Earlier this month, Financial Times announced that the French energy company Engie has signed a 15-year contract for the supply of liquefied natural gas (LNG) from the Rio Grande project in Texas designed by NextDecade. The agreement was remarkable in part because Engie rejected a similar agreement in the fall of 2020 – a turning point signaling the importance of climate impacts in gas purchasing decisions.
So what has changed? Engie is now under increased pressure to divert quickly from Russian gas, while NextDecade has taken further steps to reduce emissions and allay buyers’ concerns. By replacing Russia’s high-emission and geopolitically loaded gas pipeline with US LNG, the agreement could help Europe improve both security of supply and the greenhouse gas (GHG) intensity of the gas it consumes. However, such trades require a careful assessment of the real impact of emissions. 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.
LNG problem timelines
Europe is redouble its efforts to reduce gas consumption, but the sad truth is that its gas demand will continue until hard-to-reduce sectors such as heavy industry can move to low-carbon alternatives, some of which are not yet commercially viable. In addition, pandemically depressed gas demand is picking up worldwide, resulting in tight supply, skyrocketing prices and a growing appetite for new projects to replenish depleting resources.
Europe is importing more US LNG to help reduce Russian gas demand, but volumes are limited in the short term. With several projects under construction, shortages and increased prices could persist for years. Potential LNG projects in the United States have advantages over many other LNG options because they are generally cheaper, faster to get online, and have lower emissions. Rio Grande LNG plans to reach a final investment decision this year and will begin a roughly four-year development and construction phase.
Assessment of the actual impact of emissions
NextDecade aims to reduce emissions from Rio Grande LNG through zero clean energy and liquefaction capture and storage (CCS) in a liquefaction plant. It also seeks to obtain gas certified as a low-intensity gas and methane leakage – not only in the production segment, but also in the mid-stream and liquefaction segment, where standards are currently less developed.
However, the impact of emissions can still vary considerably. It is certain that end-user gas combustion – for example in a power plant, heating or industrial use – accounts for more than half of the fuel life cycle emissions (see Figure 1). This underlines the importance of promoting alternatives to gas on the demand side and at the same time reducing emissions on the supply side. However, the gas generation, collection and replenishment segments, processing and transportation together account for 30 percent of life-cycle emissions. These are also the segments in which methane emissions predominate, accounting for 19 percent of total emissions over a 20-year period. This is a great opportunity given that most methane emissions can be reduced with low or net negative costs using currently available technologies.
NextDecade’s CCS plans and zero clean electricity plans could reduce a significant share of liquefaction emissions – which account for 7 percent of total emissions in Example 1 – depending on the level of capture.
Certified natural gas is a key aspect of the transaction, as the path from the wellhead to the liquefaction plant is a major contributor to methane leaks. While Haynesville and Marcellus shale production has proven to be a key source of certified gas for US LNG, NextDecade will source gas from Perm. A recent study estimated the leak rate in Perm at nearly 4 percent, and another put it at a staggering 9 percent – well above the US average of 1.24 percent.
Reducing methane emissions is a crucial step in reducing emissions over this decade. In 2020, RMI merged with SystemIQ to create MiQ, a pioneering program for independent gas certification. In order to obtain a MiQ of “A”, gas production facilities must have a methane intensity of less than 0.05 percent, use regular methane emission monitoring and follow strict methane management procedures. However, not every standard is as robust or advanced as MiQ. The voluntary standards available today vary in transparency, audit rigor and supply chain coverage.
Settlement for the better, not the best
Our modeling of emission intensity by indicative gas source shows why it will be critical to examine NextDecade’s efforts to reduce emissions, especially the gas certification process.
In previous analyzes, we have shown that European gas imports have different greenhouse gas profiles – and the same is true here. To highlight this variation in the potential sources of gas imports mentioned by Engie, we use the open source Oil Climate Index plus Gas (OCI +) tool, which models the life cycle greenhouse gas emissions of global oil and gas fields (Exhibit 2).
The results may justify Engie’s conversion, but with great reservations. LNG from Perm with emission reduction measures – the “low Perm” scenario – would be an improvement over the Russian gas pipeline, which generally has a high upstream and upstream methane leakage rate. Algerian gas suffers from similar problems, including high flash rates, although the modeled climate impact is lower. Norway and Denmark have lower greenhouse gas intensities due to better emission management practices and increased use of renewable energy, including hydro. But the “permian-high” scenario shows that US LNG could be much worse for the climate if methane were not controlled and high-emission events released large amounts of gas up the supply chain.
Emission differentiation performed correctly
Improving the visibility of emissions and allowing oil and gas resources to be differentiated according to emission intensity will be crucial for a dramatic reduction in methane emissions – which could be the most important lever the world can develop in this crucial decade. The RMI Oil and Gas Solutions Initiative puts these two priorities at the center of its work.
The oil and gas sector has a greater potential for reduction than other major methane emitters, as leaks are more concentrated and easy to detect and cost-effective. Certification programs such as MiQ add additional incentives for manufacturers and buyers to reduce emissions. And open source modeling, such as OCI +, provides an indispensable context that helps decision-makers prioritize high-impact actions. This includes buyers like Engie, who can pursue its climate and energy security goals by ensuring that its LNG supplies have the lowest possible emissions.
Author: TJ Conway, Nils Jenson, Frances Reuland
© 2021 Rocky Mountain Institute. Published with permission. Originally published on RMI Outlet.
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