Private equity’s role in US liquefied natural gas emissions

Briefing

Private equity’s role in US liquefied natural gas emissions

Authored by: Nichole Heil, Private Equity Stakeholder Project, Dustin Duong, Americans for Financial Reform, Alyssa Moore, Global Energy Monitor

Private equity has been one of the Liquefied Natural Gas (LNG) industry’s main financial drivers through significant investments in existing and proposed LNG export terminals.^[1] Private equity firms have invested in 85% of currently operating LNG terminals which export approximately 11 billion cubic feet per day (bcf/d) of natural gas to international buyers^[2], contributing over 28 million metric tons of CO2_e annually (mt CO2_e/yr) according to Private Equity Climate Risks (PECR) project research. PECR uses an emissions factor for the LNG liquefaction process based on an average of five emissions factors from a 2020 NRDC study on lifecycle emissions of LNG.^[3] This emissions factor only calculates process and leakage emissions from the terminal site including liquefaction and transport processes as well as associated estimated methane leakage.^[4]

Figure 1. Capacity Currently Operating Private Equity(PE)-backed LNG terminals vs Non-PE-backed (bcf/d)

The U.S. LNG export industry is growing rapidly, from zero export capacity in 2015 to becoming the largest exporter in the world in 2023.^[1] Private equity firms have invested in 73% of proposed terminals. If built, all the private equity-backed proposed LNG terminals would emit an additional 68 mt CO2_e/yr and export around 26 billion cubic feet per day^[2] (bcf/d) more fracked natural gas overseas. Together, the LNG terminals backed by private equity are on track to emit over 96 mt CO2_e/yr, the equivalent emissions of approximately 242 natural gas-fired power plants annually.^[3] This finding is aligned with research shows that in reality, LNG may be worse than coal.^[4]

Figure 2. PE-backed Proposed and Operating Terminals by Emissions (CO2e/yr)

There are six PE front-runners financing LNG emissions – PIMCO, Brookfield, KKR, Blackstone, York Capital Management, and Global Infrastructure Partners have helped finance over 10 mt CO2_e/yr each, see Figure 3. These firms account for over 75% of private equity’s financed emissions.

Figure 3. LNG Emissions by Private Equity Backer (CO2e/yr)

LNG infrastructure development promotes fracked gas without lifecycle emissions considerations

Liquified natural gas (LNG) is natural gas, composed mostly of methane, that is converted to a liquid state to facilitate more efficient storage and transit from gas-producing regions to consumer markets across the world. Methane is eighty times more potent an atmospheric warmer than CO₂ measured over a 20-year time period,^[6] and already accounts for a quarter of current warming temperatures.^[7] In the first half of 2023, an average of 11.6 billion cubic feet per day^[8] of LNG – more than any other country – flowed out of the United States as exports, predominantly to the European Union, UK^[9] and Asia.^[10]

As the sector continues to expand, industry groups and companies have claimed LNG is a clean energy transition resource to bridge the gap between carbon-intensive coal and renewables. USLNG or LNG Allies, a trade association with membership spanning LNG producers, exporters and service companies, say the energy source is a means to transition toward a “decarbonized” global energy mix.^[11]

Research, however, shows that in reality, LNG may be worse than coal. These industry talking points routinely focus on a narrow segment of the LNG value chain, comparing emissions from power plants burning gas versus coal. The burning of gas at a power plant, accounts for approximately 40-58 percent of total LNG emissions, according to a 2020 NRDC analysis of studies by government agencies, university scientists, energy consultants and others.^[12] There are additional emissions to consider throughout LNG’s value chain including emissions related to the extraction and production of natural gas at the well, liquefaction, transportation by cargo ship and regasification.^[13] This lifecycle analysis, looking at methane emissions from extraction to transportation to burning in power plants, potentially doubles the expected methane emissions from LNG when compared to the narrower industry analyses of just power plant emissions.^[14]

In addition, in January of 2024, the White House paused US Department of Energy (DOE) export authorizations for LNG export projects.^[15] Proposed LNG projects must receive prior approval from the DOE to export US gas to countries without a Free Trade Agreement (FTA) to proceed with construction. The White House asked the DOE to re-evaluate its economic and environmental analyses to make decisions regarding LNG export authorizations to more adequately consider the impacts that LNG infrastructure has on domestic energy costs, and the impact of greenhouse gas emissions, noting that the climate crisis is “existential threat of our time”.^[16] This announcement is delaying^[17] the progress of numerous proposed LNG projects, including multiple private equity-backed projects.^[18] The PE-backed projects that do not have existing DOE export authorizations and have been paused would account for over approximately 36 mt CO2_e of yearly emissions.

