Credibility Gap for Carbon-Neutral LNG
January 19, 2022
Companies looking to safeguard the role of gas in the energy transition are turning to carbon-neutral liquefied natural gas (LNG). This fast-growing market allows buyers and sellers to counterbalance greenhouse gas emissions from each LNG cargo through carbon offsets. But carbon-neutral LNG trade still lacks transparency and consistency, and it is a peripheral solution to emissions from the LNG industry.
The appeal of carbon-neutral LNG is clear. These deals allow sellers and buyers to offset the emissions of a cargo of LNG by financing projects that remove equivalent emissions elsewhere. Projects that qualify for carbon credits range from afforestation and reforestation programs to new wind farms. The cost of carbon offsets can be shared between LNG sellers and buyers and between cargo buyers and end users of gas, such as utilities and industrial players. The scope of offsets also varies. Some carbon-neutral LNG deals cover full life-cycle emissions from wellhead to combustion by end users, while others cover only “well to tank” emissions in the production to delivery phases. (The term carbon-neutral LNG is a misnomer, since offsets can cover greenhouse gases such as methane and nitrous oxide, not just carbon dioxide.)
The first carbon-neutral LNG cargoes were traded in 2019, but already about 35 have been sold (not all deals are public, and details on some transactions are scarce). Northeast Asia is the primary destination for these cargoes, and the customers include some of the world’s largest LNG buyers. Most deals to date have been single-cargo transactions, but last July Shell signed the first term contract for carbon-neutral LNG, a five-year deal with PetroChina. Sellers led the way in establishing this market, but there is significant interest from gas buyers—in part because end users want options to help meet their climate commitments. In March 2021, 15 Japanese companies formed a carbon-neutral LNG buyers alliance to promote these deals and contribute to Japan’s 2050 net-zero goal.
https://www.csis.org/analysis/credibility-gap-carbon-neutral-lng
