Engie’s US LNG Reversal: Emissions Cuts Helped Clinch the Deal, But Are They Legit?

Earlier this month, the Financial Times reported that French energy company Engie signed a 15-year supply deal for liquified natural gas (LNG) from NextDecade’s proposed Rio Grande project in Texas. The agreement was notable in part because Engie had rejected a similar agreement in fall 2020 — a watershed moment signaling the importance of climate impacts in gas purchase decisions.

So, what changed? Engie is now under added pressure to rapidly shift away from Russian gas, while NextDecade has taken additional steps to reduce emissions and ease buyers’ concerns. By replacing Russia’s high-emitting and geopolitically fraught piped gas with US LNG, the deal could help Europe improve both supply security and the greenhouse gas (GHG) intensity of the gas it consumes. However, deals like this require a careful assessment of the true emissions impact. Our analysis shows that the climate benefits of the switch are far from guaranteed. Methane and other supply chain emissions will need to be more transparent and well managed.

Troubled LNG Time Lines

Europe is redoubling efforts to cut gas use, but the sad truth is that its need for gas will continue until hard-to-abate sectors like heavy industry can shift to lower-carbon alternatives, some of which are not yet commercially viable. On top of this, pandemic-depressed gas demand is rebounding globally, resulting in tight supply, sky-high prices, and a growing appetite for new projects to replenish depleting sources.

Europe is importing additional US LNG to help reduce Russian gas demand, but volumes are limited in the short term. With few projects under construction right now, scarcity and elevated prices could continue for years. Potential US LNG projects have advantages over many other LNG options because they are generally lower cost, can be brought online faster, and may have lower emissions intensity. Rio Grande LNG plans to reach final investment decision this year, launching the roughly four-year development and construction phase.

Assessing The True Emissions Impact

NextDecade aims to reduce emissions from Rio Grande LNG by using net-zero power and carbon capture and storage (CCS) at the liquefaction facility. It also seeks to source gas certified as low in methane intensity and leakage — not just in the production segment but also in midstream and liquefaction segments, where standards are currently less developed.

But the emissions impact could still vary widely. To be sure, end-use combustion of gas — in a power plant, heating, or industrial use, for example — accounts for over half of emissions from the fuel’s life cycle (see Exhibit 1). This underscores the importance of advancing demand-side alternatives to gas, while simultaneously implementing supply-side emissions reductions. Still, gas production, gathering and boosting, processing, and transmission segments collectively account for 30 percent of life-cycle emissions. These are also the segments in which methane emissions are the most prevalent, comprising 19 percent of total emissions over a 20-year period. This presents a major opportunity given that most methane emissions can be cut at low or net-negative costs using currently available technology.

Exhibit 1. Source: Department of Energy’s National Energy Technology Laboratory. Note: This study relies on GHGRP and GHGI reported data, which can undercount super-emitters and overall climate impact. The data assumes a 20-year global warming potential.

NextDecade’s CCS and net-zero electricity plans could curtail a substantial share of liquefaction emissions — which make up 7 percent of the total in Exhibit 1 — depending on the capture rates.

Certified natural gas is a key aspect of the deal, as the path from the wellhead to the liquefaction plant is an outsize contributor to methane leaks. While Haynesville and Marcellus shale production has emerged as a key source of certified gas for US LNG, NextDecade will source gas from the Permian. A recent study estimated the Permian leak rate to be almost 4 percent, and another put it at a staggering 9 percent — far higher than the US average of 1.24 percent.

Methane emissions reductions are a crucial step in slashing emissions this decade. In 2020, RMI partnered with SystemIQ to establish MiQ, a pioneering program to independently certify gas. To get an MiQ “A” grade, a gas production facility must have a methane intensity of less than 0.05 percent, employing regular methane emissions monitoring, and adhere to stringent methane management practices. However, not every standard is as robust or advanced as MiQ’s. Voluntary standards available today vary in transparency, auditing rigor, and supply chain coverage.

Settling For Better, Not Best

Our modeling of emissions intensity by indicative gas source demonstrates why it will be critically important to scrutinize NextDecade’s emissions-reduction efforts, especially the gas certification process.

We’ve shown in previous analyses that Europe’s gas imports have divergent GHG profiles — and the same applies here. To highlight this variation across potential gas import sources mentioned by Engie, we use the open-source Oil Climate Index plus Gas (OCI+) tool, which models the life-cycle GHG emissions intensities of global oil and gas fields (Exhibit 2).

Exhibit 2. Assessed natural gas supplies to Paris, in kilograms of carbon dioxide equivalent (kg CO of oil equivalent (boe).Note: Production emissions estimates include drilling, extraction, and surface processing. Transport & Distribution includes long-haul gas storage, transmission, and distribution stages.LNG includes liquefaction, LNG, and regasification stages.End-use and oil refining emissions are not included.Country proxy fields modeled are Groningen, Netherlands; Troll, Norway; Hassi R’Mel, Algeria. High scenario assumes super-emitting events at upstream sites; Russia and Algeria assume elevated methane leakage along pipelines. The data assumes a 20-year global warming potential.

The results may justify Engie’s reversal, but with major caveats. Permian-sourced LNG with emissions-reduction measures — the “Permian-low” scenario — would be an improvement from Russian pipeline gas, which generally has high upstream and midstream methane-leakage rates. Algerian gas is plagued by similar issues, including high flaring rates, although the modeled climate impact is lower. Norway and Denmark show lower GHG intensities, due to better emissions management practices and widespread use of renewable power, including hydro. But the “Permian-high” scenario shows that US LNG could be far worse for the climate, if methane is unmanaged and super-emitting events release large amounts of the gas in the upstream portion of the supply chain.

Emissions Differentiation Done Right

Improving emissions visibility and bright differentiation of oil and gas sources by emissions intensity will be critical for cutting methane emissions — which could be the most significant lever the world can pull this decisive decade. RMI’s Oil and Gas Solutions Initiative places these two priorities at the center of its work.

The oil and gas sector has greater reduction potential than other major methane-emitting sectors because leaks are more concentrated and can be detected and cost-effectively repaired. Certification programs like MiQ add further incentive for producers and buyers to cut emissions. And open-source modeling efforts like OCI+ provide indispensable context to help decision makers prioritize high-impact actions. This includes buyers like Engie, which can advance its climate and energy security goals by ensuring that its LNG supplies have the lowest emissions possible.

By TJ Conway, Nils Jenson, Frances Reuland

© 2021 Rocky Mountain Institute. Published with permission. Originally Posted on RMI Outlet.


 


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