Global LNG Industry Reeling as its Image as a Climate Solution Shifts to ‘Climate Problem’

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Nearly two dozen major LNG projects around the world are struggling to move forward, a new report reveals, as investors grow skittish from poor economics and increasing scrutiny on the industry’s large carbon footprint.

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.

British Columbia’s Premier John Horgan tours LNG Canada Site in Kitimat, BC, January 2020. Credit: BC Gov PhotosCC BY-NC-ND 2.0 

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.

Read the full article at  https://www.desmog.com/2021/06/24/global-lng-natural-gas-industry-reputation-climate-problem-report/?utm_source=DeSmog%20Weekly%20Newsletter