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A Matter of Trust, Part 2 - Carbon-Neutral Cargoes of LNG and Other Hydrocarbons

Carbon-neutral hydrocarbons may sound like an oxymoron, but an increasing number of international shippers have been assembling and sending out cargoes of LNG whose expected lifecycle carbon-dioxide (CO2) emissions have been fully offset by carbon credits. What’s next? No-calorie cherry pie? No-loss gambling on DraftKings? A winning season for the Houston Texans? (Probably not.) As you’d expect, carbon-neutral cargoes of LNG — and crude oil and LPG — are designed to help hydrocarbon sellers and buyers alike meet their goals for reducing their greenhouse gas emissions (GHGs). The concept is still relatively new, though, and many of the participants in these deals are still in learning mode, seeking to gain experience with something they expect to see a lot more of soon. In today’s blog, we discuss the relatively short history of this type of shipment and the first signs that carbon-neutral hydrocarbons are about to go mainstream.

As we said in Part 1, there’s a big push by the government, industry, and the broader public to reduce GHG emissions and to offset those that do occur. Toward that end, a number of LNG-market players have been seeking to differentiate their LNG from that supplied by their competitors. They’re doing that by offering buyers the option of contracting for carbon-neutral LNG (a.k.a. net-zero LNG), where every metric ton (MT) of CO2 emitted during natural gas production, liquefaction, shipping, and end-use consumption is matched one-for-one with an MT of independently verified, “nature-based” carbon offsets.

We also noted that the world’s first two shipments of carbon-neutral LNG were made by Shell in July 2019, to buyers in Japan (Tokyo Gas) and South Korea (GS Energy). For each of these deals, Shell used what UK regulators have established as a standard for the lifecycle — or Scope 1, Scope 2, and Scope 3 — GHG emissions from the 70,000 metric tons (MT) of LNG carried in an average cargo. Under that standard, the LNG’s lifecycle emissions would total about 240,000 MT of CO2 equivalent (CO2e) and, with each carbon offset credit equaling 1 MT of CO2e, Shell used or “retired” about 240,000 credits to offset each cargo. For Shell and other LNG suppliers exploring this carbon-neutral space, the CO2 offsets typically come from global portfolios of projects that are designed to either avoid the generation of CO2 or remove CO2 from the atmosphere. These projects fall into a few major categories, including conservation (sustainable management of forests), afforestation (planting trees where they had never been), and reforestation (planting trees in areas that have been deforested).

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