Challenges to the future of LNG: decarbonisation, affordability, and profitability

Working paper

Decarbonisation should be very much on the radar of new LNG projects currently taking FID, commissioning around 2024-25 and planning to operate up to 2050. The LNG community needs to replace an `advocacy’ message – based on the generality of emissions from combustion of natural gas being lower than from other fossil fuels – with certified data on carbon and methane emissions from specific elements of the value chain for individual projects. As carbon reduction targets tighten over the coming decade, LNG cargoes which do not have value chain emissions certified by accredited authorities, or which fail to meet defined emission levels, run the risk of progressively being deemed to have a lower commercial value and eventually being excluded from jurisdictions with the strictest standards. There will be no place in this process for confidentiality; nothing less than complete transparency of data and methodologies will be acceptable.

In relation to affordability, prospects for new projects look much better than they did three years ago. Cost estimates for most new projects suggest that they will be able to deliver profitably to most established and anticipated import markets at or below the wholesale prices prevailing in those markets over the past decade, although affordability in south Asian countries may be challenging. But new projects need to factor in costs related to future decarbonisation requirements in both exporting and importing countries. To the extent that LNG suppliers can meet standards through relatively low-cost offsets – forest projects, low-cost biogas and biomethane – this may not greatly impact their commercial viability. However, any requirement to transform methane into hydrogen with CCS in either the exporting or importing country, would substantially impact project economics and the affordability of LNG relative to other energy choices.

Authors: Stern, J

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Oxford Institute for Energy Studies
• Series: OIES paper
• Publication date: 2019-10-15
• DOI: 10.26889/9781784671464
• Paper number: NG 152
• Language: English
• Keywords: decarbonisation; gas; emissions; affordability; profitability; NG152; pricing; methane; certification; LNG; OIES; regulation; NG 152
• Subjects: Gas industry