US LNG sees methane emissions warning in delayed deal with French Engie

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The decision of the French company Engie SA to postpone a possible long-term supply agreement with the US LNG developer NextDecade Corp. alarmed industry officials who saw it as a sign that U.S. supplies could be suffering from concerns over methane emissions.

Engie, who is partly government-owned, told S&P Global Platts on Oct. 22 that its board of directors has decided the utility needs “more time” to review the project pending “further studies” . But the public service’s comments followed a report published earlier this month by French outlet La Lettre A that Engie had delayed the deal at the request of the French Ministry of Economy and Finance, due to concerns about methane emissions. It was also the main asset of American industry.

The Center for Liquefied Natural Gas trading group described the scuttled deal as a consequence of the European Union’s decision to tighten its methane emissions regulations at a time when the United States is pushing to cut its own.

“There were bound to be unintended negative consequences as a result of this,” Charlie Riedl, executive director of the business group, said in an interview. “It was difficult to suggest that this was going to be the case without a concrete example. And now we have one. “

Methane, the main component of natural gas, is a potent greenhouse gas and the second largest contributor to climate change behind carbon dioxide. Experts and industry officials have highlighted the need to reduce methane emissions from the natural gas supply chain as a major challenge for US LNG.

The French government’s intervention to delay the deal was likely motivated at least in part by trade tensions, analysts at Height Capital Markets said. The Trump administration is in dispute with France over its taxes on big tech companies and has threatened a 25% retaliatory tariff on imports of French luxury goods.

“The climate is clearly a key driver, but perhaps the business environment is just as important given the relationship between France and the United States at this point,” said Josh Price, senior analyst at Height, in a statement. interview. “I wouldn’t necessarily call this a harbinger. I don’t see a short-term scenario in which the EU closes access to its markets for US producers and exporters, particularly if Biden wins, with his pledges to implement stricter methane regulations and pass a more climate-focused approach to trade. ”

LNG is a central part of the Trump administration’s energy diplomacy and would make sense as a target for France in the trade dispute, said Clayton Allen, senior vice president at Height with a focus on trade and geopolitics, in an interview.

“It has become very evident that the Trump administration is dealing with realpolitik, and it has become advantageous for countries to respond in kind,” Allen said.

Environmental group Les Amis de la Terre France, which was pressuring the French government to abandon the agreement, told Platts that the ministry had not taken an official position to oppose the project and that the Engie’s board might reconsider it. The French ministry declined to comment.

The LNG trading group, however, considered controlling methane emissions the main factor behind the delay.

“We’ve been saying for some time that an apple-to-apple comparison of natural gas sources is going to be essential for all of us in order to continue to advocate for US LNG,” said Riedl. “The fact that we see a deal now being delayed due to real or perceived concerns about US mining methods is something that obviously needs to be dealt with and dealt with fairly quickly. “

The EU released a methane strategy on October 14 that included the possibility of setting binding minimum standards for imported fossil gas in the economic bloc, which has been a key outlet for US LNG. The methane strategy did not go as far as some experts had anticipated, for example by setting sustainability performance standards for imported fuels.

NextDecade has touted measures in recent months to reduce the environmental impacts of its project, the Rio Grande LNG Export Terminal Project in Brownsville, Texas. In July, the developer announced plans to ditch a sixth train at Rio Grande LNG, saying it could reach the same total production capacity of 27 million tonnes of LNG per year with five trains.

Earlier this month, NextDecade said it would further revamp the project with the goal of achieving carbon neutrality. These plans involve the use of carbon capture and storage technologies to reduce the facility’s greenhouse gas emissions by 90%.

NextDecade declined to discuss Engie in particular, citing a policy against discussing the ongoing trade negotiations. Patrick Hughes, senior vice president of strategy and business development for the company, said in an Oct. 22 statement that the company was in talks with “a significant number of potential customers.”

“Our LNG customers in Europe and around the world are keenly aware of the long-term benefits of purchasing reliable and clean US natural gas,” said Hughes. “NextDecade is proud of its leadership in environmental and social performance, which corresponds to the objectives of many of our customers in the context of the global energy transition. We recently announced that we are aiming for carbon neutrality at Rio Grande LNG, and our work to date confirms that reliable and competitively priced LNG and responsible stewardship of the environment are not mutually exclusive. “

NextDecade is one of many developers of LNG export projects in the United States forced to postpone its goal of making a final investment decision until 2021 amid market uncertainty induced by the coronavirus pandemic . Developers have struggled to sign long-term supply agreements sufficient to secure funding for their multibillion-dollar projects. So far, NextDecade has entered into a 20 year supply agreement with Royal Dutch Shell PLC for 2 Mt / year of LNG. The company said it had to sell an additional 9 Mt / yr under long-term contracts to commercially sanction two or three trains to Rio Grande LNG.

Some market watchers have said that US gas should compare well in emissions terms to alternative supplies to the EU, such as gas piped from Russia, but development in France has created a greater uncertainty as to whether further negotiations between US suppliers and European consumers could fail in the short term over environmental concerns.

“If this happened again in the not-so-distant future, it wouldn’t surprise me,” Riedl said. “Gas not subject to further scrutiny in the future, especially in the EU, seems rather unlikely. “

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.

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