There are a significant number of LNG projects proposed or being developed around the world that will use various technologies to reduce greenhouse gas emissions compared to some of the LNG liquefaction projects currently in operation. Solutions include monitoring and reducing emissions in upstream production and gas gathering systems, use of renewable electric power for turbines and compressors where gas fired equipment would been used in the past, the utilisation of new CCUS facilities that are being developed in proximity to new LNG facilities, and the use of the best shipping technology. 

Key drivers

Whereas the main driver to installing these technologies has been to reach FID as quickly as possible, buyers will increasingly want, and new EU legislation will require EU buyers to demand, an ongoing stream of information about steps to mitigate adverse environmental and human rights impacts arising from the production of LNG, and the methane emissions associated with LNG delivered to the EU.

Sponsors of LNG projects are likely to need to provide data throughout the life of the project in a way that they have not done before.

Uncertainty

The EU's Corporate Sustainability Due Diligence Directive (CSDDD) and Methane Reduction Regulation depend on detail that will only become clear when CSDDD is enacted into Member States’ legislation, and when further delegated legislation is passed, in both cases, in 2027. Buyers and sellers of LNG are in the difficult position of having to enter into contracts now without fully understanding the legislative requirements that they will have to comply with in the future.

Takeaways

Long term LNG SPAs for supply to the EU will likely include obligations on producers to:

• Monitor, certify and verify greenhouse gas emissions (particularly methane) on a continual basis; 
• Commit that the methane intensity of LNG produced will be below the levels set by the EU, and deal with the allocation of risk between the parties if the LNG does not meet these levels.

We will have to see whether the EU is successful in encouraging other markets for LNG to adopt the same or similar requirements. If not, we may see a bifurcation of international LNG markets between those LNG cargoes that are compliant with the requirements of the EU, and those that are not. Cargoes that meet the standard may be more valuable to buyers and command a higher price.

These issues were recently considered by Ben Smith at Gastech 2024.