhalin project.

The full emissions, including for final use, were again offset with credits from Shell’s global portfolio of projects. This includes the Katingan peatland restoration project in Indonesia, the Cordillera Azul national park project in Peru and the Form reforestation project in Ghana.

CHINA BUYS CARGO FOR AUCTION

In June 2020 Shell announced the sale of two carbon neutral LNG cargoes to China. At this point, the world’s top five LNG importers – Japan, China, South Korea, India and Taiwan – had all bought green LNG.

Shell said it had sold the cargoes to Chinese oil and gas company CNOOC. The full emissions from production to consumption would be offset with credits from projects including Shell-supported afforestation projects in China’s Qinghai and Xinjiang provinces. Afforestation means planting trees in an area not previously covered with trees, rather than reforestation of an area that had trees previously.

Shell said that CNOOC would auction the cargoes on the Shanghai Petroleum and Gas Exchange, allowing downstream customers to decarbonise their energy supplies.

According to the ICIS editorial team in China, the first cargo was due to arrive between October and December 2020 and the second between January and March 2021. The first company reported to have bought volumes in the auction was Jinan Heating Group.

Chinese President Xi Jinping announced in September 2020 that the country was aiming to be carbon neutral by 2060.

Meanwhile, France’s Total sold its first carbon neutral cargo in October 2020, also to China’s CNOOC. Total said the cargo was sourced from Australia’s Ichthys LNG project and delivered to Guangdong Dapeng in China on 29 September, which allows it to be matched on LNG Edge to a voyage of the 145,000 cbm Methane Lydon Volney.

Total said that the full cycle emissons, including consumption, had been offset with credits from the Hebei Guyuan wind power project in China and a forest protection project in Zimbabwe.

QATAR IN LONG-TERM GREEN DEAL

On 9 November the world’s largest LNG producer, Qatar, announced it had signed not just a one-off cargo sale, but a long-term deal with green elements.

The country’s new trading unit QP Trading will supply 1.8 million tonnes of LNG per year to Singapore’s Pavilion Energy for ten years until 2032. A company statement said that the deal contained “specific environmental criteria and requirements designed to ultimately reduce the carbon footprint of the LNG supplies”.

Qatar Petroleum, the national producer, said it was “already implementing a series of projects and initiatives to reduce emissions and to capture and sequester more than 5 million tonnes of CO2 per annum by 2025”.

Qatar will have to report the emissions linked to the cargoes delivered under this contract, which would allow the buyer to offset these emissions in the future. Pavilion told ICIS that “the methodology needs to be accurate, verifiable, based on international standards [such] as the greenhouse gas reporting protocol and with a transparent approach, with defensible data for each LNG cargo.”

PRODUCERS MARKET GREEN AMBITIONS

Producers are increasingly keen to market their environmental credentials as buyers become more wary of the emissions linked to even the cleaner fossil fuels, such as natural gas and LNG.

When used in power generation, natural gas emits only around half the carbon of coal, though some have raised questions as to whether there could be more emissions linked to gas during transportation of the fuel than coal. The methane that escapes from natural gas pipelines or production facilities is a more potent global warming gas than carbon dioxide.

The subject has risen high on the agenda in France recently, where utility group ENGIE was reported in early November to have halted negotiations with US project developer NextDecade for long-term supplies from the company’s proposed Rio Grande LNG production project in Texas. The utility was said to have been planning a 2.9mtpa contract for 20 years, but faced opposition from both government and environmental groups.

The cancellation of the deal will make it harder for NextDecade to make a final investment decision (FID) to build the project. Developers normally need to secure enough long-term sales contracts to cover a substantial portion of a project’s planned output to be able to raise finance for their plans.

Australia’s largest gas producer Woodside was keen to stress the carbon advantages of its proposed second liquefaction train at its Pluto LNG project in an investor presentation in November. Woodside hopes to take FID on Pluto train 2 in 2021. Woodside told investors that the train would use the “best available technology” to cut its greenhouse gas intensity, in terms of CO2 per tonne of LNG, significantly below the average for international and Australian producers, and for Woodside’s existing portfolio.

TRANSPARENCY IS KEY

Carbon neutral LNG looks set to be a growing and important trend in the global LNG market.

To fully understand the impact of this trend will require companies to continue their efforts towards transparency around the number of cargoes sold and the standards which those cargoes meet.

Already there have been differences in definition, such as the cargo sold by JERAGM not including production and transport emissions, while those sold by Shell did include these costs.

Transparency around carbon credits and offsetting projects will also remain vital to the credibility of a carbon neutral LNG industry. Some critics are sceptical of the value of offsetting, and whether the carbon reductions from all projects are adequately monitored and enforced. Countries could adopt a faster transition to renewable energy such as solar and wind power as an alternative to using carbon-offset fossil fuels.

The widespread adoption of offsetting in the LNG market will depend on a mix of customer demand from LNG buyers, the price of purchasing offsets and the regulatory environment. If governments decide in coming years to enforce tougher environmental standards on all fuel purchases, ultimately all LNG cargoes may be required to report, or offset, their carbon emissions.

By Alex Froley with additional reporting by Clare Pennington

The LNG Edge market intelligence platform tracks cargoes in real-time around the world, keeping users in touch with increasingly fast-paced and globalizing gas markets. LNG Edge uses satellite data to monitor the imports and exports of global consumers and producers. Our team of analysts monitor the market and customs data to add key commercial information to voyage records identifying market trends.