Is LNG Bad for the Environment? Panel Experts Say Yes

Though International Energy Agency (IEA) findings and scientific evidence warn that liquefied natural gas (LNG) production, shipping and usage damages the environment, creates harmful greenhouse gas emissions and methane leakage across the entire gas value chain, the LNG sector seemingly isn’t listening.

In fact, the sector is building LNG infrastructure at an unprecedented rate, according to a group of experts at a Feb. 27 webinar on environmental and financial risks sponsored by the Institute for Energy Economics & Financial Analysis (IEEFA) and Solutions for our Climate (SFOC).

Three years into the post-energy crisis, the surge in the LNG infrastructure market threatens to lock in decades of carbon emissions undermining global climate commitments, the experts said.

Massive Expansion of LNG Export Terminals and Carriers

Worse yet, as countries race to secure energy security, a massive expansion of LNG carriers and floating terminals is silently enabling a new wave of fossil fuel dependence. This critical moment demands what webinar sponsors called “urgent attention from climate advocates and frontline communities, as these maritime assets become key enablers of stranded fossil assets worldwide”.

Rise of Liquefied Natural Gas (LNG) Portfolio Players

Christopher Doleman, an Asia LNG and gas specialist at the IEEFA, explained how the situation developed, pointing to the rise of so-called portfolio players in LNG markets. An LNG portfolio player is a company that buys the fuel from several LNG projects and resells it to customers. This includes LNG infrastructure companies that own assets in the sector, including shipping, storage and regasification facilities.

What Does This Mean for Shipping?

LNG carrier manufacturing tends to track export developments, and rises with the increase of portfolio players. Developments in propulsion, containment and reliquefication technology allow the flexibility to optimise the trading for portfolio players. Moreover, controlling shipping is the key to portfolio player margins and taking advantage of high LNG prices, Doleman explained.

The global LNG tanker fleet encompassed a total of 772 vessels at the end of 2023. This figure also includes floating storage units. This year, 94 new LNG carriers are scheduled to be delivered. There are even more LNG-fuelled ships in operation. The number doubled between 2021 and 2024 with a record number of deliveries, 169 in 2024. By the end of 2024, 641 LNG-powered ships were in operation.

LNG Carrier Carbon Emissions

The problem with LNG carriers is that they are emissions intensive. Over a 30-year lifespan, a single carrier contributes nearly 370 million tonnes of carbon dioxide (CO2) equivalent emissions. Moreover, the annual carbon footprint of LNG carriers currently under construction collectively reached 4.3 billion tonnes of CO2 equivalent per year, surpassing India’s annual carbon dioxide emissions, according to SFOC findings.

Thomas Houlie, climate and energy policy analyst at Climate Analytics, said that under the IEA 2023 net-zero emissions scenario, no new LNG carriers are needed. “New LNG shipping capacity growth is not compatible with a 1.5C world,” he said.

Methane Emissions Due to Leakage

Methane leakage is also a problem throughout the entire LNG carrier life cycle. With methane’s potent warming effect, even small methane leaks can negate any potential climate benefits of LNG over other fossil fuels. For instance, leaks as small as 3.5% of total gas volume can offset LNG’s CO2 advantages over coal in electricity generation over a 20-year timeframe.

Financing Quandary

Rachel Shin, energy supply chain lead at SFOC, explained how LNG carrier financing makes the problem worse. She said that South Korea, one of the largest LNG carrier builders in the world, uses public finance to build LNG carriers because it helps provide jobs for local economies and helps earn foreign currency.

“The role of public finance is central because banks face stricter capital requirements,” she said. However, this presents a quandary as it allows unregulated capital and private equity funds to enter the market.

LNG carrier manufacturing is also a cyclical business, meaning that there are a lot of orders when business is robust, but also problems when there is an oversupply. This in turn leads to public bailouts for the sector. “LNG carriers are ordered without [supply] contracts. This means it’s a speculative deal that gives power to portfolio and spot players,” she added.

Growth of the FSRU Sector

The growth of floating storage regasification units (FSRU) are also complicating a needed pivot away from LNG production and usage. Panel experts agreed that many see FSRU development as a “quick fix” to help a country import LNG faster and cheaper when compared to building a traditional land-based LNG import terminal.

For example, the Philippines recently received an LNG cargo at its FSRU-based terminal in Batangas Province, some 100 km south of Manila.  Last April, Indonesia also took in its first LNG cargo at a Mitsui O.S.K. Lines (MOL) FSRU-based terminal in West Java. MOL operates the world’s largest fleet of LNG carriers and will expand its fleet by 40% to 140 units by 2028.

Japan, for its part, continues to heavily invest in LNG infrastructure in Southeast Asia. The country’s gas utilities and energy companies also resell the fuel in the region as a major secondary trader, locking in fossil-fuel dependence for developing countries.

South and Southeast Asia represent the largest potential growth markets for LNG in the coming decades. There are currently 51 FSRUs in operation globally.

Local Environmental Impact

The impact of LNG development, moreover, is being felt on local coastal communities, not just represented in global statistics, said James Hiatt, executive director of For a Better Bayou. He also pointed to the problem of public financing for LNG projects along the US Gulf Coast and the damage caused by large LNG carriers to the area’s rivers and wetlands. He pointed to a study that highlights the dangers of fracked natural gas and calls for a stop to more LNG project approvals, financing and development. For a clean energy future, the world should invest in renewable energy development.