Royal Dutch Shell plc said Monday that it has signed the world’s first term contract to supply carbon-neutral liquefied natural gas (LNG) to a PetroChina Co. Ltd. subsidiary. 

Shell Update

Shell said it signed a five-year agreement with PetroChina International Co. Ltd. (PCI). It did not say how much carbon-neutral LNG would be supplied or when the agreement would begin. But Shell said it would work with PCI to offset carbon dioxide equivalent (CO2e) emissions from each cargo across the LNG value chain using carbon credits from nature-based projects.

[Want to know how global LNG demand impacts North American fundamentals? To find out, subscribe to LNG Insight.]

Shell said nature-based projects, such as those in the forestry or agriculture sectors, protect, transform or restore land to add oxygen and absorb more carbon dioxide emissions from the atmosphere. Each carbon credit is subject to a third-party verification process and represents the removal of one metric ton of CO2e emissions.

The term contract was signed after PCI received its first carbon-neutral cargo from Shell at the Dalian port in China. The cargo was offset with carbon credits from Shell’s portfolio of emissions reduction projects across the world. 

Shell, the world’s largest LNG trader, signed the industry’s first deals to sell carbon-neutral cargoes in 2019 to buyers in South Korea and Japan. Since then, it has worked with producers and buyers across the globe to arrange 13 other carbon-neutral cargoes.

The company’s deal with PetroChina, China’s largest oil and gas producer and distributor, “is an important step in scaling up the market for carbon-neutral LNG,” said Steve Hill, executive vice president of Shell Energy.

Other major portfolio players, LNG producers and traders have announced similar deals to deliver carbon-neutral LNG, track emissions related to each cargo or provide carbon offsets for each delivery. As agreements increase, however, a push is underway to standardize what exactly constitutes a carbon-neutral cargo. 

Shell’s five-year deal also comes as the global gas market has tightened, with demand outpacing supply. Buyers are signing more longer-term contracts to secure supplies. 

Qatar Petroleum said Monday that it has signed a 20-year sale and purchase agreement with Korea Gas Corp. to provide two million tons (Mt) of LNG annually starting in 2025. The deal follows another 15-year agreement QP announced last week to supply Taiwan’s  CPC Corp. with 1.25 Mt annually beginning in 2022. QP has announced four other supply deals since the beginning of the year as it looks to solidify its grip on the LNG trade and support its own production expansion plans. New Fortress Energy Inc. also said last week that it has secured enough LNG to supply its import terminals and power generation facilities in the Carribean, Central America and Mexico through 2027. BP plc also agreed last week to supply city gas distributor Guangzhou Gas Group Co. Ltd. in China with 650,000 tons of LNG annually from 2022-2034.