Investors weigh ESG issues in making new LNG bet

3/24/2021

Investors are increasingly considering environmental, social and governance (ESG) factors before committing to invest in new LNG projects, analysts at S&P Global Platts and S&P Global Ratings said.

The net-zero LNG trade, which typically involves companies offsetting emissions, is expected to grow as the discussion on the energy transition to a carbon-neutral world gathers pace, they said. Net-zero trade arrived as a fledgling market to a 360 million tonnes LNG industry.

"It is almost surprising the prominence that ESG considerations have started to take in conversations", lead analyst in the Energy Infrastructure Group of S&P Global Ratings Stephen Goltz said during a press briefing.

"It is not something that is just sitting with counterparties. To a certain degree it is also being influenced by the investment community as well," he said.

The comments come as governments and companies start to take action to reduce the LNG's industry carbon footprint.

Earlier this month, Russian energy giant Gazprom PAO delivered its first carbon-neutral shipment of LNG to Europe.

Cheniere Energy Inc, the largest U.S. LNG producer, said in February it will provide greenhouse gas emissions data associated with each cargo to customers beginning in 2022.

While LNG can produce about 50% less emissions than carbon intense fuels such as coal, the demand destruction during the coronavirus pandemic has encouraged a shift from fossil fuels straight to renewables by some players.

Last October, the French government asked power group Engie to hold off on signing a multi-billion dollar U.S. LNG import contract on concerns over the environmental implications of the deal.

One month later, Danish shipping company AP Moller-Maersk A/S ruled out LNG investments, saying it will move straight to a CO2-neutral type of fuel.

Some counterparties are stepping back from new projects as the role of LNG in the energy transition is reviewed. It is unlikely that all LNG projects that got permits will get off the ground, S&P Global Ratings' Goltz said.

"It's unclear to them how the market will look like in 20 years from now", he said.

(Reporting by Sabrina Valle in Rio de Janeiro; additional reporting by Scott DiSavino in New York; Editing by David Gregorio)