Could EU methane regulations threaten energy security?

Hello. Welcome to Energy Source. Sent from Washington. Energy industry executives are preparing for a major policy overhaul under the incoming administration of Donald Trump.

My FT colleague Alexandra White says one of the president-elect’s first big changes will be to lift the Biden administration’s moratorium on approvals for new liquefied natural gas terminals.

S&P Global predicts that LNG export capacity could double over the next five years, adding $1.3 trillion to the U.S. economy.

Another piece of news we have been following is that the Biden administration has imposed broad sanctions on Russia’s energy sector and US-based companies that continue to operate in the country.

Pressure is mounting on SLB, the world’s largest oilfield services company, to pull out of Russia, with lawmakers and legal experts warning it should do so now to avoid violating sanctions.

Our main topic today focuses on Europe’s methane regulations and whether they will hinder the continent’s LNG import capacity. — Jamie

EU methane regulation: climate ambition vs. energy security

When industry leaders from the liquefied natural gas sector gathered in Berlin for their annual conference in early December, everyone was talking about the EU’s methane regulations and what they would mean for the bloc’s LNG import capacity. The question was whether it would have an impact.

The regulations, which came into force in August last year, cover all forms of fossil fuels and require importers to report detailed methane-related data on the fuels they bring into the region. Annual reporting begins in May, and going forward, imported fossil fuels will have to fall below a certain methane intensity threshold. Failure to comply may result in fines of up to 20% of annual turnover.

The LNG industry recognizes that methane is a major contributor to climate change and is an issue that the LNG industry needs to address. But they argue that the regulations are currently vague and have some requirements that are extremely difficult to implement, which could prevent European companies from importing the fuel.

“Methane regulations are generally a good thing,” Ralph Dickgraeber, global head of LNG and biomass at France’s Angie, said during a panel discussion at the World LNG Summit in Berlin. But “we don’t know exactly how to interpret the rules that are there. . . . How to comply with this is very difficult at this stage.”

A major problem lies in the fact that methane data needs to be collected at the producer level. In LNG, this refers to the entity that actually extracts natural gas from underground before liquefying it and transporting it.

The problem is that LNG facilities rarely get their feed gas from a single wellhead. The United States, the single largest supplier of cryogenic fuel to the EU, receives cryogenic fuel from mixed gas grids or natural gas aggregators.

Importers can’t really get the producer-level data required by the EU’s methane regulation because they can’t tag each molecule of gas or trace it to the wellhead. “We can’t identify the producer,” said legal partner Alex Kerr. Baker Botts Company.

“If it is not possible to comply with the regulations, importers will have difficulty entering into relevant LNG sales agreements, especially given the potential for significant fines and potential reputational damage.” he said.

Kerr added that while both parties seek regulatory clarity, negotiations in some cases have been delayed or paused.

Georges Taibosch, chief executive officer of MiQ, a nonprofit organization that provides methane emissions certification standards, said one potential solution is a “certificate of origin,” known as a REC or GO in the renewable energy sector and elsewhere. “It may be possible to develop a system.

“In that world, even if a wind turbine injected 10MW/h of electrons into a mixed system and a data center lifted it 5,000 km away to another location, as long as it was balanced within the same mixed system, , it’s completely acceptable. Areas, checks, verifications and everything else is done and we accept it,” he said.

Mr Kerr said such a solution was “realistic”, but a strict reading of the law would require tracing the molecules to the wellhead.

“The current regulatory text does not provide for a mass balance or book billing system,” he said.

Revising the regulations to allow for such a solution would be a “sensible step” to prevent them “inadvertently creating security of supply problems for the EU”, he said. added.

Taibosch said the law “doesn’t specifically exclude (the solution), it doesn’t explicitly exclude it.”

He said the city of Brussels was saying “rather than ‘explaining in detail what needs to be done’, it is up to industry to come up with proposals”.

Methane regulations are not the only new environmental regulations introduced by the EU that are causing concern in the LNG industry. Late last year, Qatar threatened to cut off fuel supplies to the bloc if member states strictly enforce new laws that penalize companies that do not meet set standards on carbon emissions, human rights and labor rights. did.

Maria Rita Gali, CEO of Desfa, the Greek natural gas transmission system operator, told the panel that “it is good to accelerate efforts” towards environmental standards. “But at the same time, Europe needs LNG and we need to be very careful about creating obstacles in terms of LNG sources. Otherwise we will run into shortages again in a few years.” (Shotaro Tani)

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Energy Source is written and edited by Jamie Smith, Miles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Please contact us at energy.source@ft.com. Follow @FTEnergy on X. Click here for past editions of the newsletter.