Some LNG suppliers are touting carbon-neutral cargoes in a bid to boost green credentials of the technology
TRANSITION FUEL
LNG is seen as an important bridge for many Southeast Asian economies as they transition away from coal
LONG GOODBYE
Suppliers are utilising carbon capture and storage technology in order to increase the sector’s longevity
KEY QUOTE
LNG players seem to be promoting their own respective green carbon initiatives with little, if any, ongoing scrutiny over their claims other than buying carbon credits
The decarbonisation drive that has gained momentum around the world over the last few years has been uneven. While the European Union and now the United States under the new Biden Administration have made tremendous efforts to reign in their respective carbon footprints, much of Asia-Pacific and particularly the less developed Southeast Asia region is still lagging far behind. Asia is home to around 60% of the world’s population and an increasingly large percentage of the world’s economic growth. It also represents a global leading share of liquefied natural gas (LNG) consumption. The Pacific Basin was the largest source of LNG supplies in 2020 with 41% of global volumes, while on the demand side Asia-Pacific countries accounted for 71% of global LNG imports, according to the International Group of Liquefied Natural Gas Exporters (GIIGNL), an industry group. The share of LNG imports by Asia-Pacific countries is projected to increase over the rest of the decade and into the next as the region tries to pivot away from decades of reliance on coal needed for power generation. Growing LNG infrastructure development in the region is largely being driven by China, Vietnam, Thailand and the Philippines, while in South Asia, Pakistan, Bangladesh, Sri Lanka and India are already going long on gas. In 2020, India pledged to increase gas as part of the country’s energy mix from 6.2% in 2020 to as much as 15% by 2030 as it seeks to lower overall coal usage from 70% of its energy mix. Pakistan is also trying to dial down coal use in addition to filling gaps in its own dwindling gas production with LNG imports to avert rolling brownouts and blackouts on its grid. Bangladesh is ramping up LNG imports to offset its own respective gas supply shortages, while Sri Lanka plans to start importing the fuel by 2023 once its first receiving terminal becomes operational. 
Thailand, the second-largest economy in Southeast Asia after Indonesia, has also been building LNG infrastructure and cutting supply deals to offset its own growing natural gas production declines in the Gulf of Thailand. Meanwhile, Vietnam and the Philippines, described as tiger economies in Southeast Asia—one which undergoes rapid economic growth—are also facing steep gas production declines due to the inability to develop gas resources in their own respective UN-mandated 200-nautical mile (370.4 kilometres) exclusive economic zones in the South China Sea amid continued interference from China. Legacy importers—Japan, South Korea and Taiwan—will see their LNG demand growth flatten over the rest of the decade, while China is already poised to overtake Japan as the top LNG importer by the end of the year as Beijing also tries to reign in over-reliance on coal-fired power generation to help the country reach its net-zero carbon emission goal by 2060.
STUMBLING BLOCKS Despite the region’s efforts to lower carbon emissions by pivoting to more gas usage, which on average emits between 50-60% less carbon dioxide when used for power generation than coal according to the US Energy Information Administration (EIA), the fuel’s emissions still present a stumbling block for much of the region’s efforts to decarbonise by mid-century. Steep emissions reductions need to take place across the entire LNG value chain, from natural gas production to liquefaction, transportation and end-user consumption to help reach climate change mitigation pledges. Depending on who you ask, LNG can either be considered a more climate-friendly long-term fuel choice, albeit still a hydrocarbon—a transition fuel needed due to the variability of wind and solar capacity—or a major polluter along with crude oil and thermal coal. However, Gavin Thompson, at consultancy Wood Mackenzie, a consultancy, wrote in a recentreport that LNG ranks among the most emission-intensive resource themes across the oil and gas sector. Thompson sees LNG’s liquefaction process as the main culprit. “Significant emissions are released through the combustion of gas to drive the liquefaction process,” he added, while “any CO2 removed prior to entering the plant is often vented into the atmosphere.” Liquefaction is the process of turning the fuel from its gaseous state to liquid so it can more easily and cheaply be stored and shipped across long distances to end-users.