Figure 4. Comparison of PE-backed LNG terminals subject to DOE export authorization pause

CASE STUDY

Global Infrastructure Partners finances Rio Grande LNG after European investors exit

Global Infrastructure Partners (GIP) is a private equity firm that manages around $100 billion in infrastructure assets in the energy, transportation, digital, water and waste sectors.^[19] GIP is in the process of being acquired by investment giant BlackRock in a $12.5 billion deal.^[20] The firm is led by Chairman and Chief Executive Officer Adebayo Ogunlesi who is an advisor in multiple powerful White House councils and forums including the President’s National Infrastructure Advisory Council and the Partnership for Global Infrastructure and Investment (PGI) and Indo-Pacific Economic Framework for Prosperity ( IPEF) Investment Forum. In addition, he sits on the board of Freeport LNG, which Global Infrastructure Partners previously invested in.^[21]

GIP invested in the $18 billion Rio Grande LNG project in July 2023, becoming a majority investor in Phase I and owning at least 46% of Rio Grande LNG. The Rio Grande LNG project plans to export 3.73 billion cubic feet per day (bcf/d) of methane,^[22] emitting over 11 mt CO2_e/yr in the Rio Grande Valley in South Texas. This carbon emissions footprint is the equivalent of around three coal-fired power plants and is located near the city of Brownsville, Texas.^[23]

GIP’s investment in Rio Grande LNG provided the financing commitment needed for the project to reach an important milestone, the Final Investment Decision (FID), which allowed the project to move into the engineering and construction phase.^[24] The project’s operator, NextDecade Corp., has been trying to get the project to FID status since 2017 but the project has faced hurdles including investor withdrawals due to transition-related risks and environmental litigation.

GIP’s investment came about after a series of setbacks for Rio Grande LNG. The French utility giant, Engie, succumbed to pressure from the French government to halt contract negotiations with NextDecade in 2020. The reputational risk of importing fracked gas, a practice prohibited in France, was worrisome for the French government, Engie’s largest shareholder, according to Le Monde.^[25] The failed $6.9 billion deal left Rio Grande LNG looking for new buyers of 148.3 bcf of gas annually.^[26] A few months later, in January 2021, the Port of Cork in southern Ireland decided not to renew an MOU with NextDecade to import fracked gas from Rio Grande LNG as it did not make sense to import fracked gas as the country moves towards carbon neutrality.^[27]

Simultaneously, in 2021 the U.S. Court of Appeals ruled that the Federal Energy Regulatory  Commission (FERC) “failed to conduct an adequate analysis of the climate and environmental justice impacts of two fracked gas export terminals proposed for the lower Rio Grande Valley in Texas, violating both the National Environmental Policy Act (NEPA) and the Natural Gas Act”, according to Sierra Club.^[28] The project is being constructed on the sacred land of the Carrizo Comecrudo Tribe of Texas.^[29]  FERC approved the project in 2023 and has since faced a lawsuit brought by the Sierra Club, the Carrizo Comecrudo Tribe of Texas, and the City of Port Isabel,^[30] claiming FERC allowed dangerous gas plants in the Rio Grande Valley that have little public or environmental benefit.^[31]

GIP invested in the Rio Grande LNG project just three months after French bank Société Générale pulled its financing and its financial advisory role from the project after a five-year-long campaign by frontline community groups and Tribes in the United States and France.^[32] Although Société Générale did not provide a direct reason for their withdrawal, a spokesperson highlighted the bank’s energy commitments and “to only participate in financing LNG projects aligned with the bank’s environmental and social governance and human rights goals,” according to Reuters.

Private equity’s financed LNG emissions threaten climate goals

Private equity firms are a major financer of CO₂ emissions via the industry’s investments in the LNG export industry. Current investments contribute over 28 mt CO2_e/yr from seven LNG terminals. The industry is growing rapidly with private equity-backed terminals potentially emitting over 96 mt CO2_e/yr, the equivalent emissions of approximately 242 natural gas-fired power plants annually. PIMCO, Brookfield, KKR, Blackstone, and Global Infrastructure Partners are leading the way in financing emissions.

Private equity firms are a major financer of CO₂ emissions via the industry’s investments in the LNG export industry.

It is growingly understood that LNG is methane gas, a more potent greenhouse gas than carbon dioxide. Studies have shown that LNG is not cleaner than coal when measured over its lifecycle. This understanding has made its way to the White House when in January of 2024, the administration paused new LNG export permits, citing potential economic and environmental impacts.

Global Infrastructure Partner’s investment in the proposed Rio Grande LNG terminal is an example of how private equity firms buy up polluting assets as more publicly accountable investors exit them in alignment with their climate goals. Institutional investors who have exposure to proposed LNG projects through their private markets investments should consider the transitional risk posed by these investments.

“Private equity’s role in US liquefied natural gas emissions” is part of the Private Equity Climate Risks project, which studies the role of the private equity industry in the climate crisis. This [deliverable] includes analysis of a dataset of private equity ownership of fossil fuel companies and assets developed jointly by researchers from Americans for Financial Reform Education Fund, Global Energy Monitor, and Private Equity Stakeholder Project.

Appendix: Methodology

Emissions calculations was based on an average of five emissions factors of the LNG liquefaction process from the 2020 NRDC study on lifecycle emissions of LNG, “Sailing to Nowhere: Liquefied Natural Gas is Not an Effective Climate Strategy”. Other emissions considerations that can be associated with LNG but were not included in this analysis include upstream extraction, pipeline transport, tanker transport, regasification, and ultimate end uses.

Individual LNG terminal export capacity were derived from the Sierra Club US LNG Export Tracker.

LNG terminals were divided into two phases of development for comparison, “proposed” and “operational”. Proposed terminals include LNG terminals at all stages of development and construction including those with and without FERC and DOE approvals, and terminals currently under construction. Operational terminals are terminals currently liquifying and exporting gas. Only LNG terminals located in the United States were considered.