The European Union’s latest Methane Regulation is causing ripples in the global energy landscape, particularly within the U.S. liquefied natural gas (LNG) sector. This regulation is designed to tackle methane emissions from imported fuels, representing a significant stride towards achieving net zero objectives. Methane, the second most impactful contributor to global warming after carbon dioxide, is a potent greenhouse gas. The regulation serves as a clear signal to suppliers, notably those in the U.S., to enhance their monitoring and management of methane emissions.
The EU Methane Regulation establishes a long-term framework with the primary compliance phase commencing in 2027. However, reporting obligations will kick off earlier, in May 2025, to establish an emissions baseline. These initial reports will lay the groundwork for future compliance endeavors. Cheniere Energy Inc., a leading U.S. LNG exporter, views this regulation as a wake-up call for the industry to sharpen its focus on emissions. Robert Fee, Cheniere’s vice president of international affairs and climate, emphasized the company’s ongoing efforts in methane measurement and reporting spanning over six years. This proactive stance positions Cheniere favorably to navigate the new regulations compared to some industry counterparts. Fee stressed the industry’s need to take action to measure and mitigate methane emissions towards near-zero levels in a climate-focused world.
Rather than imposing immediate stringent penalties, the regulation allows companies time to adjust. They are expected to begin by providing information on existing supply agreements and gradually integrate these requirements into new contracts. This phased approach has allayed concerns of market disruptions. Fee highlighted that despite the new rules, the EU still considers U.S. LNG a crucial energy source, particularly following the cessation of Russian pipeline gas three years ago. In terms of natural gas demand projections, S&P Global Commodity Insights estimates indicate growth to over 70% by 2050 under a base scenario, but this could vary under a green energy transition scenario.
The new regulation sends a clear message, yet uncertainties persist regarding its precise implementation, especially concerning its application to LNG importers. This uncertainty has introduced complexity into supply contract negotiations. The primary challenge for U.S. exporters lies in the requirement to gather methane emissions data “at the level of the producer,” presenting a hurdle as many companies within the U.S. gas supply chain lack direct access to emissions data from wellheads. Ben Cahill, a director of energy markets at the University of Texas, noted the struggle of U.S. gas producers in collecting this information due to the intricate and extensive U.S. gas pipeline network.
The EU’s new regulation aligns with the Global Methane Pledge, a commitment made by the U.S. and over 100 other countries in 2021 to reduce global methane emissions by 30% from 2020 levels by 2030. European authorities strive to position the EU as a global leader in methane mitigation by advocating for stringent mitigation measures. Starting in 2027, LNG importers will need to demonstrate that the supplies they bring into the EU meet methane emissions standards equivalent to those in the EU. By 2030, the region will have a methane emissions intensity standard that all imported fuels must adhere to. The regulation will also align with the Oil and Gas Methane Partnership 2.0 (OGMP 2.0), a reporting framework developed by the United Nations Environment Program. Cheniere Energy joined the OGMP 2.0 initiative in 2022, with Fee endorsing it as the industry’s “best measurement framework.”
Though the EU Methane Regulation outlines a clear path, several details remain unresolved. For instance, importers must commence reporting to a “competent authority” in each member state by May 2025. Yet, these authorities have not been established, and penalties for non-compliance remain ambiguous. Another uncertainty lies in how the EU will handle regulatory exemptions for countries with methane regulations deemed equivalent to those in the EU. U.S. government officials may need to collaborate with their EU counterparts to ensure recognition of U.S. methane fees and the Environmental Protection Agency’s emissions regulations. These U.S. regulations rank among the strictest globally; however, their alignment with the EU’s new standards remains uncertain, leading to a temporary pause in long-term supply contract negotiations.
Despite the challenges posed by the EU’s methane regulations, the global demand for LNG continues to rise. U.S. LNG export capacity, projected to surpass 13 billion cubic feet per day (Bcf/d) by the end of 2024, is set to double by the decade’s close as new export projects come online. For U.S. LNG exporters, the EU’s stance on methane emissions presents both a challenge and an opportunity. While compliance hurdles exist, the phased approach allows for adaptation. Furthermore, the EU’s continued reliance on U.S. LNG supplies, coupled with global efforts to curb methane emissions, underscores the significance of U.S. engagement in these regulatory frameworks.
