The global gas crisis is slowing the push for “cleaner” liquefied natural gas
Europe's energy crisis has cooled efforts to reduce the carbon intensity of liquefied natural gas (LNG) supplies as buyers, worried about a winter supply crunch, prioritize securing supplies of all kinds over polishing their green credentials. writes "Reuters".
Natural gas can be officially certified as low-carbon or carbon-free if its producers can demonstrate that they have reduced the greenhouse gas emissions associated with putting it on the market, or if they buy carbon offsets to reduce their net impact on the climate.
But the number of carbon-neutral LNG supply deals worldwide has fallen to fewer than 10 so far this year from 30 in 2021, according to energy research firm Wood Mackenzie. And demand for the greener fuel has declined, according to Reuters interviews with nine LNG market analysts, industry representatives, and traders.
“Lower-carbon or carbon-neutral LNG cargoes have lost their appeal in the current high-price environment,” commented Felix Booth, head of LNG at energy analytics company Vortex, adding: “Energy security and affordability are a priority for all buyers.”
The decline in international demand for so-called “greener” gas is a potential hurdle in the fight against climate change, as it removes the financial incentive for producers to reduce their climate impacts.
The market for such fuels took off a few years ago with a flurry of international deals that fueled industry optimism that producers would be able to reliably cover their costs of reducing emissions or buying carbon offsets, which can run into the millions of dollars per ship.
A 2021 study by Columbia University’s Center for Global Energy Policy pegs the premium for carbon-neutral LNG that year at about $1.75 million for a full cargo of about 100,000 cubic meters.
Several gas drilling companies, including in the U.S., the world’s biggest gas producer, have told Reuters they have invested in detecting and limiting greenhouse gas emissions associated with production, transportation, and processing.
But not a single U.S. LNG exporter has certified their facilities, according to both the liquefaction plant owners and certification company MiQ, which had hoped to contract with them this year.
Undermining the markets are sanctions and disruptions stemming from Russia’s war in Ukraine. After Russia invaded Ukraine on February 24, gas prices jumped about 25% in the US and 32% in Europe.
Although gas produces fewer emissions than coal when burned, it can still contribute significantly to climate change by leaking into the atmosphere from drilling rigs, pipelines, and other equipment. The main component of the gas is methane, a greenhouse gas more potent than carbon dioxide during its first 20 years in the atmosphere.
More than 100 countries have pledged to cut methane emissions by 2030, expected to outline their plans at next month’s climate summit in Egypt (COP27).
Despite falling demand for greener LNG, many drilling companies are curbing methane leaks under pressure from regulators, investors, and major customers.
About a quarter of U.S.-produced gas is certified to reflect improved emissions intensity, by companies such as Project Canary and MiQ, according to these firms. About a third of US shipments are due to be certified by the end of the year.
For example, Colorado-based driller Civitas Resources Inc said it continued to measure emissions from its operations and certify its facilities, although it stopped seeking price premiums.
“As this market evolves, we believe there will be long-term demand for certified cleaner gas products,” said Brian Kane, Civitas’ chief sustainability officer.
Drillers EQT Corp and Chesapeake Energy Corp are among the other US gas producers certifying supplies.
But gas exporters seem to be lagging behind.
To export gas, the fuel must be supercooled to LNG and then transported across the ocean, a process that produces significant additional greenhouse gas emissions.
MiQ earlier this year said it expected to certify US LNG cargoes within months. To date, however, LNG companies in the US have not yet certified their facilities.
Cheniere Energy Inc, the largest U.S. producer of liquefied natural gas, said it has provided emissions information for all cargo transported since June but has not partnered with third-party certification programs.
The company declined to disclose details of emissions from its deliveries.
Other US LNG suppliers, such as Cove Point LNG and Cameron LNG, have also told Reuters they do not certify their cargoes.
Vincent Demurry, secretary-general of the International Group of LNG Importers, noted that LNG exporters may be hesitant because passing on carbon offset costs is difficult in a high-price environment. But he stressed that he expects the outlook to eventually improve.