The glaring problem with ‘carbon neutral’ LNG

The LNG industry is rushing to offset emissions before tackling its own gas flaring problem. Now is the time for action, not greenwashing, says Capterio

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The liquefied natural gas industry says it is helping to reduce emissions by replacing dirty coal with cleaner-burning gas in Asia and other markets. LNG is credited with providing a route to market for stranded gas that might otherwise be flared or vented. But the opposite is often true, according to flare capture specialist Capterio, which warns that the industry’s rush to offset its carbon emissions without first snuffing out the flaring problem is raising legitimate concerns of ‘greenwashing’.

If you’re in the business of liquefying natural gas for export to overseas markets, burning off your product at flare stacks would seem illogical. But that’s exactly what many liquefaction plants and regasification terminals are doing, according to Capterio.

As reported in Energy Flux, enormous volumes of natural gas are routinely flared off at upstream oil wells that lack gas gathering infrastructure to get the molecules to market. But once the gas is in the pipeline system and on its way to a liquefaction plant, flaring should be an extremely rare occurrence, right?

Wrong. Using its proprietary open-access flare tracking tool FlareIntel, Capterio has observed large flaring volumes at liquefaction plants. For example, up to 25 million cubic feet per day (MMcf/d) are regularly flared at Algeria’s Skikda liquefaction plant and up to 30 MMcf/d are flared at Qatar’s RasGas liquefaction plant.

“Both plants also show periods of very high flaring (100 MMcf/d or more) associated with shutdowns and or operational problems, such as failures to compressors processing boil-off gases or insufficient capacity,” Capterio said in a note this week. “These rates of flaring can add up to 0.3 CO2-equivalent tonnes per tonne of LNG.”

FlareIntel uses satellite data to track every asset and company globally. Capterio found that supply chain emissions from flaring can – for some assets – double the total CO2-equivalent emissions associated with LNG cargoes.


Opaque practices

Combined with a lack of standardisation and transparency in the certification of LNG’s “carbon neutrality”, widespread flaring gives rise to “potential concerns over greenwashing,” Capterio said.

This point is critical. As the LNG industry rushes to offset its carbon emissions, there is no way of knowing whether sufficient carbon credits are being retired to cover the flaring-related emissions embedded in each cargo.

Flaring is vastly under-reported by the gas industry, so when an LNG cargo is marketed as ‘carbon neutral’ it is almost impossible to verify whether the credits cover reported or actual emissions. (And then there is the question of the credibility of the offsets themselves – but I digress).

A case in point is Inpex’s Ichthys gas field, which feeds Australia’s Ichthys LNG plant. Ichthys regularly flares 50 MMcf/day, yet this asset supplied TotalEnergies’ first so-called carbon-neutral LNG cargo from Australia to Japan in October 2020, Capterio said:

“On the day of the announcement, it even flared 58 MMcf/d, which begs the obvious question: were the ... emissions certificates sufficient to account for these very high rates of upstream flaring?”

OK, flaring is a problem in the upstream and at the liquefaction plant. But once the LNG has been shipped around the world and unloaded at a regasification terminal in Europe or Asia, surely there should be zero flaring from this point in, right? (After all, every molecule entering a premium gas market is by definition more valuable than when it flowed up out of the ground in gas-rich Texas, Qatar or Nigeria.)

Wrong again. FlareIntel observed flaring at regasification terminals such as the Montoir facility in France.

This is “highly correlated to known operational performance” issues such as fixing gas line leaks or due to the failure of a vapouriser. “We estimate that flaring at Montoir adds some 0.05 CO2-e tonnes per tonnes of LNG,” Capterio said.

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Nowhere to hide

Satellites even detected venting of gas at one Italian regasification terminal, which is significantly more damaging to the environment than flaring since the short-term climate heating potential of methane is around 80 times that of CO2.

That Italian terminal, which Capterio did not identify, “chose to vent over flaring to avoid detection and to avoid breaching local regulation”. But with a growing array of satellites silently observing methane clouds, culprits have fewer places to hide.

Capterio says satellite monitoring is making the world “radically more transparent”, allowing rating agencies, investors, fund managers, lenders, aggregators, consumers and governments to “sharpen their understanding with better ESG metrics around flaring”.

And while this work has been focussed on flaring, satellites are become increasingly adept at measuring methane, therefore enabling more precise assessments of end-to-end emissions:

“Growing awareness has – for the better – led to more investigation into the credibility of so-called ‘carbon-neutral’ LNG. Critically, consumers need standards and to be able to trust the emissions data, and buyers will increasingly seek to differentiate products based on their quality.”


The worst culprits

In collaboration with investment bank Jeffries, Capterio ranked the worst offenders for flaring by country, LNG facility, plant operator and by international oil company.

In terms of flaring as a percentage of LNG production, the worst IOC culprits are Shell and BP, closely followed by Eni and TotalEnergies. All except Italy’s Eni have sold LNG cargoes that they claimed to be ‘carbon neutral’.

The world’s single worst LNG facility for gas flaring is its oldest: Arzew LNG, operated by Algeria’s national oil company Sonatrach. Arzew began operations in 1964 as the world’s first commercial scale LNG facility, and underwent major expansions in 1978, 1981 and 2014.

Algeria’s consistently high level of gas flaring could start to threaten its gas exports to Europe once the European Union’s carbon border adjustment mechanism (CBAM) comes into force, African Energy recently reported.

This poses awkward questions for national oil company Sonatrach given that “consumers will be tracking the embedded emissions in oil and gas imports” and will know “there are choices”, Capterio CEO Mark Davis was quoted as saying.

The impact could be material: a carbon price of $50 per tonne of CO2 equates to a penalty of $2.50 per MMBtu. Such a substantial ‘green premium’ could shift the merit order of gas imports into the EU and any other market considering border taxes – such as the US, where the Biden administration is mulling its own CBAM.

The US still imports LNG into gas-starved New England despite being a major exporter of LNG from Gulf Coast liquefaction projects fed by the Permian and Eagle Ford shale plays – where upstream operators finally started tackling their gargantuan flaring problem after a media blitz from pressure groups.

Time for action

It is worth noting that flaring at LNG plants and terminals represents only a small proportion of the oil and gas industry’s overall gas flaring volumes, and is rarely a desired outcome. After all, gas is the product, so burning it off erodes margins.

There are several common causes of flaring ranging from suboptimal or outdated design, lack of (or undersized) compression equipment, suboptimal operational control or poor equipment maintenance practices, Capterio notes.

Operators at liquefaction and regasification facilities may be able to reduce flaring either by optimising their operations or upgrading their equipment. And upstream operators could simply adjust their operating pressure and temperatures.

In both cases, investment in these solutions could have very short payback periods since they would reduce the volume of product being burned off.

Under the Oil and Gas Climate Initiative, several IOCs and other major gas industry players have committed to eradicate ‘routine’ gas flaring by 2030. But while new initiatives to decarbonise LNG are starting to get underway, the gap between rhetoric and reality is woefully large.

“Despite plenty of targets and commitments, execution to reduce flaring has been lacking. Now is the time for action,” Capterio said.


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