Some of the biggest oil and gas companies in the world have begun to sell what they term as carbon-neutral oil and liquefied natural gas (LNG). They have decided to go that way since the buyers are increasingly looking at the environmental credentials of the global energy supply.
Many of the leading oil firms have already announced sales of carbon-neutral LNG cargoes in the last several years. This trend is only expected to become stronger amid the global push toward net-zero emissions. However, ‘carbon neutral’, mostly for LNG cargoes, is not what it seems like at first glance.
One may think that the term ‘carbon neutral’ implies that the emissions that are generated from the liquefaction, production, and transportation of the gas have been offset in these processes with top-notch technologies including carbon capture.
In the real sense, the “carbon-neutral” status is getting achieved by LNG buyers and sellers paying for the participation in emissions-reduction projects anywhere else around the world.
Oil and gas companies acquire authenticated carbon credits, mainly for nature-based solutions, to help in preventing deforestation somewhere. That strategy does not reduce the carbon emissions from an LNG cargo; it just strives to offset these emissions with the prevention of possible emissions in case the emission-reduction project that they have invested in was not implemented.
The analysts and representatives of the providers of emission-reduction projects say that the carbon offsetting approaches do not advance near-zero targets and are challenging to calculate, Bloomberg reported in an investigative article.
Huge Oil Selling Carbon Neutral LNG
Shell said in June 2019 that it would deliver the carbon-neutral LNG cargoes to GS Energy and Tokyo Gas. Shell has now used carbon credits to compensate for the CO2 emissions generated by every cargo, from gas production to the final consumer.
Shell added that “the terms ‘carbon neutral’, ‘carbon off-set’ or ‘carbon off-set compensation’ indicates that the company has engaged in a transaction to guarantee that an amount of carbon dioxide equal to that linked with the production, usage, and delivery of the fuel has been eliminated from the atmosphere via a nature-based process or emissions that are saved via avoided deforestation.
Most nature-based projects for the specific deal included the Katingan Peatland Restoration and Conservation Project launched in Indonesia and the Cordillera Azul National Park Project in Peru.
In 2021, TotalEnergie stated that it had delivered its first shipment of the carbon-neutral LNG to the China National Offshore Oil Corporation (CNOOC).
The carbon footprint of the LNG shipment was then offset with VCS (Verified Carbon Standards) emissions certificates that are funding the two projects: the Kariba REDD+ Forest Protection Project that strives to protect Zimbabwe’s forests and the Hebei Guyuan Wind Power Project that works tirelessly to mitigate emissions from coal-based power generation in Northern China.
While Total is now helping Zimbabwe’s forests with participation in the various forest protection projects, analysts and experts mainly question the idea of the oil and gas sector’s use of the term ‘carbon neutral’, considering that it is not emissions from LNG that are getting reduced.
Saving the forests from deforestation does not translate to removing the carbon footprint of an LNG cargo, according to experts. This ‘carbon neutral’ approach to mitigating emissions “is encouraging a fictitious engine that doesn’t help advance our net-zero goals,” as explained by Danny Cullenward. Cullenward is a Stanford University lecturer and policy director working at a non-profit group.
TotalEnergies said that carbon offsetting projects are not equal to eliminating direct LNG emissions. The company said in a statement to Bloomberg:
“While an important tool, offsetting cannot be considered as a substitute for direct emissions reductions by corporates, but as a compliment.”
The Calculation Challenge With Emission Offsets
There are multiple issues with nature-based projects to mitigate emissions. First, there is no universal methodology and regulation about calculating the Scope 1, 2, and 3 emissions of an LNG cargo. Then, there is no universal methodology to calculate whether the avoidance of deforestation in an African nation would have saved almost the same emissions as an LNG cargo generates during its whole value chain, from natural gas production to end-use.
Critics have come out to slam the energy companies marketing their oil and LNG as ‘carbon neutral’, accusing them of greenwashing and not supporting a net-zero world at all. While writing in a commentary for the Center on Global Energy Policy at Columbia University SIPA in July, Erin M. Blanton and Samer Mosis said:
“As carbon-neutral LNG trade is set to grow, the industry needs to address questions such as which emissions are accounted for, what methodology is employed in the emissions measurement and verification, and how the emissions are priced—either through a carbon credit or a carbon tax.”
The experts explained:
“Industry standards around what emissions, emissions ratios, and accounting methodologies are being used to determine the overall GHG load of LNG is a necessary component in the development of a verifiable and trusted carbon-neutral LNG market. Most importantly, if done transparently and uniformly, it will help alleviate fears of greenwashing—that cargoes are being marketed as environmentally friendly when they are not, either due to poor carbon credit quality or erroneous GHG measurement and accounting.”