By Nick Cunningham
Jun 24, 2021
Original article on DeSmog here
As recently as 2019, the global market for liquefied natural gas (LNG) looked bright. Analysts saw demand for LNG in Asia rising in both a steady and unrelenting fashion, expanding for years or even decades into the future. The industry gave the greenlight to 71 billion tonnes per annum (mtpa) of new LNG capacity in 2019, an all-time record.
But a lot has changed in the past two years, with “business conditions drastically diminished,” and even “the basic rationale of an industry built around a relatively small number of massive but highly vulnerable facilities” now called into question, according to a new report from Global Energy Monitor.
“LNG was sold to policymakers and to investors as a safe, clean, secure bet,” said Lydia Plante, lead author of the report. “Now all those attributes have turned into liabilities.”
Not only did the pandemic disrupt demand projections, but the positive perception of LNG as a somewhat climate-friendly alternative to coal – a perception assiduously promoted by the industry – has fallen apart. “Most striking is the shift in LNG’s public image from climate solution to climate problem,” the report said.
A December 2020 study from the Natural Resources Defense Council (NRDC) found that the climate benefit of LNG compared to coal is only modest at best, and because it is a fossil fuel with a large carbon footprint, it ultimately presents a big threat to the climate.
If the U.S. LNG projects on the drawing board went forward as planned, it would result in 130 to 213 million metric tons of new greenhouse gas emissions by 2030, the equivalent of adding 28 to 45 million cars to the road, and enough to wipe out the 1 percent per year decline in emissions the U.S. achieved over the past decade, according to NRDC.
As a result of the increased scrutiny, along with growing financial risks, major LNG projects are struggling to get off the ground. At least 21 major LNG export terminals representing 265 mtpa have either seen their final investment decision (FID) delayed, or are suffering other serious setbacks. That’s roughly 38 percent of the total capacity under development around the world, with ten of those projects located in North America.
In March 2021, Exelon canceled the Annova LNG project that was proposed to be built in Brownsville, Texas, due to the inability to find buyers for its gas. In the same month, Sempra Energy delayed its LNG project for Port Arthur, Texas until 2022, also because of a struggle to find sufficient interest for its LNG. Seven of 12 LNG projects proposed on Canada’s Pacific Coast have been canceled, and only one project led by Shell and a consortium of Asian energy companies, called LNG Canada, is moving forward.
The recently announced decision from Qatar to undergo a massive 40 percent expansion of its LNG industry over the next five years adds another layer of financial risk. Qatar is one of the lowest cost producers in the world, which means its expansion undercuts the business case for LNG elsewhere.
“This decision to move ahead has definitely crowded out other players. We anticipate that companies will need to take a long hard look at their projects to determine if they are able to find a competitive advantage versus this field of competition,” Chong Zhi Xin, a director at research firm IHS Markit, told Reuters in March, referring to Qatar’s announcement. Russia is also in the midst of a substantial expansion.
“[T]he go-go atmosphere that characterized the [LNG] sector just two years ago now lies in what seems like the distant past,” the Global Energy Monitor report stated.
At the same time, renewable energy is increasingly the cheapest option to generate electricity in most parts of the world, and the cost declines are expected to continue. “[E]very year of delay that an LNG project experiences means an even tougher competitive environment against renewables, and raises the probability that the project could become obsolete decades before the end of its intended lifespan,” the report said.
That risk is compounded by the fact that future demand growth is no longer rock solid. In May, the International Energy Agency (IEA) published a high-profile report that detailed the pathway to achieving net-zero carbon emissions by 2050, and in the report the agency concluded that expanding fossil fuel exploration and use must end.
The IEA specifically singled out LNG, despite previously forecasting decades of demand growth. “No new natural gas fields are needed in the [Net Zero Emissions scenario] beyond those already under development,” the IEA said. “Also not needed are many of the liquefied natural gas (LNG) liquefaction facilities currently under construction or at the planning stage.” The agency went on to add that the volume of LNG traded needs to fall sharply going forward.
Other analysts have come to similar conclusions. “LNG is facing stiff competition in the power generation sector from renewables firmed by cheap and improving batteries,” Bruce Robertson, an LNG analyst at the Institute for Energy Economics and Financial Analysis, told DeSmog. “LNG projects are 30-year-plus projects and customers are unwilling to commit to contracts longer than 10 years. New LNG projects have considerable risks of being stranded assets prior to the operating life being complete.”
Part of the problem with LNG is that it is no longer considered compatible with the goals to reduce greenhouse gas emissions in order to head off catastrophic climate change. That perception of climate compatibility was derived from the fact that gas burns cleaner than coal, generating roughly half of the carbon emissions.
However, that calculation ignores the enormous volumes of methane — a powerful greenhouse gas — leaked into the atmosphere up and down the supply chain – at drilling sites, compressor stations, pipelines, and liquefaction facilities. That calculation also ignores the energy used to liquefy the gas, transport it around the world, and regasify it upon arrival.
“Increasing overseas exports of liquefied natural gas (LNG), far from being the climate-friendly replacement for dirtier fossil fuels touted by the gas industry, will make it more difficult for both the U.S. and importing countries to reduce greenhouse gas (GHG) emissions,” the NRDC said in its December report.
That hasn’t stopped the fossil fuel industry from touting LNG as a solution, which it does with regular frequency. In January 2020, the American Petroleum Institute launched its “Energy for Progress” campaign, which described LNG as “clean” and “environmentally friendly.” LNG was a “solution to help lower the world’s carbon footprint,” the advertising campaign said. Other industry-backed front groups have funded studies to demonstrate the climate benefits of exporting LNG to Asia.
But despite industry spin, policymakers and investors are catching on to problems endemic to LNG.
Last year, Ireland blocked an LNG import terminal over concerns about climate change. Even more shocking was the decision by Engie to back out of an LNG export project in Texas over concerns about methane released during fracking in the Permian basin, where the gas would be produced. Rampant and unchecked flaring and venting of gas in West Texas and New Mexico has stained the global image of LNG.
The changing winds have caught the LNG industry by surprise. In response, LNG developers are promising to somehow capture the emissions at their export terminals in an effort to green up their image. But the catch is that the industry wants the federal government to subsidize their efforts.
The Biden administration has not revealed its official position on LNG, but has suggested that it would support an LNG expansion if the industry cleaned up a bit. “We want to be able to promote and sell clean technologies,” U.S. Secretary of Energy Jennifer Granholm said in May. “That could be natural gas that has been decarbonized, or that could be natural gas where the methane flaring has been eliminated.”
As DeSmog has reported, carbon capture technologies are not profitable, potentially unfeasible, and have questionable climate benefits. Many of the projects to date have been failures and the technology won’t be commercially viable for years to come. The danger is that government support for carbon capture offers a patina of climate action while allowing the industry to continue to pollute.
On June 24, the Senate Energy and Commerce Committee is holding a hearing on a sweeping energy bill, which could be included in the major infrastructure package being negotiated in Congress. Carbon capture features prominently in the bill.
But it’s not clear that more subsidies for carbon capture would change the equation. As the Global Energy Monitor report notes, the headwinds facing the global LNG industry come from multiple directions.
“Those who are accustomed to thinking of infrastructure as a ‘safe’ investment may be in for a rocky ride with LNG terminals,” said Ted Nace, executive director of Global Energy Monitor. “The opportunity has narrowed for more export capacity to be built, and North American projects have fallen behind for several reasons. They’re rightly seen, especially by European buyers, as particularly dirty, due to their reliance on fracked gas.”