The future of LNG in a low-carbon economy

This content was originally published by LNG Industry.

LNG (liquified natural gas) has become a vital part of the global energy mix, and its use is expected to increase significantly in the coming years. It is predicted that the demand for this lower-carbon alternative will soar by around 60 percent by 2040 to between 630 million and 718 million metric tons (Mt) per year. Given its rising popularity as a transition fuel, LNG is also attracting investment from some of the biggest players in the market.

This rising demand for LNG is expected to be driven by increasing demand in developing countries, the growing impact of AI on energy consumption, and most importantly, the shift toward lower-carbon fuel sources to reduce emissions.

LNG is considered a ‘bridge fuel’ between cleaner renewable energy and coal, producing around 40 percent less CO₂ than coal. However, LNG still emits greenhouse gases along the value chain. The expansion of LNG usage without a further reduction of its carbon footprint may cause climate targets to slip out of reach. This is where technology comes in. Carbon capture and storage (CCS) technology is experiencing a renaissance and can help LNG to become a reliable, longer-term energy source in a low-carbon economy. However, there are numerous obstacles – economic, operational, and political –- that must be overcome.

CCS projects focus on reducing carbon during various stages of the natural gas value chain to make it a viable energy source for a low-carbon economy. It involves using technology to capture CO₂ emissions from LNG production, processing, liquefaction, and regasification before they can reach the atmosphere and negatively affect climate change. Instead of being released into the atmosphere, the CO₂ from production is injected underground or reused.

Carbon capture and storage technology has been around for many decades, having first been in operation in the US in 1972. It has been predominantly used in the oil and gas industry to remove excess carbon from natural gas so that it can be liquefied, and to provide carbon for the enhanced oil recovery (EOR) process that aims to extract less accessible oil from mature wells. CCS projects are capital-intensive and volatile regarding efficiency factors. It is thus not surprising that, in 2024, only 50 facilities were operational, with most attached to oil or natural gas processing plants.

However, after years of slow advancement, CCS is receiving significant attention and raising hopes. New technology advancements promise higher efficiency rates of up to 90 percent – even 100 percent seems possible – and investment costs have dropped substantially. Furthermore, the emphasis has transitioned from CCS serving as an enabling technology for the oil and gas sector to actively contributing to carbon reduction efforts in fossil-fuelled power generation and heavy industry.

While the number of operational facilities and those under construction worldwide remained below 100 in 2024, the Global CCS Institute notes a pipeline of 534 additional CCS facilities at various stages of development around the world. This is an increase in the pipeline of more than 60 percent from the previous year.

The US is at the forefront of deploying carbon capture and storage projects, with hundreds of such plans in the works across the country. An example is the Petra Nova project in Texas that aims to capture 1.4 million tons of CO₂ annually reducing emissions of CO₂ by around 90 percent.

The challenge: more gas, more emissions

Despite the growing momentum, CCS technology faces major challenges. In the absence of clear political targets and supportive regimes, the success of CCS projects remains closely tied to the price of emission certificates. If large emitters can offset their emissions cheaply through various emission trading schemes, the incentive to invest in CCS diminishes.

In this regard, the LNG sector’s expansion has brought unintended consequences, especially in Europe. Previously high gas prices caused fuel switching to coal and higher CO₂ prices. Additional LNG supply not only lowered gas prices, but also reduced emission prices due to less carbon being emitted. The expansion of LNG facilities, especially from 2026 onwards, is poised to send LNG markets into oversupply, which will remain in place until 2030. As a result, prices for LNG are expected to move below double digits and carbon prices face a bearish future.

This scenario further challenges the profitability of CCS projects.

CCS technology is accompanied by a high upfront cost of capital, and the process overall raises the cost of producing LNG by around 20 percent. For example, CO₂ transport and storage requires extensive pipeline networks, injection wells, and large-scale storage infrastructure. In Europe, the Institute for Energy Economics and Financial Analysis (IEEFA) estimates that achieving long-term CCS targets could cost €520 billion, with €140 billion needing to come from government support. Due to lower LNG prices, the relative cost of CCS becomes higher, making projects economically unattractive. As a result, coupled LNG-CSS projects are being carefully reviewed.

The industry’s are even higher. A recent analysis showed that the total expected costs for capturing, transportation, and storage on Europe’s flagship CCS projects for the heavy industry – Northern Lights, and Longship (both Norway-based) – totaled $253/Mt CO₂. With a current CO₂ price of roughly $75/Mt, these projects will rely heavily on governmental subsidies to operate.

In the US, the Inflation Reduction Act paved the way for more investment in CCS projects that benefitted from the 45Q tax credit, roughly valued at $60Mt. This was used especially by the gas exploration and export industry, which is experiencing a growing demand. Dropping gas prices makes LNG more interesting for developing countries where LNG is becoming an affordable substitute for coal. To contribute to a low-carbon economy, emphasis must be on the further decarbonization of the initial LNG value chain as this has the highest efficiency rates. Otherwise, the increase in gas production will offset the achievements of fuel-switching in developing countries.

