Adoption of a standardized monitoring, reporting and verification (MRV) framework for greenhouse gas emissions (GHG) could help drive carbon-neutral LNG trade and address criticism of the carbon offsets crucial to such transactions. However, a common approach to MRV is racked with complexities, and a breakthrough seems unlikely in the short term.
Carbon-neutral LNG trade, or LNG cargoes where its carbon dioxide emissions have been offset, has been slowing over the last two years. Approximately 17 carbon offset LNG cargoes were traded last year, down from more than 25 in 2021, according to estimates from the International Group of LNG Importers (GIIGNL). The main reason for the drop has been increasing natural gas and LNG prices triggered by Russia’s invasion of Ukraine — but the lack of transparency around carbon offsetting has also been a factor, GIIGNL general delegate Laurent David tells Energy Intelligence.
Early carbon offset LNG trades held in 2019 were met with accusations of greenwashing and questions over methodologies for calculating emissions, which spurred the launch of GIIGNL’s MRV and GHG framework in 2021. “Immediately after the first few cargoes there was a reaction, and as an industry we had to live and learn, but the bottom line is that the industry approach was not consistent and it attracted a little bit of criticism,” Shell Trading’s Head of Global LNG Origination, Mehdi Chennoufi, told delegates at the LNG2023 conference held in Vancouver, Canada, last month.
GIIGNL’s framework offers the first homogeneous requirements to calculate the GHG footprint associated with each stage of the LNG value chain and defines criteria for the use of carbon offsets. Firms using the framework can declare LNG cargoes GHG neutral through cargo statements setting out the emissions and offsets. These statements are issued by an independent third party and offsets used must meet best practice principles.
Shell has delivered the majority of the recorded carbon-neutral LNG cargoes and was the first to adopt the framework for a pilot cargo delivered from the Gorgon LNG export terminal in Australia to an unspecified terminal in Taiwan for CPC in 2022.
Framework Improvements
While GIIGNL’s framework has set a benchmark for standardized best practices for GHG reporting and offsetting, amendments are needed to help drive carbon-neutral LNG trading.
The main request from industry following Shell’s pilot cargo was additional clarity around the GHG methodology and data expectations, David said in an LNG2023 panel. “All the participants wish to have more examples of methodology to make such a calculation,” he noted.
But transparency over how emissions are measured and reported and who is verifying them remains a gray area and difficult to access in the public domain. One of the main issues is that a lot of the information is considered confidential, and many LNG facilities are controlled by joint ventures, which may make it difficult to align on information sharing. “It’s not necessarily within our control. It is regarded as confidential. And it’s commercially sensitive, for many obvious reasons,” Chennoufi told the conference.
Issuing statements on a cargo-by-cargo basis is not sustainable to deal with shortfalls with the methodology, Chennoufi said at the conference, adding that GIIGNL is currently working on amending these problems. “Each cargo statement is currently verified by a third-party auditor. Annual or biannual third-party verification of the comprehensive data gathered for each stage of the LNG chain could enable wider adoption of the framework,” Chennoufi tells Energy Intelligence separately.
Standardization Takes Time
However, it is “hard to say” when a standardized framework could become mainstream, Chennoufi said at LNG2023. What is clear is that transparency is slowly improving. In July, Shell started to include carbon emissions statements for every cargo it delivers, which will become mandatory in the EU starting in January next year.
David does not think industry will necessarily adopt a single MRV methodology but instead could converge on “common practices and shared tools”. This is unlikely to happen until worries over security of supply fade, David tells Energy Intelligence. Price volatility and supply concerns are expected to linger until the middle of the decade, when new LNG volumes are expected to come online.