The Strategist

Cheniere assesses effect of CO2 charge on LNG projects

04/12/2021 - 03:39

Cheniere, the largest producer of liquefied natural gas in the US, has for the first time estimated the potential impact on the global LNG industry if companies have to pay for greenhouse gas emissions.

Ivan Radic
Ivan Radic
Cheniere published its assessment of LNG demand scenarios and the potential costs of the industry in the context of the climate change challenge. Cheniere is the largest LNG operator in the US and currently the second largest in the world after Qatar's Qatargas.

Cheniere has taken the very aggressive "sustainability" scenario proposed by the International Energy Agency in its 2020 review as its baseline. In it, IEA analysts assessed what measures would be needed to keep global temperature rise within 2°C, as envisaged by the Paris Agreement. In fact, this will require an accelerated transformation of the global energy system. Cheniere assumes, in particular, that the CO2 emission charge will rise to $140 per tonne - 3.5 times higher than the current EU level.

If that happens, operating costs for existing projects and plants that have already been approved could roughly double. For US projects, operating costs could rise from $4 to $8 per MBTU. Cheniere does not specify exactly how the emissions calculations were carried out, but in general US projects are thought to have a larger carbon footprint: shale production, due to the nature of the technology, is accompanied by large methane leaks, and gas is then transported a considerable distance to LNG plants, whereas in the world a plant is usually located next to the deposit. For example, the UK regulator OGA estimated in November 2020 that the carbon footprint of LNG from the US is 140 kg of CO2 equivalent per barrel of oil equivalent - 2.8 times higher than that of LNG from Russia and seven times higher than that of pipeline gas from Norway.

Overall, Cheniere believes that even in a "sustainable development" scenario, the company's projects could survive - primarily because global LNG demand will rise to 500 million tonnes a year by 2040 and an additional 90 million tonnes of new LNG capacity will be needed to cover it. At the same time, the report points to "entry into a low-cost supply market" as a risk for the company, as well as a situation in which "some major holders will decide to increase capacity by accepting lower margins for the sake of monetising reserves".