Canadian LNG projects to lean on lower GHG emissions to boost competitiveness

Singapore — Canada's upcoming $40-billion LNG Canada project will emit half the greenhouse gas emissions than similar facilities around the world, and Woodfibre LNG could cut its emissions by as much as 90%, Seamus O'Regan, Minister for Natural Resources, said on Sept. 7, in a pitch for the country's LNG sector.

The North American country, which is the world's fourth-largest producer of natural gas and has the world's fifth-largest reserves, is not a large-scale exporter of seaborne LNG yet but it plans to become one within the next decade.

"All told, there have been 11 LNG projects proposed on our east and west coasts," O'Regan said, adding that Canadian LNG projects plan to take environmental performance of these projects further, such as the proposed Woodfibre facility, which would be fully electric and slash emissions significantly.

"Canadian industry understands the direction that markets are moving in; and that our industries are following the money. They are already taking action to make our natural resource sectors more sustainable than ever," he said at the Gastech Virtual Summit.

The push for sustainable LNG projects is aligned with the growing market for carbon-neutral LNG that has a low greenhouse gas footprint, and Canadian projects could gain an edge over its competitors as it enters the LNG space.

In 2019, Shell delivered carbon-neutral LNG to South Korea's GS Energy and Japan's Tokyo Gas. In April, Singapore's Pavilion Energy issued a request for proposal for carbon neutral LNG, in June China's state-owned CNOOC bought its first batch of carbon-neutral LNG from Shell Eastern Trading, and Jera has also sold carbon neutral LNG to India.

Traders say conversations have begun for longer duration LNG contracts that can mitigate carbon emissions, not just for developed markets but also for emerging markets in Asia.

LNG buyers are keen to work with sellers that have the best emissions management, and sellers that do not have the capability might be excluded from further discussions, consultant Poten & Partners said in their August report.

"The prevailing view is the measurement, reporting and verification of carbon emissions could become part of annual delivery program discussions," Poten said, adding that producers and portfolio players would have to create a separate master agreement in addition to exiting LNG sales and purchase agreements.

CARBON OFFSETS

Shell plans to become a net-zero emissions energy business by 2050 or sooner, on emissions from the manufacturing of its own products, or operational emissions, and from the use of its products, Maarten Wetselaar, head of its integrated gas business, said at the Gastech conference.

LNG Canada is a joint venture between Shell, Petronas, PetroChina, Mitsubishi and Kogas.

Poten said burning natural gas would account for around three-quarters of the emissions, while gas production and liquefaction is roughly 15%, shipping is at least 3%, and regasification is closer to 5%, while LNG storage would make up the rest.

What each buyer wants to offset will vary, and the carbon offerings in LNG contracts would be tailor-made according to each buyer's preferred options of carbon offsets or even locations of the projects producing the credits.

"Sellers' main concerns are finding ways to reduce LNG production carbon emissions over the long term, as buyers may increasingly look for supply that has the lowest levels, along with considering contract price and other conventional aspects of SPAs," it added.

With carbon becoming a growing cost for the energy sector, Canada's professed low emissions rates would become financially advantageous compared with other large producers such as Australia. This year, Australia's Woodside doubled its long-term carbon price assumption from $40/ton to $80/ton, which analysts said would adversely affect projected returns from its high-carbon pre-FID assets.

"This is a big jump for an independent. Woodside is now in the ballpark with targets set by European majors such as BP ($100/tonne from 2040) and Shell ($85/tonne by 2050), although it did not state when the revised pricing will be effective," consultant Wood Mackenzie had said.