Oil major Shell has signed a five-year contract with PetroChina to supply the Chinese company with carbon-neutral LNG cargos, Shell said on July 12.

Many companies, particularly those in the fossil fuel industry are using tools such as carbon offsets to compensate for emissions they are unable to cut in their operations.

For each cargo delivered under the agreement the two companies will "cooperate to offset life-cycle carbon dioxide equivalent (CO2e) emissions generated across the LNG value chain, using high-quality carbon credits from nature-based projects," Shell said.

Nature-based offset projects such as reforestation, protect, transform or restore land and enable nature to add oxygen and absorb carbon dioxide emissions.

The announcement came as PetroChina received its first carbon-neutral LNG cargo at Dalian port of China, Shell said.

"This first term deal is an important step in scaling up the market for carbon-neutral LNG and we are very grateful to our valued partner PetroChina for their collaboration in enabling this industry milestone," Steve Hill, executive vice president of Shell Energy said in a press release.

Shell said the offsets would come from its own portfolio of nature-based emission reduction projects.

Many environmental groups are skeptical about the use of carbon offsets and warn the ability to pay for emission reductions elsewhere could prolong the use of fossil fuels widely blamed for climate change.

The 2015 Paris Agreement on climate change aims to cap the rise in temperatures to as close as possible to 1.5 degrees Celsius above pre-industrial times which scientists say will require transforming the world into a net zero economy by 2050.