Texas LNG buildout rests on unproven CCS claims

This is the second part of a deep dive into the climate and health implications of LNG development in the U.S state of Texas. Read the first here.

(Port Isabel, Texas) The global rush to build new LNG terminals in response to the war in Ukraine risks pushing climate targets out of reach. But Texas LNG – and developers elsewhere – are making lofty promises about deploying carbon capture and sequestration (CCS) to offset some of the additional emissions. The only problem is that CCS is technically complex, expensive, and does not really exist as a viable technology, at least not in the way promised by LNG exporters.

Nowhere is this more apparent than in Brownsville, Texas, which sits on the Gulf Coast at the U.S.-Mexico border. While poorer than the national average, the region is blessed with beaches, wildlife and a thriving tourist economy. But two proposed LNG projects are on the verge of drastically changing the character of the south Texas coast, bringing pipelines and gas export terminals to an area that, unlike much of the rest of the Texas and Louisiana coastline, has thus far avoided the fallout from polluting industries.

The flagship project, Rio Grande LNG, would be a colossal project with the capacity to export 27 million tonnes of LNG per year, making it one of the largest LNG facilities in North America. During normal operations, the terminal will emit more than 8 million tonnes of CO2 equivalent per year, along with an array of hazardous air pollutants, volatile organic compounds, carbon monoxide, and nitrogen oxide. If and when it comes online, it will be the largest polluter in the Rio Grande Valley.

However, NextDecade, the project’s sponsor, is marketing Rio Grande LNG as a new climate-friendly gas export terminal, one that deserves a future in a carbon-constrained world.

In 2020, Rio Grande LNG suffered a major blow when French energy company Engie backed out of negotiations with NextDecade over long-term commitments to buy LNG from the facility. While Engie did not offer an official explanation for doing so, reporting at the time suggested that the French government, which owns roughly 24 percent of the company, pressured Engie to abandon or delay the deal over concerns about the abysmal environmental record of gas produced in Texas.

Rampant flaring and methane leaks in the Permian basin in West Texas have tarred the industry’s reputation, and the decision by Engie to back away from Rio Grande LNG sent a message to drillers and gas exporters across the country that fracked American gas may be too dirty for some buyers.

NextDecade heard that message loud and clear. In March 2021, it announced an overhaul to its project, proposing a carbon capture and sequestration concept at its Rio Grande LNG complex, one that would capture 90 percent of the emissions from its operations. And a month later, it announced a pilot project with Project Canary, a third-party data firm, to “certify” that the gas sourced for the LNG terminal would come from “responsible” producers.

Rio Grande LNG asserts that it will use CCS to capture 5 million metric tonnes of CO2 per year, which it says will result in the “world’s greenest LNG.” These promises are an effort to assuage the concerns of buyers worried about the climate impact of American fracked gas.

The sales pitch worked. In May 2022, Engie was back on board, inking a 15-year sales and purchase agreement to buy gas from Rio Grande LNG. The CCS and “responsibly sourced gas” were explicitly cited in the announcement.

Problems with CCS and “responsible” gas

But there is ample evidence that both initiatives are riddled with problems.

The track record for CCS is poor. A September 2022 analysis of CCS projects around the world by the Institute for Energy Economics and Financial Analysis found that most are failing, not capturing the CO2 as promised, or are suffering dramatic cost overruns.

“Despite generous funding and numerous incentives to push the technology in this sector…it has shown a disappointing track record of failures, with a majority of the proposed CCS/CCUS capacity failing at the implementation stage or getting suspended early,” the IEEFA report concluded. Many projects encounter technical challenges, and as a result, “the 90% emission reduction target generally claimed by the industry has been unreachable in practice,” the report found.

To the extent that CCS works, most CO2 that is captured around the world is reinjected into oil and gas reservoirs in order to increase production. This process, called enhanced oil recovery, results in more extraction and higher emissions.

