GLM COMMENT: LNG’s carbon offsetting strategies come under closer scrutiny

LONDON (ICIS)–Moves to count and regulate carbon emissions in the gas and LNG industries are underway. (see GLM Focus)

But while regulators such as those in the European Union develop binding standards and costs associated with methane emissions under carbon regulations, energy companies are free to take different approaches as they consider not only how to comply with future regulation, but how to build this into their income and optimisation strategies.

Verra is a company that issues voluntary certificates to offset carbon from LNG cargoes. Voluntary certificates used by majors such as Total to offset their LNG cargoes are not checked by Verra against companies’ internally calculated methane emissions from LNG cargoes.

Verra does not track the volume of methane emissions that have been offset through its programme either, or indeed if they have been used to offset methane slip at all.

But stricter regulation and checks are coming – and that is what portfolio companies such as Shell and Total say they are preparing for.

Europe’s Carbon Border Adjustment Mechanism (CBAM), a measure to price carbon content into European imports, is still under debate in Europe. It is unlikely to have any impact in the short-term, according to ICIS analysis.

If it does come into force, it will not be until 2023, when it is expected that better standards for methane emissions tracking will be possible and methane offsetting may be possible through carbon mechanisms such as the EU emissions trading system (ETS).

“Importers would have to buy allowances to cover their emissions or pay a levy based on the market price of allowances,” according to ICIS carbon analyst Rica Schaefer.

Standards are expected to become stricter for Asian importers such as Taiwan and Singapore. The recent deal between Qatar’s QP Trading and Singapore’s Pavilion signals closer scrutiny of each LNG cargo as its emissions must be “verifiable based on international standards as the GHG reporting protocol, [and take] a transparent approach, with defensible data for each LNG cargo”.

Pavilion has also promised to share the framework of its methane-tracking methodology once it is completed. It said that while there is no obligation to offset all cargoes under the agreement, it “paves the way towards offsetting and ultimately reduction, based on the GHG information obtained as part of the methodology”, with a clear intent to both reduce and offset emissions.

Qatar has got wise to the importance of producing reliable emissions data for its clients. Situated between Europe and Asia, it will not only have to consider offsetting, but origination, and may seek to differentiate itself through reducing emissions, as plants such as Norway’s Hammerfest have done.

Methodologies and systems will need to become more transparent in the coming years, not only to comply with upcoming legal requirements, but also to satisfy future clients. Carbon credits issued under voluntary schemes such as Verra’s are seen as a stepping-stone to greater transparency. How portfolio companies such as Shell will deal with this remains to be seen.

Downstream industries impacted by stricter carbon standards in methane emissions, such as metals, steel, chemicals and fertilisers are “rather critical” of a measure such as CBAM, for example, says Schaefer, given that a new standard will likely involve comparing emissions from a wide variety of products in their own sectors. Integrating upstream offsets from methane into this scheme adds a further comparative dimension, for which transparent data will be needed to build trust across businesses as well as governments.