G
lobal warming and climate change have been pushing the global energy sector to look away from fossil fuels such as oil and coal to renewables and other clean energy sources. Still, fossil fuels have a major role to play as they currently account for the bulk of the global energy mix. Natural gas, a relatively low-carbon fossil fuel, is increasingly being viewed as a bridge fuel for many countries during their energy transition from coal and oil to other cleaner fuels. For countries shifting towards hydrogen, this can be mixed with natural gas and transported using existing natural gas pipeline networks. This saves the costs of constructing new hydrogen pipelines and makes transportation of large volumes of hydrogen feasible. With demand for natural gas expected to remain steady in the global primary energy mix for the next couple of decades, LNG will also continue to play an important role as more countries switch to natural gas to meet their environmental goals. LNG is the preferred mode of natural gas delivery over large distances involving seas and oceans. Besides, LNG also helps to mitigate geopolitical, environmental, and security issues, typically faced by cross-country gas pipelines, and helps to serve a greater number of markets than pipelines. Though LNG is finding new markets globally, there is scepticism over carbon emissions in its value chain. Carbon-neutral LNG seems to be the answer to offset this issue. The LNG value chain – natural gas production, processing, liquefaction, transport, regasification, and final combustion – results in significant emissions of carbon into the atmosphere. To account for carbon emissions in the LNG value chain and to decrease its environmental impact, the idea of carbon-neutral LNG has emerged with the first such cargo sold in 2019.
Carbon-neutral LNG – decarbonisation of the LNG value chain
Carbon-neutral LNG essentially involves offsetting carbon emissions in the LNG value chain through the purchase of carbon credits, which can be used in projects that reduce carbon emissions such as afforestation, carbon capture, etc. The concept is still in its infancy stage with less than approximately 40 such cargoes agreed or delivered to date against more than 5000 cargoes typically delivered globally every year. Asian countries such as Japan and China, which account for the bulk of global LNG demand, are spearheading purchases of carbon-neutral LNG as part of their sustainability efforts. In Japan, 15 companies led by utility company Tokyo Gas, formed the Carbon Neutral LNG Buyers Alliance in March 2021. These companies, which cater to different sectors, have allied to contribute towards Japan’s planned move to become carbon neutral by 2050. Even before the formation of this alliance, a Japanese utility, Hokkaido Gas, signed a carbonneutral LNG purchase agreement with Mitsui & Co. in February 2021, which will constitute approximately 10% of the company’s annual LNG purchases. In China, Shell Eastern Trading signed a five-year contract with PetroChina in July 2021 for the supply of carbon-neutral LNG. LNG producers are also making conscious efforts to decrease carbon emissions during LNG production through different methods such as carbon capture and
8