Rio Grande LNG itself offers some fine print on its CCS proposal. In an August 2022 filing with the Federal Energy Regulatory Commission (FERC), Rio Grande LNG referred to its CCS project as a “voluntary undertaking,” and admitted that completion of the project may not be rock solid. It stated:

“[I]t is possible that the CCS System Project may not operate at all times. It is also possible that RGLNG may not be able to move forward with the CCS System Project for any number of reasons.”

The reasons it gave are the “willingness of LNG customers to pay for the additional cost of lower carbon intensive LNG, RGLNG’s ability to realize tax incentives to help defray the costs, the ability to obtain all of the required Federal and State approvals and permits including a permit from the U.S. Environmental Protection Agency for a Class VI underground injection well and the ability to obtain financing for the CCS System Project.”

As of late January, NextDecade had not even chosen a location to site its CCS project. “They haven’t selected an injection well, which, I think calls into question the seriousness of the proposal,” Jennifer Richards, a staff attorney with Texas RioGrande Legal Aid, a non-profit that has represented two different groups in litigation against Rio Grande LNG, told Gas Outlook.

The costs are also unclear. In an investor presentation from August 2022, NextDecade says that it is still reviewing the costs of its CCS concept, and that inflationary pressures are driving up the price tag. But some of those costs will be offset by more generous CCS subsidies included in the Inflation Reduction Act, the landmark climate legislation signed into law last year by President Biden. The so-called 45Q tax incentive offers companies $85 per metric tonne of CO2 captured, up from $50 per tonne previously. A year earlier, a separate infrastructure law funneled $12 billion into CCS. So, while the signature climate laws of the Biden administration will help build out enormous volumes of renewable energy in the coming years, they also seem to be providing some momentum to LNG export projects with questionable claims about carbon capture and sequestration.

In addition, NextDecade also wants to sell carbon credits for the CO2 that it captures, using the proceeds to build its facility.

Meanwhile, the other part of NextDecade’s promise to its buyers — to only liquefy gas from “responsible” drillers — also raises questions.

“NextDecade is committed to working with sustainable producers seeking to supply responsibly sourced natural gas to Rio Grande LNG,” Matt Schatzman, NextDecade’s CEO, said in a 2021 statement when announcing its pilot project with third-party certification firm Project Canary. “Project Canary’s independent measurement and certification platform will provide transparency and give confidence to our customers who are increasingly focused on securing low greenhouse gas-intensive LNG.

Loopholes in green certification schemes

But a recent investigation from Canary Media (which has no relation to Project Canary) finds that certification schemes for “responsible” or “green” gas vary in their criteria, and leave too many loopholes for energy companies to exploit. For instance, certification programs can be “gamed” — at times drillers can choose which wells to be assessed for certification and which to exclude, in order to present a favourable greenhouse gas calculation to a buyer.

In any event, in order to reach global climate targets, gas production and consumption needs to decline in the coming years. Even if Rio Grande LNG and other gas exporters manage to buy gas only from drillers with minimal methane leaks, at the end of the day, burning gas still results in planet-warming CO2 pumped into the atmosphere.

“At best, [responsibly-sourced gas] is to regular gas as low-tar cigarettes are to regular smokes: marginally less dangerous but no one’s idea of a healthy choice for the long term,” the Seattle-based Sightline Institute, a think tank, said in an analysis last year.

In addition, Rio Grande LNG’s CCS pledge would only cover the liquefaction process itself — limited to the emissions on site — which only accounts for 6 to 10 percent of the lifecycle emissions from LNG. More than half of the emissions occur when the gas is burned overseas.

“If you’re lucky, you’re capturing 60 percent of that 7 percent, or whatever it is — that small amount of gas that gets consumed in the liquefaction process,” Clark Williams-Derry, a financial analyst at IEEFA, told Gas Outlook, referring to the technical challenges of successfully capturing the 90 percent of CO2 as promised, which itself would only cover a small portion of the global carbon footprint of gas that Rio Grande LNG promises to offset.

“You’re not dealing with the upstream leaks, the craziness that’s happening in the Permian. You’re not dealing with the downstream leaks. You’re not dealing with any of that stuff. You’re not dealing with the combustion of the LNG itself,” Williams-Derry said.

