LNG can displace coal power abroad but will need to be replaced in the long run
A commonly heard claim from oil and gas boosters is that Canada should export more liquefied natural gas (LNG) as a climate solution by replacing coal as a source of power generation in other countries.
The Government of Alberta's own Canadian Energy Centre, the so-called war room, points to LNG as a tool for emissions reductions, going as far as to state that "growing Canadian LNG exports is necessary if the world is to meet its Paris commitments of keeping global warming well below 2 degrees Celsius."
These claims are at best misleading.
Under the right conditions, additional LNG can reduce power sector emissions but only if there is sufficient existing coal-based generation to substitute. Otherwise, the new supply of natural gas ends up displacing lower-emitting sources such as renewables or nuclear.
This makes LNG only a short-term opportunity. By the 2030s, additional LNG becomes a problem for a world that is cutting emissions to meet its climate goals. It would either create stranded assets out of costly new LNG export terminals or lock in emission growth that takes us in the wrong direction on climate change.
In other words, investing in new LNG infrastructure means either committing to carbon emissions or putting in a lot of money only to abandon infrastructure before its designed lifetime.
LNG's emissions impact
In our recently published research, we test these claims by asking: Under what conditions does using LNG to switch from coal to gas in the electricity sector help reduce global greenhouse gas emissions?
The question is critical for Canada, where 24 LNG projects have been issued long-term export licences, a subset of which may proceed. Export terminals require significant infrastructure development, including controversial gas pipelines and federal and provincial subsidies.
For LNG to reduce emissions, two conditions must be satisfied: 1) methane leakage along the natural gas supply chain is low, a challenge as recent measurements indicate methane emissions in Canada are higher than previously estimated, and 2) LNG displaces coal-based electricity generation rather than other lower-emitting sources of electricity such as renewable energy.
LNG can help in the near-term. There is significant coal-based generation remaining in the world today that could be substituted by natural gas. However, in a 1.5-degree or 2-degree compatible world — as is called for under the Paris agreement — all coal-based generation would be replaced by natural gas or renewables by 2030 or 2038, making the coal-to-gas transition argument moot.
To remain on a Paris-compliant pathway, the world would need to replace these natural gas plants with lower-emitting generation. This effectively creates an expiry date for the use of LNG as a climate solution.
Even this best-case scenario ignores serious infrastructure challenges. For example, places that would benefit the most from a coal-to-gas transition — like India with its large fleet of young coal power plants — are also the places most likely to not have the physical infrastructure such as pipelines to support a shift to gas.
Whether a coal-to-gas transition is desirable or even feasible in such scenarios depends on the cost of building out these new pipelines and the risk of locking in future emissions by doing so. In theory, LNG could substitute for other uses of coal in heating or industrial applications, but with the same types of constraints around substitution.
What is clear is that planned LNG growth is not compatible with a Paris target climate solution for the electricity sector.
However, in a 3-degree "business as usual" scenario, where the world fails to deploy the additional renewable energy required, LNG can continue to help displace coal-fired generation.
Climate insurance, not climate solution
Growing the global LNG supply to displace coal-fired generation is, at best, a short-term solution to quickly draw down coal use in the power sector. In reality, LNG expansion is best understood as an insurance against a world that fails to act on climate, and any efforts to develop LNG should take this into account.
That could mean, for example, building business cases that plan for shorter operational lifespans for LNG export terminals and granting operating permits that impose strict retirement dates. Or governments could play a more active role and structure the economics of a project as an insurance policy, with near-term profits held to pay for early retirement.
Failure to do so risks turning LNG into another climate problem.
As for Canada's priorities, while individual companies may be limited in their ability to influence global deployment of renewable energy, Canadian government efforts to support global climate action may be better focused on enabling zero-carbon technology deployment than directly supporting LNG expansion.
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