Stricter EU methane rules may make LNG trading more difficult for Europe

14 January 2025, 15:03

The Methane Emissions Regulation aims to significantly reduce methane emissions in the energy sector, including across supply chains. The new legislation also introduces obligations for LNG importers, but the specific methodology for meeting them has yet to be established. Experts say this uncertainty surrounding the new regulations will slow negotiations on new LNG and gas supply contracts, reports Montel News.

The Methane Emissions Regulation, which entered into force on 4 August 2024 as part of the Fit for 55 package, introduces obligations to measure, report and verify emissions in the energy sector. The regulation has a major impact on the global LNG supply chain and extends its reach beyond the EU's borders.

The carbon footprint of liquefied natural gas (LNG) is generated not only when it is consumed, but especially during extraction, transport, liquefaction and regasification. These activities carry a risk of methane leakage. Operators must therefore measure emissions at the source and submit reports verified by independent auditors.

LNG tanker Alto Acrux. Source: Ken Hodge / Creative Commons / CC BY 2.0

Liquefied natural gas is considered crucial to ensuring Europe's energy security in the coming years, as the region gradually shifts to cleaner energy sources and reduces its dependence on Russian gas in response to the war in Ukraine.

However, in addition to imposing more stringent requirements on importers, the new legislation brings considerable uncertainty that could complicate LNG supplies to Europe and drive up their costs.

New rules and uncertainties

The Methane Regulation requires LNG importers to monitor, report and verify (MRV) methane emissions. From 5 May 2025, they must provide information on emissions annually, while from 2027, new or renewed contracts will have to comply with MRV rules. For contracts concluded before 4 August 2024, importers must demonstrate reasonable efforts to ensure equivalence.

From 5 August 2028, methane intensity (the amount of methane produced per unit of product) must be reported annually for new contracts, and from 5 August 2030, imported gas must meet the maximum methane intensity values set by the Commission. Annual emissions reports will be assessed by independent verifiers. The methodology for calculating methane intensity is due to be established by 5 August 2027, with maximum values to follow by 5 August 2029. These rules will have to apply to both new and existing contracts.

“New clauses will need to be included in new contracts, and existing contracts will need to be amended to some extent,” said Jonathan Stern, a research fellow at the Oxford Institute for Energy Studies.

Suppliers will have to adapt to the new regulations or risk losing market share. Some major players, such as US LNG exporter Cheniere, have already started attaching “labels” with emissions estimates to costs.

A key problem, however, is that the rules have not yet been clearly defined. The methodology for calculating methane intensity at the producer level is part of broader legislation that the European Commission plans to discuss from mid-February. This also includes an implementing act setting out the conditions exporters must meet for their standards to comply with EU rules.

“In practice, many contracts concluded since 4 August 2024 will be subject to requirements that have not yet been fully established in delegated legislation.This could create uncertainty about what will be required in the long term,” Ben Smith, a partner at law firm Norton Rose Fulbright, told Montel News.
Concerns over LNG imports into the EU

The new regulations have raised concerns about LNG imports, particularly from the US, where projects source gas from trading markets. In December, the US Department of Energy and the Environmental Protection Agency called on the European Commission to introduce an equivalent system.

Aligning US and EU methane standards would support growing LNG trade between the regions and at the same time entrench the Biden administration's strict rules, even if they were repealed by the incoming administration of President-elect Donald Trump, Reuters reports.

There are further uncertainties. It is unclear how extensions or amendments to older contracts will be treated when they are subject to a requirement to make “reasonable efforts” to achieve equivalence. What this term entails has not yet been specified.

Producers such as Algeria and Nigeria would also have to invest in emissions monitoring infrastructure that did not exist when their projects were launched, Smith points out.

It remains unclear what certificate or instrument will be accepted as proof of emissions, and at what level reporting will be required: for individual cargoes, production sites or an importer's entire portfolio. The accuracy of reports is also complicated by gas blends from different sources.

Suppliers unable to comply with the rules could stop trading with the EU, potentially affecting LNG supplies, although the scale of this impact remains unclear.

“Those able to demonstrate that their LNG and gas are compliant will be in a much better position than those who either refuse to do so or cannot prove that they will not make life difficult for importers,” Stern said.

The methane emissions regulations therefore pose significant challenges for LNG suppliers, who will have to adapt their operations to the new rules. However, the future conditions for LNG trade in Europe remain unclear and could affect both supply security and price competitiveness.

Translation disclaimer

This article is a machine translation of the Czech original and has not yet been fully reviewed. In case of any doubt, please refer to the Czech version.

Sdílejte článek prostřednictvím:

Topics:Gas industryZemní plynLNGemise metanuListEvropská legislativa