He added Rio Grande LNG’s CCS concept is “hyper speculative” because it is both costly and unproven.

“You can’t find an industrial scale, gas fired power plant, carbon capture project. It doesn’t exist,” he said. “And so, they have no idea what the cost is going to be.”

He said that Rio Grande LNG has a few other issues that add some financial risk. Rio Grande LNG has to build a fresh pipeline — the Rio Bravo pipeline — to carry Eagle Ford and Permian gas to the southern coast of Texas. That makes it a bit less competitive than other projects, such as other proposed terminals further up the Gulf Coast in Port Arthur, Texas and southwest Louisiana, where there is extensive oil and gas infrastructure. Rio Grande LNG’s pipeline needs to be permitted and constructed. Once online, if pipeline flows are disrupted for some reason, that exposes the export terminal to additional complications because it only has one way of securing gas supplies. This may add “some nervousness” for lenders to the project, especially compared to other LNG proposals elsewhere, Williams-Derry said.

NextDecade did not respond to questions from Gas Outlook.

The banks behind LNG

NextDecade has signed several so-called sales and purchase agreements (SPAs) in recent months, securing multiple buyers as they get close enough to greenlight the billions of dollars’ worth of investment needed to move forward with the project. In December, China’s ENN Natural Gas inked a 20-year deal for 0.5 million tonnes per year and Portugal’s Galp signed for 1 million tonnes annually. In January, Japanese firm Itochu agreed to a 15-year deal, also for 1 million tonnes.

NextDecade is reportedly close to securing a much larger deal with France’s TotalEnergies for 4 million tonnes, large enough to allow NextDecade to make its final investment decision, which it has said could come within the coming weeks. TotalEnergies did not respond to questions from Gas Outlook.

Part of the campaign to stop Rio Grande LNG by community groups and activists in Brownsville has been to target the international banks that are supporting the gas export project.

Emma Guevara, a Brownsville resident and organizer with the Sierra Club, said that they have had some success convincing European banks to abandon the project, as Gas Outlook has previously reported. By making connections with activists in Ireland opposing an LNG import terminal, communities on both sides of the Atlantic were able to convince the Port of Cork in Ireland to back out of a deal with Rio Grande LNG in 2021. In addition, banks based in Europe, such as BNP Paribas and La Banque Postale, have also withdrawn support.

But the work is not done, and Guevara said it has not been easy getting their message across to the remaining financial backers behind Rio Grande LNG. “It’s really hard to get Europeans to understand the United States, let alone one of the most marginalized parts of the United States. So that’s been really difficult,” she told Gas Outlook. “It’s a slow process, trying to get them to believe us. We’re like, ‘you know we don’t even have healthcare here, right?’ And they’re like, ‘what?’” she said, illustrating the cultural chasm between major European financial institutions and life in Brownsville.

Opponents of Rio Grande LNG are calling on Credit Suisse, Société Générale, and Australia-based Macquarie to cut ties with the project.

Juan Mancias, the chairman of the Carrizo Comecrudo tribe, also blasted the banks for playing a role in ongoing exploitation of lands that had been occupied by Indigenous peoples for millennia.

“It’s not right that the bankers that are involved here like Société Générale, Credit Suisse, and Macquarie, think that they are not doing anything wrong. Why are they absolving themselves from this?” he told Gas Outlook.

Gas Outlook sent a list of questions to all three banks. Credit Suisse declined to comment, and Macquarie, which has played an advisory role to Rio Grande LNG, also declined to comment. Société Générale did not respond.

In addition, given Engie’s high-profile role in breaking off negotiations with Rio Grande LNG in 2020 and then returning and signing an agreement in 2022, Gas Outlook reached out with several questions, including whether Engie would still participate in buying LNG from the terminal if the carbon capture project failed. Both Engie and the French government’s Ministry of the Economy, Finance and Recovery did not respond.

But opponents are not giving up.

“We’re still working on them. They are a hard nut to crack, the Europeans,” Guevara said. “But we’ve done it before.”