With the recent policy changes and tariffs introduced by President Trump, the future and demand for CCS projects became uncertain. Lower climate targets may deter small and medium emitters from evaluating CCS. However, larger emitters and the oil and gas industry continue to push development forward, as the Trump administration has adopted a pro-CCS stance.

Cost and affordability are not the only challenges to the use of CCS. Across the globe, many CCS facilities are proving not to be as operationally efficient as anticipated. Australia’s Gorgon CCS project, which is one of the biggest in the world, has encountered operational failures, capturing much less CO₂ than initially envisioned. In the 2023–24 financial year, the project captured just 30 percent of the CO₂ it removed from its reservoir. In addition, due to technical challenges and underperformance, the cost per tonne of CO₂ captured increased from the previous year to $222. The technical challenges faced by Australia’s Gorgon CCS project are not unique; most large CCS projects globally have failed or underperformed materially.

Potential solutions: government interventions and blue ammonia

Despite these economic and operational hurdles to carbon capture, governments committed to achieving climate targets continue to implement emission regulations and incentives to encourage its use. Such policies are leading to increased carbon pricing, thereby enhancing the economic viability of CCS projects.

Major global shifts in trade flow due to new tariffs and geopolitical tensions bring uncertainties. Therefore, LNG industry players must explore alternative solutions to address the economic, political, and operational obstacles facing CCS, rather than solely relying on government incentives. One of these solutions is for LNG industry players to evaluate the use and processing of other fuels using existing LNG infrastructure. An example of this is the production and marketing of blue ammonia, which shares overlapping infrastructure with LNG.

Blue ammonia is a type of ammonia produced from natural gas where the carbon dioxide emitted during production is captured and stored using CCS technology. This makes it distinct from gray ammonia, where CO₂ emissions are released into the atmosphere. While the production of gray ammonia emits approximately 2.4 Mt of CO₂ per Mt of ammonia, blue ammonia shows a significant drop in emissions with the application of CCS.

Just like LNG, ammonia is a highly valuable energy source, and the International Energy Agency approximates that production of it will increase by nearly 40 percent by 2050. Wide adoption in the shipping industry could accelerate this growth even further. Among various alternatives, ammonia has emerged as a leading zero-carbon option for bunker fuels, despite concerns regarding its high toxicity. Lloyd’s Register estimates that blue and green ammonia will be the most significant marine fuel by 2050, comprising approximately 46 percent of the final marine fuel mix.

The global clean ammonia market has the capacity to reach 32 million tons per year by 2030, a 20–30 fold increase this decade. In fact, the rising demand for ammonia is prompting big fertilizer companies to consider transitioning to producing ammonia as a fuel. The US is leading this expansion in ammonia production and is projected to produce one-third of the world’s clean ammonia in 2030. The US has the natural resources, existing infrastructure, and proximity to prominent export markets in Europe and Asia to be a blue ammonia leader globally.

How LNG infrastructure can remain relevant

As blue ammonia production relies on carbon capture and storage, it offers LNG producers an opportunity to diversify their revenue streams. By integrating blue ammonia into their production, these producers can make CCS more economically viable and profitable in the long term.

To that extent, LNG terminals and storage facilities are being designed to accommodate blue ammonia production. Natural gas serves as a feedstock and an energy source in the Haber-Bosch process, which is the most common method to synthesize ammonia. As natural gas prices decline with increasing supply, the economics of producing blue ammonia become increasingly favorable. LNG facilities with access to low-cost natural gas and available CCS facilities are positioned well to capitalize on this trend.

An example of this is the Australian oil major, Woodside, which uses its expertise to leverage LNG and ammonia. Woodside acquired Louisiana LNG, a planned export terminal facility in Louisiana through the acquisition of Tellurian for $1.2 billion in October 2024, shortly after it previously acquired the nearby ammonia production project Beaumont from OCI. The Beaumont project is expected to commence in 2025, with CCS operational in 2026 when the project will also target ammonia customers in Europe and Asia using available export capacities.

Woodside’s Louisiana LNG project is set to become one of the major export hubs for LNG, with an anticipated annual production capacity of 27.6 million Mt. The facility is designed to reduce negative environmental impact, and the site includes carbon capture and storage capture facilities. However, recent news shows that implementing carbon capture is economically challenging for Woodside.

Together with Japanese IHI, these companies explore the reuse of existing LNG facilities for ammonia export and import, demonstrating how repurposing LNG infrastructure can enable broader adoption of clean energy technologies.

With carbon capture and blue ammonia production, LNG infrastructure can remain an ongoing pillar of the world’s energy infrastructure while enabling decarbonization. Projects like Louisiana LNG illustrate how LNG infrastructure can transition to cleaner energy streams, proving that the low-carbon transition can become a reality. As the US establishes itself as a global LNG leader, the addition of blue ammonia for energy and other industry usage will be essential to both energy security and sustainability. The companies that invest in these game-changing technologies investment today will be the ones building the energy markets of tomorrow.