CARBON NEUTRAL CARGOES The stakes for Asian countries are mounting amid the region’s ongoing gas infrastructure build-out, with pressure also increasingly levelled against major LNG producers that deliver cargoes to the region. However, to date, most of this pressure is not coming from established Southeast Asian LNG importing countries or those building their first receiving terminals, but from environmental groups and populace backlash in producer nations. In 2021, nearly 20 LNG cargoes have already been sold and delivered as so-called carbon neutral, by using what appears to be an inexact process of carbon offsets. In September 2021, British oil and gas major BP, which is going all out to put forward a cleaner carbon footprint strategy, and state-run Malaysian oil and gas giant Petronas, delivered what they called “green cargoes” to customers in Taiwan and Japan. Twice as many of these supposedly carbon-neutral LNG shipments have changed hands so far this year than in the previous two years combined,” BloombergNEF (BNEF) reported in September. However, these and similar so-called green cargoes have come under fire since their industry-wide standards for measuring LNG emissions are yet to be agreed, nor are there government assurances that these cargoes live up to the claims. LNG players seem to be promoting their own green carbon initiatives with little if any, ongoing scrutiny over their claims other than buying carbon credits to offset carbon emissions from the LNG value chain so they can label their respective cargoes as carbon neutral, BNEF said. Wood Mackenzie’s Thompson added that “carbon neutral does not mean the LNG cargo creates zero emissions. Instead, the carbon emissions associated with the upstream production, liquefaction, transportation and, if required, combustion of the gas is measured, certified and offset through the purchase and use of carbon credits, which support reforestation, afforestation or other renewable projects.” BNEF added that these are merely “cheap offsets from forest-protection projects that fund brush clearing or alternate uses of land that can save trees, but don’t remove much extra carbon from the atmosphere.”
CARBON CAPTURE AND STORAGE While the LNG industry grapples with the issue of carbon offsets, the use of carbon capture and storage (CCS) technology to reign in LNG emissions appears to offer a more viable and long-term solution, particularly for projects that have been approved but not built yet. However, since using CCS to reduce LNG’s carbon footprint is still in its early stages it is unlikely to be uniform across producing countries, while some critics also question its effectiveness. For now, Australia, Qatar and the US, the world’s top three global LNG producers, appear to be taking the CCS lead under both growing international and domestic pressure. State-run Qatargas is building the largest CCS facility in the world along with its massive North Field project expansion that will help the country retake the top LNG production spot by 2025 by reaching a liquefaction capacity of 110 million tonnes per annum (mtpa) from a current 77 mtpa. By 2027, that capacity is projected at 126 mtpa. It remains to be seen if and when LNG producers will pass CCS costs to customers in the region. There still appears to be little appetite in Southeast Asia for paying higher gas prices caused by CCS compared to gas importers in more climate-conscious Europe and even northeast Asia. However, according to some analysts, they may have no choice but to shoulder some of the cost. 
Alex Siow, Lead Analyst (Asia) Global Gas and LNG at ICIS, says the process of producing oil or gas releases large amounts of CO2 and dealing with it in the right way, can be costly. “For many years, most oil companies would just vent it into the atmosphere, as storing it underground is expensive. Also, this is mostly not regulated in many countries, so there has been no incentive to capture the CO2,” he says. “Now, it makes perfect sense to bake in the cost of doing this into final products, whether it’s in the form of pipe gas or LNG,” he adds. “So yes, if companies are mandated by governments or shareholders to do this, the additional cost will likely find its way into the final LNG cargoes, one way or another.” “An additional cost of procuring LNG will force newer LNG importers to rethink their strategy but what are the alternatives? Going back to burning coal or intensifying [a] renewables effort? In the coming five years, CCS will likely not be the biggest factor in whether these newer countries [in Southeast Asia] will double think about their LNG terminal build-out. It is the lack of LNG globally that will be the biggest factor,” he added. Not only will new Southeast Asian LNG importers have to consider added LNG costs by factoring in CCS but they will also need to weigh the advantages of building more Capex intensive LNG import terminals compared to both the lower developmental and operational costs of solar power and, to a lesser degree, wind projects. Current gas price developments in both Asia and Europe where prices are setting record highs even before a cold winter ensues seem to be also casting new concerns over LNG as an alternative fuel choice. Other options include developing green hydrogen infrastructure, but to date fossil fuel-green hydrogen cost parity could be as far away as ten years, according to a recent report by commodities data provider S&P Global Platts. As such, more work needs to be done to both design and develop energy models that are not only economically feasible but which have a reasonable chance of helping these developing countries meet their own respective climate change agendas. •
TEXT Tim Daiss