Finally, Larry Fink has recognized the flaw in his aggressive ESG rhetoric. Maybe he knew this all along, but it is good to see him step into the debate in favor of not crippling the fossil fuel industry by denying it access to capital and investors too quickly. However, that boat may have sailed, with investors like Engine No. 1 feeling empowered by their win over ExxonMobil and raising more money as a consequence. We have covered this subject at length in our ESG and climate weekly this week: Big Oil’s Big Problem – Hard To Find A Favorable Scenario – maybe Larry read it!
Source: Natural Gas Intelligence, US DOE, June 2021
The more interesting story today comes from the exhibit above, which shows the volume of US LNG moving to Europe and how it is increasing. This is partly need-driven, as parts of Europe are short of natural gas, but there is an opportunistic element to it as well as the related article suggests. The substitution of LNG for coal in power plants in Europe has a meaningful impact on the carbon footprint of the power generated and this is especially important in the light of tighter carbon limits and the much higher carbon credit price in Europe. If increasing LNG at the expense of coal can bring a power producer below its cap, the company saves the €50 per ton carbon cost – which makes the LNG purchase much more attractive. The European system, however, does not give credit for low carbon LNG – i.e. LNG where the CO2 has been captured in the liquefaction process and where the shipping is carbon-free. The European system measures the carbon emitted by the power stations only. Where the low carbon LNG argument will come into play is with incremental US capacity and incremental European contracts – sellers might not get paid for it, but they might not get the business without it.