Gas’ status as the cleanest of the fossil fuels is severely dented by the high carbon intensity of LNG, venting, flaring and fugitives.
LNG's high rating reflects the energy-intensive liquefaction process and venting. CO2 has to be removed prior to entering the liquefaction plant and is often vented into the atmosphere. Gas flaring is allowed in some jurisdictions where there is no ready market for the gas. Fugitives are methane volumes leaked into the atmosphere all along the value chain. Methane has a carbon intensity 37 times that of CO2, and in some cases fugitives may double a company's CO2 intensity.
As carbon pricing is rolled out, there will be a cost to companies.
We estimate that the sector's value at risk runs into several tens of billions of US dollars directly from the cost of carbon at US$40/t, and excluding the impact on commodity prices of a lower carbon future.
So what can E&Ps do to reduce CO2 intensity?
Firstly, fix the roof, or at least fix the big holes. This is in the immediate gift of the industry, and the 80:20 rule would go a long way. The financial cost and any reduction in NPV need to be weighed against both the environmental cost and potential reputational damage from a lack of mitigation. Some LNG producers are already sequestrating CO2 rather than venting, and similar creative solutions are needed across the industry. Regulators have an important role to play in LNG processing, flaring, venting and fugitives.
Second, portfolio high grading. Reduction of carbon intensity can be achieved, over time, by disciplined portfolio management and judicious organic investment. In some portfolios, a single asset may be the rotten apple. Divestment is an option and already happening. Almost US$20 billion of oil sands assets in Canada were sold by IOCs over the last year and cutting carbon exposure was a factor in some transactions.