Characteristics, Drivers of Emerging Carbon-Neutral LNG Market
The LNG industry is at a crossroads: despite LNG’s carbon benefits over coal and petroleum products, it is being reconsidered by governments, financial institutions, and NGOs as a “transition” fuel to a lower-carbon economy. LNG players are responding by sourcing responsibly-produced gas, purchasing offsets, and planning on-site carbon capture and storage to mitigate or fully eliminate lifecycle GHG emissions. Carbon-neutral transactions are forecasted to quadruple in 2021 amid a rising ESG focus.
As emissions mitigation strategies are deployed globally, the LNG sector enters a new era of opportunities and risks. Despite the numerous advantages and flexibility that natural gas offers in meeting growing global energy needs, it’s no longer a given that LNG will be perceived as a “transition” fuel to a lower carbon economy.
Central banks have issued mandates that significantly increase the cost of borrowing, if not eliminate financing altogether, for fossil-fuel related projects, including gas-fired power plants and other infrastructure.1 A recent World Bank directive2 would halt financing for LNG bunkering infrastructure and the International Energy Agency released a net-zero roadmap3 that calls for the end of fossil fuel investment.4
In the US, pressure is building for new liquefaction projects to show net carbon benefits. The newly appointed Federal Energy Regulatory Commission (FERC) Chairman, Richard Glick, has dissented in past decisions5 to authorize new LNG projects that do not consider the global impact of liquefaction facilities on GHG emissions. As Commissioner Chatterjee’s term concludes and President Biden nominates a Democrat to the seat, the scrutiny on net GHG benefits will likely increase, possibly impacting future development.