The EU's First Methane Emission Regulation will Dynamize the Oil and Gas Industry

Author: Muriel Meng Editor: 陈迪 Nov 17, 2023 06:14 PM (GMT+8)

The EU's first methane emission limitation regulation has recently entered the final legislative phase, with dramatic implications for the gas and oil industry as well as the international trade.

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The EU's first methane emission limitation regulation has recently entered the final legislative phase. Among other things, the issue of setting import standards for methane emission intensity is finally on the agenda, a move aimed at minimizing the methane footprint of imported energy sources. The European Commission has proposed to measure, regulate and limit the methane emission intensity of imported energy and fuels from 2030, with the aim of forcing major oil and gas suppliers and fossil fuel producers to further reduce methane emissions and leakage.

Methane, the main component of natural gas, can be utilized as an efficient fuel for heating buildings, but is also a potent greenhouse gas second only to carbon dioxide. Under the proposal, the EU would require foreign gas suppliers to control methane emissions from oil and gas infrastructure and penalize non-compliance based on security of supply considerations. The proposal expands the scope of application, which initially focused on European oil and gas producers, to include imported gas, which accounts for 80% of the EU's gas supply.

According to the proposal, the EU would first establish a methane transparency database or methane monitoring tool by 2026 to ensure that methane emissions from imported energy sources are publicly transparent and to provide a basis for how energy-exporting countries measure and control methane emissions. Secondly, the EU would be obliged to track methane emissions from imported energy sources and seek to finalize a methane intensity calculation methodology by 2028. 

At that time, energy-exporting countries will be obliged to prove that they have adopted emission limitation measures equivalent to those of the EU and will be penalized in case of non-compliance, with the exact methodology to be further discussed. The European Commission has pledged to address methane emissions from imported energy sources by phasing in regulations to achieve "a certain level of methane intensity performance" for imported energy and fuels by 2030. Production-related methane emissions vary depending on factors such as available technology, maintenance, leak detection and repair, and the ratio of these emissions to total oil and gas production is referred to as the methane intensity, with higher methane emissions per unit of oil and gas leading to higher methane intensity.

Currently, EU member states are engaged in discussions and negotiations around the proposal to decide whether, how or how not to restrict or fine relevant imports. In fact, the EU has been divided on whether to regulate methane emissions from imported products, but has been quite active in dealing with its own methane emissions. 

In November 2020, the EU published its first outline policy on limiting methane emissions, the EU Methane Strategy, which prioritizes energy, agriculture, and waste treatment for methane emissions reduction, with a particular focus on methane emissions and leakage from the energy sector. In particular, it focuses on methane emissions and leakage in the energy sector. 

In May of this year, the European Parliament voted to adopt a regulation on reducing methane emissions from the energy sector, specifying a 58% reduction in methane emissions from the EU's energy sector by 2030 compared to 2020, with direct methane emissions from the oil, gas, coal, and biomethane sectors all being brought under control.

As the world's largest oil and gas importing region, the EU is making efforts to implement methane emissions regulations to minimize methane emissions from its own oil and gas production. However, given the EU's reliance on imports for 90% of its natural gas and 97% of its oil, the implementation of methane emission limits for imported energy sources will undoubtedly send shockwaves through the global oil and gas industry. 

Over the past two years, there has been a major shift in the sources of natural gas supply to Europe, with supplies from Russia having been cut off and the US, Algeria, Norway and others beginning to emerge as the EU's main suppliers of natural gas. Given the low methane emission intensity of fossil fuel production in Norway, the EU's move to implement methane emission limits on imported energy will mainly affect countries with high methane emissions, such as the United States. 

The Clean Air Task Force, a U.S. environmental organization, has pointed out that the EU's methane emission restrictions on imported energy will have an impact on its 20 "trade friends", with the U.S. taking the brunt of the impact. According to the latest research by Opinion Research, 90% of European respondents called for emissions rules on imports from oil and gas exporting countries, with 67% strongly in favor of such measures, despite the fact that they could increase household energy costs. Euronews compiled data showing that EU natural gas imports account for around 51% or more of global natural gas production, with the vast majority of the methane emissions generated occurring outside the EU, so limiting methane emissions from imported natural gas could have a significant impact on global methane emissions.

The Clean Air Task Force indicated that if the EU standard for methane emissions from energy imports is based on the assumption of "1,700 tons of methane emissions per 1 million tons of oil equivalent oil and gas production", from the perspective of energy security, it can help the EU to reduce the loss of 90 billion cubic meters of natural gas in the import chain, which is almost equivalent to the annual consumption of Germany, the largest consumer of natural gas in the EU. This is almost equivalent to the annual consumption of Germany, the largest gas consumer in the EU. From the perspective of economic benefits, the saved gas will save 54 billion euros for exporting countries and 1 billion euros for oil and gas producing countries within the EU. Based on these assumptions, once the EU formally imposes limits on the methane emission intensity of imported energy sources, it is expected to reduce global methane emissions from the oil and gas sector by more than 30%. Currently, methane emissions from the oil and gas sector account for 7% of global anthropogenic methane emissions.

"Considering the climate crisis and energy security, the EU cannot afford to ignore the setting and measurement of this standard," Alessia Virone, Director of EU Government Affairs at the Clean Air Task Force, expressed. Nevertheless, Jonathan Banks, Global Director of Methane Pollution Prevention at the Clean Air Task Force, argues that regulations limiting methane emissions will bring significant emission reduction benefits while not easy to implement. One previous study illustrated that methane causes 80 times more greenhouse effect than carbon dioxide over a 20-year period. Rapid reductions in methane emissions will be needed by 2030 if the world is to keep global temperature increases to less than 1.5 degrees Celsius and avoid the most damaging effects.