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World Observer

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The development of ‘carbon-neutral’ hydrocarbons

ByJerzy Nawrocki

Oct 15, 2021

Energy buyers are paying top dollar for natural gas cargoes that are packaged with carbon offsets and labeled as “carbon neutral,” part of a rising trend that market players hope will boost their green credentials, but critics say is a scam. Since 2019, almost 30 LNG offset agreements have been reached, with BP, Total, and Gazprom among the firms that have sold cargoes. According to S&P statistics, the cost of purchasing enough carbon offsets to support the emissions from production, transportation, and usage of one LNG cargo increased from $1.1 million in July to $1.8 million in September as the offset prices soared.

“Those expenses are recognized in the trading world,” stated Geir Robinson, who is the co-founder of the Climate Neutral Commodity and former BP senior risk officer of the integrated supply and trading. “For a couple of cents, the traders are going to nickel and dime.”

The energy industry is under increasing pressure to shift to more environmentally friendly business models and wipe out fossil fuels. Many businesses are attempting to make polluting operations more appealing by combining them with carbon offsets or carbon capture. However, some argue that this will prolong the usage of fossil fuels and delay the transition to cleaner alternatives.

Each offset, which is generated through projects such as tree planting, is designed to symbolize a tonne of the carbon which has been removed or avoided from the atmosphere permanently. The fledgling practice of combining them with LNG cargoes occurs amid growing skepticism about natural gas’s role in the energy revolution — despite emitting fewer greenhouse gases than coal or oil, it is still a carbon-intensive fuel.

As per Ciaran Roe, who serves as the global director in charge of the LNG pricing at the S&P Global Platts, while LNG was formerly considered “the future of hydrocarbons,” that has changed dramatically in the last 18 months. He claimed that the business was “playing catch-up,” which included fuel offsets.

A gas shortage has pushed up LNG prices in recent weeks, with the price of cargo to Asia climbing from $51 million at the close of July to $110 million at the close of September, according to S&P statistics. According to S&P, which analyzes the cost of credits purchased to compensate for the cargoes on the world’s busiest LNG trade route, that is between North Asia and Australia, compensating shipments has also become costlier per unit of fuel.

Carbon offset shipments are seen as a kind of greenwashing by environmentalists. As per Gilles Dufrasne of the Carbon Market Watch, the industry is “selling this as a lifeline for numerous fossil fuel businesses whose business models are endangered.” He believes that businesses should decrease their emissions as often as feasible before relying on offsets to make up for any pollution that remains.

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