Portraits

FOCUS 74: Taking a proactive stance towards a more responsible Liquefied Natural Gas (LNG) industry

In an interview with Frédéric Barnaud, Group CEO of Pavilion Energy, he shares how the company wants to capitalise on goodwill and momentum around decarbonisation to foster the emergence of a reliable, homogeneous, and transparent carbon pricing mechanism and market.  

 

Natural gas makes up 95% of Singapore’s energy mix. Pavilion Energy, a branch of Temasek and one of two companies approved to import LNG into Singapore, is pioneering a movement towards sustainable LNG trading. The company is developing new standards to make the purchase of LNG carbon neutral. “Carbon neutral LNG will be requested by our customers and partners to help meet carbon neutrality targets and obligations such as carbon tax and caps,” says Barnaud.  

 

Southeast Asia’s growth in electricity demand, at an average of 6% per year, has been among the fastest in the world. The International Energy Agency (IEA) expects natural gas to represent around 40% of total energy demand growth over the next two decades (World Energy Outlook 2018, IEA). According to the Asian Development Bank (ADB), Southeast Asia recorded the fastest growth for carbon dioxide emissions in the world between 1990 and 2010. The increase in emissions in Southeast Asia is almost sprinting forward at the same rate as the economic growth. To stand by the Paris agreement, South East Asian countries will need to reverse their current trend of expanding coal-fired generation capacity and look at changing their energy mix for power generation.  

 

As a cleaner fossil fuel, natural gas is used for power generation and as a road and marine transportation fuel. It produces half the CO2 compared to coal and is a readily available source of competitive energy. Pavilion foresees “growth in the usage of natural gas and a massive reduction of GHG emissions mainly by displacing the still abundant coal that is being used, particularly in Asia.” While the sector is looking at renewable alternatives, it is still early days for solutions such as biomethane - produced by anaerobic digestion of organic matter such as food or animal waste. “Biogas lacks the economies of scale of traditional natural gas and is complex to transport as bio-LNG,” Barnaud remarks.  

 

For Barnaud, the alignment of all industry players is the cornerstone to help the energy industry embed sustainability. He stresses that “it is a priority for International Oil Companies (IOCs) and National Oil Companies (NOCs) to step-up the drive for improved “carbon efficiency”. Measuring emissions is the starting point. “There is little value in talking about offsetting when one does not know one’s specific footprint.”, he adds.  

 

With that intention, Pavilion has just signed a 10-year agreement with Qatar Petroleum Trading (QPT) who has agreed to jointly develop a methodology to quantify and report emissions for each cargo delivered under their agreement. “The GHG methodology marks the first step towards accurate and verifiable information regarding the GHG footprint of the complete energy value chain – from production, transport, and delivery of LNG to Pavilion Energy. The methodology needs to be accurate, verifiable based on international standards, transparent and with defensible data for each LNG cargo. The outcome will be a Statement of GHG Emissions or “SGE”, which should be issued on a per cargo basis via electronic means designed to complement existing trade documentation. “ 

 

Each organisation will be able to choose how they offset emissions, but Pavilion would like to encourage “consistency across regions and/or types of market players.” The company wants their methodology to be shared amongst industry players and to become the standards across the natural gas/LNG industry. “Anything less ambitious would be ridiculous when tackling climate change” says Barnaud. “Given that the methodology will be based upon international standards, this can potentially be used beyond the LNG industry itself, further down the supply chain, where fossil fuels generate most of the emissions, notably the generation of electricity and various industrial processes.”  

 

As Pavilion sees it, the statement of GHG emissions is the first step to enable a marketplace for carbon-trading. While some industries are covered by carbon-trading schemes enshrined in law, such as in the European Union, most of the world has no such government-backed markets. That leaves most emitters with only a handful of small, voluntary carbon offset markets launched over the last 15 years. In 2019, the entire voluntary market traded offsets for around 104 million tonnes of carbon dioxide equivalent (CO2e) as calculated by Ecosystem Marketplace. It is negligible when compared with the 33 billion tonnes of CO2e emitted by the energy sector alone in 2019. The fact that there is no rulebook agreed yet for a market mechanism for emission-trading has contributed to the lack of success. With the need to mitigate climate change across the globe, it is widely agreed that a carbon emission mechanism is needed to accelerate decarbonisation. Barnaud is optimistic: “The market is evolving fast. We are witnessing a significant acceleration of the goodwill and momentum to promote more global and interlinked carbon markets, thus enhancing the emergence of more reliable, homogeneous, and transparent carbon pricing mechanism and markets. We also see a push across the broader eco-system, ranging from technology advancements in exchanges/platforms, to increased investments in off-setting projects generating flow of offsets into the marketplace”.  

 

Article 6 of the 2015 Paris Agreement mentions the creation of a new international carbon market, governed by a United Nations body, for the trading of emissions reductions created anywhere in the world by the public or private sector. The text leaves details to a “rulebook” which was not agreed on in Paris – it was in fact the only unresolved area in the whole of the Paris Agreement. It manifests the competing interests and visions of parties to the negotiation table. Thankfully, the private sector is now more than determined to contribute to addressing the reduction of emissions. The Task Force on Scaling Voluntary Carbon Markets spearheaded by Mark Carney – the former governor of the Bank of England and now UN Special Envoy for Climate Action – was created in September 2020 with the goal of setting up a pilot market within the next 12 months. The initiative stresses the importance of high-quality carbon credits and the need for a liquid reference contract (e.g., spot and futures). “We actively promote such initiatives in Singapore and globally” says Barnaud who points out that efforts should be focused “on the tangibles such as addressing non-permanence, double counting, institutional/legal arrangements, additionality, robust determination, to name a few. “   

 

While governments still struggle to agree on principles, ambitious calls to action such as Pavilion’s pave the way for greater collaboration and faster implementation reviving hope for a decarbonised future.  

 

 

 

 

 

Interview with Frédéric Barnaud, Group CEO of Pavilion Energy, for FOCUS #74. To read more articles from this issue, download your digital copy here

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