Green LNG: can Australia prioritise decarbonisation in a high-priced world?
Principal Research Analyst, Global LNG (Asia)
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Head of CCUS Research
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Russia’s war with Ukraine has had a massive impact on the liquified natural gas (LNG) industry. Prices were already elevated, thanks to a faster-than-expected recovery in demand and a number of global project outages – now they’re sky-high.
Moreover, volatility in recent months has seen European prices sometimes trading above Asian prices. And while prices may pull back a little, we believe they will remain high through the mid-2020s amid limited supply growth.
Curtailed supply in the face of strong demand is a recipe for deeper crisis, so consuming countries need to manage the risks. Resilience and security can be expensive, but the costs are worth paying to insure against price volatility. And innovation in new technologies to decarbonise LNG will be crucial for long-term energy security and tackling climate change.
Drawing on insights from our Global Gas Service and Energy Transition Service, we held a webinar exploring whether Australian operators could prioritise LNG decarbonisation in a high-priced environment. Fill in the form to get a complimentary copy of our presentation slides, and read on for an introduction.
Fast-to-market LNG projects have an edge
Near-term LNG demand growth is shifting to Europe as buyers seek to reduce their dependence on Russia. Price-sensitive buyers in Asia, meanwhile, are looking to switch away from LNG, reducing demand. Even so, Asia continues to drive long-term LNG demand growth.
So, what projects will move forward to supply this demand? Fast-to-market projects have the edge right now, including floating LNG (FLNG) in the Congo. There are various projects moving forward in the US, with the first out of the blocks being Plaquemines and Corpus Christi Stage 3. We expect another 16 mmtpa to be sanctioned in Qatar around mid-year, Tortue Phase 2 and Papua LNG perhaps next year, and then potentially another FLNG in Malaysia.
One thing to note about these developments is how many have associated carbon capture and storage (CCS) projects, underscoring the continued importance of decarbonising despite high prices. (To see this mapped out, fill in the form to download the presentation slides.)
There are opportunities for Australian players, too. Near term, it’s all about maximising production from existing projects. The longer-term potentially includes a new train in Darwin and Browse, but this will require a CCS project to reduce emissions.
LNG projects are long-term, multi-decade investments and the landscape will become increasingly carbon-conscious.
Carbon competitiveness, therefore, remains critical. LNG projects are long-term, multi-decade investments and the landscape will become increasingly carbon-conscious. There are lots of ways for LNG projects to manage their carbon footprint, but one trend making a splash is carbon-neutral or ‘green’ LNG.
Green LNG: the evolution of carbon-offset LNG
A ‘green LNG’ cargo measures the greenhouse gas (GHG) emissions, certifies them and offsets part or full life cycle emissions through the purchase of use of carbon credits, which support reforestation and other renewable energy projects. ‘Green’ LNG cargoes are now increasingly referred to as ‘carbon-offset LNG’.
In 2021, carbon-offset LNG flourished. We saw 28 cargoes delivered, marking a five-fold increase on 2020, although we understand that additional cargoes have been traded but remain publicly unreported. While Asia is still the dominant destination, Europe and the Americas have also now imported their first carbon-offset LNG cargoes – making it a truly global market, albeit still a very small share of total LNG trade. Australia remains the largest supplier of carbon-offset cargoes to date.
But carbon-offset LNG’s initial lustre is fading. Since October 2021, only two cargoes have been reported amid record-high LNG spot prices and increased criticism of what has started to be seen as a ‘greenwashing’ practice.
Carbon offset, however, was never the end goal for the LNG industry. Priorities must shift. The ultimate goal is material CO2 reduction across the LNG value chain, with offsets used for only unavoidable emissions. And some companies, including many in Australia, are already moving in this direction.
CCUS is key to the decarbonisation of LNG – could Australia lead the way?
Carbon capture, use and storage (CCUS) is a huge emerging theme in energy and industrial decarbonisation. It’s still a small industry, however, and the 2020s will be all about creating a market. We think decarbonising natural gas and LNG production will be a really big part of this story.
There are some key ingredients to a successful CCUS market. We see Australia as one of the countries at the forefront of development, along with the US, Canada and Northern Europe.
First up is storage potential. Australia and its waters are recognised as having excellent geology, suitable for storing CO2 subsurface – whether that’s in depleted oil and gas fields or other structures. Second, government plays a critical role. The Australian government has made major strides over the past two years in policy and legislation, though developers are looking for more certainty.
Third comes corporate collaboration. Getting multi-industry CCUS hubs off the ground requires a communal solution to a communal problem – and that means disparate companies and competitors need to talk to each other.
Fourth, there’s the issue of costs. Australia does have some very expensive projects in its pipeline – but it’s not alone in that; this is an early stage, high-cost technology. Governments and industry both have a role in bringing down technology costs – targeted investment will be required for Australia to make the most of the opportunity.
Download our presentation slides to learn more about our LNG forecasts and Australia’s potential as a CCUS hub. This includes charts on:
- LNG supply and demand by project development status
- Carbon-offset announced deliveries, mapped
- Carbon offsets as one step on the road to ‘greener’ LNG
- Operational and planned CO2 capture capacity additions
- And more.