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CERAWeek: LNG keeps natural gas in mix during energy transition

01 March 2021 Kevin Adler

LNG has a very strong future in the energy transition, Cheniere LNG President and CEO Jack Fusco and JOGMEC Chairman and CEO Tesuhiro Hosono said during a session at CERAWeek by IHS Markit on 1 March.

The Asia-Pacific region will be the driver of LNG demand, said Fusco, in the session titled, "What Are the Fuels of the Future?"

"There's huge demand growth potential in Asia right now," Fusco told IHS Markit Chief Strategist for Oil and Gas Michael Stoppard. "If you look at China's five-year electrification plan, they want to take their share of power from natural gas combined-cycle [generation] from 8% to 15%. If they are successful, that could be [the demand equivalent of] three more Chenieres. The demand is phenomenal for the product."

At the same time that the company is eyeing demand growth, Cheniere is committing to improving the environmental footprint of LNG, to keep it relevant in a world in which many nations have announced net-zero carbon emissions by 2050 or 2060. In February, Cheniere said it would begin to disclose the carbon emissions of its LNG on a per-cargo basis in 2022, the first US producer to make such a promise.

This carbon dioxide-equivalent disclosure will encapsulate the entire value chain, Fusco said, and it will include methane emissions as well. "We are uniquely situated to influence [carbon emissions] because we buy the gas, transport the gas, liquefy the gas, and in some cases deliver all the way to the customer's flange," he said. "So, we are in a great position … to be able to monitor, validate, and report on those emissions, but also to clean up those emissions and make LNG a sustainable fuel."

Cheniere is already reducing the carbon intensity (CI) of its LNG production, a measurement of the emissions of carbon per unit of output. More is coming, Fusco said, noting: "Already, we are looking at whole variety of things we can do internally to help our suppliers, as well to clean up our own emissions profile. We need to make sure we have an auditable process, that we are transparent, and that technically people understand what the data is telling them, and they believe it."

The task is complicated, particularly upstream of the liquefaction plant, Fusco admitted. "We bought gas from 68 producers on 15 pipelines yesterday. Some days, it's a hundred producers on 26 pipes," he said. "It's not easy to come up with carbon emissions specific for each cargo."

Gas producers and pipelines have reduced their carbon emissions and improved their own measurements in the last few years, and Cheniere can build upon those developments.

For its own operations, as the company gains more experience running its nine LNG trains at two facilities, it has found ways to debottleneck its operations and optimize maintenance. As a result, he said CI "is down dramatically," and production is up. On the production side, Cheniere's nine trains produce as much volume as the nameplate capacity of 10 trains, or an extra 5 million metric tons/annum (Mtpa) of LNG.

The added 5 million Mtpa has enabled Cheniere to reach out to new customers, Fusco explained, and propel more use of LNG. Most of Cheniere's output is committed to 20-year contract buyers, but the incremental capacity is sold on the spot market. Fusco said Cheniere has found spot buyers in countries that are less wealthy, and which do not have the creditworthiness to make long-term contractual commitments to LNG. "We can meet their needs on a short-term basis," he said.

Japan's experience with LNG

Japan is not one of those countries with a creditworthiness problem, and its gas buyers have held long-term LNG and oil contracts for many years. But they are seizing opportunities to connect with new suppliers, such as Cheniere, to expand their options, said Hosono.

This is crucial for a country that imports all of its fossil fuels, said Hosono, who leads the government-sponsored entity known as Japan Oil, Gas and Metals National Corporation, which coordinates the nation's energy supply.

"Energy security was the foundation of our policy … how to secure oil and gas to meet growing demand, and move away from dependence on the Middle East, which is our largest supplier," he said. "But times have changed. Energy demand has peaked in Japan. The US has become a major exporter of oil and gas, causing structural changes in the supply side. And we have seen the global interest on climate change."

As these developments have emerged, gas is taking a greater role in the country's energy mix, he said. Japan has shifted from not only being a major importer of LNG, but also a player on the LNG trading market, as contracts with some producers such as Cheniere allow for resale.

"Gas is part of our energy transition," Hosono said. "Once we overcome the hefty investment in LNG, then we [have been able to] expand LNG trade volumes and improve logistics in quality and quantity to supply other chains in the Asia-Pacific region. This ensures other countries in the region can gain access."

The country continues to invest in new LNG import terminals and regasification capacity, and also in pipelines to move gas to industrial and residential users, he said.

On top of that, Japan has committed to net-zero carbon by 2050, and this has led JOGMEC and the companies with which it works to look for ways to reach carbon neutrality. "It's unrealistic that we can transform [away from fossil fuel use], so that's why we support wise use of fossil fuels and reduced emissions ... we will be paying more attention to carbon capture and storage," he said. JOGMEC supports carbon pricing to incentivize the use of this new technology.

Looking further down the road, Hosono said that he "has a high expectation that green hydrogen will be the backbone of green innovation," adding: "It's necessary to change way our way of thinking to use hydrogen in fossil fuels as the carrier of hydrogen."

Posted 01 March 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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