Wooden Mackenzie: International LNG market may break up if an EU carbon tax is imposed on imports

The EU has prolonged its Emission Buying and selling Scheme (ETS) to transport, that means that LNG cargoes into Europe will likely be topic to a carbon tax from 2024. The report, titled ‘Name of duties: How emission taxes on imports may rework the worldwide LNG market’ concludes that if the buying and selling bloc goes additional and tightens it methane regulation or contains LNG in its Carbon Border Adjustment Mechanism (CBAM) – successfully inserting an import responsibility on LNG at prevailing ETS carbon costs – then Wooden Mackenzie predicts that the worldwide LNG market would break up.

“If the EU decides to use these levies, then this may push European gasoline costs up but additionally bifurcate the worldwide LNG market, making a two-tier LNG market,” stated Massimo Di Odoardo, Vice President of Gasoline & LNG Analysis at Wooden Mackenzie. “If taxes have been restricted to the EU, and even prolonged to Japan and South Korea, commerce flows would probably be optimised elsewhere to mitigate the impression.”

LNG emissions underneath the microscope

The report states that the environmental credentials of LNG are underneath growing scrutiny. Regardless of emitting about half the carbon dioxide (CO2) of coal when combusted, the LNG worth chain stays extremely carbon intensive and affected by methane losses.

Nevertheless, it provides that whereas LNG gamers are actively working to scale back the greenhouse gasoline (GHG) footprint of their initiatives, the reluctance from consumers to pay a premium for lower-emission LNG has thus far curbed sellers’ urge for food to decide to main funding to scale back carbon depth.

US LNG one among worst performers

The report provides that not all LNG initiatives are equal. Measured in kilograms of carbon dioxide equal (kg CO₂e), methane accounts for five – 15% of general carbon depth in LNG initiatives exterior the US. However for LNG initiatives within the US, methane can account for as a lot as 25 – 40%. This largely because of larger ranges of methane losses brought on by intensive use of pneumatic units and compressors related to shale gasoline manufacturing.

“With a variety of 800 – 1400 kg CO₂e/t of LNG, the US has among the world’s highest-emitting initiatives, with upstream reservoir kind and pipeline distance to LNG vegetation including to their excessive methane depth,” Di Odoardo added.

He provides that’s initiatives with the bottom carbon emissions will acquire from an import tax on emissions and concentrating on premium markets will increase buying and selling profitability. Nevertheless, proximity to premium markets will likely be key, with Qatar and Mozambique requiring excessive carbon costs to be lured away from proximate markets in rising Asia, that are unlikely to introduce an import tax on emissions.

Excessive carbon taxes wanted to decarbonise LNG

The report‘s evaluation concludes {that a} tax on methane emissions of US$2800/t (t/CH₄), equal to US$100/t CO₂e, will likely be efficient in attaining its objective. Methane discount stays the low-hanging fruit in emissions, with progress being made in numerous nations, supported by tightening home methane rules.

Di Odoardo stated, “A methane import tax will assist present further financial incentives whereas limiting LNG worth upside. On this state of affairs, exporting nations will even be inspired to introduce home levies and retain taxed revenues.”

Nevertheless, Wooden Mackenzie concludes that relating to general carbon emissions, taxes imposed solely in Europe won’t obtain the required objective of huge scale decarbonisation of LNG initiatives globally and a bifurcate LNG market can be as an alternative the most definitely final result.

“If there’s to be any materials impression, a carbon worth nearer to US$200/t CO₂e will likely be required for LNG imports,” concluded Di Odoardo. “Moreover, this must be launched on a world degree for it to be really efficient in decreasing carbon depth and that’s unlikely to occur. For now, all eyes will likely be on Europe to see what it does subsequent.”

Learn the article on-line at: https://www.lngindustry.com/liquid-natural-gas/28032024/wood-mackenzie-global-lng-market-could-split-if-an-eu-carbon-tax-is-imposed-on-imports/