Carbon offsetting has made the leap to LNG cargoes as the battle for both energy sellers and buyers to show a decarbonised supply chain hots up.

The industry has seen its first so-called “carbon neutral” LNG cargoes over the last 18 months.

Cargoes are marketed as carbon neutral when the sellers and/or buyers of the LNG buy credits from carbon removal projects — such as reforestation or renewables — to mitigate the emissions from producing, shipping and delivering a cargo.

Emissions are expressed in CO2 equivalents — CO2e — with each credit representing one tonne of CO2 removed or reduced from the atmosphere.

Under the scheme, greenhouse gas emissions for the entire cargo supply chain — which for LNG should include CO2 and methane — can be deemed to have been effectively offset by the carbon removal projects.

Early movers

Last week, Shell said its subsidiary Shell Eastern Trading had signed an agreement with CNOOC Gas & Power Co for the delivery of the first two carbon neutral LNG to China.

The energy major, which boasts a voluntary carbon credit portfolio comprising 29 projects, said the emissions from these cargoes are offset by credits from a variety of nature-based projects, including Shell supported afforestation projects in Qinghai and Xinjiang provinces in China.

In an added twist, CNOOC also plans to auction these two carbon neutral LNG cargoes through the Shanghai Petroleum and Gas Exchange.

Of those carbon neutral cargoes that have been publicly announced, Shell has concluded similar deals with Tokyo Gas in Japan, South Korea’s GS Energy and CPC in Taiwan.

But the first to be made public was between Abu Dhabi National Oil Co and Japan's JERA Global Markets.

Shell sidestepped TradeWinds' question on whether the drive for carbon neutral LNG cargoes is buyer or seller led.

But a company spokesperson said: “Using nature-based offsets in conjunction with LNG provides a unique clean energy solution, which allows our customers to not just reduce their own carbon footprint but also look into the possibility of offering their downstream customers a choice to do the same.”

Climate change curbs

Vincent Demoury, who is general delegate of the International Group of LNG Importers (GIIGNL), has just produced an insight document: “LNG carbon offsetting: fleeting trend or sustainable practice?”

Demoury believes offsetting could become “a significant piece of the [LNG] industry’s efforts to curb climate change”.

He explained that emissions first need to be verified but universal methodologies for this are not yet developed. They can also vary depending on the way the LNG is produced, the vessel used to transport it and the procedures in regasification.

Shell’s spokesperson cited the UK’s Department for Environment, Food and Rural Affairs 2019 report, which details that 1 tonne of LNG emits approximately 3.4 tonnes of CO2e (tCO2e) across the so-called “well to wheel” value chain, which includes end use.

The end use combustion process comprises about 2.55 tCO2e, with the remaining 0.85 tCO2e coming from the exploration and production, shipping and regasification “well to tank”.

Demoury said for a 175,000-cbm shipment of LNG the product life-cycle emissions are usually estimated at about 250,000 tCO2e equivalent.

Not cheap

Offsetting the carbon from an LNG cargo is not cheap, Demoury said in his report. He gives the example of investing in reforestation projects where he said the cost to offset the cargo can rise to $10/tCO2e or more. This would put the cost of offsetting an LNG cargo at around $2.5m.

Shell declined to comment on the cost of offsetting.

But Demoury said a carbon neutral LNG cargo could also become a premium product, which suppliers could use to differentiate themselves with when selling to downstream customers.

The GIIGNL delegate also warned that not all offsetting initiatives are of equal quality, so they too need to be evaluated and accredited.

“Methane emissions are coming to the discussions every time we make the case for LNG,” he told TradeWinds. “I feel the industry cannot put its head in the sand and should look at this issue.”

He described carbon offsetting as “a small angle" that will not solve the issue, and stressed that the first course of action is to avoid and reduce emissions.

But he added that it may help motivate the industry to address its real problems, particularly if offsetting is shown to be a costly alternative.

He believes the industry will see more carbon neutral LNG cargoes, both in Europe where regulatory forces are driving decarbonisation, but also in Asia where there are commercial pressures from customers.

But he added the ultimate pressure to act will come from finance. “If you cannot certify that your supply chain is clean, you will not get it,” he said.