Seeking to blunt concerns about the damage natural gas does to the environment, some of the world’s largest shippers of the fuel are selling “carbon-neutral” cargoes that include a form of payback for pollution. Royal Dutch Shell Plc and Total SA are offering to ship liquefied natural gas along with offsets for the emissions the fuel will produce, while industry pioneer Pavilion Energy Pte Ltd. is drafting the world’s first long-term contracts for such deals. The offsets pay for renewables, forests or other measures that allow buyers to show they’re working to lower their output of climate-damaging greenhouse gases.
“We were quite amazed to see that companies are much more advanced in those details than what we think they are,” said Frederic Barnaud, chief executive officer of Pavilion, which is based in Singapore. “LNG price is still a key factor in our decision for awarding the tender, but we can talk about a balancing act.”
Total Global CO2 Emissions From Natural gas
Source: IEA, World Energy Outlook 2020
The oil majors are among the first to move on greening their LNG. After funneling resources into gas as a bridge fuel to smooth the global transition toward greener energy, the companies are feeling pressure to slash their emissions close to zero. Last week in France, Engie SA put off a decision on a $7 billion gas import deal from the U.S. because of government pressure for cleaner supplies. Risks like that are spurring action.
Between six and eight of so called carbon-neutral LNG cargoes have been sold to date, a fraction of the 5,500 cargoes delivered worldwide last year, according to consultants Accenture Plc and Wood Mackenzie Ltd. Pavilion is the first to seek carbon-neutral LNG deliveries and said it has received 25 offers to supply them so far. It’s still finalizing those deals.
Sanford C. Bernstein & Co estimates that the offsetting cost of the first four net-zero LNG trips averaged $2.4 million, or roughly $0.75 per million British thermal units. It estimates the carbon-neutral cargo Total shipped in September cost 70 cents per million British thermal units to offset.
“Not cheap, but it’s the price of doing business in a net zero world,” Bernstein analysts including Oswald Clint said in a note dated Oct. 20.